In a case that could potentially affect Washington consumers as well as homeowners across the nation, recently the Supreme Court agreed to consider a pair of cases involving Florida homeowners who were allowed to nullify second mortgages in a bankruptcy discharge.
The 11th U.S. Circuit Court of Appeals affirmed that in both cases the homeowners were permitted to “strip off” their second loans because the market value of the homes had sunk below what was owed on the primary mortgage.
Bank of America contends that the appeals court rulings are in conflict with Supreme Court precedents. They assert that hundreds or even thousands of homeowners in Florida, Alabama and Georgia — the states ruled by the 11th Circuit — have attempted to void their underwater secondary mortgages in the two years since the court endorsed this practice.
Bank of America states that their loans to the debtors were secured by property liens and that the underwater mortgages have no effect on these liens. Their attorney is seeking a clarification of the rules by the high court to “restore uniformity to the administration of chapter 7 cases across the country.”
The homeowners’ attorneys counter that in the other cases decided by the appeals courts, none were about mortgages that would be completely worthless in a foreclosure.
Bankruptcy attorneys across the country likely are paying close attention to this development with the Supreme Court, as their decision can have far-reaching effects for their clients.
If you are in a similar situation and pondering whether or not to file for bankruptcy, consulting with a Washington bankruptcy attorney can provide you with information you need to make your decision.
Source: Star Tribune, “Supreme Court to consider whether second mortgage can be voided in bankruptcy” Nov. 17, 2014