Homeowners Can’t Void Second Mortgages Through Bankruptcy
The U.S. Supreme Court recently ruled in favor of Bank of America when it unanimously decided that “homeowners who declare bankruptcy can’t void a second mortgage, even if the home isn’t worth what they owe on the first mortgage,” according to an article in the Chicago Tribune . In short, it is a big win for the banks. Underwater Primary Mortgages and Personal Bankruptcy How did the case come about? It involved homeowners in Florida who were underwater on their first mortgages and wanted to use consumer bankruptcy to “strip off” a second mortgage. In general, the homeowners argued that, since their second mortgages would only be paid after their primary mortgages—and those primary mortgages could be canceled in a Chapter 7 bankruptcy proceeding—the second mortgages are “essentially worthless,” according to a report in the Wall Street Journal . The lower courts that heard the cases found in favor of the homeowners, indicating that they could “nullify the second loans”...