The U.S. Supreme Court ruled that underwater homeowners can’t get rid of a second mortgage by using their Chapter 7 bankruptcy protection. The final ruling said that filing does not give debtors the ability to dispose of the second mortgage when the home is not worth the value of the first mortgage.
According to The Wall Street Journal, the case that led to this June 1 ruling was between two Florida homeowners who tried to void their second mortgage with Bank of America. The homeowners argued that since the first mortgage is paid, the second mortgage is worthless — all nine justices disagreed.
In the written opinion, the Supreme Court Justice Clarence Thomas argued the “constantly shifting” value of real estate in a market.
He continued to note in the nine-page decision that “Sometimes a dollar’s difference will have a significant impact on bankruptcy proceedings.”
Lending groups, like the Trading Association and American Bankers Association, backed Bank of America, while homeowners argued against these big lenders and banks saying that the bankruptcy was a direct result of the housing crisis.
This ruling cleared up further rules for judges on bankruptcy due to a not complete Supreme Court ruling in 1992. That ruling determined that bankrupt homeowners don’t have the power to cancel the lien on an underwater hoe’s first mortgage, but never specific about if there was a second mortgage.
A CoreLogic report, which was also cited in the case by Bank of America, said 2.1 million underwater homeowners had a second mortgage at the end of the second quarter in 2014.
