On November 17, 2014, the United States Supreme Court granted a petition for writ of certiorari in two cases: Bank of America, N.A. v. Caulkett (In re Caulkett), 566 Fed. Appx. 879, 2014 U.S. App. LEXIS 9407 (11th Cir. Fla., 2014) and Bank of Am., NA v. Toledo-Cardona (In re Toledo-Cardona), 556 Fed. Appx. 911, 2014 U.S. App. LEXIS 9035 (11th Cir. Fla., 2014). In both cases, the United States Court of Appeals for the Eleventh Circuit ruled that a Chapter 7 debtor could strip off a second mortgage when the home’s value fell below the amount owed on the first mortgage.
What that ruling means is, if you file bankruptcy and the second mortgage on your home is completely “underwater,” like many second mortgages after the recent housing bust, then you could keep your house subject to the first mortgage and strip off the second mortgage completely leaving the debt secured by that second mortgage to be discharged in the bankruptcy. In the Toledo-Cardona case, the debtor kept his home and stripped off the second mortgage that had a value of over $100,000.00. That is why Bank of America and other lenders are not pleased with the decision.