Supreme Court to Consider Underwater Lien Cases

The U.S. Supreme Court agreed to hear a pair of appeals filed by Bank of America Corporation that relate to how lenders can deal with homeowners that file bankruptcy.

The two cases—Bank of America v. Caulkett, 13-1421 and Bank of America v. Toledo-Cardona, 14-163—involve Florida homeowners whose properties fell below the value of their first mortgages and successfully sought to pursue bankruptcy liquidation in order to erase all of the remaining liability on their second mortgages, a practice commonly known as “stripping off.”

The Atlanta-based U.S. Court of Appeals for the 11th Circuit—which covers Alabama, Florida and Georgia—ruled against Bank of America in May on both cases. In accepting Bank of America’s appeals, the Supreme Court agreed to consolidate the two cases and to allow an amicus brief to be filed by Loan Syndications and Trading Association, a trade group. The court has granted one hour for oral arguments at a date that has yet to be scheduled.

“This case presents a critical issue of bankruptcy law affecting a large number of Chapter 7 cases,” said the Bank of America legal team in a court filing.