In a few days the Supreme Court will make a determination of whether homeowners who have filed bankruptcy are eligible to nullify a second mortgage assuming that the property’s market value is lower than the amount owned on the first mortgage. Bank of America appealed twice to the Supreme Court proclaiming that the second loans should not be “stripped off” when a homeowner files bankruptcy even though the primary loan is well underwater.
The two cases that Bank of America is appealing are from homeowners in Florida which have voided the second loans provided by them. The bank states that the rulings provided by the 11th Circuit Court of Appeals in which it certifies its validity is in discord with the Supreme Court’s paradigm and all other appeal courts that have contemplated it. Alabama, Florida and Georgia are the states which are bound by the 11th Circuit that have nullified hundreds, maybe even thousands, of underwater second mortgages since the court approved it 24 months ago.
According to the data compiled by RealtyTrac, a real estate research company, 28 percent of Florida homes that are mortgaged are worth much less than market value. Florida is the second state with the highest number of underwater mortgages. Nevada is number one. The loans given to the debtors by Bank of America were secured by a lien on the property in both cases. The banks attorneys contend that the lien secured to the second loan should not be affected by the fact that the primary mortgage is underwater. However, the homeowner’s attorneys argue that in a foreclosure, the second mortgage would be completely worthless.
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