Can You Eliminate An Underwater 2nd Mortgage In A Chapter 7?
November 3, 2022
Sadly the Supreme Court of the United States in a unanimous decision held that a Chapter 7 Debtor cannot wipe out an underwater second mortgage. The case is Bank of America, N.A. v Caulkett, 575 U.S. _ (2015)(June 1, 2015)
An example of an underwater 2nd mortgage would be as follows:
(1) Value of property: $200,000
(2) 1st mortgage balance: $220,000
(3) 2nd mortgage balance: $50,000
This case did not change anything in Illinois as only one court in the Northwest part of the US had allowed underwater junior mortgages to be eliminated in a Chapter 7.
Consumer and Homeowner advocates such as us (Robert J. Adams & Associates) had hoped for a different decision.
What is the benefit to the junior mortgagee? Underwater junior mortgages can neither foreclosure (as it would be subject to the senior liens) nor can they sue on the note as the debt was discharged. Their aim is either to squeeze some money out of the homeowners or to just wait and hope that eventually the property will increase in value.
WHAT IS THE BEST SOLUTION FOR A HOMEOWNER WHEN THE 2ND MORTGAGE IS UNDERWATER? CHAPTER 13!
Our law firm as well many experienced Consumer lawyers has eliminated 2nd mortgages through Chapter 13. We helped so many and it has literally changed their lives for the better.