Business Reorganization and Bankruptcy Subpractice Group
214-210-2929
facebook
linkedin
rss
twitter
youtube
google_plus
email
  • Home
    • Bankruptcy Group Home
    • Firm Home (Other Practice Groups)
  • Attorneys
  • Offices
    • Dallas
    • New York
  • Services
  • Industries
  • Bankruptcy News / Blog

Supreme Court eliminates voiding of underwater second mortgages | June 1, 2015

June 02, 2015
by Richard G. Grant
Supreme Court
0 Comment

In Bank of America, N.A. v. Caulkett, Case No. 13-1421 (June 1, 2015), the United States Supreme Court ruled that a second mortgage on an an “underwater” home — one with a mortgage balance exceeding its current value — cannot be voided during bankruptcy.

Summary of Opinion:

Respondent debtors each filed for Chapter 7 bankruptcy, and each owned a house encumbered with a senior mortgage lien and a junior mortgage lien, the latter held by petitioner bank. Because the amount owed on each senior mortgage is greater than each house’s current market value, the bank would receive nothing if the properties were sold today. The junior mortgage liens were thus wholly underwater. The debtors sought to void their junior mortgage liens under §506 of the Bankruptcy Code, which provides, “To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.” 11 U. S. C. §506(d). In each case, the Bankruptcy Court granted the motion, and both the District Court and the Eleventh Circuit affirmed.

Holding:

A debtor in a Chapter 7 bankruptcy proceeding may not void a junior mortgage lien under §506(d) when the debt owed on a senior mortgage lien exceeds the current value of the collateral if the creditor’s claim is both secured by a lien and allowed under §502 of the Bankruptcy Code. Pp. 2–7.

Green_Valley_rooftop(a) The debtors here prevail only if the bank’s claims are “not . . .allowed secured claim[s].” The parties do not dispute that the bank’s claims are “allowed” under the Code. Instead, the debtors argue that the bank’s claims are not “secured” because §506(a)(1) provides that“[a]n allowed claim . . . is a secured claim to the extent of the value of such creditor’s interest in . . . such property” and “an unsecured claim to the extent that the value of such creditor’s interest . . . is less than the amount of such allowed claim.” Because the value of the bank’s interest here is zero, a straightforward reading of the statute would seem to favor the debtors. This Court’s construction of §506(d)’s term “secured claim” in Dewsnup v. Timm, 502 U. S. 410, however, forecloses that reading and resolves the question presented here. In declining to permit a Chapter 7 debtor to “strip down” a partially underwater lien under §506(d) to the value of the collateral, the Courtin Dewsnup concluded that an allowed claim “secured by a lien withrecourse to the underlying collateral . . . does not come within the scope of §506(d).” Id., at 415. Thus, under Dewsnup, a “secured claim” is a claim supported by a security interest in property, regardless of whether the value of that property would be sufficient to cover the claim. Pp. 2–4.

(b) This Court declines to limit Dewsnup to partially underwater liens. Dewsnup’s definition did not depend on such a distinction. Nor is this distinction supported by Nobelman v. American Savings Bank, 508 U. S. 324, which addressed the interaction between the meaningof the term “secured claim” in §506(a)—a definition that Dewsnup declined to use for purposes of §506(d)—and an entirely separate provision, §1322(b)(2). See 508 U. S., at 327–332. Finally, the debtors’suggestion that the historical and policy concerns that motivated the Court in Dewsnup do not apply in the context of wholly underwater liens is an insufficient justification for giving the term “secured claim” a different definition depending on the value of the collateral.Ultimately, the debtors’ proposed distinction would do nothing to vindicate §506(d)’s original meaning and would leave an odd statutory framework in its place. Pp. 5–7.

THOMAS, J., delivered the opinion of the Court, in which ROBERTS, C. J., and SCALIA, GINSBURG, ALITO, and KAGAN, JJ., joined, and in which KENNEDY, BREYER, and SOTOMAYOR, JJ., joined except as to the footnote.

Full Opinion

About the Author
Richard G Grant is the Bankruptcy and Chapter 11 Business Reorganization Practice Area Chair of Culhane Meadows, PLLC.
Social Share
  • google-share
Culhane Meadows PLLC \ Observation \ SCOTUS Opinion \ Supreme Court elimi…

Bankruptcy Practice Areas:

Company (Debtor) Representation
Secured Creditor Representation
Unsecured Creditor Representation
Creditors' Committee Representation
Landlord Representation
Asset Sales | Purchases
Trustee Representation
Industries
Firm Contact Information
Testimonials
Sitemap

Note:

For nonbankruptcy services including Corporate and Business Services, Intellectual Property, Technology and nonbankruptcy Litigation and Dispute Resolution, please visit the Firm’s Primary Website.

In the News:

Best Lawyers in Dallas 2016 - Bankruptcy
Four Partners Named Among “Best Lawyers in Dallas” by D Magazine | 2016
Aug 17, 2016
Triangle USA Files Chapter 11
Triangle USA Petroleum Corporation Files For Chapter 11 Bankruptcy Protection | June 30, 2016
Jul 07, 2016
Hercules Bankruptcy
Hercules Offshore Files For Chapter 11 Bankruptcy Protection | June 6, 2016
Jul 05, 2016
Supreme Court | Wellness | Stern v. Marshall
Supreme Court Will Review Jevic to Rule on Structured Dismissals and Gift Plans
Jun 29, 2016

Group Contact Information

Richard G. Grant 214-210-2929 rgrant@culhanemeadows.com

Disclaimer:

*For information Technology Law, Culhane Meadows received a Tier 1 ranking in Atlanta, GA and a Tier 3 national ranking. This website and the communications herein may be considered attorney advertising. Previous results are not a guarantee of future outcome. This website is for informational purposes only and does not constitute legal advice. The information herein is not intended to create an attorney-client or similar relationship. Please do not send us unsolicited confidential information. Whether you need legal services and which lawyer or law firm you select are important decisions that should not be based on this website alone.

Contact Us:

Live on Twitter

Tweets by @chapter11dallas

Subscribe to CM Bankruptcy News:

Bankruptcy News:

Best Lawyers in Dallas 2016 - Bankruptcy
Four Partners Named Among “Best Lawyers in Dallas” by D Magazine | 2016
Aug 17, 2016
Triangle USA Files Chapter 11
Triangle USA Petroleum Corporation Files For Chapter 11 Bankruptcy Protection | June 30, 2016
Jul 07, 2016
Hercules Bankruptcy
Hercules Offshore Files For Chapter 11 Bankruptcy Protection | June 6, 2016
Jul 05, 2016
© 2013 – 2016 Richard G. Grant, P.C.
Designated lawyer responsible for this website: Richard G. Grant