It was a unanimous decision and one that reversed an appeals court ruling that allowed homeowners to seek relief on homes worth less than the amount owed on their first mortgage.
The ruling will have the largest impact in markets with a high number of homeowners considered to be “underwater” – owners who owe at least 25 per cent more than the value of their homes.
The markets that will feel the largest effect are Florida (which has almost 1.4 million properties “underwater”), California (almost 800,000), Illinois (just under 600,000), Ohio (over 400,000) and Texas (over 300,000).
The judge presiding over the case rejected the lawyer’s (who represented the two homeowners) case that the Bank of America had a “secured” claim on its loans regardless of the home price and mortgage value, according to the Financial Times.
“Under the debtors’ approach, if a court valued the collateral at one dollar more than the amount of a senior lien (debt), the debtor could not strip down a junior lien under Dewsnup, but if it valued the property at one dollar less, the debtor could strip off the entire junior lien,” wrote Justice Clarence Thomas. “Given the constantly shifting value of real property, this reading could lead to arbitrary results.”
By Justin Da Rosa
The Supreme Court ruled Monday that Americans with second mortgages can’t void those loans by declaring bankruptcy.