The U.S. Supreme Court agreed to hear two Bank of America Corp. appeals that seek to give lenders more leverage over homeowners who file for bankruptcy protection.
The dispute affects people whose home values have fallen below that of the first mortgage on their property. The question is whether those homeowners can use bankruptcy liquidation proceedings to wipe out all liability on a second mortgage.
Bank of America is seeking to overturn rulings allowing that practice, known as “stripping off,” by an Atlanta-based federal appeals court with jurisdiction over three Southeastern states.
The lender says hundreds if not thousands of homeowners in those three states have sought to strip off the liens on their second mortgages. By stripping off a lien, a debtor can gain flexibility to negotiate with the lender holding the first mortgage.
Other federal appeals courts around the country have refused to let homeowners wipe out second-mortgage debt in bankruptcy liquidation proceedings.