Bank of America, N.A. v. Caulkett (13-1421)
argument 13-1421Bank of America, N.A. v. Caulkett
Supreme Court of the United States
59 min
5 speakers
8 chapters
transcribed 7 days ago
official recording ↗
Transcript
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What is the Court’s position on §506(d) and underwater mortgages in Chapter 7 bankruptcies?
You'll hear argument first this morning in case thirteen fourteen twenty one, Bank of America versus Colkett and the consolidated case. Ms. Spinelli.
Mr Chief Justice, and may it please the Court. Respondents' position is that Section five hundred six D of the bankruptcy code allows chapter seven debtors to keep their houses, strip their underwater mortgages, and prevent their lenders from accessing any later appreciation in the house's value. In Deusenup, this court rejected that position with respect to partially underwater mortgages, and that reasoning applies with equal force to completely underwater mortgages. Dusnip held that Section five oh six D voids only liens securing disallowed claims. It does not void liens based on the current value of the collateral. That logic applies whether the current value of the collateral is a million dollars
One dollar or zero, as virtually every court to address the question has held, and even the eleventh circuit below all but admitted. Outside bankruptcy, the bank would be entitled to have its lien stay with the property. until foreclosure or payment in full. What is the value of of an and under completely underwater second mortgage, how likely it is it that it will ever that the property will ever appreciate to the extent that it will have real value. Justice Ginsburg, it's quite likely in these two particular cases, to be sure. The second liens are deeply underwater. That's not true in every case, um, and there's no reason to think it's true in the typical case. We have Bank of America has many cases pending right now in the eleventh circuit.
We have cases in which the value of the house would need to rise only by four thousand dollars, where it would need to rise only by five thousand dollars. And given that we're in the middle of a market upswing, it's very plausible and very likely that many of these mortgages will regain equity. Um, we quote statistics In our opening brief, um, that show that between twenty twelve and twenty fourteen. The number of underwater junior mortgages was cut in half. from four point two million to two point one million. So houses are coming above water every day. And what Du snip held is that the lien holder, according to the basic non bankruptcy bargain, is entitled to keep its lien um until payment in full or until a lender decides to foreclose.
Assuming the second is partially or fully underwater. Every participate um in negotiations with the A property owner and with the holder of the first lane. And say, Well if you keep the property we'll reduce our Junior lead lean by fifty percent. Is there a negotiation dynamic that The rule that you propose would further Let me be clear about this, Justice Kennedy, because I think this is important. In Chapter seven, bankruptcies, there are no such negotiations. Chapter seven is very simple. The debtor turns over his assets to the extent there are any non-exempt, non-encumbered assets, which there typically are not. The trustee will sell those assets, distribute the proceeds to creditors. The debtor then receives a discharge of all
Prepetitioned debt. Well let's just talk about chapter seven because that's what I had in mind. Uh suppose it's a close case and they're thinking of maybe insisting on on sale. Uh s um Can the junior lean holder say, What if I I'm I'm not gonna prevail in the sale, but I'll if you don't sell then I'll cut Uh might lean in in half. I mean you could so you couldn't w ever have this negotiated in in a chapter seven? In a chapter seven bankruptcy, those negotiations simply don't occur. If there's non exempt um equity in the house, the trustee has to sell the house and distribute the proceeds. The trustee doesn't care. I mean right? I mean His job is done once uh once the bankruptcy's over. If if it goes up it's the homeowner who who would care.
That's correct. And he's not part of the negotiation. He's out of it. That's that's correct. Um now if
How does this work? I'm I'm sorry, back up. You say the trustee Sells it. How does the mortgage holder um in that situation foreclose.
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Chapters
8 chapters
1
What is the Court’s position on §506(d) and underwater mortgages in Chapter 7 bankruptcies?
0:00–8:00
2
How does the Court distinguish between partially and completely underwater junior liens?
8:00–17:05
3
What role do Chapter 7 trustees play in selling property and distributing proceeds?
17:05–24:43
4
Why do the parties argue about reliance on the Deu‑Snip decision for mortgage pricing?
24:43–32:03
5
How might extending Deu‑Snip to totally underwater liens affect lenders and borrowers?
32:03–38:45
6
What statutory interpretation issues arise from §506(a) versus §506(d) in this case?
38:45–45:40
7
How do empirical studies and policy arguments influence the Court’s view on lien‑voiding?
45:40–52:33
8
What is the final holding of the Court and why does it affirm the lower court’s decision?
52:33–59:26