US Supreme Court Reverses 11th Circuit Court of Appeals On Chapter 7 Lien Stripping of Second/Inferior Mortgages
Gibbons Neuman bankruptcy and creditors’ rights attorney, Victor Veschio, attended oral arguments before the United States Supreme Court in March, 2015. The Court has now issued its unanimous ruling in favor of the creditor-bank in the consolidated cases of In Re: Toledo and Caulkett.
In summary, the Court held that any creditor who holds a claim that is both secured by a mortgage/deed of trust and which is allowed as claim, cannot be voided as it is, by definition, an “allowed secured claim” and is not subject to a “strip-down” or voiding of the inferior mortgage lien. Therefore, it is now uniform that a Chapter 7 Debtor may not void a junior mortgage when the senior mortgage lien exceeds the current value of the property. This now resolves both the “strip-off” and “strip-down” issues in the Chapter 7 context in favor of the creditor.