Bank of America v. Caulkett

PETITIONER: Bank of America, N.A.
RESPONDENT: David B. Caulkett
LOCATION: United States District Court for the Middle District of Florida, Tampa Division

DOCKET NO.: 13-1421
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Eleventh Circuit

CITATION: 575 US (2015)
GRANTED: Nov 17, 2014
ARGUED: Mar 24, 2015
DECIDED: Jun 01, 2015

ADVOCATES:
Danielle Spinelli - for the petitioner
Stephanos Bibas - for the respondents

Facts of the case

David Caulkett’s property was subject to two mortgage liens when he filed for bankruptcy. Because the debt owed on the first mortgage exceeded the value of the property, the second mortgage, which Bank of America held, was considered “underwater.” When Caulkett filed for bankruptcy, he moved the bankruptcy court to void Bank of America’s lien on the second mortgage and argued that Section 506(d) of the Bankruptcy Code allowed a debtor filing for bankruptcy to void a second mortgage when the debt owed on the first mortgage exceeded the value of the collateral property. The bankruptcy court granted the motion, and both the district court and the U.S. Court of Appeals for the Eleventh Circuit affirmed.

This case was consolidated with a similar case, Bank of America v. Toledo-Cardona, which had substantially the same facts and an identical procedural history.

Question

Does Section 506(d) of the Bankruptcy Code allow a debtor filing for bankruptcy to void a second mortgage when the debt owed on the first one exceeds the value of the collateral property?

Media for Bank of America v. Caulkett

Audio Transcription for Opinion Announcement - June 01, 2015 in Bank of America v. Caulkett

John G. Roberts, Jr.:

Justice Thomas has our opinion this morning in case 13-1421, Bank of America v. Caulkett and the consolidated case.

Clarence Thomas:

These consolidated cases come to us on writs of certiorari to the United States Court of Appeals for the Eleventh Circuit.

The debtors in these cases, respondents here, each have two mortgage liens on their homes.

Petitioner Bank of America holds the junior liens on each.

These liens are wholly underwater, that is to say, each debtor owes more on a senior lien than his home is worth.

Thus if the homes were sold today the bank would get nothing.

The debtors each filed for Chapter 7 bankruptcy and moved to void the junior mortgage liens under Section 506(d) of the Bankruptcy Code. In each case the Bankruptcy Court granted the motion and the District Court and the Eleventh Circuit affirmed.

In an opinion filed with the clerk today, we reversed the judgments of the Eleventh Circuit.

Section 506(d) provides that a lien is void “to the extent that it secures a claim against the debtor that is not an allowed secured claim.” Thus, the debtor here may void the bank's junior mortgage liens only if the bank's claim or right to repayment is not an allowed secured claim because there is no dispute that the bank's claims are allowed.

The only question before us is whether they are secured.

Although the code itself suggests that the bank's claims are not secured, this Court has already adopted reading of the term secured claim that forecloses this conclusion.

In Dewsnup v. Timm, this Court construed the term secured claim to include any claim secured by a lien and fully allowed pursuant to Section 502. Because the bank's claims here are secured by liens and allowed pursuant to Section 502, they cannot be voided under Dewsnup.

The debtors have not asked us to overrule Dewsnup, but instead have asked us to limit that decision to partially underwater mortgage liens as opposed to wholly underwater mortgage liens.

We decline to adopt this artificial distinction and there is little support for that view in the code.

For these reasons and others set forth in our opinion we reverse the judgments of the Eleventh Circuit.

The opinion of the court is unanimous.

The Chief Justice and Justices Scalia, Ginsburg, Alito and Kagan joined the opinion in full.

Justices Kennedy, Breyer and Sotomayor would join all of the opinion except for the one footnote.