Justices curb bankruptcy filers’ ability to have second mortgages canceled

supreme courtBy Michael Corkery | New York Times

Handing banks a victory, the Supreme Court ruled that financially struggling homeowners who file for bankruptcy may not expect to have their second mortgage loans canceled, even if they owe more on their homes than the properties are worth.

In a unanimous decision on Monday, the court determined that second mortgages may not be “stripped off,” or voided, if the property is underwater, or worth less than the mortgage debt.

The ruling keeps intact a major protection for mortgage lenders, which extended tens of billions of dollars of second mortgages during the housing boom on homes that are now worth much less than their values when they were purchased. It also closes a legal avenue for homeowners with limited incomes and overwhelming debt to shed their underwater properties, bankruptcy lawyers say.

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