A Bank of America (BAC) case to decide whether homeowners can erase underwater second mortgages through bankruptcy quickly changed its course during the court session, turning into a debate over whether the U.S. Supreme Court should overturn the precedent that raised the issue in the first place, an article in Forbes said.
In Bank of America v. Caulkett, the arguments shifted to focus on whether the 11th Circuit Court of Appeals should have allowed David Caulkett and a second plaintiff to dispose of their second mortgages in bankruptcy.
The article said that the court looked at the Supreme Court’s decision in a the case Dewsnup v. Timm that found the code did not authorize a court to “strip down” a mortgage lien to the current value of the peroperty.
The question in Bank of America v. Caulkett was whether that same reasoning applied to a second lien that was completely underwater, with no hope of collecting anything in a foreclosure sale.
Justice Antonin Scalia dissented in Dewsnup and came out swinging in today’s arguments. Since Dewsnup was a “terrible decision,” he asked Bank of America’s attorney, Danielle Spinelli of WilmerHale, why shouldn’t the court use a familiar trick and narrow that precedent down to the exact facts in that case? Spinelli said that would leave an illogical distinction between semi-underwater and fully underwater liens and it was better to expand Dewsnup to include lenders in the position of her client.
