WASHINGTON (Reuters) - The U.S. Supreme Court agreed on Monday to hear two cases brought by Bank of America Corp questioning whether a second mortgage on an “underwater” house - one with a mortgage balance exceeding its current value - can be voided during bankruptcy.
Both cases the justices agreed to hear come from Florida, where many homeowners have struggled to pay their mortgages following the recent housing crisis.
The homeowners in the two cases, David Caulkett and Edelmiro Toledo-Cardona, both won before the regional appeals court that oversees Florida.
The 11th U.S. Circuit Court of Appeals ruled that homeowners in Chapter 7 bankruptcy can void - or in bankruptcy terms “strip off” - a second mortgage when the debt owed to the holder of the first mortgage is more than the property’s current value.
That means the lender loses its ability to foreclose on the property even if its value increases.
Bank of America(BAC.N), which is the second mortgage holder in both cases, said in court papers that the approach taken by the 11th Circuit is different than other appeals courts around the country. The bank says that potentially thousands of cases pending in lower courts could be affected by how the Supreme Court rules.
A decision is due by the end of June.
The cases are Bank of America v. Caulkett and Bank of America v. Toledo-Cardona, U.S. Supreme Court, Nos. 13-1421 and 14-163.
Reporting by Lawrence Hurley; Editing by Will Dunham