The Consumer Financial Protection Bureau (CFPB) recently reopened the comment period for its proposed amendments to the mortgage servicing related rules under RESPA and TILA that generally would require servicers to provide modified periodic statements to consumers who have filed for bankruptcy.

Bankruptcy is all about the debtor’s assets, specifically how many and who gets them. The reason that many bankruptcy cases are contentious is that the parties often disagree about the amount of assets available for distribution to creditors, as well as how the assets should be divvied up.

Lenders of troubled mortgages upon Massachusetts real property should carefully review their mortgages to avoid potential invalidation of such mortgages in bankruptcy. Bankruptcy courts in Massachusetts have led the charge in avoiding mortgages containing defects in notary clauses.

Massachusetts law requires that a validly executed acknowledgement be attached to a mortgage as a prerequisite to recording the mortgage in the registry of deeds.

The Supreme Court of Ohio recently held that a mortgage defectively executed but properly recorded still provides constructive notice of its contents.

A copy of the opinion is available at:  Link to Opinion.

The borrowers executed a promissory note and a mortgage.  The notary acknowledgment on the mortgage was left blank.  The mortgage was recorded with the notary section incomplete. The mortgage was later assigned.

For years, it was generally accepted that mortgage creditors and bankruptcy trustees could assert the status of a bona fide purchaser and treat a defectively notarized mortgage as if that mortgage did not exist.  On February 16, 2016, our Supreme Court provided clarity regarding the legal effects of R.C. §1301.401 and provided protection to lenders regardless of whether their mortgages were defective.

It’s not an uncommon sight, especially in light of the burst of the housing bubble in recent years: a debtor in bankruptcy has two mortgages on a property with a fair market value of less than the amount of the senior mortgage. The junior mortgage lien is then wholly underwater, so that creditor would receive nothing from the sale of the property. The question then becomes, can the debtor void those liens in a Chapter 7 bankruptcy proceeding? The Supreme Court, in an increasingly rare show of unanimity, said “No.”

In a post-housing crisis economy, many homeowners, facing a plummet in home values, found themselves trapped in homes that are worth less than the amount they owe bank.  Those homeowners have sought refuge in Chapter 7 bankruptcy proceedings, attempting to strip down the first mortgage and leaving many junior lienholders holding nothing but the bag—until now.  In a big win for lenders, the U.S.

In an opinion issued on June 1 in a case entitled Bank of America, N.A. v. Caulkett, the United States Supreme Court answered a question that has split lower courts since the Supreme Court decided Dewsnup v. Timm in 1992. The question answered in Caulkett was whether a debtor in a Chapter 7 bankruptcy case can “strip off” a lien on the debtor’s property if the bankruptcy court determines that the lien is worthless, leaving the former secured creditor with an unsecured claim that can be discharged. The Supreme Court’s answer is no.

The US Supreme Court has unanimously held that a debtor cannot void a wholly underwater second mortgage in Chapter 7 bankruptcy proceedings. The decision comes in the consolidated cases of Bank of America, N.A. v. Caulkett, No. 13-1421, and Bank of America, N.A. v. Toledo-Cardona, No. 14-163.

The Issue and Background