[JURIST] The US Supreme Court [official website] heard oral argument [transcript, PDF] on Tuesday in a pair of consolidated cases involving a dispute over federal bankruptcy laws brought by Bank of America (BOA). The cases, Bank of America, NA v. Caulkett and Bank of America, NA v. Toledo-Cardona [SCOTUSblog dockets], stem from the mortgage bubble and collapse of the US housing market. The cases involve Florida homeowners who took out a second mortgage with BOA. When respondents filed for bankruptcy under 11 USC &#167 506(d), the laws allowed the homeowners to “strip off” a junior mortgage lien in its entirety, i.e. the second mortgage with BOA, because the outstanding debt owed to a senior lienholder exceeded the current value of the collateral. The court would like to resolve a circuit split on the issue.

In the opinion below, the respondents asked the bankruptcy judge to void their second mortgages, noting that their homes had lost so much value that even the first mortgages involved debts beyond the value of the property [SCOTUSblog op-ed]—that is, the loan was “under water.” The respondents prevailed [opinion, PDF] before the US Court of Appeals for the Eleventh Circuit [official website] last May.