Bulletin: SLS2015015

Dear Associates:

On June 1, 2015, the United States Supreme Court issued an Opinion in the matter ofBank of America, N.A. v. Caulkett that a Bankruptcy Court in a Chapter 7 liquidation may not void a junior mortgage lien under 506 (d) of the Bankruptcy Code based upon the theory that the junior mortgage is not secured because of the inability of the collateral to support the lien. The Court held that: “a secured claim is a claim supported by a security interest in property, regardless of whether the value of that property would be sufficient to cover the claim”, and as such remains a “secured interest” in the property.

Thus, in the event you are requested to insure a sale or refinance of property in a Chapter 7 Bankruptcy and are presented with a Bankruptcy Court Order attempting to “strip” a junior mortgage from the property, the Company will nevertheless require a release of the junior mortgage as a part of the sale or refinance.

This decision does not address the ability of the Court to “strip” a junior mortgage under a Chapter 13 or Chapter 11 Reorganization, but if you are asked to insure a sale or refinance of bankruptcy property, you must seek Stewart underwriting approval. 

Please disseminate this Bulletin to all appropriate office personnel. 

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.