Bulletin: NY000574

On June 1, 2015, the United States Supreme Court issued an Opinion in the matter of Bank 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 Underwriting Department approval.

Please disseminate this Bulletin to all appropriate office personnel.

Please contact underwriting counsel at 212-922-0050 in the event you have any questions.