A green and white house in Tampa, home to a retired social worker and his 10 dogs, is at the heart of a U.S. Supreme Court ruling affecting thousands of people in bankruptcy who are underwater on their mortgages.
On Monday, the nation's highest court said second mortgages may not be "stripped off," or voided, if the property is worth less than the amount owed on it.
On Tuesday, Edelmiro Toledo-Cardona learned of the ruling that stems from his 2013 bankruptcy case. And he wondered if the court's decision means he will lose the home he had tried to save by declaring bankruptcy.
"I'm worried because I don't have the money to pay $177 a month," he said, referring to the second mortgage he thought had been eliminated two years ago.
It is unclear whether Monday's ruling will be retroactive. "We anticipate there will possibly be some banks that say … let's vacate the judgment based on the fact there's new law," said Catherine Peek McEwen, a Tampa bankruptcy judge.
Bankruptcy records in the Middle District of Florida, which includes the Tampa Bay area, show that 2,349 motions to strip liens were filled between 2012 and March. Though the court does not track the type of lien that is stripped, McEwen said the vast majority probably are for second mortgages on homes and other real estate.
As prices soared during the boom, many homeowners got two or more mortgages. The first mortgage covered the bulk of the purchase price and was secured by the property. The second, unsecured mortgage covered the balance of the price.
When home values plunged, many houses were worth less than the amount owed on the first mortgage. That's what happened to Toledo-Cardona.
A native of Puerto Rico, he moved to Tampa in 1994 and worked in child protective services. By 2012, when he lost his job, he owed $167,000 on a house that was worth $78,000.
Thanks to his Social Security, pension and unemployment benefits, he was able to make mortgage payments for a year. But when the unemployment ran out in 2013, he declared bankruptcy to get the second mortgage eliminated.
In his case and a similar one involving a Melbourne man, lawyers for both homeowners argued that the houses were so far underwater that the second mortgages were valueless and should be stripped. However, Bank of America, which held the mortgages in both cases, appealed all the way to the Supreme Court.
McEwen said she and other bankruptcy judges stopped processing motions to strip off second mortgages several months ago.
"We sort of sat on them after it became apparent the Supreme Court was getting ready to act," she said.
While the court ruling focuses attention on the handling of second mortgages in bankruptcy court, McEwen notes that something similar occurs in foreclosure cases in state court. There, a lender holding a first mortgage can get a final judgment of foreclosure that clears the second mortgage off the property.
"For borrowers who didn't come into bankruptcy, 99 out of 100 times they are going to get the same result (in state court) — a second mortgage wiped away," McEwen said.
Contact Susan Taylor Martin at smartin@tampabaycom or (727) 893-8642. Follow @susanskate.