By: Adam B. Brandon
The Servicemembers Civil Relief Act of 2003 (SCRA) protects members of the Army, Navy, Air Force, Marine Corps, and Coast Guard whose financial obligations and ability to participate in civil proceedings are materially affected by their active duty military service. As the successor to the Soldiers’ and Sailors’ Civil Relief Act of 1940, the SCRA covers a wide range of issues including default judgments, termination of leases, security deposits, personal loan interest rates, mortgage interest rates, mortgage foreclosures, civil lawsuits, and income tax payments.
Aspects of the SCRA that affect the rights of lenders include:
Interest rates reduced. The SCRA requires lenders to reduce the interest rate on pre-service loans (including mortgages) to 6 percent. To obtain this interest rate reduction, a military member must submit a written request (along with a copy of his or her military orders) that indicates that: (1) the servicemember is now on active duty, (2) the loan was incurred prior to coming on active duty, and (3) the military service has a “material effect” on the member’s ability to meet the obligation. Upon receipt of the written request and military orders, a lender must reduce the interest rate on the loan to 6 percent and forgive interest in excess of 6 percent. The reduced interest rate applies to both individual loans and joint debt that a military member incurred with a spouse.
Foreclosure cases stayed. In a foreclosure action filed while a military member is on active duty (or within one year of the member’s release from military service), a court has the authority to stay the foreclosure proceeding. Also, provided that the mortgage originated before the member entered active duty, a court may adjust the underlying obligation when the member’s ability to pay is adversely affected by military service. The SCRA also prohibits foreclosures in the absence of a court order.
Verification of military service required. The SCRA requires that a party moving for a default judgment file an affidavit affirmatively stating that the non-moving party is not in the military service and has not requested a stay. The Defense Manpower Data Center provides certificates of current active duty service free of charge at https://www.dmdc.osd.mil/appj/
Default judgments overturned. Service members may request that default judgments be overturned. To do this, the member must demonstrate: (1) that the judgment was entered during active duty or within 60 days of release from service, (2) that the member sought to challenge the judgment while on active duty or within 90 days of release from service, (3) that the member did not previously appear to contest the judgment, and (4) that the member had a valid defense to the claim against her that could not be presented to the military service.
Statute of limitations tolled. The SCRA tolls the statute of limitations in most cases regardless of whether a service member is a potential plaintiff or defendant.
Civil lawsuits stayed. The SCRA provides for a stay of civil lawsuits for military members who cannot attend court hearings. To obtain a stay, a military member may file a motion explaining that the member cannot attend the hearing on account of military obligations and that the member cannot adequately protect his interests without personally attending the hearing. The member’s motion should also incorporate a letter from the member’s Commanding Officer explaining that the member will not be granted leave to attend the hearing and providing some idea of when the military member will be available for a court date. Upon the receipt of this motion (or upon its own motion), the court must stay the civil lawsuit for at least 90 days. The service member may also request an additional stay based on the continuing effect of his or her military obligations on his ability to appear. However, the court may refuse to grant the additional stay provided that an attorney represents the member in the civil action.
Potential damages awarded. Military members harmed by breaches of the SCRA may seek both equitable relief and monetary damages. Also, in certain circumstances, the SCRA authorizes punitive damages as well as awards of attorneys’ fees and court costs. In addition, the Department of Justice routinely brings SCRA cases on behalf of military members as evidenced by a $123 million settlement with five major financial institutions earlier this year.
Considering the reputational and financial harm that can result from violations of the SCRA, lenders should review their policies and procedures for verifying the military service of borrowers and determining what loans may be impacted by the SCRA. Future blog posts will explore some of the most common violations of the SCRA.