The Service Members Civil Relief Act of 2003 (SCRA) formerly known as the Soldiers’ and Sailors’ Civil Relief Act of 1940 (SSCRA) is a federal law that gives all military members some important rights as they enter active duty and while on active duty. It covers such issues as rental agreements, security deposits, prepaid rent, eviction, installment contracts, credit card interest rates, mortgage interest rates, mortgage foreclosure, civil judicial proceedings, and income tax payments.
The SCRA also protects active duty military members and reservists or members of the National Guard called to active duty (starting on the date active duty orders are received) and, in limited situations, dependents of military members (e.g., certain eviction actions).
To receive protection under some parts of the SCRA, the member must be prepared to show that military service has had a “material effect” on the legal or financial matter involved. Protection under the SCRA must be requested during the member’s military duty or within 30 to 180 days after military service ends, depending on the protection being requested.
In many situations, the SCRA protections are not automatic, but require some action to invoke the Act. For example, to obtain a reduction of your pre-active duty mortgage or credit card interest rates, you should send your lender/creditor a written request and a copy of your mobilization orders.
The Six Percent Loan Cap
One of the more well-known protections of the SCRA is the 6% loan provision. In general, service members may be entitled to have the interest rate on some loans reduced to 6% for the time the member is on active duty. This provision is especially useful for Reservists and National Guard members. Of course, there are a number of special requirements that must be met in order to qualify for the interest rate reduction. Some of the eligibility requirements are:
- The service member obtained the loan during a time when he or she was not on any form of active duty in any branch of the military.
- The interest rate is currently above 6% per year.
- The service member’s military service affects the ability to pay the loan at the regular (pre-service) interest rate. Generally this requirement means that the member makes less money in the military than as a civilian.
- The service member must notify the lender in writing, explain the situation, and provide a copy of the orders placing the member on active duty.
Delay of Court and Administrative Proceedings
A major benefit provided by the SCRA is that it permits active duty service members, who are unable to appear in a court or administrative proceeding due to their military duties, to postpone the proceeding for a mandatory minimum of ninety days upon the service member’s request. The request must be in writing and (1) explain why the current military duty materially effects the service member’s ability to appear, (2) provide a date when the service member can appear, and (3) include a letter from the commander stating that the service member’s duties preclude his or her appearance and that he is not authorized leave at the time of the hearing. This letter or request to the court will not constitute a legal appearance in court. Further delays may be granted at the discretion of the court, and if the court denies additional delays, an attorney must be appointed to represent the service member. (See Section 202, SCRA)
Default Judgment Protection
If a person does not appear in court when ordered to do so, the judge may render a verdict against that person. This is called a default judgment. Obviously, if a service member is overseas, deployed, on classified duty or in transit then the service member will not be able to appear at a court hearing and may suffer a default judgment. If a default judgment is entered against a service member during his or her active duty service, or within 60 days thereafter, the SCRA allows the service member to reopen that default judgment and set it aside. In order to set aside a default judgment, the service member must show that he or she was prejudiced by not being able to appear in person, and that he or she has good and legal defenses to the claims against him or her. The service member must apply to the court for relief within 90 days of the termination or release from military service. This provision is especially useful to Reservists and Guardsmen who may in the middle of a legal proceeding when they are ordered onto active duty. If the court ignores the Delay of Court provisions (discussed above) and renders a default judgment, the Reservist or Guardsman can have the default judgment set aside upon their return to their home. (See Section 201, SCRA)
Stay of Foreclosure
In today’s recession and drop in housing prices, many service members have seen civilian pay cuts or job loss and found themselves unable to make their mortgage payments. If a service member faces foreclosure and while ordered onto active duty, it can make a stressful situation even more so. The SCRA provides relief to such service members. A foreclosure action against a Reservist or Guardsman must be halted when that service member is called up onto active duty. The bank can only proceed if it obtains a court order. This provision protects mortgages entered into while the service member was in civilian status. (See Section 303, SCRA).
Termination of Leases
In the past, upon having to leave their home on active duty orders, many Reservists and Guardsmen were caught by surprise when the landlords or car companies with whom they had leases filed lawsuits for termination of the leases or demanded large cash payments to settle the lease. New provisions to the SCRA protect members in these situations.
The SCRA allows termination of leases by active duty service members who subsequently receive orders for a permanent change of station (PCS) or a deployment for a period of 90 days or more. The SCRA also includes automobiles leased for personal or business use by service members and their dependents. The pre-service automobile lease may be cancelled if the service member receives active duty orders for a period of one hundred and eighty (180) days or more. The automobile lease entered into while the service member is on active duty may be terminated if the service member receives PCS orders to a (1) location outside the continental United States or (2) deployment orders for a period of one hundred and eighty days or more. (See Section 305, SCRA).
Eviction for Nonpayment of Rent
Military members and their dependents (in their own right) have some protection from eviction if military service impacts their ability to pay rent. In order to evict a military member or his or her dependents, the landlord must obtain a court order. The court must find the member’s failure to pay is not materially affected by military service. Material effect is present where the service member does not earn sufficient income to pay the rent. Where the member is materially affected by military service, the member may request the court stay the eviction for three months. The court may decide on a shorter or longer period in the interest of justice. There is no requirement that the lease be entered into before entry on active duty, and the court could make any other “just” order under § 301 of the SCRA. The requirements of this section are:
- The landlord is attempting eviction during a period in which the service member is in military service or after receipt of orders to report to duty
- The rented premises is used for housing by the spouse, children, or other dependents of the service member
- The agreed rent does not exceed $2,465 per month. (See Section 305, SCRA)
Carlos L. McDade, Esq.
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You attended our meeting yesterday at Prudential, thank you for all the great information! If someone has an investment property with Indymac, is there any possibility of short sale? I have heard that Indymac will not negotiate a short sale, is this true?
We have had recent success with Indy Mac on an investment property. I would suggest you attempt the short sale. Being able to demonstrate a hardship will be important. Good luck and call us if we can assist you.
Tisha Black Chernine, Esq.
Hey Tisha, I’m from the Prudential office on Sunset and saw you a few months back. Just had a quick question. I negotiated and approval from Chase on a short sale in which the owners are active members of the military and was ordered to duty in Texas. Is the borrower protected from future deficiencies from the lender based on this SSCRA?
The answer is “maybe.” A servicemember is protected by the SSCRA with regards to a mortgage thusly:
The SSCRA protects servicemembers against foreclosures of mortgages, as long as the following facts are established:
1. The relief is sought on an obligation secured by a mortgage, trust deed; or other security in the nature of a mortgage on either real or personal property,
2. The obligation originated prior to entry on active duty,
3. The property was owned by the servicemember or family member prior to entry on active duty,
4. The property is still owned by the servicemember or family member at the time relief is sought, and
5. The ability to meet the financial obligation is materially affected by the servicemember’s active duty obligation.
There is no general protection against a deficiency or other debt incurred while in military service. Service members may apply for the Homeowners Assistance Plan (HAP) to protect them from deficiency debts of a short sale. Servicemembers may go to the United States Army Corps of Engineers website for details on HAP or visit their local legal office. The link to the USACOE website is http://www.usace.army.mil/CEPA/EngineerUpdate/Pages/090930HAPupdate.aspx
Please contact me if you have any other questions and thanks for writing.
Sincerely,
Carlos L. McDade, Esq.
Carlos-
I have been looking into the HAP program for my boyfriend, who is active duty here at Nellis. He is being PCS’ed (transferred) in about 6 months. He qualifies for HAP except for one guideline- the loan was not originated before 2006, it was originated in 2007.
.
As home prices continuing to drop, that guideline is helping less and less military members here in Vegas.
I would like to fight this guideline and was wondering if you had any insight on how we could do this. The Sacramento HAP office said that it’s a “rumor” that they might be changing the guideline.
Thanks!
Ms. Dreier,
Unfortunately, contesting the HAP guidelines is a very difficult endeavor. The HAP is authorized by federal statute in Title 42, Section 3374 of the United States Code, as amended by the American Recovery and Reinvestment Act of 2009 (the “ARRA”). The Department of Defense promulgated the rules in the Code of Federal Regulations at Title 32, Section 239. I realize this is a lot of “legaleze” but it illustrates how the rules were established. If DoD modifies the program to provide greater coverage, for example, to cover loans originated in 2007, the funds will not be authorized under the ARRA and DoD will have to pay for it with its own funds. That makes it highly unlikely DoD would do so. I recommend you contact your Congressional delegation to make your case. If enough people do so, Congress may authorize additional funds to broaden the eligibility rules. Remember, even if your friend does not qualify for HAP he may qualify for the government’s short sale program, the Home Affordable Foreclosure Avoidance program ( the “HAFA”). We have information on HAFA in our blog. Good luck to you and I thank your friend for his service to our country.
Carlos McDade
Just had to take the two seconds to post a thank you. Read through your web page and really liked the material, bookmarked and I plan on coming back soon!
I am an attorney representing a serviceman in Dallas. While on active duty his lender attempted to foreclose. We stopped the foreclosure and they reinstated the loan. Now he has returned and is behind a few payments but has enough money to bring the mortgage current but now his lender wants a $2000 reinstatement fee added to the amount due from the prior time when hey had accelerated the loan. Can you point me to a provision in the Act which would prevent them from charging this fee? It does not seem fair that they can charge a fee for reinstating a loan that they did not have the right to accelerate in the first place when my client was on active duty. Please advise.
Steven L. Dryzer,
Law Offices of Steven L. Dryzer
Board Certified Commercial Real Estate Law
Texas Board of Legal Specialization
Dear Mr. Dryzer,
As you know, the SCRA protects debts, including mortgage loans, entered into before active duty. It mainly provides relief in court. However, to avoid costs to your client, it is advantageous to stop the bank before your client finds himself in court arguing a SCRA defense to a state court judge who most likely will be hearing about the law for the first time.
In negotiations with the bank, I would first remind them of the jurisdictional reach of the SCRA
TITLE 50, APPENDIX App. > SERVICEMEMBERS > ACT > TITLE III > § 533
§ 533. Mortgages and trust deeds
(a) Mortgage as security
This section applies only to an obligation on real or personal property owned by a servicemember that—
originated before the period of the servicemember’s military service and for which the servicemember is still obligated; and
is secured by a mortgage, trust deed, or other security in the nature of a mortgage.
Then I would direct their attention to paragraph (c) which establishes that their foreclosure attempt was invalid
(c) Sale or foreclosure
A sale, foreclosure, or seizure of property for a breach of an obligation described in subsection (a) shall not be valid if made during, or within 9 months after, the period of the servicemember’s military service, unless an exception applies.
And inform them that, in my reading of the law, they violated the SCRA by attempting an invalid foreclosure and made themselves subject to criminal penalties. They also made themselves subject to a civil lawsuit and Liable for consequential and punitive damages by attempting to wrongfully convert the property from your client’s possession.
(d) Penalties
Misdemeanor - A person who knowingly makes or causes to be made a sale, foreclosure, or seizure of property that is prohibited by subsection (c), or who knowingly attempts to do so, shall be fined as provided in title 18, United States Code, or imprisoned for not more than one year, or both.
Preservation of other remedies – The remedies and rights provided under this section are in addition to and do not preclude any remedy for wrongful conversion otherwise available under law to the person claiming relief under this section, including consequential and punitive damages.
In my dealings with banks, I’ve found that an argument like this will either prevail quickly or will have to be elevated to the bank’s attorneys for more time-consuming negotiations.
Good luck to your client. I thank him for his continued service to our country.
Carlos McDade, Esq., Col (Ret) USAF