Protecting Our Protectors: Mortgages and the Servicemembers Civil Relief Act

Active military service can be very difficult financially for the men and women who serve, and the family members they leave behind. The stress of knowing your loved one is potentially in harm's way is enough of a burden, without having to worry about loss of income and unpaid debts that sometimes are a part of being called to active duty.

Fortunately, there is a law to protect those actively serving from debt collection, and foreclosure. Unfortunately, many people are unaware of the law and the rights it provides service members, and the issues it can raise for others, including foreclosure investors.­­­The Service Members Civil Relief Act (SCRA) of 2003 provides a wide range of protection for service members. It is intended to postpone or suspend certain civil obligations to allow service members the ability to devote full attention to their duties without creating additional stress on themselves and their families.

With regard to foreclosure, the law states that a lender who made a mortgage prior to the service members' active service may not foreclose during, or within 90 days after, their active service unless ordered by a court or agreed to by the service member. Also note, SCRA only applies to active service members who are the principal homeowners. There is an amendment, H.R. 1263 which intends to amend the law to allow spouses similar protections.

Recently, the Justice Department reached a settlement in excess of $22 million with Bank of America and Morgan Stanley for SCRA violations due to wrongful foreclosing o active service members. Note that lenders don’t necessarily have any way of knowing that someone is actively serving. As such, it is important to note that service members should proactively inform their lender of their rights, if for no other reason than to avoid the hassles of having the foreclosure overturned. And investors need to realize that lenders will make mistakes and wrongfully foreclose on occasion.

If you buy a property where the borrower is actively serving our country, we recommend that you do what you can to help the family and work with them to have the sale rescinded as quickly as possible so that you can get your money back and move on to other deals. But also be aware that we’ve seen cases where homeowners have made false claims about serving to the lender, which resulted in an overturned sale and a lost opportunity for the investor. Knowing the law may also help you avoid the same fate.

Have you known someone who has been affected by SCRA?