Have you continued to charge interest in excess of 6% per annum to a servicemember during his/her service on a debt incurred before entering military service?

If you’ve done this, in itself, is not a violation of SCRA , but it can be if another condition is met. If the servicemember provides you with a copy of his/her military orders as late as 180 days after his/her termination or release from military service, you must reduce the interest rate to 6%. Yes, the underlining is an exact quote from the law. It means that a debtor who becomes a servicemember after he/she incurs a debt in excess of 6% before military service, has a right to the reduction for his/her military career (hypothetically 30 years later). The interest in excess of 6% is forever lost.

The “catch “ is that the debtor can make this request 30 1/2 years later and force you to refund the excess interest that was has paid. Although there may be defenses (estoppel, laches) that could be asserted to this, their success is far from guaranteed. Practically, you have two choices. First, monitor all of your non-military loans to determine if a debtor has entered military service (this can be accomplished through the Department of Defense Manpower Data Center). The purpose would be to notify the debtor when he/she enters military service, that you will make any necessary reduction in interest during his/her military service. This approach has the advantage of avoiding adjusting interest years later. It has the disadvantage however, of losing interest that you would not lose if the debtor never requests an adjustment. Also, you must monitor the debtor’s termination of military service, which allows you to resume a higher interest rate. Secondly, you can do nothing and wait for the debtor to demand his/her rights. If the debtor never does, no problem. If they do, you may have to make the adjustments stated.

A few other notes… This benefit also applies to military spouses. You can also ask a court to deny this benefit because the debtors “ability to pay (contractual) interest is not materially affected by reason of military service”. An attempt can also be made to try and get the debtor to sign a waiver of his/her rights. To be effective, such a waiver must be signed after his/her entry into military service.

Have you conducted a foreclosure when a debtor was in the military service and the provisions of the SCRA were not complied with?

Although the foreclosure sale may be void, a sale to an innocent bona fide purchaser will not be affected. In other words, you will be subject to damages (e.g. loss of equity, attorney fees, etc.). What the SCRA requires in a foreclosure against any person is an affidavit that no defendant is in the military service and proof thereof (obtainable as indicated above). A false affidavit can be rewarded by a year in jail. If a person is in military service, the court must appoint an attorney to represent the servicemember (you pay his/her fees). Nothing that the attorney may do is binding on the servicemember unless the attorney locates and presumably discusses the matter with him/her. As a matter of course, such an attorney must ask for the reduction and refund of interest discussed above. Also, the attorney must ask the court to enjoin the foreclosure until the servicemember can be located and the matter discussed.

This stay will more than likely be granted for at least 90 days, particularly if the servicemember or, more impressively, his commanding officer, gives the court a letter stating that: the servicemember’s military duty prevents his/her appearance; military leave is not presently authorized, and when the servicemember will be available to appear. The stay can be extended beyond 90 days if these conditions persist or the servicemember’s attorney cannot locate him/her to determine if a meritorious defense exists.

If you have questions regarding the SCRA, please feel free to contact us at 800-842-8417.