The Service Member’s Civil Relief Act (SCRA) Applies to Homeowners' Associations
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Overview
Given the sacrifices of our men and women in uniform, it is only right that Congress passed a law in 2003 to assist military members with collections and foreclosure issues.
Under the Servicemembers Civil Relief Act (SCRA), all creditors (including homeowners' associations) have limitations on debt collections against active-duty military members. These limitations include the temporary suspension of judicial and administrative proceedings and transactions that may affect the civil rights of military members during their service.
This article will examine in detail the protections afforded by the law to military members who own properties within homeowners' associations (HOA). We will delve into who is covered by the law, how the law protects military homeowners from default judgments or foreclosures, the caps mandated on interest rates while the service member is in active service, and how the law helps a servicemember terminate an apartment lease.
Who is protected by the SCRA?
The SCRA was promulgated to assist active duty military members with debt issues, meaning that all active members of the Army, Navy, Air Force, Coast Guard, and Marine Corps are included.
Additionally, the SCRA will protect reservists reporting for active service and guardsmen serving actively for 30 consecutive days. The two remaining groups offered protection are those serving under the Military Selective Service Act, and active serving commissioned officers of the Public Health Service and the National Oceanic and Atmospheric Administration. Military members absent from duty because of sickness, wounds, or leave are covered by the SCRA[1].
The protections afforded to service members begin on the date they enter active duty and end on the date on which the servicemember is released from military service[2]. For members of a reserve, the rights and protections of SCRA start on the date of the member's receipt of the service order[3].
If a service member believes that she has had her rights under the SCRA violated, the Department of Justice first requires servicemember to consult U.S. Armed Forces Legal Assistance before requesting the Attorney General make a claim. The government provides a legal services locator here.
With a firmer understanding of which servicemembers are protected under the SCRA, we will now elucidate the protections available for HOA members.
HOAs cannot obtain a default judgment against an active service member
As we have previously addressed, under the association's recorded Declaration of Covenants, Conditions, and Restrictions, homeowners' associations have the authority to collect unpaid assessments by filing personal or foreclosure lawsuits against defaulting HOA members.
However, under the SCRA, an association cannot file a lawsuit and obtain a default judgment, if the homeowner is actively serving in the military.
Section 3931(b)(1) of the SCRA, states that if an active military member fails to make a court appearance, the plaintiff must file an affidavit stating one of the following:
The defendant is in military service;
The defendant is not in military service; or
Plaintiff is unable to determine whether or not the defendant is in military service.
Also, the SCRA[4] provides that if it appears that the defendant is in military service, "the court may not enter a judgment until after the court appoints an attorney to represent the defendant."
The law also provides that "if the court determines that there may be a defense to the action and defense cannot be presented without the presence of the defendant, or after due diligence, counsel has been unable to contact the defendant or otherwise determine if a meritorious defense exists,[5]" the court must grant a stay of proceedings for a minimum period of 90 days upon application of counsel, or on the court's own motion.
An individual's military service status can be verified through the SCRA's website.
The SCRA Requires Lenders and HOA Boards to Use Judicial Foreclosures
If a homeowner falls too far behind with mortgage or HOA assessment payments, there are two types of foreclosure proceedings available to these creditors: judicial and nonjudicial. Judicial foreclosure requires the creditor to file a lawsuit in the relevant jurisdiction and work in the court process to effectuate the eviction.
However, some states like Arizona, Georgia, Michigan, and California (among others) offer what is called nonjudicial foreclosures, which is a state-specific foreclosure procedure that lenders prefer because there is no need to use the courts to take possession of the property.
It is easy for any of us to imagine a scenario where, through no fault of the servicemember, she cannot make payments to the creditors for a few months. Congress passed the SCRA to protect such an active-duty servicemember that lives in a state that permits nonjudicial foreclosures.
Under the SCRA, a lender or HOA must obtain a judicial order to foreclose on an active duty member’s home. Additionally, the SCRA offers servicemembers:
The opportunity to stay, as in, put on hold, the civil action if they are on active duty or within 90 days of returning from active duty. A reasonable stay request can be for at least three months.
The opportunity to stay, the execution of the judgment, if the servicemember is active, or has been in the last 90 days.
The opportunity to reopen default judgments, if it is entered while on active duty and up to 60 days subsequent. A servicemember has 90 days upon being released from active duty to appeal to the court to reopen the default judgment.
According to the Department of Justice, any person that “knowingly violates this provision may be fined and/or imprisoned for up to one year.” This is a significant point for HOA directors. There are jurisdictions where an HOA board may foreclose on a property to recover unpaid assessments.
Taking such an action without the use of the courts—and this part is critical—with actual knowledge[6] that the servicemember is in active service, could lead to a fine or imprisonment. It is important to note that foreclosure protection applies only if the servicemember purchased the real or personal property before military service.[7]
Once more, though, as a reminder, a servicemember could not pursue such a claim against the HOA unless she works through the Armed Forces Legal Services for proper DOJ recognition.
However, before a collections action devolves into foreclosure proceedings, a servicemember has the right to apply the SCRA to reduce interest rates; we will look at that next.
The SCRA Caps Interest Rates for Active Duty Servicemembers
Perhaps the most helpful aspect of the SCRA for military members is the interest rate cap that applies to many of the financial obligations incurred before joining up in the service.
The rule is that no matter when the obligation was entered into, while the servicemember is on active service—and one year hence—the maximum interest rate a lender may charge is 6%.
The neat part about the law is that any overpayments made by the servicemember must be reimbursed so long as the lender receives a notice within 180 days of completing active service. An example will help.
Let us say we have an Air Force pilot that buys a home with a suboptimal interest rate of 8.5% in 2012. She is called to active duty in 2014 and remain so for two years, during which she continued to make her mortgage payments at the 8.5% rate. Three months after returning from active duty service, our pilot learns about the SCRA. Is it too late for the 6% rule to apply since the pilot already made the payments?
Not at all. Within that 180-day window, the pilot may request her entitlement of the overpayments, and the lender must send her a check refunding the overpayments during her active duty service.
The SCRA provides protections not only for HOA members but renters as well. In case some of these nice folks are reading along, we will quickly look at how the SCRA assists members of the armed services with terminating an apartment lease on short notice.
The SCRA Makes Terminating Apartment Leases Much Easier
Lastly, the SCRA protects active-duty servicemembers that enter into apartment leases. It is obvious again that our active-duty military personnel can be called away at a moment’s notice, and the law rightly offers these folks more protections.
If a servicemember is suddenly called away, she may inform the property management company in writing along with a copy of her orders and have her lease terminated “30 days after the next rent payment is due.[8]”
One last note of interest. The SCRA offers the servicemember injured by a violator of the law the right to reasonable attorneys’ fees. This means, with a valid claim, the servicemember will not only be reimbursed for the financial loss, but the violating creditor will be on the hook for the fees to pay the servicemember’s lawyer as well.
To read federal cases related to this topic, please visit the DOJ’s Housing and Civil Enforcement Section Cases.
References:
[1] 50 U.S.C. § 3911(2)(C) - Definitions
[2] See 50 U.S.C. § 3911(3)
[4] Id. at § 3931(b)(2).
[5] Id. at § 3931(d).
[6] As in, the director knows HOA member is afforded these protections by the SCRA and proceeds anyway.