Foreclosure Protections & the Military: When a Servicemember Gets a Mortgage Before Active Duty

The Servicemembers Civil Relief Act (SCRA) provides protections to members of the military who're facing foreclosure.

If you’re a military servicemember, and you took out a mortgage loan before you went on active duty, you're entitled to protections against foreclosure. The federal law that provides these benefits is called the Servicemembers Civil Relief Act (SCRA).

Judicial Foreclosure Is Required

Probably the most important protection in states where foreclosures are typically nonjudicial is that the SCRA requires a court order (or a waiver from the servicemember) before your house can be sold at a foreclosure sale. If the lender forecloses without a court order or a waiver, the sale is invalid if done during the period of military service or one year thereafter. (50 U.S.C. § 3953). (See our Key Aspects of State Foreclosure Law: 50-State Chart to find out if foreclosures where you live are usually nonjudicial.)

Even threats to foreclose without going to court are likely illegal. Because judicial foreclosures are much more expensive and typically take much longer than nonjudicial foreclosures, you might have a better chance of working something out with your lender. Also, you might be able to get a delay (the legal term is “stay”) of the foreclosure procedure if you request it from the court.

Protections in Judicial Foreclosures

Judicial foreclosures go through the state court system. The lender begins the process by filing a complaint and servicing it to borrower and other defendants, along with a summons to appear in court. Typically, a default judgment occurs if the borrower fails to respond to the suit.

The SCRA generally protects servicemembers against default judgments. A court may, however, enter a foreclosure judgment against an absent servicemember, but only under certain circumstances. Under the SCRA, a plaintiff (the party that brings a lawsuit) who seeks a judgment must inform the court if the defendant is in military service. If so, and neither the servicemember—nor an attorney on his or her behalf—appears in the action, the court can't enter a judgment until after the court appoints an attorney to represent the servicemember. (50 U.S.C. § 3931).

But if an attorney appointed to represent a servicemember can't locate the servicemember, the attorney's actions in the case won't waive any defense the servicemember has or otherwise bind the servicemember.

Default Judgments Can Be Reopened

If a court enters a default judgment against you while you’re on active duty (or within 60 days after your active duty ends), you may ask the court to reopen the judgment. The court will reopen the judgment so you can defend yourself if it appears to the court that:

  • your military service materially affected your ability to make a defense to the action, and
  • you have a meritorious or legal defense to the foreclosure or some part of it.

You must take action to reopen the judgment within 90 days after your release from active duty. (50 U.S.C. § 3931).

Interest Rates Must Be Reduced

The interest rate on a mortgage incurred before you entered active duty must be reduced to 6% while you’re on active duty and for one year thereafter. (You can get the reduction for other types of other obligations, too—for example, car loans and credit cards—but only for the duration of the period of military service.) Past payments of interest over 6% while you were on active duty must be forgiven (refunded), and the mortgage payment must be reduced to reflect the lower interest rate while it is in force. (50 U.S.C. § 3937).

To get the interest rate reduction, you have to notify the creditor in writing of your duty status and include a copy of the military orders requiring active duty status. You must send this notice no later than 180 days after your active duty status ends. It can be retroactive to the day your active duty started.

Example. Susan is a National Guard member. She and her husband sign a mortgage to buy a house at a subprime interest rate of 9%. Their payments are $1,900 a month. Six months later, Susan is called to active duty and deployed to Afghanistan. Her husband continues paying the mortgage at the required rate while Susan serves in Afghanistan for 15 months. When she returns home and is released from active duty, she learns from a military counselor that she was entitled to have the mortgage payments reduced while she was on active duty. She promptly sends a notice to the lender of her entitlement to the 6% interest rate, with a copy of her Afghanistan deployment orders, and demands that retroactive adjustments be made. She receives a check for $6,000. That’s 15 months times $400, the amount her payment would have been lowered had the interest rate reduction been made when she went on active duty.

Also, lenders may not negatively affect your credit rating for receiving the benefits you’re entitled to under the SCRA.

More State Protections

In addition to the federal law, most states have their own statutes that provide additional protections for servicemembers. For more information, check out Appendix A (State Information) in Nolo's The Foreclosure Survival Guide or talk to an attorney.

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