A federal law called the Servicemembers Civil Relief Act (SCRA) (50 U.S.C § 3901 and following) generally offers military servicemembers protection against default judgments in judicial foreclosures. But a federal appeals court in Louisiana recently ruled that this protection doesn't apply if the foreclosing bank is enforcing a "confession of judgment" clause in a mortgage. (See Fodge et al v. Trustmark National Bank et al., 5th U.S. Circuit Court of Appeals, No. 19-30279). So, most military servicemembers facing a foreclosure in Louisiana don't get this protection.
Judicial foreclosures go through state court. The foreclosing bank starts the process by filing a complaint and having it served on the borrower and other defendants, along with a summons to appear in court. The court may enter a default judgment (an automatic win for the bank) if the borrower fails to respond to the suit.
Under the SCRA, a court can't enter a default judgment against a military servicemember who "does not make an appearance" in a judicial foreclosure unless the foreclosing bank follows specific procedures. (50 U.S.C. § 3931).
To complete a judicial foreclosure against an absent servicemember, the bank must:
To learn more about legal relief for military personnel, see Foreclosure Protections & the Military: When a Servicemember Gets a Mortgage After Going on Active Duty and Foreclosure Protections & the Military: When a Servicemember Gets a Mortgage Before Active Duty.)
In Louisiana, the foreclosing bank can choose between judicial foreclosure or what's called an "executory proceeding." While both foreclosure types are judicial (that is, they go through a court), an executory foreclosure proceeds in a streamlined manner. The most common type of foreclosure in Louisiana is by way of an executory proceeding.
Here's how the executory process works: Most Louisiana mortgages include language that entitles the bank to a "confession of judgment" (a foreclosure judgment) if the borrower doesn't make payments on the loan. Basically, the borrower agrees when taking out the loan that the bank can automatically win its foreclosure case after a default by presenting the contract to the court. (These types of clauses are unenforceable in some states, or allowed in commercial contracts only, but Louisiana law permits them.)
With an executory proceeding, the bank just has to file a petition and supporting evidence, and the court summarily orders the property seized and sold. (La. Code Civ. Proc. Ann. Arts. 2634, 2638.) (To get more details about how the executory proceeding works, see Summary of Louisiana's Foreclosure Laws.)
In the case of Fodge et al. v. Trustmark National Bank, several military servicemembers initiated a putative class action claiming that the banks that foreclosed on their Louisiana homes didn't comply with the SCRA's restrictions on default judgments.
The servicemembers were on active duty in the military when the banks foreclosed on their properties through executory proceedings in Louisiana. While the servicemembers didn't dispute the banks' right to foreclose, they did have an issue with the method by which the banks did so.
The servicemembers conceded that each of their loan agreements contained a clause containing a confession of judgment, but they argued that the banks weren't in compliance with the SCRA because:
So, the servicemembers claimed the foreclosure actions violated the SCRA's protections against a default judgment.
The district court decided that the SCRA didn't protect the servicemembers and dismissed their SCRA claims.
On appeal, the Fifth U.S. Circuit Court of Appeals affirmed the lower court's ruling. The appeals court said that the SCRA's protections against default foreclosures apply to proceedings in which the defendant doesn't make an appearance, and past Louisiana Supreme Court cases have treated a confession of judgment clause as an answer and an admission of liability, which is an appearance. So, according to the court, the servicemembers made an appearance through their confessions of judgment. After holding that the SCRA's protections against default judgments didn't apply, the court said the servicemembers' arguments about the lack of a valid waiver were moot because there was nothing to waive.
Ultimately, the court held that the SCRA's protection against default foreclosure judgments doesn't come into play if the bank is enforcing a confession of judgment clause in a Louisiana foreclosure.
Effective date: December 19, 2019