In the wake of the terror that unfolded on September 11, 2001, an estimated 50,000 members of the Reserve and National Guard are expected to be called to active duty. Based on these deployments, financial institutions are well advised to be aware of and compliant with the Soldiers’ and Sailors’ Civil Relief Act of 1940 (“SSCRA”).
Congress enacted the SSCRA to relieve service members of the legal and financial hardships placed on them when called to active duty. In light of the substantial deployments expected to fight the war on terrorism, lenders should reacquaint themselves with its requirements.
Generally, the SSCRA applies to all service members, including Reserve and National Guard members, on active duty. In addition to service members, the SSCRA protects dependents of service members and guarantors if they have joint liability on an obligation with someone who has entered the military service.
There are various forms of protection available to service members under the SSCRA, some of which are conferred automatically, while others require court action. The protections include the following:
· Interest Rate Cap. The SSCRA provides for a 6 percent interest rate cap on any existing obligations of a borrower during active duty. Although the interest rate cap is automatic, a creditor may apply to a court to obtain a higher rate of interest by asserting that the borrower’s service does not effect his/her ability to repay the loan.
· Tolling of Redemption. The redemption period in a foreclosure action is automatically tolled regardless of whether the borrower’s military service effects the ability to redeem the property. Therefore, the redemption period does not run while the borrower is in active duty.
· Stay of Obligations. At any time during active duty or six months thereafter, a borrower may apply to a court for a stay of obligations incurred prior to active duty, including requesting that payments be temporarily reduced or suspended.
· Proceeding with Mortgage Foreclosure Actions. A lender must obtain court authorization to commence or continue a foreclosure action if the borrower is on active duty or has been within the last three months. To proceed, the lender must show that the borrower’s active duty status had no “material effect” on the ability to pay the obligation or defend the action.
· Repossession of Real and Personal Property. Generally, without a prior court order, lenders are prohibited from terminating installment loan contracts or from repossessing real or personal property securing such contracts during the borrowers active duty. This section may also apply to automobile leases if there is an option to purchase at the conclusion of the lease.
von Briesen & Roper Legal Update is a periodic publication of von Briesen & Roper, s.c. It is intended for general information purposes for the community and highlights recent changes and developments in the legal area. This publication does not constitute legal advice, and the reader should consult legal counsel to determine how this information applies to any specific situation.