April 5, 2016
by J.D. Fichtner
McCalla Raymer, LLC – USFN Member (Georgia)
Compliance with the federal Servicemembers Civil Relief Act (SCRA) (50 U.S.C.A. §§ 3901-4043) has always been, and remains, a major concern in the American mortgage servicing industry. The reasoning for the importance of compliance with this particular law is two-fold: One, there is a unique moral component to compliance with this law that does not necessarily exist with other laws. The idea behind the SCRA — to protect the rights and property of those who choose to fight for our country — is something that resonates with Americans. Second, the penalties for violating the SCRA are severe (See 50 U.S.C.A. § 4041). For example, the Department of Justice recently entered into a $123 million settlement with five major servicers for an estimated 1,000 SCRA violations.
Mortgage investors have begun raising major concerns regarding two facets of SCRA compliance: (1) sending notice of potential SCRA rights in any default or collections action; and (2) the filing of affidavits in judicial actions. The SCRA does not explicitly require that servicers perform either of these actions; however, there is an argument that the SCRA contemplates these actions. Additionally, following these methods is an effective way of showing compliance with the requirements of the SCRA.
Notices — The SCRA places the burden of notifying servicemembers and other protected persons upon “the Secretary” of the servicemember’s respected service (50 U.S.C.A. § 3915). In the majority of cases, this will be the Secretary of Defense. Nonetheless, it is best for firms and servicers to include information concerning potential SCRA benefits any time they are pursuing legal or collections action. This is in order to give anyone who may be protected the opportunity to come forward and assert his or her protection.
Many investors and servicers now require that their servicers and vendors send some notice of potential SCRA benefits. In almost every action contemplated in the servicing industry (whether it be foreclosure, eviction, etc.), notice is required to be mailed to the subject property and/or to the borrowers/owners/occupants. Correspondingly, it is sound to include SCRA benefits information in all notices that a servicer, law firm, or vendor may send.
Affidavits — The SCRA does contemplate the filing of an affidavit attesting to the military status of defendants in civil actions, specifically in cases where a default judgment is sought or granted (50 U.S.C.A. § 3931). Section 3931 of the SCRA obliges all American courts to require plaintiffs to file an affidavit “stating whether or not the defendant is in military service and showing necessary facts to support the affidavit” or “if the plaintiff is unable to determine whether or not the defendant is in military service, stating that the plaintiff is unable to determine whether or not the defendant is in military service” in any civil action “in which the defendant does not make an appearance.”
While the SCRA induces all courts to follow this affidavit requirement, many courts do not apply this portion of the SCRA, either by not compelling that an affidavit as to military status of the defendant be filed prior to issuing a default judgment, or by not requiring sufficient language in the affidavit. Consequently, many investors and servicers now direct their law firms and vendors to file affidavits of military status in all judicial proceedings where they are listed as the plaintiff. The general practice is to file an affidavit asserting that the named defendant is not protected by the SCRA, along with a copy of a Defense Manpower Data Center (DMDC) record check showing the same. Many investors take this a step further and have very specific requirements regarding the form of the affidavits, the timing of the record checks, the execution and filing of these affidavits, as well as the language contained in the affidavit.
Correspondingly, a recommended practice would be to ensure that in every judicial action filed, an affidavit as to the military status of the defendants, along with a DMDC record check attached as an exhibit, is submitted. This ensures that, even if a court is not applying section 3931, the relevant entity is in compliance with the section and can prove this in a potential action regarding an SCRA violation. It is also prudent for the affidavit to contain language addressing anyone else who may be affected by the litigation but is not named as a defendant (i.e., occupants in an eviction action who are not named as defendants because they are not required to be).
This language can be as simple as something along the lines of “[Plaintiff] is unaware of the military status of any John/Jane Does who may be affected by this judgment.” With that being said, it is important to keep in mind that many courts have their own specific requirements as to what may be filed and what forms must be used. In certain jurisdictions, filing an affidavit not on the court’s forms may create more problems than it solves, especially if the court has its particular SCRA affidavit procedure that conflicts with this suggestion. Accordingly, every effort should be made to take varying jurisdictional requirements into consideration.
There are steps that can be taken to help ensure compliance with the SCRA that are not explicitly contemplated or required by the SCRA. This brief article covers two relatively easy points. Specifically, the inclusion of SCRA benefits information in all notices sent, and the filing of an affidavit as to the defendant’s military status in all judicial actions.
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