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Virginia Federal District Court Reviews SCRA and the Effect of Military Re-Entry by Borrower who Originated Loan during a Previous Active Duty Period

Posted By USFN, Tuesday, August 02, 2016
Updated: Tuesday, July 19, 2016

August 2, 2016

by E. Edward Farnsworth, Jr.
Samuel I. White, P.C. – USFN Member (Virginia)

In Sibert v. Wells Fargo Bank, N.A., No. 3:14CV737 (E.D. Va. May 4, 2016) the U.S. District Court for the Eastern District of Virginia grappled with the question as to what effect a borrower’s discharge from, and later re-entry into, military service might have regarding application of § 533 of the Servicemembers Civil Relief Act (SCRA). Specifically, § 533(a) grants protected status to an active duty servicemember with an obligation secured by a mortgage or deed of trust that “originated before the period of the servicemember’s military service and for which the servicemember is still obligated.” § 533(c) states that a foreclosure sale against a protected borrower without court approval is not valid. In considering cross-motions for summary judgment, the court framed its ruling as turning on “interpretation of the phrase ‘originated before the period of the servicemember’s military service.’” Id. at *8.

The borrower first served in the United States Navy from July 9, 2004 to July 8, 2008. It was during this first period of service that he originated the mortgage loan. Subsequent to being honorably discharged, the borrower re-entered the military by enlisting in the United States Army in April 2009. On May 13, 2009 during this second active duty period, his home was foreclosed.

The borrower contended that the foreclosure was void under the SCRA because he originated the mortgage loan in May 2008, prior to his current service period beginning in April 2009. Under his interpretation of the statute, the only relevant military service in relation to the loan’s origination was his current active duty period, upon which he based his claim for protection. Accordingly, the borrower asserted that he was protected because his loan originated prior to his most recent active duty period. The lender, by contrast, argued that the proper interpretation of the statute was that a borrower is not protected where the loan originated during “any” active duty period. Because the borrower originated the loan at a time that he was in the military, the lender reasoned, no protection from foreclosure was applicable under the statute.

The court held that the correct interpretation of the statute is that a subsequent active duty period is not germane where the loan was originated during a prior active duty period. The court, applying standard canons of statutory construction and considering the statute as a whole, opined that the statute is concerned with the “material affect” of entering the military for the first time after previously obtaining the mortgage loan:

“For a person entering military service for the first time, the resulting change in income and lifestyle relative to when they incurred the obligation could materially affect their ability to maintain payments . . . The same is not true for someone like Sibert, who incurred an obligation while already in the military, became a civilian, and then re-joined the military. Rather than being disadvantaged by re-entering the service, someone like Sibert has the same ability to comply with the obligation as when it was first negotiated and incurred.” Id. at *11.

The court also noted that this interpretation was consistent with other state and federal cases construing application of § 527 (mortgage interest rate limitation) and § 532 (protection for installment contracts for lease or purchase) of the SCRA, where the requirement for protection turns on whether the obligation originated while the borrower was in military service.

The foreclosed borrower has noted an appeal to the U.S. Fourth Circuit Court of Appeals, so there may be more forthcoming on this interpretation of the SCRA.


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