Q: What are a mortgage servicer's obligations under the Servicemembers Civil Relief Act ("SCRA")?
A: The Servicemembers Civil Relief Act ("SCRA") benefits are intended to provide financial relief and legal protection to eligible servicemembers and their families. Specifically, the SCRA may provide for a lower interest rate or prevent foreclosure for a period of time following active duty.
With regard to interest rate reduction, a borrower may submit a request in writing to a mortgage servicer. The SCRA provides relief from obligations on home loans that have an interest rate higher than 6%. Thus, servicemembers that closed their home loans before entering active duty may become eligible to receive a reduced interest rate. Interest rate reductions become effective with the first payment due after the servicemember enters active duty and for one year thereafter. If the mortgage servicer believes in good faith that the servicemember's ability to pay interest at a rate in excess of 6% per year is not materially affected by the servicemember's military service, it may apply to a court for relief from reducing the interest rate.
Under the SCRA, the sale, foreclosure, or seizure of real estate shall not be valid if it occurs during or within ninety (90) days after a servicemember's military service unless a mortgage servicer obtained a valid court order approving the sale, foreclosure, or seizure. With the enactment of the Foreclosure Relief and Extension for Servicemembers Act in March, 2016, the time frame for foreclosure protection extended from 90 days to one year after active duty. This increase was retroactively applied as of January 1, 2016, but is temporary and will revert back to 90 days on January 1, 2018 unless extended by further legislation.
A mortgage servicer may receive notification of a mortgagor's active military status through various means and must be aware of the protections afforded to these individuals, as well as Agency-specific requirements. For instance, the U.S. Department of Housing and Urban Development ("HUD") requires that for all mortgage loans, including conventional mortgages, the servicer provide a SCRA Notice Disclosure to a borrower that defaults within 45 days from the date a missed payment was due, unless the borrower pays the overdue amount before the expiration of the 45-day period.