Colonel John S. Odom, Jr., USAF( Ret.) Esq., Jones & Odom, LLP, Shreveport, LA
Honorable Jeff Miller
Honorable Bob Filner
Re: February 9, 2011 Hearing on Alleged violations of the Servicemembers Civil Relief Act
Mr. Chairman, Ranking Member Filner, Members of the Committee:
I am grateful to the Committee for its invitation for me to present testimony on alleged violations of the Servicemembers Civil Relief Act (SCRA) by financial institutions and related matters. Cases arising under the SCRA occupy a substantial amount of my law practice and I appreciate any opportunity to share with the Members of Congress information about violations I have observed and suggestions I have for improvements to the SCRA.
By way of introduction, I am a practicing attorney in Shreveport, Louisiana. From 1973 to 2005, I served as a judge advocate in the United States Air Force. Although I retired in 2005 in the grade of Colonel, I was recalled from retirement in 2010 and served for six months in the Office of Legal Policy, Undersecretary of Defense for Personnel & Readiness in the Pentagon. During that tour of duty, I was the principal author on a Report to Congress concerning certain child custody matters related to the SCRA. For over 20 years, I have lectured extensively on the topic of the Soldiers’ and Sailors’ Civil Relief Act (SSCRA), and the SCRA at the Air Force Judge Advocate General’s School at Maxwell AFB, Alabama, the Army Judge Advocate General’s Law Center and School at Charlottesville, Virginia and the Naval Justice School at Newport, Rhode Island. I have also lectured for local, state and national bar associations, judges’ conferences and judicial colleges, consumer advocacy groups, bankruptcy trustee associations and financial service groups around the country concerning the SSCRA and the SCRA . I have recently completed writing a Bench Book on the SCRA which will be published by the American Bar Association later this year. I have represented countless servicemembers in a variety of claims under the SCRA, both in negotiations which led to out of court settlements and others that resulted in successful litigation.
At the present time, I am lead counsel for Sergeant James Hurley in his suit against Deutsche Bank Trust Company Americas, Saxon Mortgage Services, Inc. and Orlans Associates, P.C., currently pending in the Western District of Michigan (Case No. 1:08-cv-361). As of February 4, 2011, over 300 pleadings had been filed in that case and the attorneys representing Sergeant Hurley have expended over 5,000 hours trying to recover damages for a National Guardsman whose home was illegally foreclosed upon, his family evicted and the property sold to a third party while he was deployed to Iraq. The case presents the worst case scenario for any servicemember—answering the call to duty only to find that when you returned home, everything you valued most in the way of property was irrevocably gone and nothing you did could recover it. The most amazing aspect of Hurley is the fact that after nearly three years of litigation, the Court granted summary judgment in favor of Sergeant and Mrs. Hurley against the mortgage company, the mortgage servicing company and the law firm that had carried out the illegal foreclosure—and still there has been no monetary settlement to compensate this family two years after the defendants lost by summary judgment.
The Chairman’s invitation to present testimony asked that I inform the Committee of information I had on (1) financial institution compliance with SCRA; (2) how to best educate servicemembers as to their protections and responsibilities under SCRA; and (3) how to best inform the industries affected by SCRA as to their obligations. I was also asked to include any suggested changes or clarifications I believe need to be made to improve the SCRA.
I want to thank this Committee and the entire Congress for the significant improvements made to the SCRA near the end of the 111th Congress. Specifically, the amendments to the SCRA contained in the Veterans’ Benefit Act of 2010, Public Law 111-275, amended Section 305 of the Act (50 U.S.C. App. §535) to specifically prevent any early termination fees for leases of premises or motor vehicles being terminated under the Act. It also revised Section 305a (50 U.S.C. App. §535a) to make termination of cell phone service contracts easier for servicemembers who are transferred to an area where their contract carrier does not offer service. Finally, and most importantly, Public Law 111-275 established a new Title VIII for the SCRA, comprised of Sections 801 through 803 (50 U.S.C. App. §597, 597a and 597b) that clarify that the Attorney General has enforcement authority and that a private cause of action exists for damages plus costs and attorneys fees to sue violators of the SCRA. Those amendments are invaluable and I express my sincere appreciation for that action. When the President signed the law on October 13, 2010, he took action that will eliminate the need for future litigants to prove, as was the case in Sergeant Hurley’s case, that they had a right to bring an action for damages against violators of their SCRA rights. That exercise in Hurley alone took nearly two years and countless hours of legal work to convince a federal judge that Sergeant Hurley had a right to be in court.
1. Financial Institution Compliance with SCRA
After handling hundreds of SCRA issues related to financial institutions, I am convinced that many of the financial institutions in our country, including some of our largest banks and mortgage companies, have a fundamental misunderstanding of of the SCRA. Specifically, with regard to pre-service obligations, the financial community is well aware of the procedures necessary for a servicemember to request interest rate relief under 50 U.S.C. App. §527. If a servicemember has a pre-service obligation that bears interest at a rate above 6% per annum, they can make written demand to the creditor for reduction in the interest rate to no more than 6%. Per the terms of the SCRA, the servicemember must submit to the creditor a copy of their military orders. That demand for interest rate relief can be made at any time during the period of service, or within 180 days after release from active duty and any reduction would be retroactive to the first date of active duty. We refer to that as a Section 527 request and the banks and other financial institutions know precisely how to administer such demands.
The complete disconnect comes when the situation moves from demands for interest rate relief under Section 527 to the protections against non-judicial foreclosures of mortgages under 50 U.S.C. App. §533. The existing mortgage foreclosure protection—regardless of whether the default on the mortgage occurs prior to or during the period of active duty—provides that no sale, foreclosure or seizure of property for a breach of a mortgage protected by the SCRA (that is, a pre-service mortgage) is valid if made during or within nine months after the period of service except upon a court order granted before such sale, foreclosure, or seizure with a return made and approved by the court. In other words, if a mortgage is protected by the SCRA, no self-help, or non-judicial foreclosure is allowed. There are 23 states in which some form of non-judicial foreclosure is ordinarily allowed. In those states, the mortgage companies will have obtained a waiver of any legal proceedings in the event of a default in the mortgage documents themselves. However, such a waiver is invalid under 50 U.S.C. App. §517. When the mortgage companies want to foreclose on mortgage protected by the SCRA, they must file an ordinary lawsuit and get service on the defendant-servicemember. The servicemember is then entitled to a hearing before a judge, who has the power to stay the foreclosure, adjust the obligations between the parties and basically do just about anything the judge wants to do to protect the servicemember and his or her family from foreclosure. The mortgage companies have a hard time accepting the fact that the SCRA alters the terms of conventional contracts—but that is precisely what the Act does.
In my experience, the mortgage companies do not understand that they cannot foreclose on an SCRA-protected mortgage except judicially. I am aware of any number of cases, Hurley being a prime example, in which the mortgage company stubbornly demanded copies of the servicemembers’ individual orders before according them SCRA protection. That may be appropriate in a Section 527 interest rate relief case, but it is completely improper in a Section 533 case involving protection from a non-judicial foreclosure. The creditors have the burden of ascertaining the military status of debtors before exercising any non-judicial foreclosure rights. Congress shifted the burden from the servicemember (where the burden falls in a Section 527 interest rate relief situation) to the creditor (where it falls in a Section 533 mortgage foreclosure situation). The creditors have no right to try and shift that burden back to the servicemembers.
Banks and mortgage companies cannot have a “one size fits all” SCRA compliance policy. A policy that may be valid for compliance with Section 527 interest rate relief requests is probably useless for Section 533 mortgage foreclosures if the creditor is insistent on receiving copies of orders before granting SCRA protection from non-judicial foreclosures.
The Hurley case is illustrative of the problem. During the run up period prior to his actual reporting for active duty, Sergeant Hurley received his unit mobilization orders at the weekend drill in September 2004. He knew he was being mobilized and from the point he received those orders, he was protected under Titles I, II and III of the SCRA (see 50 U.S.C. App. §516. His mother, holding a power of attorney from him, contacted the mortgage servicing company on his loan a total of six separate times informing Saxon Mortgage Services that Sergeant Hurley was being mobilized and would go on active duty effective 25 October 2004. The notifications included having Sergeant Hurley’s commanding officer fax a letter to Saxon indicating “this soldier is trying to claim his SCRA rights”. Saxon already had Hurley’s name, Social Security Account Number and unit information from earlier orders he had sent to them. The fax from the commanding officer included a letter advising that Sergeant Hurley would be on active duty beginning 25 October 2004 for a period of up to 18 months, and included a copy of the First Army unit mobilization orders. Sergeant Hurley’s individual orders were not issued until 12 October 2004. Despite all of those notices (which the federal judge on the case has determined provided more than enough information for Saxon to know Sergeant Hurley was protected by the SCRA), Saxon referred the file to a Michigan foreclosure firm, Orlans Associates, P.C., which initiated a non-judicial foreclosure on Sergeant Hurley’s property on 14 October 2004. In the referral of the file, Saxon failed to notify Orlans that Hurley’s case might involve protections under the SCRA. Obviously, the Hurley file must have been referred to Orlans Associates for foreclosure at some time prior to 12 October 2004 (the date of Hurley’s orders). In other words, Saxon was demanding Hurley submit something that did not exist—his individual orders and refusing to follow the SCRA’s prohibition against non-judicial foreclosures under they—not Congress—felt like granting Hurley SCRA protection.
As the court in Hurley ultimately ruled, it was Sergeant Hurley’s status as a mobilized member of the National Guard that provided the SCRA protection—regardless of Saxon Mortgage Services’ illegal policy demanding that orders— that did not even exist-- be submitted before protection would be accorded him. Saxon continually attempted to impose on the servicemember a requirement from one section of the SCRA (Section 527’s requirement to submit a copy of the orders) in a case arising under another section of the Act (Section 533). The Supreme Court in Conroy v. Aniskoff, 507 U.S. 511 (1993) has ruled that the Act is a “carefully reticulated” statute. Congress is presumed to know what it enacts and requirements of one section of the Act cannot be superimposed on another section of the Act. If Congress wants to amend the law, fine—but the creditors do not get to decide when a servicemember is protected. The Congress has already made that decision.
One simple illustration suffices to show why an SCRA compliance policy that requires submission of orders before Section 533 protections are accorded is invalid. Suppose a servicemember had a mortgage that had an interest rate below 6%. In such a case, the servicemember would not be entitled to any relief from his or her mortgage company and might go off to war without ever notifying the mortgagee of anything. Thereafter, if the mortgage obligation went into default (the reason for the default is completely immaterial), it would be preposterous for a mortgage company—claiming that it could foreclose non-judicially because the mortgagor had never sent in a copy of his or her orders—to conduct a non-judicial foreclosure and then sell the property. Such a violation of 50 U.S.C. App. §533 would be viewed as a travesty, and would have taken place because the creditor failed to take the minimal time required to ascertain the active duty status of the mortgagor.
The Department of Defense, through the Defense Manpower Data Center, maintains a publically-accessible website (https://www.dmdc.osd.mil/appj/scra/scraHome.do) where anyone can check the active duty status of a person with only a name, Social Security number and date of birth (or just a name and either a Social Security number or a date of birth). Every creditor is going to have a Social Security number on a mortgage debtor to issue the certification of the amount of interest paid at year end for income tax returns. It takes only a few seconds to type in the necessary search data and about five seconds for a certificate to pop up on the computer screen advising if the person is on active duty and, if so, what branch, the initial date of active duty and, if the person has been released from active duty within the past 366 days, the date of last active duty. The process is so simple that there is no excuse whatsoever for a creditor not ascertaining the military status of a debtor before any non-judicial mortgage foreclosure proceeding is commenced.
I have permission from several clients to mention their names and briefly describe their battles with mortgage companies. I represented Sergeant John Savage of North Carolina several years ago in a suit against a major lender that had lowered his interest rate on his request and sent him a letter advising him of the new, lower monthly payment. He left for Iraq and every month his wife sent in the new payment, the payment center returned the check with a notation that they did not accept partial payments. After several months, the mortgage company posted a notice of non-judicial foreclosure on the door of their home. When Mrs. Savage came home from her job at Wal-Mart, she found their teenage son curled up on the front porch inconsolable after he had seen the foreclosure notice and believed the family was about to become homeless—all because their father had answered his country’s call to arms. While we got the foreclosure stopped, the bank did not clean up Sergeant Savage’s credit and when he returned—injured and partially disabled—he was unable to borrow any money to restart his small business. All because the payment center of the bank did not get the word from the legal department.
Chief Warrant Officer 2d Class Chip Pickett of Arizona had me on his speed dial from Iraq. When he was not flying helicopter missions in combat, he was doing battle with Bank of America which, although they had coded his mortgage as SCRA protected, for unknown reasons kept referring it to a non-judicial foreclosure four different times over an eight month period. Every time Chip would call, I would have to stop everything I was doing and contact Bank of America to get the same wrong answer—“The house is not going to be foreclosed upon. Uh-oh, wait a minute. We’ll need to contact that law firm and stop the foreclosure sale set for tomorrow.” Frustrating does not begin to describe how the process made me feel. To think that anyone deployed overseas could handle these types of problems is ridiculous. Moreover, Chip’s mind was diverted from the one thing we really wanted him to be concentrating on—flying his aircraft safely and effectively. This is a combat effectiveness issue if ever there was one.
The banks are going to have to improve their internal communications and implement SCRA compliance policies that actually comply with the law. If regulators are going to audit SCRA compliance, this Committee must make sure the auditors understand what they are supposed to be looking for. Most regulators came from the banking industry, and I have low confidence in their understanding of what “no non-judicial foreclosures” actually means.
2. Education of Servicemembers on Rights and Responsibilities
The SCRA already requires education of all new servicemembers on their rights and responsibilities under the SCRA. However, young people tend to hear what they want to hear. They hear about 6% interest rate caps and tune out the part about “pre-service obligations”. They hear “SCRA-protected” and some of the troops mistakenly think that means they can stop making their monthly payments.
The sources of good, reliable information on the SCRA are almost too many to count. Within the DoD, the Military OneSource website has accurate and understandable information about SCRA and specifically how to deal with mortgage problems available within two clicks of the mouse when on their site. I have reviewed the materials and they are quite good.
Every post, base and station with a Legal Office has trained Legal Assistance officers available for assistance. Through the training these judge advocates, civilian attorneys and paralegals receive at the Service JAG Schools, they are able to assist in contacting creditors, drafting correspondence and giving advice to servicemembers on SCRA matters. Financial counseling is available at most of the larger installations, and those counselors know to send the servicemembers to the Legal Office when the situation calls for it.
The American Bar Association’s Legal Assistance to Military Personnel Committee holds quarterly meetings at military installations around the country. Generally, a one-day continuing legal education seminar, always featuring SCRA instruction, is conducted for local members of the bar as well as military attorneys. Through the ABA’s Military Pro Bono Program, hundreds of qualified attorneys around the country have volunteered to assist servicemembers (E-6 and below) in civilian legal matters in court, including SCRA issues.
Since many of the SCRA’s protections apply primarily to Reserve and Guard members (who generally have more pre-service obligations than active duty servicemembers), the judge advocates for those units are especially well aware of the SCRA’s protections and their members’ responsibilities. Many of those units draft the notices to creditors required by Section 527 for the members and have form letters available for that purpose.
3. Training for the Banking and Credit Industry on SCRA
I am not aware of what types of seminars bank compliance officers conduct or attend to ensure compliance with the SCRA. Based on depositions we have taken in the Hurley case, the two compliance officers offered as experts by one of the defendants were simply not competent to interpret the SCRA. The SCRA specialists with the mortgage servicing company demanded copies of Sergeant Hurley’s orders and did not afford him SCRA protection when he did not submit orders (which did not then exist). In their depositions, they acknowledged that they had never read the SCRA, did not understand how it worked, and only knew that they had a compliance policy that started with the words “the member is responsible for submitting his orders and no SCRA protection will be granted until the bank has reviewed the orders and determined that SCRA protections should be in effect”, or words to that effect.
Bank regulators should receive training in the SCRA and then devise audit criteria for the banks under their supervision and control to ensure that the Act—both as to requests for interest rate relief and as to protection of servicemembers from non-judicial foreclosure and default judgments—was being followed. A “one size fits all” SCRA compliance policy does not exist. Different sections of the Act require different efforts by the banks to provide SCRA compliance.
4. Recommendations for Amendments to the SCRA
I recommend the following technical amendments to the SCRA:
Amend 50 U.S.C. App. §597a of the SCRA to provide that no action brought to enforce a member’s rights or obtain damages as a result of SCRA violations shall be subject to a mandatory arbitration clause in the contract or other obligation that gives rise to the suit.
Amend Section 305 of the SCRA (50 U.S.C. App. §535) to a) clarify that an order to a servicemember to move from off-base into on-base quarters qualifies as a grounds to terminate a lease earlier than its term, and b) that the term “permanent change of station” has the definition found in the Joint Federal Travel Regulations (which would include ETS moves, and retirement moves).
Further amend Section 305 of the SCRA (50 U.S.C. App. §535) to delete subparagraph (i), and move that language to Section 101 (50 U.S.C. App. 511). The broader definition of “military orders” should apply to all sections of the SCRA in which a servicemember is required to submit copies of military orders to a creditor or other obligee. Many times, the individual servicemember’s orders are not cut and published until he/she has either actually gone on a deployment or is so close to departure that other matters are more pressing than getting copies of orders to creditors. If the general definitions in the SCRA of “military orders” and “CONUS” were included in Section 101, commanders would be able to write letters certifying the upcoming active duty status of a member of the Guard or Reserve (or active force) so that creditors’ demands for copies of military orders could be deemed satisfied. This has been a huge issue in Hurley v. Deutsche Bank Trust Company Americas, since the bank’s defense was that Sergeant Hurley did not supply a copy of his individual military orders to the mortgagee and the bank therefore did not extend to him SCRA protection against non-judicial foreclosure of his mortgage. Of course, Congress has differentiated between a case in which the soldier requests interest rate relief under 50 U.S.C. App. §527 (and is required to submit a copy of his military orders) and a situation in which a mortgagee wishes to proceed non-judicially to seize property and foreclose on a mortgage (in which case under 50 U.S.C. App. §533, there is no obligation on the part of the servicemember to do anything to be protected). However, the vast majority of banks have one SCRA compliance policy and it is geared to interest rate relief requests. Therefore, anything Congress could do to satisfy the requirement of submission of military orders (including changing the definition of what qualifies as “military orders” under the SCRA) would be helpful.
Amend Section 203 of the SCRA (50 U.S.C. App. §523) to clarify that an early pre-payment penalty on a mortgage is included within the coverage of that section and providing that if it is necessary for a servicemember to obtain a court order to force a creditor to waive an early pre-payment penalty for a mortgage when the pre-payment is a result of either a deployment in excess of 180 days or a PCS move, the creditor shall be liable for the reasonable attorneys fees and costs incurred by the servicemember to obtain such a court order.
Amend the SCRA to clarify that the Act applies to the debts and obligations of limited liability companies and Subchapter S corporations, including property taxes owed by those entities, when the company/corporation is wholly-owned by the servicemember or the servicemember and a spouse and, in the case of debts other than taxes, the servicemember is personally liable on the debt, either as a co-maker or as a guarantor. (Property taxes will never be a personal liability of the servicemember who owns the business, but loss of the business due to a tax sale will obviously adversely impact the servicemember, so the protections of the SCRA should be extended to tax debts of businesses wholly-owned by the servicemember.)
Amend Section 201(b)(2) of the SCRA (50 U.S.C. App. §521(b)(2)) to provide that the reasonable fees of the attorney appointed by the court to represent the servicemember shall be taxed as costs of court.
Amend the SCRA to add a provision that the expiration dates of any license or certification issued by any state or federal agency (including driver's licenses, nurses' licenses, contractors' licenses, etc.) shall be extended to a period that is 90 days after the release from active duty of a servicemember. Additionally, add a provision to exempt from the requirements of continuing legal or medical education levied by any state or federal agency, bar or medical association any servicemember who is serving in a legal or medical billet and is deployed outside the CONUS for 180 days or more during the year.
Amend Section 303 of the SCRA (50 U.S.C. App. §533(b) and (c) to extend the protection against non-judicial foreclosures from nine months to twelve months. That would bring the SCRA mortgage protection provision in line with the extension of the interest rate cap of 6% for mortgage debt found in Section 207 of the SCRA (50 U.S.C. App. §527). As it is now, the protection against non-judicial mortgage foreclosure extends for nine months but the interest rate protection extends for twelve months after release from active duty. Making the two periods different by three months makes no real sense. The extension periods should be the same.
There is one other action this Committee could recommend that would be invaluable in trying to promote understanding of and compliance with the SCRA. When the SCRA was enacted in 2003, the Government Printing Office printed the entire text of the Act in a single document. Since that date, because of numerous minor and some major amendments, the GPO has not reprinted the SCRA in a single document. It would be most helpful for servicemembers, practitioners and those responsible for compliance with the Act to have access to a single document (that did not require a subscription to LEXIS-NEXIS of Westlaw to obtain) where the complete text of the Act, current through the end of the 111th Congress, could be found in readily available format.
I appreciate the opportunity to have submitted this testimony to the Committee and would be happy to entertain any questions the Members of their staffs might have. Please address any questions to me at firstname.lastname@example.org.
John S. Odom, Jr., Colonel, USAF (Ret.)