If you're an active-duty military servicemember, you get certain mortgage and foreclosure protections under the federal Servicemembers Civil Relief Act (SCRA). In some cases, protections under the SCRA even extend for a specific amount of time after active duty.
Most of the SCRA protections regarding mortgages and foreclosure help out military servicemembers who took out mortgage loans before going on active duty. But military servicemembers who took out mortgage loans after starting active duty also get some help.
Who Does the SCRA Protect?
The SCRA applies to:
- active duty servicemembers (Air Force, Army, Marines, Navy, or Coast Guard)
- reservists on federal active duty
- commissioned officers of the Public Health Service or the National Oceanic and Atmospheric Administration, and
- members of the National Guard under a call to active service authorized by the President or the Secretary of Defense for a period of more than 30 consecutive days for purposes of responding to a national emergency declared by the President and supported by federal funds.
A servicemember is also covered by the SCRA for any period of time when absent from duty because of sickness, wounds, leave, or another lawful cause. In some situations, dependents of servicemembers are also entitled to protections under the law.
The SCRA doesn't apply to Reserve or National Guard members not on active duty, retired military personnel, or National Guard troops called to duty under state orders. However, some states, like California, provide protections similar to the SCRA for National Guard members and reservists called up to active duty under state orders.
In addition to mortgage and foreclosure protections, the SCRA provides protections to military servicemembers in other areas like evictions, administrative proceedings, leases, and credit reporting.
Nonjudicial Foreclosures Aren't Allowed
One significant protection for military families is that the SCRA requires a lender to file a lawsuit and get a court to sign off on a foreclosure or get a waiver from the servicemember before foreclosing.
Specifically, the SCRA says a foreclosure during, or within one year after, a servicemember's period of military service is invalid unless:
- a court orders the foreclosure sale or
- the servicemember executes a waiver. (50 U.S.C. § 3953 (2024).)
So, servicemembers are protected against nonjudicial foreclosures. To foreclose, the lender must go through court (or get a waiver).
Delaying a Judicial Foreclosure
The SCRA allows a servicemember to potentially get a delay (called a “stay”) of 90 days or more in a judicial foreclosure action. The servicemember must meet certain criteria and request the stay from the court in writing. This protection applies to any civil action or proceeding, including foreclosure, and it doesn’t matter when the servicemember took out the mortgage loan being foreclosed.
To apply for a stay of foreclosure, a servicemember’s application to the court must include:
- a letter or other communication explaining why the servicemember’s current military duty requirements materially affects the servicemember’s ability to appear in court, as well as give a date when the servicemember is available to appear, and
- a letter or other communication from the servicemember’s commanding officer stating that the servicemember’s current military duty prevents a court appearance and that military leave is not authorized for the servicemember at the time of the letter. (50 U.S.C. § 3932 (2024).)
A court will usually allow a lender to go ahead with a foreclosure when a borrower's military status hasn’t materially affected the servicemember’s ability to pay the loan or appear in court.
Protection Against Default Judgments
The SCRA also provides protection against default judgments, which applies in judicial foreclosures, no matter when the servicemember took out the loan. A "default judgment" is a judgment in favor of the lender when the borrower doesn’t appear in the foreclosure lawsuit. The lender may complete a judicial foreclosure against an absent servicemember only under specific circumstances.
Under the SCRA, a plaintiff (the party that brings a lawsuit) who seeks a judgment must inform the court if the servicemember is on active duty. If neither the servicemember, nor a lawyer on the servicemember's behalf, appears in the action, the court can't enter a judgment until after the court appoints a lawyer to represent the servicemember. (50 U.S.C. § 3931 (2024).)
But if a lawyer appointed to represent a servicemember can't locate the servicemember, the lawyer's actions in the case won't waive any defense the servicemember has or otherwise bind the servicemember. Also, under the SCRA, a court may grant a stay of proceedings if requested by the attorney or upon the court's motion for a minimum of 90 days if:
- the servicemember might have a defense to the foreclosure, and the defense can't be presented without the servicemember's presence or
- after due diligence, the servicemember's attorney hasn't been able to contact the servicemember or otherwise determine if a meritorious defense exists. (50 U.S.C. § 3931 (2024).)
How to Get a Lower Mortgage Interest Rate
Under the SCRA, a creditor has to lower the interest rate on a mortgage or other debt, like a car loan or credit card, to 6% if the servicemember incurred the debt before going on active duty. The reduction must stay in effect while the servicemember is on active duty and for one year afterward. In addition, the creditor has to refund any amounts of interest over 6% that the servicemember previously paid while on active duty. (50 U.S.C. § 3937 (2024).)
A creditor can fight the interest-rate reduction in court if the creditor thinks that military service hasn't materially affected the servicemember’s ability to pay the interest on the loan. Generally, however, to prove that you can’t afford the higher rate, you simply must show you’re making less income than before going on active duty.
Protections for Veterans Regarding Medical Debts and Credit Reports
Under a different federal law, as of May 24, 2019, credit reporting bureaus, like Equifax, Experian, and TransUnion, have to exclude certain medical debts from veterans’ credit reports.
Specifically, when preparing a credit report, the credit reporting bureaus can’t include any debts that a veteran owes to a non-VA medical provider for medical care that the U.S. Department of Veterans Affairs (VA) authorized, and where the provider sought payment from the VA, until the debt is more than one year old. Also, a bureau has to remove any information about medical debt that’s characterized as delinquent, charged off, or in collection after the debt has been fully paid or settled. (15 U.S.C. § 1681c(a) (2024).)
If a bureau includes medical debts that it shouldn't in a credit report, a veteran can dispute these debts by sending the bureau:
- a VA notification that the VA has assumed liability for the debt
- proof of the VA’s liability for payment, or
- documentation that the VA is in the process of paying the debt.
Once the bureau receives this information, it must delete all information related to the debt in question from the veteran’s credit report and notify the furnisher of the information and veteran of that deletion. (15 U.S.C. § 1681i (2024).)
More Credit Reporting Rules for Veterans’ Medical Debt
Effective March 4, 2022, the VA stopped reporting most veterans' medical debt to the credit reporting bureaus. The VA will only report debts if all of the following apply:
- The debt is classified as currently not collectible. A debt is considered "not collectible" if the VA has exhausted available collection efforts, including, as appropriate, referrals for administrative offset and enforced collection.
- The debt balance is over $25.00 (or a higher amount as the VA may, from time to time, decide).
- The debtor has reported to the VA they are catastrophically disabled or have a gross household income below the applicable geographically adjusted income limits that would entitle a VA beneficiary to cost-free health care, medications, or beneficiary travel. (38 C.F.R. § 1.916 (2024).)
Free Credit Monitoring for Active Duty Servicemembers
As of May 24, 2019, another federal law requires the credit reporting bureaus to provide free electronic credit monitoring for active duty servicemembers. Under the law, the bureaus have to provide free notifications when an addition or modification is added to a servicemember’s credit file. (15 U.S.C. § 1681c–1 (2024).)
You’ll have to let the bureaus know that you’re on active duty military and provide your contact information in order to get this service. If you're worried about identity theft, you might also consider placing a credit freeze or active duty fraud alert on your credit file.
Credit Freezes and Active Duty Fraud Alerts
A "credit freeze" provides the most protection against someone opening up fraudulent accounts in your name. You can use both a freeze and an alert at the same time. However, if you're going to pick one or the other, in most cases, it's better to select a freeze.
How credit freezes work. A credit freeze is probably the most effective way to prevent an identity thief from opening new accounts in your name. A freeze locks access to your credit files so that a creditor can't look at your credit history, thus preventing someone from opening up a new account or getting new credit using your name. The data is locked at the credit reporting bureaus until you give permission for its release.
How active duty fraud alerts work. Active duty servicemembers are also eligible to put an active duty fraud alert on their credit file that remains in place for 12 months. (15 U.S.C. § 1681c–1). You can renew the alert if your deployment lasts longer. After requesting a fraud alert at one of the credit bureaus, that bureau will then contact the other bureaus. Creditors then have to take extra steps to verify the identity of the person applying for credit, like a loan or a new credit card account, before approving the transaction.
Getting Help Avoiding Foreclosure
Many protections under the SCRA, like a reduced interest rate or a stay of court proceedings, aren’t automatic, which means a servicemember must request the protection. The manner in which you must invoke a protection, how long you get to invoke that protection, and what you must do to demonstrate that you qualify for a particular protection under the SCRA varies.
To get help invoking your rights under the SCRA, consider talking to a HUD-approved foreclosure counselor, military defense counsel (a military attorney who's independent from the standard chain of command specially designated to represent servicemembers confidentially), or a civilian attorney with extensive experience in military law.
Because financial difficulties can sometimes impact a military servicemember’s security clearance or result in disciplinary or adverse administrative action, servicemembers should generally avoid initially contacting their base legal office. Military defense counsel or a civilian attorney can provide confidentiality that can be critically important to maintaining a servicemember's career.
Also, if you're facing foreclosure during or after active military duty, consider contacting your mortgage servicer (the company you make your payments to) immediately and ask about foreclosure avoidance options. Most lenders offer various options to borrowers who can't make their mortgage payments, like mortgage modifications, forbearance agreements, and repayment plans.