January 1, 1900

Since the tragic events of September 11, 2001, more attention is being drawn to the individuals who serve in our armed forces. As our nation engages in war and the deployment of military personnel, it is important to note that many of those members who are mobilized and called to active duty leave behind mortgaged real estate. Because the requirements of military service can compromise the service person's ability to meet financial obligations, many may turn to the Soldiers' and Sailors' Civil Relief Act ("SSCRA") for protection.

The purpose of the SSCRA is to, in certain cases, suspend enforcement of civil liabilities of those persons serving in the United States military "in order to enable such persons to devote their entire energy to the defense needs of the Nation..." Although active duty inthe armed forces may provide a safe haven against legal action, the protection is only temporary and, in some cases, requires a showing that, the person's participation in active military duty has materially affected that person's ability to comply with their financial obligations. Moreover, the SSCRA only provides relief from obligations incurred prior to the period of military service.

With respect to mortgaged real estate and its resulting obligations, there are three stages at which military personnel may seek relief from those obligations by virtue of their participation in active duty: (1) prior to default, (2) following default and during foreclosure, and (3) following foreclosure.

Prior to Default

Pursuant to Section 526 of the SSCRA, a creditor may not, at any time during an obligor's service in the military, charge more than 6% interest on an obligation which was incurred by that individual prior to his or her entry into service, regardless of the amount of interest agreed upon by the parties or as stated in the contract giving rise to the obligation. The creditor may, however, obtain relief from this provision by making application to a court and showing that the ability of the service member to pay the higher rate is not materially affected by reason of that person's service.

In addition to the availability of a lower interest rate during active duty, a person may seek to avoid making payments on an obligation entirely during the period of active duty. Pursuant to Section 590 of the SSCRA, a person may, at any time during his or her period of military service or within six months thereafter, apply to a court for relief from any obligation or liability incurred prior to the period of military service. In the case on an obligation secured by a mortgage, the court may grant a stay of the enforcement of such obligation during the applicant's period of military service, unless the court finds that the applicant's ability to comply with the terms of the obligation has not been materially affected by reason of his or her service.

During Default and Foreclosure

Pursuant to Section 532 of the SSCRA, an individual in military service can apply to the court to stay any proceeding commenced in any court during the period of military service to enforce, by reason of nonpayment or other breach, a mortgage upon property owned by a person in military service. This applies only to obligations which originated prior to such person's period of service. The court must stay the proceeding unless, again, the court finds that the military personnel's ability to comply with the terms of the obligation has not been materially affected by that military service.

Following Foreclosure

In addition to the pre-foreclosure remedies and the stay of foreclosure remedies discussed above, a person serving in the military has certain protections just before and after default judgment has been entered against him or her. First, pursuant to Section 520(1) of the SSCRA, prior to obtaining a default judgment, a plaintiff must file an affidavit setting forth facts that shows that a defendant is not in military service. If a plaintiff is unable to do so, a judgment cannot be entered without securing an order of the court specifically allowing the judgment to be entered.

Second, pursuant to Section 520(4) of the SSCRA, a person in military service who has had a judgment entered against him or her during the period of such service or within thirty days thereafter, may make application to the court to have that judgment vacated. The application must be made within ninety days after the termination of such service. In order to have the judgment vacated, however, the applicant must show (1) that he or she was prejudiced by reason of his or her military service in making his or her defense, and (2) that he or she has a meritorious defense to the action.

Jennifer A. Scanlon is an associate of Hill Wallack where she is a member of the Real Estate Division and Creditors' Rights/Bankruptcy Practice Group.