As we discussed in the last issue, the multistate settlement agreement, filed on March 12, 2010, has imposed settlement terms and agreements that operate much more like newly promulgated regulations than settlement terms. This assessment holds particularly true in the section of the agreement dealing with servicemembers. In recent months, the Department of Justice has made it very clear that it expects servicers to comply with the federal Servicemembers Civil Relief Act (SCRA). Clearly, our servicemembers deserve nothing less. The new settlement agreement, however, takes this sentiment one step further. In accordance with the agreement, servicers must now offer additional protections to servicemember-borrowers that far exceed those required under the SCRA.
First and foremost, the agreement vastly expands the class of individuals entitled to foreclosure protection. The SCRA prohibits foreclosure without a court order if the borrower is currently serving on active duty, or is within nine months of separation, if the loan was originated prior to the borrower’s entering military service. This restriction primarily protected members of the reserves and the national guard who were ordered to active duty or newly enlisted/commissioned members of the armed forces. By contrast, under the new settlement agreement, a servicer may not foreclose without a court order (or waiver) if the servicemember is eligible for Hostile Fire/Imminent Danger Pay and serving at a location outside the United States or more than 750 miles from the secured property, regardless of when the loan was entered into. This restriction will now protect all servicemembers who obtained mortgage loans while serving on active duty who are subsequently deployed to combat destinations.
While the foreclosure protection is the most significant departure from the SCRA, there are a number of additional requirements. Under the agreement, servicers must now provide a delinquency notice to all servicemembers who are 45 days delinquent. While HUD has required a similar delinquency letter on FHA loans since 2006, there is no such requirement under the SCRA. If a servicemember requests the 6 percent interest rate reduction, in lieu of providing military orders, which are required under the SCRA, a servicer must now accept a letter on official letterhead from the servicemember’s commanding officer that includes certain specific indentifying information or any other documentation that the Department of Defense deems sufficient as a substitute for official orders.
The SCRA allows a servicemember to waive various protections if the waiver is in writing in 12-point font and specifies the legal instrument to which it applies. Further, the waiver must be executed during or after the period of military service. The settlement agreement broadens these threshold requirements to provide that, in order to waive the foreclosure protection, the waiver must be executed at least 30 days prior to any anticipated foreclosure sale date and the servicer must send a notice with a copy of the proposed waiver to the servicemember in a format that is set forth in the agreement.
Lastly, the agreement mandates the use of the Defense Manpower Data Center to verify SCRA eligibility at additional times during the life of the loan. Now, in addition to other due diligence efforts, a servicer must search the DMDC database within seven days before a foreclosure sale, and either promptly after the sale or within three days of the end of the redemption period, whichever is later. If the servicer is pursuing a judicial foreclosure, it must search the DMDC database prior to moving for a default judgment if the servicemember borrower fails to answer. At the conclusion of the SCRA protection period, the servicer is required to search DMDC before returning the borrower’s interest rate to the pre-service interest rate.