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Service members: You're protected from foreclosure

Not all service members know their rights, and some banks foreclose anyway. Don't let this happen to you.

By MSN Money Partner Mar 28, 2011 6:39PM

This post comes from Marilyn Lewis at MSN Money.


At least 18 active-duty service members have lost their homes to foreclosure recently.


Didn't these sailors, soldiers, Marines and reservists know that they're protected from foreclosure by a law called the Servicemembers Civil Relief Act? And that they can get free legal assistance if they run into trouble with their banks?


Apparently, they did not.


Call us naïve but it's hard to believe that the branches of the armed services aren't drilling their personnel on their financial protections. It's not as if the mortgage crisis happened yesterday.   Post continues after video.

The worst case of this so far is JPMorgan Chase -- the same Chase that received $25 billion in government aid from the TARP fund (and repaid it in full, with interest.)

The bank's execs recently were dragged before the U.S. House to account for themselves. Chase -- violating the law -- had foreclosed on 18 active-duty service members and overcharged 4,500 for their mortgages. Since then, it has returned $2.4 million for the overcharges, including interest. The average repayment was $70. (Here's The Wall Street Journal's story.)


One of the families that Chase foreclosed on was that of Marine Corps Capt. Jonathan Rowles. The Journal writes:

Mr. Rowles' wife, Julia Rowles, told lawmakers that she received numerous collection calls even though she repeatedly sent the bank paperwork to verify that her husband was on active duty.
"I was left alone to deal with Chase and their problems. We have two children. One of them was born premature. ... Yet at the same time, I'm dealing with Chase, getting their phone calls, getting their harassment," she told the panel. "This constant harassment and constant ignorance for the SCRA benefits to service members is ridiculous."

In another case, Sgt. James Hurley, who spent 25 years in the Michigan National Guard, is suing a bank for foreclosing on his home while he was deployed in Iraq in 2004 and 2005., a Michigan news channel, has video of Hurley and an article that says he missed mortgage payments while deployed, and Deutsche Bank and Saxon Mortgage foreclosed on his home near Hartford, Mich.


Holly Petraeus, military liaison for the new federal Consumer Financial Protection Bureau, told Congress that stronger enforcement is needed and that new laws might help, too.


Petraeus -- she's the wife of Gen. David H. Petraeus, commander of the U.S. Forces in Afghanistan -- wrote to bank executives: "In view of recent experience, I would urge you to take steps to educate all your employees about the financial protections that the SCRA provides and to review your loan files to ensure compliance."

(Also, hundreds of service people lose their security clearances each year because of their financial problems. See this Army Times story about the link between personal finances and a military security clearance.)


To make sure this never happens to you or your friends or family, apparently you'll need to look out for yourself. We've pulled together the resources below to help.


The law

The SCRA limits how much interest you can be charged. It's also supposed to prevent banks from foreclosing on active-duty service members, including reservists and the National Guard. Here's the law (at Here are HUD's questions and answers about mortgages and the SCRA. The act says about foreclosure:

If because of active military service, a member breaches the terms of a purchase contract for real property or an automobile, the property may not be foreclosed or repossessed without a court order. The member, under certain circumstances, may request a stay of the proceedings.

Know your rights

Because service men and women are protecting the rest of us, Congress has been protecting them since the Civil War from financial hardships caused by their service.


If you're in active service and rent a home, your landlord can't evict you without a court order, even if you're behind on the rent. The rent can't exceed an amount that's adjusted annually for inflation -- $2,932.31 a month in 2009.

You, however, can break a rental lease if you get a permanent change of station orders or are deployed to a new location for 90 days or longer. (See details here at


If you're a homeowner, your mortgage interest rate is limited (only while you're on active duty) to 6% or less, regardless of what your contract says. The lender can't defer the extra interest and make you pay it later. The difference is forgiven. Period.


To get this protection, you may have to show that your active service "materially" affects your ability to repay. However, according to HUD:

If a mortgage lender believes that military service has not affected your ability to repay your mortgage, they have the right to ask a court to grant relief from the interest rate reduction. This is not very common.

If a lender asks you to sign something that waives your SCRA protections, don't do it. Or consult with a military legal services lawyer first. If you're active-duty, you get free legal assistance. Here's the lawyer locator for each branch of the armed services. You can learn more about legal assistance at


The fine print

The 6% interest rate cap applies only to a mortgage you took out before your active service.


Also, a crucial detail:The act doesn't apply automatically. You have to request protection. And you have to do it in a timely manner. In other words: Don't wait. Contact that lawyer.


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