DOJ/CFPB SCRA Letters to Landlords and Mortgage Servicers
Last week, the United States Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) jointly issued letters to landlords and mortgage servicers about protections servicemembers have under the Servicemembers Civil Relief Act (SCRA). The letters warned landlords and mortgage servicers to be mindful of the specific protections that servicemembers may have under the SCRA with respect to housing. This blog will focus on the mortgage servicer letter, which is more likely to be relevant to credit unions that may be servicing mortgage loans covered by the SCRA.
The letter directed to mortgage servicers focused on the likelihood that servicemembers might be completing mortgage forbearance plans related to COVID-19 hardships and warned servicers to “ensure that servicemember and veteran mortgage borrowers’ rights under federal law are diligently protected during the loss mitigation process, and that any issues identified are addressed expeditiously.” Several of the issues addressed in the letter were identified in CFPB Bulletin 2021-02 as issues the CFPB would monitor as more and more consumers moved from COVID-19 forbearances in search of loan modifications governed by Regulation X’s loss mitigation rules. Those issues include failing to report servicemembers who received an accommodation to consumer reporting agencies as required by the CARES Act or providing servicemembers with incorrect information about forbearance or loss mitigation options. The letter examined some of the CARES Act protections (e.g., section 4021 requirements regarding credit reporting post-accommodation) and the protections implemented by the mortgage servicing final rule published in June 2021 (e.g., amending the early intervention requirements to make sure that borrowers affected by COVID-19 have a “meaningful opportunity” to pursue loss mitigation and providing for temporary safeguards to limit when servicers can proceed with the first filing or notice in foreclosure through December 31, 2021).
The mortgage servicer letter reminded servicers about some of the SCRA’s foreclosure protections. With respect to the SCRA, a key threshold question is whether a credit union is dealing with a servicemember or another person that is protected by the SCRA. The letter provided a fairly comprehensive summary of the different persons who might be able to take advantage of these protections: “active-duty servicemembers, reservists on active-duty, members of the National Guard who are under certain orders to respond to a national emergency or are serving under Title 10 orders and, in some situations, the dependents of such servicemembers.” The letter pointed out that servicers should also pay attention to state law when determining whether some of these persons are entitled to protection. As noted in the letter, “[s]ome states have enacted state laws that provide similar protections for their National Guard who are not covered by the federal SCRA.”
The letter reviewed the general prohibition under the SCRA about foreclosing a mortgage without a court order while a servicemember is in military service and for up to one year following the end of military service. This prohibition applies to mortgage loans that were obtained before military service began. The letter explained that a knowing violation of this prohibition is punishable by a fine and imprisonment for no longer than one year.
The letter also noted that the SCRA protects servicemembers from facing default judgments in civil actions, including foreclosure actions, by requiring plaintiffs moving for default judgment—a procedural step in a civil action to seek judgment against a defendant who has not appeared or answered a complaint—to file affidavits with the court. Those affidavits must represent whether or not the defendant against whom the plaintiff is seeking default judgment is or is not a servicemember or “that the [plaintiff] is unable to determine whether or not the defendant is in military service after making a good faith effort to determine the defendant’s military service status.” If it appears to the court that a defendant is a servicemember, the SCRA requires a court to appoint an attorney to represent the servicemember who has not appeared before entering judgment against the servicemember. Moreover, the SCRA may require the court to stay the proceeding for no less than 90 days under certain circumstances.
As this NAFCU Compliance Blog post from September and this one from October demonstrate, the DOJ has been actively enforcing violations of the SCRA. Under the SCRA, the Attorney General of the United States is charged with enforcing the SCRA and can file suit in two situations: (1) when someone takes part in a pattern or practice of disregarding what is required by the SCRA; or (2) when someone violates the SCRA in a manner “that raises an issue of significant public importance.” While the DOJ enforcement actions described in both blog posts do not relate to mortgage loans, they do involve some of the SCRA protections addressed in the jointly issued letters, such as the default judgment protections and a servicemember’s ability to terminate leases early. Both blog posts indicate that civil damages and penalties for SCRA violations can escalate very quickly. Because of the regulatory scrutiny here, credit unions may wish to look at their policies and procedures to ensure that they align with SCRA requirements, the CARES Act, and the mortgage servicing rules in Regulation X. For more information about a servicemember’s ability to terminate a lease early, please see the letter directed to landlords.
Programming Note: NAFCU will close at noon on Thursday, December 30, to celebrate the New Year’s Day holiday. NAFCU will be closed through the weekend, and we will return to the office on January 3, 2022.