September 2007 Legal Briefs

September 1, 2007

Servicemembers’ Civil Relief Act—Impact on Lenders

In 2003 the Soldiers’ and Sailors’ Civil Relief Act was expanded and renamed the Servicemembers’ Civil Relief Act (SCRA).

The most familiar SCRA provision requires interest on any loan to be reduced to 6% when a servicemember enters active duty. Other SCRA provisions prohibit a lender from suing a servicemember, repossessing collateral or enforcing a lien of any kind (in the absence of a written waiver), until active duty ends—if the servicemember is not currently available to attend a hearing.

In October, approximately 2,400 additional National Guard members from Oklahoma will deploy to Iraq, triggering a new round of requests for rate reductions and judicial stays of enforcement efforts. It continues to be important for banks to understand SCRA’s provisions.

First I will discuss the most recent SCRA-related change, which was a notice requirement enacted in 2006. Then I will review a number of SCRA’s general provisions that are most relevant for lenders.

In 2006 a required notice, “Legal Rights and Protections under the SCRA,” became effective. Lenders must provide this with the homeownership counseling notice, to all homeowners in default on a residential mortgage.

The SCRA notice (and homeownership counseling notice) must be sent within 45 days after a missed payment date. The lateness of any particular payment is “cured” for notice purposes (in other words, if a notice is not already sent, it is no longer required) if the homeowner actually pays the overdue amount before it becomes 45 days late.

The HUD letter explaining the SCRA notice requirement (including an Attachment 1 with the specific language of the required notice) can be found at www.hudclips.org by clicking on the line “Access HUD letters and notices from prior years”; then, under the category “mortgagee letters,” click on “2006.” Scroll down and click on mortgage letter No. 06-28.

(IMPORTANT: The SCRA notice must be included with the homeownership counseling notice even if the lender knows with certainty that the borrower is not in the military.)

B. Discussion of General SCRA Provisions

1. Transition to Active Duty.

Most of the SCRA’s provisions are triggered in a situation where (1) an individual who is not in full-time military service takes out a loan, or enters into a lease or some other contractual commitment prior to military service, and then (2) that individual has a change in status that brings him into full-time military service. This transition to full-time duty may happen (a) when the individual enlists for full-time duty or (b) when he is called up to full-time duty (National Guard or Reserves). For the National Guard, the call-up must be for at least 30 consecutive days and must be based on orders from the President or the U.S. Secretary of Defense, not a state’s Governor. An individual’s period of “military service” ends as of his release date from the military. (“Military service” also includes absence from active duty on account of hospitalization, recuperation from injuries, etc.)

The SCRA presumes (unless a creditor demonstrates otherwise in court) that a borrower’s transition from civilian to military status causes hardships (such as reduction in pay or transfer to another location), making the servicemember less able to service existing debt or to appear in court to defend his interests. SCRA’s relief provisions are automatically available to servicemembers who request them, and generally cannot be avoided by lenders and others unless the servicemember signs a written waiver, allowing a particular action.

2. Written Waiver by Servicemember or Person Secondarily Liable.

The SCRA assumes that a servicemember has little or no ability to deal with legal matters while he is on active duty, and that his interests will be better served by postponing all such matters until later.

However, even while active duty continues, a lender or other party to a contract with a servicemember can take actions that the servicemember (or his legal representative) consents to by written waiver. According to SCRA § 107 (50 U.S.C. App. § 517), a written waiver must be executed during military service or afterward (not before), and must refer to a specific loan, lease, etc.

In spite of the SCRA’s protections, a servicemember can specifically consent to an amendment or termination of any type of contract, including a lease, loan or mortgage; or can consent to repossession or foreclosure of real estate or any other collateral securing a loan, or securing dealer paper.

In many cases, it’s very sensible for the servicemember (or his legal representative) and the lender to work out a settlement agreement or contract amendments–without court-ordered remedies being imposed. The SCRA in no way discourages workout agreements, but provides a “backdrop” of provisions that apply whenever the parties have not otherwise reached some agreement.

Sometimes it makes little sense for a servicemember serving abroad to retain ownership of the collateral securing a bank’s loan. Based on a written waiver from the servicemember, collateral can be sold, with the proceeds applied to substantially reduce or pay off the loan balance on which interest is accruing. The collateral may be “transportation” that can’t be used anyway while stationed abroad (a used motorcycle or used car), or something that’s only a hobby (ATV, jet ski, or fishing boat). A sale of collateral may avoid depreciation in value, which occurs simply with the passage of time while in military service.

In some cases, a servicemember on active duty might even consent to a sale of real estate. A call-up to military service is an excellent time to “slim down” financially, cutting away what no longer seems so important in light of changed circumstances. For example, if an individual owns rental property that he cannot manage while on active duty, selling it may be wise; but even this requires a written waiver from the servicemember.

Wherever a third party (a surety, guarantor, endorser, accommodation maker or comaker) is protected under the SCRA’s provisions, that person also can sign a written waiver, consenting to any amendment of terms, or a repossession or foreclosure of collateral. (SCRA § 103; 50 U.S.C. App. § 513.)

3. Interest-Rate Reduction.

For any debt incurred by a servicemember (individually, or jointly with a spouse) before entering full-time military service, SCRA § 207 (50 U.S.C. App. § 527) provides that the lender must reduce the interest rate to 6% from the date military service begins until the date when that person is released from military service. This applies to unsecured loans (such as credit cards) as well as loans secured by all types of collateral. (Federally guaranteed student loans are excluded.)

Interest above 6% must be forgiven—not just deferred—throughout the period of military service. After military service ends, the interest rate will again increase to whatever the loan documents state. It isn’t necessary to be deployed abroad, or to transfer to another locality. Mere change to active duty status will qualify the individual for relief—unless he has suffered no financial hardship.

“Interest” as capped by this provision “includes service charges, renewal charges, fees, or any other changes (except bona fide insurance) with respect to an obligation or liability.” A lender reducing the interest rate to exactly 6% cannot charge a late fee, a returned check charge on a loan payment, an annual renewal fee (such as on a credit card), nor any per-transaction access fee (such as for an advance on a HELOC or formal overdraft line of credit). These fees are “interest” under the definition and would increase the combined interest rate to above the 6% maximum.

Previous language in the Soldiers’ and Sailors’ Civil Relief Act required lenders to reduce the interest rate to 6%, without stating whether the lender was required to reduce the amount of the monthly payment. (Without reducing the payment amount, an interest-rate reduction would give the borrower no debt-service relief currently.) SCRA corrects this point, requiring the lender to reduce the amount of the required monthly payment by the amount of interest that is forgiven.

(If the required mortgage payment is $369–$340 interest and $29 principal–and the contract interest rate is 10%, SCRA requires the rate to be reduced to 6%. The resulting monthly interest accrual will be about $204 (after interest forgiveness of $136, reduced from 10% to 6%); the portion of the payment going to principal will still be $29; and the reduced monthly payment will be approximately $233, instead of $369, until military service is completed.)

Technically, a lender is not required to reduce a loan’s interest rate to 6% until the borrower (1) gives written notice of his change to active duty status, and (2) provides the lender a copy of military orders calling the servicemember to military service. (A lender does not act illegally by continuing to charge the contract rate of interest until the borrower actually requests a rate reduction.)

But even if the borrower delays for a while before requesting the reduction to 6%, the lender must back-date the effect of the rate reduction to the date when the borrower entered full-time military service. The borrower has until 180 days after termination or release from military service to request this retroactive reduction. In most cases, it’s easier for a bank to contact the borrower concerning an interest rate change as soon as the lender becomes aware of that person’s military service, instead of waiting until later to change retroactively the amount of all payments that fell due during the borrower’s military service.

Only a judge can grant a lender relief from the requirement to reduce interest to 6%. To avoid a rate reduction (when one is requested), a lender has to demonstrate in court that the servicemember’s ability to pay the rate of interest required by the loan documents is not materially affected by the servicemember’s military service. (Sometimes this is true, but rarely.) Except on large loans, it normally wouldn’t be worth the legal expense (or possible bad publicity) for a bank to challenge an interest-rate-reduction request.

4. Foreclosure of Mortgage is Invalid.

When an existing borrower’s status changes to full-time military service, SCRA § 303 (50 U.S.C. App. § 503) provides that a sale, foreclosure or seizure of real property for breach of a mortgage obligation is not valid during the period of that servicemember’s military service or within 90 days afterward. Two exceptions apply: (1) when a court order allows the sale, foreclosure, or seizure, or (2) when the servicemember enters into a written agreement as provided in SCRA § 107 (after the period of military service has begun), specifically allowing the lender to take possession of the real property and sell it.

Oklahoma mortgages usually include a “power of sale” (allowing the lender to sell the property after default, without judicial foreclosure), but SCRA prohibits a lender from exercising a power of sale unless the servicemember specifically consents, after entering military duty. If a lender knowingly sells, foreclosures or seizes real property subject to a mortgage–in violation of this provision–that person is subject to a fine of up to $100,000 and one year in prison.

5. Reamortization of Mortgage Indebtedness.

As provided in SCRA § 701 (50 U.S.C. App. § 591), if a servicemember incurs a mortgage debt before transitioning to military service (or enters into a “contract for a deed”—treated the same as a mortgage), a court may grant a stay of enforcement of the mortgage, applying not only during the period of military service, but also during a court-established amortization period after military service ends.

If payments are stayed during military service, a judge can order reamortization after military service is completed, over a period equal to a combination of (1) the portion of the contract’s original term that remains after military service ends (the time remaining to the final due date), plus (2) an additional period of time equal to the length of the servicemember’s period of military service.The two periods of time, taken together, are referred to as the “combined period” over which the debt can be reamortized.

Let’s assume a National Guard member’s mortgage has a remaining term of twelve years when he is called up for military service, and he will be on active duty for fifteen months. When his active duty ends, ten years and nine months will be left on his mortgage. A judge who orders the mortgage payments “stayed” during military service because of income hardship can order the fifteen months of “skipped” mortgage payments to be tacked onto the end of the mortgage. The then-remaining “term to maturity” of ten years and nine months (under provisions of the original mortgage) will have fifteen months added by court order, for a “combined period” of twelve years from the end of military service. The obligation is then reamortized, with a revised payment amount that retires the principal balance and accrued interest over the “combined period.”

6. Protection of Servicemember against Default Judgments.

Generally, no one can obtain a judgment against a servicemember while that servicemember remains on active duty–if the servicemember is not available locally to attend a court hearing. (For this purpose, it makes no difference whether a loan or other obligation originates before or after active duty begins.) If a servicemember is in Iraq, for example, a lender or other plaintiff will probably be unable to take any legal action before that servicemember returns.

In any civil court case (not criminal) where a defendant does not appear at the hearing, SCRA § 210 (50 U.S.C. App. § 521) provides that a judgment cannot be entered until the plaintiff files an affidavit stating (1) that the defendant either is or is not in military service, or (2) that the plaintiff cannot determine whether the defendant is in military service.

If a non-appearing defendant is in military service, the court cannot enter a judgment against the servicemember until the court appoints an attorney to represent the defendant. If the appointed attorney cannot locate the servicemember, the attorney cannot waive any defense or otherwise bind the servicemember.

If the defendant is in military service—not available to appear at a hearing–the court must grant a stay of the proceedings for at least 90 days—and may do so for any longer time, including the full remaining term of military service–if (1) counsel appointed for the defendant is unable to contact the defendant, or (2) the defendant may have a defense that cannot be presented without being present in court.

If a plaintiff swears that a defendant failing to appear in court is not in military service, the court can grant a judgment against the defendant—assuming there was appropriate service of process by some legal method. However, if a plaintiff knowingly swears falsely that the defendant is not in military service, the plaintiff can be fined up to $100,000 and imprisoned for up to one year.

If a judge is unable to determine from affidavits whether the non-appearing defendant is in military service or not, the court cannot enter a judgment unless the plaintiff files a bond in an amount approved by the court, sufficient to indemnify the defendant against any loss or damage the defendant may suffer in the event that the judgment later needs to be set aside by the defendant (who is found later to be in military service).

There are few situations where a lender wants to pay for filing a bond, in addition to the expense of litigation. It will almost always be a good first step for the lender (or the lender’s attorney) to contact the Department of Defense (DOD) directly (see contact information below), or to use the website listed below, to determine whether a borrower is in military service.

After finding out that a defendant is not in military service, a lender can truthfully swear in an affidavit that, although its borrower’s location is unknown, the DOD’s database, or a certification from the DOD, indicates that the defendant is not in military service. By this approach, a lender can obtain a judgment, and probably can avoid posting a bond.

7. Verifying Someone’s Active Duty.

Lenders may contact the Department of Defense (DOD), as follows, to determine whether a person is in the armed forces:

Defense Manpower Data Center
[Attn: Military Verification] 1600 Wilson Blvd., Suite 400
Arlington, VA 22209-2593
Tel. (703) 696-6762 or -5790
Fax (703) 696-4156

The DOD’s website also can be used to determine whether someone is currently in the armed forces. It is https://www.dmdc.osd.mil/owa/scra/home and someone searching this web page must be able to provide a Social Security number and last name. First name, middle name, and birth month are optional.

8. Setting Aside a Default Judgment.

When a court enters a default judgment against a defendant (because the defendant fails to appear to defend the lawsuit), and it later appears that the defendant was in military service (or that less than 60 days had passed after termination or release from military service), the servicemember can apply to reopen the judgment if (1) he has a legal or meritorious defense to the suit, and (2) the military service materially affected his ability to make a defense.

The defendant can apply to reopen a default judgment as late as 90 days after the date of termination or release from military service. Obviously, it will do little good for a plaintiff to obtain a default judgment against a servicemember who is a “no show” at the hearing, if that judgment is later re-opened.

9. Servicemember’s Right to Stay Legal Proceedings.

If a servicemember receives notice of a legal proceeding in which he is a defendant, and the lawsuit is at any stage before final judgment, he can request a stay of the proceedings, based on SCRA § 202 (50 U.S.C. App. § 522).

To apply for a stay, the servicemember must provide both (1) a letter or other communication stating how his current military requirements materially affect his ability to appear, including a date when he will be able to appear (such as after his active duty ends), and (2) a letter or other communication from his commanding officer, stating that his military duty requirements materially affect his ability to appear in court, and that he can’t get military leave.

If a court learns that a defendant is in military service, a judge may stay the proceeding for not less than 90 days, even without an application from the servicemember. If the servicemember requests a stay, and the conditions for a stay are met, the judge must grant at least a 90-day stay.

A servicemember who has obtained a stay may apply for an additional stay–if military duty continues to affect his ability to appear in court—by furnishing the same two items of information required for the original stay. The maximum time for which one or more stays may be granted is the full period of military service plus 90 days. (SCRA § 205; 50 U.S.C. App. § 525.)

10. No Fines or Penalties.

When a court stays a lawsuit that seeks enforcement of the terms of a loan agreement, lease, purchase contract, etc., no penalty can accrue for failure to comply with terms of the contract during the stay period.

Even retroactively, a court can reduce or waive a penalty already imposed for failure to perform an obligation under a contract, if the servicemember is or was in military service, and that service materially affected his ability to perform an obligation arising under the contract.

11. Stay to Prevent Execution on a Judgment, Attachment or Garnishment.

If a servicemember is materially affected by reason of military service in complying with a judgment or court order issued either before or during the period of military service, a judge can (1) stay the execution of a judgment or order already entered against the servicemember, or (2) vacate or stay any attachment or garnishment of property, money, or debts in the possession of the servicemember or a third party. This provision applies during the period of military service and for 90 days thereafter. (SCRA § 204; 50 U.S.C. App. § 204.)

12. Protecting Persons Jointly or Secondarily Liable.

When the court stays or temporarily suspends any lawsuit or enforcement of any obligation or judgment involving a servicemember, the court may also “grant such a stay to a surety, guarantor, endorser, accommodation maker, comaker, or other person who is or may be primarily or secondarily subject to the obligation or liability . . .” (SCRA § 103; 50 U.S.C. App. § 513.) Especially when the other person is the servicemember’s spouse or other dependent, the court’s stay is likely also to protect the other person.

Let’s assume a servicemember and spouse are joint borrowers on a car loan; the spouse continues to need the car after the servicemember is called to active duty; and the spouse’s ability to make car payments is substantially affected by the servicemember’s decrease in pay while on active duty. A stay will almost certainly apply to both the servicemember and the spouse.

However, if a servicemember is a codefendent with others who are not in military service and are not entitled to relief and protections under SCRA, the plaintiff can sue those other defendants with court approval.

In a different example, consider a servicemember in the National Guard who is called up. He and another, unrelated investor are owners of an LLC. The bank has made a loan to the LLC, and both the servicemember (before active duty) and the other investor guaranteed 100% of the LLC’s debt. The LLC defaults on its debt while the servicemember is on active duty. The lender can sue the LLC, obtain a judgment against it and go against any pledged collateral or other assets it may own. The lender can also sue the non-servicemember investor/guarantor, unless the judge stays such action. (SCRA § 205; 50 U.S.C. App. § 525.) If there is any deficiency judgment, the lender must wait up to 60 days after the servicemember’s military service ends, before being able to sue on the servicemember’s guaranty, if necessary to satisfy any liability still owing.

13. Personal Assets Pledged on Business Debt.

In a different situation, let’s say the servicemember owns 100% of a business (an LLC or corporation) before being called to active duty, and has pledged personal assets (on many business loans, a residence) as additional collateral for the LLC’s or corporation’s debt. SCRA § 706 (50 U.S.C. App. § 596) provides that any assets of the servicemember not held in connection with the trade or business (in this case, a personal residence mortgaged on the business debt; or perhaps a C.D. in the servicemember’s own name) are not available to satisfy the business’ obligation during the period of military service.

14. Installment Purchase Contracts (Dealer Paper).

After a servicemember enters military service, a contract by that person for purchase of real property or personal property cannot be rescinded or terminated by the seller (or seller’s assignee) for a breach of terms, without a court order. (SCRA § 302; 50 U.S.C. App. § 532.) This provision applies only to contracts executed before the servicemember enters military service, with a deposit or at least one installment on the contract already paid.

This section covers a “contract for deed” (treating it similar to a mortgage that can’t be foreclosed while the person is in military service). It also covers any type of consumer credit sale (dealer paper) involving personal property—for example, a manufactured home, car, motorcycle, computer, boat, jet ski, riding lawn mower, or ATV. Also included in this category would be a “rent-to-own” contract for household goods such as furniture, appliances, or a TV.

A person who knowingly repossesses real or personal property in violation of this section can be fined up to $100,000 and imprisoned for up to one year.

Only a court can give any relief to a seller of real or personal property if the servicemember/purchaser breaches the contract. The statute provides three remedies a judge can choose from: (1) He can order a refund of all or part of the prior installments or deposits the servicemember has paid, as a condition for allowing the seller to regain possession of the property. (2) The judge can stay the proceedings (on his own motion, or at the servicemember’s request)—preventing the holder of dealer paper from taking any action, until active duty ends. (3) The judge can do whatever seems fair to preserve the interests of the parties. (This might include requiring a reduced payment during military service.)

15. Reamortization of Payments Owed on a Contract.

If a servicemember owes any type of contractual installment payments (ignoring a mortgage or contract for deed for real estate, already discussed), and that obligation was incurred before entering military service, a judge not only can “stay” payments (to fit the individual’s financial circumstances) during the period of military service, but also can set up a schedule of revised installments due after military service, in an amount that will amortize the principal and any accumulated interest, at the interest rate (if any) prescribed in the original contract. (SCRA § 701 (50 U.S.C. App. § 591).) This includes any type of bank loan (not secured by a mortgage), dealer paper, or long-term lease structured as the equivalent of financing (such as for an automobile or other equipment). A judge can require whatever is “equitable.”

16. Appraisal Procedure for Repossession.

When a holder of dealer paper requests permission to repossess a servicemember’s personal property that is subject to an installment purchase contract, and the judge grants a stay, SCRA § 304 (50 U.S.C. App. § 534) allows a court to appoint three disinterested persons to appraise the property.

Among other solutions, the court can order the appraised “equity” in the property (appraised value minus contract balance) to be paid to the servicemember as a condition for repossessing the property or rescinding or terminating the contract. (This assumes that a repossession or termination will not cause undue hardship to the servicemember’s dependents.)

The SCRA appraisal process provides greater protection to the servicemember, but may even cause a loss for the holder of dealer paper. For example, if the appraisers use “retail” value of used property subject to the contract, but the holder of dealer paper actually must sell the repossessed property at a price more like wholesale, the holder will have to absorb the difference between the appraised value and any lower price obtained upon sale, and cannot assert that difference as a deficiency against the servicemember.

17. No Reporting of Bad Credit.

Based on SCRA § 108 (50 U.S.C. App. § 518), the fact that a servicemember has exercised SCRA rights to request (or receive) a stay of payments by a court is not acceptable grounds by itself for a lender to take any of the following actions (unless other considerations separately warrant such actions):

(a) determining that the servicemember is unable to pay the obligation in accordance with its terms;

(b) denying or revoking credit;

(d) granting credit that is not as much or not on the same terms as requested;

(e) making an adverse report of the servicemember’s creditworthiness to a credit reporting agency;

(f) (if a lender or credit bureau) making a notation in the file that the individual is a member of the National Guard or the reserves; or

(g) (if an insurer) refusing to insure the servicemember, or changing the terms offered or conditions required for issuance of insurance.

18. Termination of Motor Vehicle or Real Estate Lease.

Banks can engage in long-term automobile leasing, or can purchase such leases, if the transaction is structured substantially like a loan. (A consumer typically pays for insurance and repairs, and has a buy-out option at the end.)

SCRA § 305 (50 U.S.C. App. § 535) applies to a lease of a motor vehicle used by a servicemember or his dependents for personal or business transportation, in two situations: (1) if the servicemember has entered military service during the term of the lease; or (2) if the servicemember signs a lease while already in military service, but receives military orders for a permanent change of station outside of the continental U.S. or to deploy with a military unit for not less than 180 days. (For either situation the statute grants relief.)

The same provision applies to a landlord of residential, commercial or office real estate. (This could include a bank leasing out part of its premises, or a bank acquiring income-producing “other real estate” by foreclosure.)

SCRA § 305 applies to a lease of premises occupied by a servicemember or his dependents for a “residential, professional, business, agricultural, or similar purpose,” if (1) the servicemember enters military service after signing the lease, or (2) (if already in military service) he receives orders for a permanent change of station or to deploy with a military unit for at least 90 days.

The servicemember has a right to terminate either a motor vehicle lease or a lease of premises, in the situations described above, by giving written notice of termination to the lessor, along with a copy of the military orders. This notice can be hand-delivered; mailed with return receipt requested; or delivered by private business carrier, such as FedEx.

In the case of a motor vehicle lease, the vehicle must be returned to the lessor not later than 15 days following delivery of the lease-termination notice. The motor vehicle lease will terminate as soon as both steps are completed.

If a notice of termination is given, a lease of premises (real property) terminates 30 days after the next monthly payment is due (not counting the date on which notice is given). (If notice of termination is given on June 15 and payments are due on the first of each month, the SCRA’s provisions cause the lease termination to be effective July 31.) If the lease does not provide for monthly payments, the lease terminates on the last day of the month following the month in which the notice is given. (In this second scenario, if notice is given on June 15, the lease still terminates on July 31.) Either way, a landlord is given no less than a month’s advance notice of termination before rent stops accruing.

Under a motor vehicle lease or a premises lease that is terminated based on SCRA provisons, rent must be paid through the effective termination date on a prorated basis. If rent has been paid in advance, the lessor must refund any excess pre-paid rent within 30 days after the effective date of termination.

For either a motor vehicle lease or premises lease, the SCRA prohibits an early termination charge. In a motor vehicle lease, there normally is a fairly steep penalty for breaking the lease; but the SCRA will not allow such a penalty provision to be enforced against a servicemember.

A premises lease typically requires the tenant to pay for damages to the property (reasonable wear and tear excepted). Such a provision is enforceable under the SCRA. In a motor vehicle lease, provisions requiring payment of reasonable charges for excess wear, use and mileage remain enforceable.

A lessor who knowingly seizes or holds a lessee’s personal effects, property, or security deposit, or interferes with removal of the tenant’s belongings (for example, trying to assert a “landlord’s lien” for rent owed or accruing after the termination date), contrary to the SCRA’s lease-termination provisions, can be fined up to $100,000 and imprisoned for up to one year.

19. Protection from Eviction for up to Three Months.

The opposite situation occurs when a landlord wants to evict the servicemember (or dependents) during military service—usually for nonpayment–but the servicemember, or dependents, do not want to leave.

If monthly rental does not exceed $2,400 in 2003 (adjusted annually for inflation), a judge, on his own motion, may stay the eviction proceedings for 90 days, unless “justice and equity” require a longer or shorter stay period. (SCRA § 301; 50 U.S.C. App. § 531.) The judge generally must stay the proceedings for 90 days, if a stay is requested by the servicemember or on his behalf, and his ability to pay the agreed rent is materially affected by military duty.

Among other remedies, a judge can order a servicemember to pay rent at a reduced rate consistent with his present income (with the excess portion of the lease’s rate deferred for future payment). The court can also order the Secretary of Defense to make an allotment (similar to a garnishment or automatic withdrawal) from the servicemember’s pay—but not more than the maximum amount that a servicemember’s pay may be allotted.

In a true hardship situation, a judge can order a landlord to allow a servicemember’s family to continue to live in a rental property for up to three months without payment of rent, before eviction. The landlord probably could not sue the servicemember for the unpaid rent until active duty ends.

20. Enforcement of Lien on Servicemember’s Real or Personal Property.

A person holding a lien on a servicemember’s property or effects may not, during any period of military service and for 90 days thereafter, foreclose or enforce any lien on such property or effects without a court order granted before foreclosure or enforcement. (SCRA § 307; 50 U.S.C. App. § 537.)

Let’s consider several examples where this restriction would apparently apply: (1) a financial institution has a “banker’s lien” (right of offset) with respect to deposits, because of a past-due loan payment; (2) a repair shop has a “mechanic’s lien” (dependent on possession) with respect to car repairs; (3) a wrecker service has a lien for towing and storage on a towed vehicle; (4) a mini-storage facility or other storage company has a lien for unpaid storage bills; or (5) a landlord has a lien on furniture and other personal property left behind in an apartment, because rent remains unpaid.

In each of the situations, the lienholder has statutory rights, and is entitled by state law to enforce a lien in order to collect the amount owed. All of these examples involve action taken without a court proceeding. But the SCRA overrides state law, not allowing such liens to be enforced unless the lienholder first goes to court and obtains permission to proceed. Someone who knowingly takes action to enforce a lien, contrary to SCRA, is subject to a penalty of up to $100,000 and imprisonment of up to one year.

A judge has authority under SCRA to stay a lien foreclosure proceeding for as long as justice requires. Alternatively, the judge can adjust the servicemember’s obligation to preserve the interest of all parties. For example, a judge could require the servicemember to make reduced or partial payments to the lienholder during military service, with the balance payable later.

When a lender (because of its security interest in collateral) receives notice of a lienholder’s pending sale to enforce a lien, the lender should notify the lienholder of the provisions of SCRA § 307 (if a servicemember is involved), to prevent enforcement of the lien and sale of the property.

21. Extension of Statutes of Limitation.

Statutes of limitation state a maximum time period for bringing legal action in certain situations. Oklahoma has a limitation of five years from the date of breach to sue on a contract, and six years to sue on a promissory note (from the date of default or date of maturity, whichever occurs first).

SCRA § 206 (50 U.S.C. App. § 526) provides that where there is a statute of limitation that otherwise would apply for bringing any action either by or against a person who is a servicemember, that person’s period of military service can be added to the otherwise-applicable deadline for bringing court action.