SCRA Violation: Attempt to Collect Fees on Aborted Foreclosure

SCRA violationIn Brewster v. Sun Trust Mortgage Inc.,   No. 12-56560, ___ F.3d ___ (9th Cir., Feb. 7, 2014) , the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a case wherein two foreclosure proceedings were instituted.  The first of the two proceedings imposed charges and fees that covered a five-month period during with the borrower was on active military duty and subject to the protections of the Servicemembers Civil Relief Act (“SCRA”).   The SCRA is quite specific at Section 533(c)  where is prohibits  “”sale, foreclosure, or seizure of property for a breach of [a mortgage that originated before the servicemember’s military service]…if made during, or within one year after, the period of the servicemember’s military service”.

The only time a lender is permitted to institute or continue such a proceeding is when a court has given specific approval.

The lender filed the requisite affidavit of military status after having conducted its active duty verification, but then  discontinued the first foreclosure. Later, after the borrower had left military service, a year had transpired thereafter, and the borrower was no longer covered by the protections of the SCRA, a successor servicer instituted a foreclosure and included some fees that had incurred during the first, aborted foreclosure.

Even though, after the filing of the law suit, the second servicer agreed the disputed fees, the Brewster court found that the attempt to collect these fees constituted an SCRA violation.

“[The removal of the fees]   does not impact the analysis of whether or not the SCRA was violated in the first place, because we hold that the attempted collection of fees incident to a Notice of Default was itself a part of the foreclosure proceedings barred by the SCRA. 50 U.S.C.” Brewster, f.n.2.

The lender argued that the “foreclosure” referenced in Section 533(c) should refer to only the second proceeding and not to actions of its predecessor and that there had been no “foreclosure” in the first instance, because title did not pass at a foreclosure auction or similar event.  The Court rejected that analysis for two reasons.  First the Court found that, under a plain reading of the statute, “foreclosure” is not to be construed narrowly as the actual sale of a property (which did not occur in the first instance), but refers to the entire process, as opposed to a specific act, and includes statutory steps.

Second, the court held that language of the statute specifically bars a “’sale, foreclosure, or seizure of property’ thereby suggesting that foreclosure must mean more than just a sale or seizure. 50 U.S. app. § 533(c); Spencer Enters., Inc.v. United States, 345 F.3d 683, 691 (9th Cir. 2003) (noting the “cardinal rule of statutory interpretation that no provision should be construed to be entirely redundant.”). We must move beyond the statute’s explicit terms to determine exactly what the word “foreclosure” encompasses, in addition to the sale or seizure that conclude the foreclosure proceedings.”

The Court did not address the issue of punitive damages collectible under §597(a) when there has been an SCRA violation, but left open that issue upon remand.

 

 

Attorney Roy Kaufmann serves as the Director of the Servicemembers Civil Relief Act Centralized Verification Service, located in Washington, D.C. As a recognized authority on the Servicemembers Civil Relief Act, Mr. Kaufmann has published hundreds of articles and hosted many webinars. His teachings help law firms and businesses to remain compliant with the SCRA rules and regulations so as to avoid costly fines.

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