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Unlawful Foreclosure against Service Members

The Department of Justice has issued a statement indicating that it has filed and settled a number of lawsuits against Morgan Stanley and Bank of America for improperly foreclosing on properties owned by active members of the military.

A total of $22 million was apparently secured as compensatory funding for the service members whose homes were foreclosed on while they were on active duty. The law that prohibits such action is called the Servicemembers Civil Relief Act and includes protections for:

  • Rental agreements, security deposits and prepaid rent;
  • Eviction;
  • Installment contracts;
  • Credit card interest rates;
  • Mortgage interest rates;
  • Mortgage foreclosure;
  • Civil judicial proceedings;
  • Automobile, life and health insurance; and
  • Income tax payments.

Generally speaking, active members of the military receive greater protections than the general public in many areas of consumer law. A few years ago, for example, payday loans for military members were outlawed.

In this instance, the accused entities (Countrywide Home Loans Servicing and Saxon Mortgage Services) were charged with violating the part of the law that protects service members from foreclosure except in extreme cases. In all, 178 service members were affected, some of whom reportedly suffered from serious combat-related injuries.

This incident is the latest problematic foreclosure story to come to light. This, the robo-signing scandal of last fall, earlier accusations of redlining and allegations of lenders unfairly targeting minorities for subprime loans, point to a trend of less-than-trustworthy mortgage lenders.

So what can you do if you’re worried about staying in your home?

  • Review your loan terms. Make sure you know what you signed up for and what you and your lender are legally obligated to do.
  • Talk with a lawyer. Because many mortgage agreements are written in complex legalese, you may need to enlist the help of an attorney to fully understand what’s in your mortgage documents.
  • Know your options. Some lenders may be willing to offer a mortgage modification to qualified borrowers, but you’ll likely have to take the initiative by asking about this option.
  • Consider Chapter 13 bankruptcy. As your lawyer can tell you, some homeowners can benefit from the protection of Chapter 13 bankruptcy if they’re in danger of mortgage foreclosure. Bankruptcy won’t work for everyone, but it may be worthwhile to consider it as an option.
  • Don’t ignore the problem. Perhaps the most important thing to do if you’re concerned about foreclosure is to take action. Communicating with your lender as early as possible can help improve your odds of a favorable outcome.

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