Trustee Sale FAQ

The mortgage crisis of 2008 through 2012 (this happens every 15 to 20 years)

Statistics from 2005: Foreclosures, a key indicator of the health of the home lending market, can skyrocketing, harming families and their communities. When compared to any other relevant measure – increases in home ownership, increased in number of mortgage loans, even the ratio of foreclosures per mortgage – the rate and number of foreclosures can escalating at an alarming pace. Over the last two decades home ownership has increased by only 3.6%, but foreclosures per home have increased by 335.6%. The blame for this dramatic increase in foreclosures can be traced directly to the sub-prime (hard money) mortgage market (which means greedy lenders and realtors who know for certain the borrower cannot afford the home). As of the third quarter of 2003, 6.6% of sub-prime mortgage loans – approximately one in every 15 loans – were in foreclosure. This stands in stark contract to the rate for prime loans – 53% for the same period. by Joint Center for Housing Studies (March 2004), page 12.

The sad truth is that very few borrowers understand the issues related to borrowing money, purchasing homes, or using credit cards.

Instead they rely on the word of those who make money as a result of their lack of knowledge – realtors, brokers, lender, credit card companies. Their failure to understand these issues is leading them directly into foreclosure, garnishment and bankruptcy.

The likelihood of someone contacting you with a offer to “solve your problems” without them making lots of money, or taking title to your home is very rare.

Most of these people are in the business to make money off of your misery. So long as you understand that is their goal, then do as you please. The problem is that hundreds of people are lead to believe these “rescuers” are their friends. Never make that mistake. Check them out with the Attorney General’s Office, Better Business Bureau, the Clerk of the County Court for prior lawsuits and run their name on Google.

If they say their are a non-profit – doubt them. If they state that they have federal “grants” – doubt them.

Document everything you do with them. Video tape their promises and keep copies of all documents. Never sign anything without first reading it and make sure to keep a copy of everything. Before signing – ask for the advice of someone who is not related to the rescuer.

Most of these scams are visited on the minorities, those who have low income and cannot afford to talk to attorneys, and those who are just too stubborn to believe that anyone could possibly rip them off.

We have many examples attorneys, disbarred lawyers, realtors, brokers or CPAs who prayed on innocent victims.  An example is Richard T. Berry, a disbarred lawyer and felon.  Mr. Berry runs “Why Pay a Lawyer”.  He is not permitted to practice law in Arizona; he is also prohibited from drafting any documents.  Mr. Berry has numerous sanctions by Arizona bankruptcy judges.

No one should never rely on anyone to “work out your problems.”

Moral to these stories – always check with the licensing agencies to determine the current status and past history of anyone you retain.  It has been my experience that people in trouble wait far too long to look for help.  When they finally do seek help they fail to take the time to investigate the credibility of the helper’s history, or the voracity of their claims.  Stay involved with your lender directly.  No contract with an attorney should prohibit you from talking to another attorney or seeking help for your situation from someone else.  Contact the State Bar of Arizona if you have any questions about the actions of any attorney.

Bankruptcy is not always an answer.

Make sure to contact an experienced bankruptcy attorney to determine the options. In the Olsen’s case, even if the house sells in a trustee’s sale it is possible that they may actually get some money after the trustee’s sale is completed. See below for an explanation of monies that are left over after a trustee’s sale – called excess sales proceeds.

If you are asked to so something that you feel is sneaky or wrong, then don’t do it.

This is one of hundreds of similar stories: in early 2006 – Maria E, an elderly woman, she used her own money to put a down payment on a house for $175,000, paid all the payments and landscaping.  Originally, in order to qualify for the loan (she was living on social security) a realtor and a mortgage company suggested that she use the credit a friend of the realtor to purchase the house. (For those paying attention this is called FRAUD.)  The house was purchased in the name of the realtor’s friend.  The promise was that the realtor’s friend would deed the house to Maria after the loan was funded. Maria paid the down payment and made all the payments for some time, thinking that the house had been deeded into her name. Instead it turned out that the friend deeded the house to an investor who then evicted Maria from her own home and deeded it to another investor.

Remember these folks are in the business to make money.  The money they are making is the equity in the home that you are losing.

• Talk with an experienced foreclosure lawyer to find out more about your options and get advice. You may be able to hire an attorney to advise or assist you. If you have low income and are eligible for free legal assistance, contact Community Legal Services at 602-258-3434 to apply for advice from the Volunteer Lawyers Program.
  

  Make sure that every communication is in writing, or confirmed in writing.

  Keep a diary of whom you talked to, when (date and time), phone number and exactly what was said.

  NEVER PAY MONEY TO SOMEONE ELSE TO NEGOTIATE FOR YOU WITH YOUR LENDER, UNLESS YOU ARE CERTAIN THEY ARE LEGITIMATE.  ALWAYS GET TWO OPINIONS.

Some people will go into default because of bad advice (lawyer or otherwise) or stubbornness over some issue.

The cheapest way to stop a foreclosure or trustee’s sale is to pay the full amount including back payments, late charges, penalties and trustee fees BEFORE the date of the Trustee’s Sale.  Now don’t assume that everyone is in default because they cannot make the monthly payment.  If you want to save your home and have the funds, the normally it is best to pay them and argue over the issues in court.

Ask in writing for the “reinstatement” amount and keep a copy for your records.

Reinstatement: Send the lender the full amount by certified mail, return receipt requested (arranged at the Post Office) so you can prove that you sent the money and that the lender received it. IF YOU PAY ALL THAT YOU OWE, BE SURE THAT YOU HAVE IN WRITING FROM THE LENDER AND TRUSTEE THAT THE TRUSTEE’S SALE HAS BEEN CANCELLED. If you have trouble getting the lender to tell you the exact amount that will be due on the date you can pay it, get help from a lawyer.

• Can you can qualify for the amount you owe (arrears necessary to reinstate the loan) including the past due mortgage payments?

  If you are able to refinance, the arrangements need to be made and documents signed and your lender paid before the date that the Trustee’s Sale is scheduled to happen. Contact several mortgage companies to see if you can qualify.  Unfortunately it can be difficult or impossible to get refinancing if you are behind on your payments (in default) already.

  Make sure to get competent legal advice about your liability on this second ( Arizona Anti-Deficiency Flow Chart (126 downloads) ) loan.

Do not agree to a short term loan at high interest unless you are absolutely sure you can make the payments and will be able to save your home later.

Normally 98% of the time it is a mistake to get a short-term loan at high interest because the payments will be too high, your debt will increase, and the home will still be lost.

Even though a Trustee’s sale has been started you still own your home and can sell if.

Sell your home yourself before the date scheduled for the Trustee’s Sale. If your home will sell for significantly more than you owe, this option can allow you to pay off the mortgage and costs and also get some money you can use to arrange another place to live and pay moving costs. Check with several reliable realtors and get a realistic estimate of the amount you may get if you sell the home. Always talk to a licensed realtor that you contact using references from others.

Never use the services of someone who knocks on your door to “help” you, even if they say they are a lawyer.

It is amazing the number of times that I see homes in a trustee’s sale and there is plenty of money to pay off all the loans, plus leave lots for the homeowners. Most likely the problem is that the homeowner does not really know what their home is worth. Again – use a licensed realtor who you contact, not who contacts you.

If you can afford to catch up on your payments, it is best to do this as soon as possible.

If your lender has to take other legal steps, you will end up paying for all of the costs, so it will cost you much less if you can stop the process at this point by paying what you owe. If possible, work out a plan to catch up on your payments.

Lenders do not have to offer a payment plan, but they do have to accept the full amount they are owed, including their fees and costs.

Contact the lender to see if you can reach agreement about how much you will pay and when to catch up. You are more likely to be able to get agreement on a repayment plan if you show that you are receiving a lump sum of money soon or that your income will be going up soon so that you can afford to catch up and then keep making your payments on time in the future.

If you reach an agreement with the lender on a repayment plan, be sure that the repayment agreement is in writing. You should send a letter the lender to confirm that they have agreed to accept payments instead of taking other legal action and the amounts and dates of the payments. Include in the letter the name and phone number of the person who agreed to the payment by phone. It is best to send the letter by certified mail and keep a copy.

If your mailing address has changed, you should be sure that your lender knows how to notify you so you are notified if the home is scheduled to be sold. Even if you have given your lender this information in writing it is still very important that you also record a Request for Notice with the County Recorder’s office – in the County where your home is located. If you are able to reach an agreement with the lender to catch up on your payments, be sure to make all of the payments on time as you agreed and keep proof that you made the payments.

Consider ways you may be able to get additional funds to be able to catch up on your payments.

Someone in the family may be able to help by getting a job or a second job. Sometimes people are able to borrow from relatives. If you can make arrangements, provide your lender with written evidence that your family can now afford the house payments. This could be a written agreement to rent out part of the home that shows how much rent will be paid to you, or a family member’s pay stub to show increased income. If a relative agrees to loan you money, you can get this agreement in writing and talk to an attorney about a secured loan (a promissory note and deed of trust).  This may help to protect your relative’s investment should you have to file for bankruptcy.

Any default can open the door for the lender to start a foreclosure or trustee’s sale.

If you bought a home and signed a Deed of Trust giving a lender a security interest in your property, the lender can start a process to take legal action to sell the property at a Trustee’s Sale. The legal process can be started if you are in default–if you do not do what you agreed when the loan was given. Usually this happens if you are behind on your payments. It also could happen if you fail to pay your property insurance or real estate taxes on the property or don’t maintain the property.

Arizona statutes define how a trustee’s sale or foreclosure works.

Usually, the lender (person or company that loaned the money for you to buy your home or a company that later takes over the mortgage) will make a demand that you make your payment. Usually this is required in the agreement. You should know that, if the lender sends this notice by certified mail, the process of forcing sale of your home can continue even if you do not pick up the certified letter.

The process of a foreclosure or trustee’s sale

What a lender must do to start a trustee’s sale – our office procedures

The trustee’s sale process (more information)

If you are not able to get caught up on your house payments, the lender can start plans to sell the home by recording a Notice of Trustee’s Sale & Substitution of Trustee with the County Recorder’s office. This Notice sets the date, time and location that the Trustee’s Sale of your home will take place. You should receive a copy of this Notice of Trustee’s Sale and a Statement of Breach by certified mail. This NoticeMUST give at least 90 days between the date the notice is recorded and the date the sale will happen.

IMPORTANT NOTE: The sale will continue even if you do not accept the certified mail.

• This is called reinstating the loan (bringing it current).  The law is very specific as to the property owner’s rights and what the trustee must do with regards to accepting payment to cure all the arrears. These rights also apply to all junior lienholders (other lenders secured by your home).

  There are some very specific steps to follow in order for the lender/servicer to provide the property owner with the exact amount necessary to cure the arrears.

  • First you must contact the lender/servicer/trustee (best to contact all three) in writing and request a reinstatement through and including a specific date when you are sure you will have the money to pay the arrears.
  • The trustee is required by law to respond to your request for a reinstatement (cure of the arrears or payoff – Arizona Revised Statues: 33-803.01). Include a request for them to identify where you should make the payment and what form (e.g. cashier’s check).

  • DO NOT WAIT UNTIL THE LAST MINUTE TO REQUEST THIS INFORMATION – IT WILL MOST LIKELY TAKE TWO WEEKS TO GET THE AMOUNTS DUE. Diane L. Drain

  • If you do not receive a response within 72 hours then send another request.
  • Keep sending requests every 3 days until you receive a response with the information that you requested.
  • Keep copies of each demand in case you need them later to prove how difficult the lender/servicer/trustee has been to deal with.
  • If the lender/servicer/trustee does not respond after four or five demands then immediately hire an attorney. You can also file a complaint with the Arizona Department of Financial Institutions. In addition, go to the Arizona Corporation Commission’s web site and find the shareholders for each of these entities. Send each of the shareholders a certified demand for information, along with the copy of the complaint that you have filed. If the Trustee is a lawyer than file a complaint with the State Bar of Arizona. Of course, you can always file a complaint in court to ask a judge to make the lender perform as request.
  • Beware – none of these actions will terminate the trustee’s sale.  Once you receive the accounting compare it with your records. If you have not been keeping copies of payments, then you have no proof that you made any missing payments. Most likely it will be the lender’s word over yours.
  • Do not chance losing your home because you are stubborn and will not pay one or more mortgage payments you are sure you paid, but do not have proof. Immediately make arrangements to pay the full amount. Remember that the longer you wait to pay the more the late charges and other penalties you incur.
  • Again, keep copies of all correspondence, keep diary of the person you talked to, including the date and time of the discussion. Confirm all verbal communications by sending a letter, fax or e-mail detailing your understanding of the agreement.
  • Lastly, if the trustee or the lender is not responding to your requests for payoff or reinstatements, or it doing something “shifty”, then you have a right to file for a temporary restraining order in court.

Arizona Revised Statutes Section 33-813. Default in performance of contract secured; reinstatement; cancellation of recorded notice of sale.

• How do I get a temporary restraining order to hold up the sale of the property?  Note – the court or technology will change these procedures.

  FIRST YOU SHOULD UNDERSTAND THAT CHANCES OF GETTING A TEMPORARY RESTRAINING ORDER IS EXTREMELY RARE.

  If you file for a restraining order the court will require that you have proof that the law has not been followed)  A “Temporary Restraining Order” is ordinarily issued after an “ex parte appearance” (an appearance in court by one party without the other being present). The Temporary Restraining Order is an order of the court that states that a person is to stop do something (in this case completing the trustee’s sale).

  A Temporary Restraining Order becomes effective only once it has been served on the Trustee so they have notice and an opportunity to be heard by the Court.

  Then an “Order to Show Cause” hearing is scheduled so that both parties will have the opportunity to explain to the court the reasons why a more “permanent” restraining order should or should not be issued.  This is a good time for you to present your evidence that the Trustee has not provided you with the amount you need to pay to stop the sale, but you also must show evidence that you have the necessary money to pay all the back mortgage payments, plus fees and costs.

  Temporary Restraining Orders usually can be issued the same day they are requested and remain in effect until the scheduled hearing on the Order to Show Cause.

  The Order to Show Cause hearing is typically scheduled to occur a few days later.  Once the Temporary Restraining Order and Order to Show Cause have been served on the person to be restrained, a hearing can be held to determine whether there is sufficient cause for a court to issue a more “permanent” restraining order. Based upon the evidence presented at this hearing, a court can order the restrained person from engaging in certain acts (completing the trustee’s sale until they give you the information requested).

  After a hearing, a Restraining Order can remain in effect for a period of time, even several years.

  The Restraining Order After Hearing can also be renewed for additional periods of time upon application by the protected person, and its duration may become permanent.

Make sure to check current statutes for procedures and processes

A.R.S. Section 33-809(E) requires that a no sooner than thirty days after recordation of the notice of trustee’s sale, the trustee shall upon receipt of a written request, provide, if actually known to the trustee, the following information relating to the trustee’s sale and the trust property:1. The unpaid principal balance of the note or other obligation which is secured by the deed of trust. 2. The name and address of record of the owner of the trust property as of the date of recordation of the notice of trustee’s sale. 3. A list of the liens and encumbrances upon the trust property as of the date of recordation of the notice of trustee’s sale, excluding those matters set forth in section 33-438, subsection A.

The trustee may charge a fee not to exceed one-twentieth of the amount the trustee may charge pursuant to Section 33-813. The trustee is not liable for any error or omission in providing the information requested.  A.R.S. Section 33-809(E) provides that beginning at 9:00 a.m. and continuing until 5:00 p.m. on the last business day preceding the day of sale and beginning at 9:00 a.m. and continuing until the time of sale on the day of the sale, the trustee shall provide to any person who requests of the actual bid or credit bid the beneficiary is entitled to make at the sale.

If the trustee is unable to provide the credit bid during the prescribed time period, the trustee shall postpone the sale until the trustee is able to comply with this subsection. Again, the trustee has no liability for the accuracy or completeness of the information.

ARS Section 33-810 (A). On the date and at the time and place designated in the notice of sale, the trustee shall offer to sell the trust property at public auction for cash to the highest bidder. The attorney or agent for the trustee may conduct the sale and act at such sale as the auctioneer for the trustee. Any person, including the trustee or beneficiary, may bid at the sale. Only the beneficiary may make a credit bid in lieu of cash at sale. The trustee shall require every bidder except the beneficiary to provide a one thousand dollar deposit in cash or in any other form that is satisfactory to the trustee as a condition of entering a bid. The trustee shall not refuse cash as a form of payment of the bidder’s deposit.

Every bid shall be deemed an irrevocable offer until the sale is completed, except that a subsequent bid by the same bidder for a higher amount shall cancel that bidder’s lower bid. The trustee shall return deposits to all but the bidder or bidders whose bid or bids result in the highest bid price.

ARS Section 33-811(A). The highest bidder at the sale, other than the beneficiary to the extent of the credit bid, shall pay the price bid by no later than 5:00 p.m. of the following day, other than a Saturday or legal holiday.  ARS Section 33-810 (A) The sale shall be completed on payment by the purchaser of the price bid in a form satisfactory to the trustee.

The subsequent execution, delivery and recordation of the trustee’s deed as prescribed by section 33-811 are ministerial acts. If the trustee’s deed is recorded in the county in which the trust property is located within fifteen business days after the date of the sale, the trustee’s sale is deemed perfected at the appointed date and time of the trustee’s sale.  ARS Section 33-811(B).

The price bid shall be paid at the office of the trustee or the trustee’s agent, or any other reasonable place designated by the trustee. The trustee shall execute and deliver the trustee’s deed to the purchaser within seven business days after receipt of payment by the trustee or the trustee’s agent made in a form that is satisfactory to the trustee.

ARS Section 33-811(A) If the highest bidder fails to pay the amount bid for the property the trustee, in his or her sole discretion, shall either continue the sale to reopen bidding or immediately offer the trust property to the second highest bidder who may purchase the trust property at that bidder’s bid price.

The deposit of the highest bidder who fails to pay the amount bid shall be forfeited and shall be treated as additional sale proceeds. If the second highest bidder does not pay that bidder’s bid price by 5:00 p.m. of the next working day then the trustee shall either continue the sale to reopen bidding or offer the trust property to each of the prior bidders on successive working days until a bid price is paid.

A highest bidder who fails to pay the amount bid by that bidder is liable to any person who suffers loss or expenses as a result, including attorney fees, plus that bidder may be black-balled from any future trustee sales.

ARS Section 33-810 (B) The person conducting the sale may postpone or continue the sale from time to time or change the place of the sale to any other location authorized by the law by giving notice of the new date, time and place by public declaration at the time and place last appointed for the sale.

Any postponement is limited to no more than ninety calendar days at any one time.

You will not receive any notice of the postponed, continued or relocated sale.  It is the homeowner’s or junior lender’s responsibility to confirm the status of any postponement or cancellation.

ARS Section 33-811(E) provides that the trustee’s deed shall operate to convey to the purchaser the title, interest and claim of the trustee, the trustor and the beneficiary.

ARS Section 33-811(B) provides that the trustee’s deed shall raise the presumption of compliance with the requirements of the deed of trust and this chapter relating to the exercise of the power of sale and the sale of the trust property.

ARS Section 33-811(B) provides that a Trustee shall execute and deliver the trustee’s deed to the purchaser within seven business days after receipt of payment by the trustee in a form that is satisfactory to the trustee.

ARS Section 33-810 (E) provides that the if the trustee’s deed is recorded in the county in which the trust property is located within fifteen business days after the date of the sale, the trustee’s sale is deemed perfected at the appointed date and time of the trustee’s sale.

If you cannot stop the sale by making up your payments or filing for a Chapter 13 bankruptcy– the lender can proceed with the Trustee’s Sale as scheduled. Even after the home is sold, you may still have some options. Understand that the new owner has the right to refuse to work with you.

Make Arrangements to Move

After the Trustee’s Sale, the home belongs to the lender (if the lender “bought it back”) or the person or company that bought it at the sale. The new owner has a right to have you move out so they can use the home.

Sometimes the new owner will agree to rent to you at least for a short time.

Usually you will need to have a written rental agreement and be expected to pay rent. Be very careful about an offer of a “lease back with purchase”. The person leasing you the property may only want to get a big down payment and then terminate the lease agreement for some minor default. They keep your money and you are still out of the house.

To avoid eviction agree in writing to leave by a certain date

The new owner may agree to give you a little more time to arrange to move in order to avoid the new owner going to court to evict you.  There is no legal requirement that the owner do this.

Expect the new owner to give you a Notice to Vacate and then file a Forcible Entry and Detainer action in court to have the court order you to move out.

This increases costs for the new owner, who can ask that you be ordered to pay them, so it costs you more if you don’t move on your own.

Forcible Entry and Detainer Overview

If you receive a notice about a court hearing, we recommend that you go to court at the time set for the court hearing even if you already have moved out.

If possible, be sure that all of your belongings are moved out before the court hearing or at the very latest before the date that the judge orders that the “writ will issue” (usually 5 days after the hearing). If you have not moved by the date that the writ issues, the new owner can have the constable or sheriff come to remove you on that day and is not required to give you any more time to move your belongings. This can make it difficult and cost you more.

Arizona Revised Statutes: Section 33-812(o) A claimant may enter into an agreement with a third party to pay for the recovery of or for assistance in the recovery of excess proceeds on deposit with the county treasurer. The agreement shall be in writing, signed by the claimant, and the claimant’s signature shall be acknowledged by a notary public or other person authorized to accept an acknowledgment pursuant to section 33-511. Any agreement entered into before the expiration of thirty days after the date the trustee’s sale was held, but not including the date of the sale, is void and unenforceable.

Any fee or payment provided for in an agreement shall be reasonable.

The fee or payment shall be presumed to be unreasonable and the obligation to pay the fee or payment is unenforceable if the fee or payment agreed on exceeds two thousand five hundred dollars excluding attorney fees and the costs of filing the claim and providing the statutorily required notices. Any person seeking a fee or payment exceeding two thousand five hundred dollars may apply to the court for additional compensation but the person has the burden of establishing that the additional compensation is reasonable under the circumstances. This subsection does not preclude a claimant from contesting the reasonableness of any fee or payment that is provided for in an agreement for the recovery of or for assistance in the recovery of excess proceeds.

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NOTE: Be careful if you are contacted anyone involved in this type of business (including lawyers – or those who say they are a lawyer). They may be legitimate, but do your homework first. Never sign anything without first understanding what you are signing and the full effect of what you are signing. Never sign documents the same day that you are offered the “deal”. Take a few days to mull over the value of the services offered. Keep copies of every document that you sign, including business cards, brochures and flyers. There may be a much better deal out there, if you only look.

Many law firms, including this one, assist people in applying for excess sale proceeds. Our firm’s normal fee for obtaining these proceeds (including most court appearances and answering objections) depends on the complexity of the case. We do not charge our clients referral fees, nor do we pay any “finder’s fees” or “third party provider fees” to any company. No one in this firm holds interest in another other company that “assists” people in obtaining the excess proceeds. We would never advise a client, nor request a client to sign an irrevocable assignment of any proceeds. This firm is in the business to practice law, not to invest in real property.

-Diane L. Drain

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Additional articles on Excess Sale Proceeds.

1. Excess Sale Proceeds After Trustee’s Sale

ARS Section 33-810 (C). A sale shall not be complete a bankruptcy has been filed prior to the time of the trustee’s sale. If a sale is held it shall be deemed to be ineffective and is automatically postponed to a date, time and place announced by the trustee at the sale.

• Arizona Trustee’s Sales and Bankruptcy articles
• Arizona Trustee Sales
• Typical foreclosure and bankruptcy scam.

• Warning:  like so many laws this area of law is constantly changing.

  Taxes and foreclosure, short sales or sales under Deed of Trust, article by Bob Ciancola

Tenants and Trustee Sales (foreclosures)

It is especially important that you attempt to work with the VA to avoid possibly being responsible for the full loan amount even if your house later sells for less than you owe and to see if you can remain eligible for a VA loan in the future. This is not something to be taken lightly – your VA benefits, pay checks, checking accounts and tax refunds can be taken if you fail to pay a VA loan. Bankruptcy is a solution to this problem.

WARNING: LAWS REGULARLY CHANGE.  THE FOLLOWING INFORMATION MAY NOT BE ACCURATE.

A 2003 Law Provides Relief For Military Personnel. (unknown author) Borrowers — whether for mortgage loans, credit card debt or auto loans — who have been called up for military duty have been given greater financial and legal protections. On December 19, 2003, President Bush signed into law the “Service members Civil Relief Act” (SCRA).  Under this new law, “Service members” are defined as persons on active duty in the military, but also includes National Guard members who have been called up for active duty for more than 30 days.

If yourself or a family member have been called into active duty, all of your lenders should be immediately notified, and you must send them a copy of the military orders. Once the lender has been put on notice, it must reduce all interest payments down to six percent, and most importantly, must forgive all pre-service debts which exceeded this six percent cap. It should be noted that this protection applies only to debts incurred before the borrower went into active military service; debts incurred while on active duty are not similarly protected.Since the start of World War II, there was a law known as the Soldiers and Sailors Civil Relief Act of 1940.

That law also required lenders to automatically reduce the interest rate obligations of persons in active military service down to six percent. However, it was not clear that all interest above the six percent cap was to be forgiven.  SCRA clarifies this, with clear language in Section 207 of the Act that “interest at a rate in excess of six percent per year … is forgiven.”

The old Soldiers and Sailors Relief Act was a very powerful tool designed to assist servicemen and women whose income is less while on active duty than what it was in civilian life. However, that law was enacted over 60 years ago, and times have changed. Additionally, various Court cases have given different — and often conflicting — interpretations of that old law. Accordingly, Congress decided to update and clarify the rights of our service men and women.

The stated purpose of SCRA is: To provide for, strengthen, and expedite the national defense through protection extended by this Act to service members of the United States to enable such persons to devote their entire energy to the defense needs of the Nation; and to provide for the temporary suspension of judicial and administrative proceedings and transactions that may adversely affect the civil rights of service members during their military service.

It should be noted that the reduction in the interest rate must be accompanied by a reduction of the monthly payment. The lender cannot require you to continue to pay your same payment each month, and credit more toward principal. In addition to mortgage and other debt payments, the new law provides other important relief to the men and women in our Armed Services.

If a lease was entered into prior to the tenant’s entry into the armed services, the tenant has the right to terminate it, even before the term has expired. Members of the military who receive orders for a permanent change of station or to deploy with a military unit for a period of not less than 90 days also have the right to terminate leases, even if the leases were entered into while they were on active duty.

The landlord must be given thirty days advance notice of the termination, and rent must be paid up to the date the lease ends. There is no longer a requirement that the lease contain a military termination clause.

As their civilian counterparts — must continue to pay rent if the lease is not terminated. However, the Act does provide some protection from eviction. Only a court can order the eviction of the tenant. (Note: this is the law in many states anyway. A landlord generally cannot exercise self-help by evicting a tenant without first obtaining Court approval.) If the Judge determines that the military service has materially affected the ability to pay, the Court must stay (stop) the eviction for a period of three months, unless the Judge finds that “justice and equity require a longer or shorter period of time.”

There are three basic requirements imposed by the law: the landlord is attempting to evict a person who is in military service; The leased premises are used for residential housing by the spouse, children or other dependents of the military person, and the agreed upon rent does not exceed a specific amount per month. Since this is a complex issue, tenants who are on active military service must consult with the legal assistance attorney assigned to their unit. (Note: the dollar amounts will change over time.

The private life insurance policy cannot lapse, terminate or be forfeited for nonpayment of premiums for a period while the insured is on active duty, plus one year.

On the request by the military person — or the Court on its own — may stay or vacate any attachments or garnishments against the debtor during the period of active duty plus up to 90 days after that duty ends.

Under certain circumstances, when a lawsuit is brought and the Court determines that the Defendant is on active military duty, the Court cannot enter a judgment until after the Court appoints an attorney to represent the interests of the service member. There is an interesting sentence in the new law, to the effect that ‘if an attorney appointed … to represent a service member cannot locate the service member, actions by the attorney in the case shall not waive any defense of the service member or otherwise bind the service member.” In other words, Lenders beware: if your borrower is on active military duty, your best option is to refrain from filing a lawsuit until his/her service has ended.

Thus, the new law extends — and expands upon — the protections which Congress initially provided to the men and women who served during World War II. Our service members should devote their energies to their military tasks and not have to worry about their creditors