Servicemembers Civil Relief Act. Professionals Guide to Benefits and Protections for Military Members. by: John Costello

Servicemembers Civil Relief Act Professionals Guide to Benefits (SCRA) Legal and Protections for Military Members by: John Costello

Servicemembers Civil Relief Act Legal Professionals Guide to Benefits (SCRA) and Protections for Military Members by: John Costello

Contents Part 1 Guide to Benefits...6-27 Part 2 About the Author - John Costello...30 Locke Lord s SCRA and Class Actions Practice Areas... 31-33 JOHN COSTELLO 312-443-0374 jcostello@lockelord.com

Part

Introduction The purpose of this desk book is to provide legal professionals with a working knowledge of the scope and limits of the benefits and protections available through the Servicemembers Civil Relief Act (SCRA). General Concepts The SCRA is designed to protect active duty military members, reservists who are in active federal service, and National Guardsmen who are in active federal service. Some of the benefits under the SCRA extend to dependents of qualifying military members as well. The purpose of the SCRA is to protect those who have been obliged to drop their own affairs to take up the burdens of the nation. 1 Although the Act should be read liberally and afford generous protection to the Service member, the protection does have its limits. 2 Although the Act benefits service personnel, it does not protect those who would abuse it. The analogy that is used is that the SCRA is a shield, not a sword, and the Act may not be employed to enable one who had flouted his obligations in civilian life to obtain indefinite delay or to cancel his just liabilities. 3 Organization of SCRA The SCRA, codified at 50 U.S.C. App. 501-597b, is organized in eight major sections: Title I - General Provisions ( 511-519) o Persons protected - 511, 513 o Non-discrimination provision - 518 Title II - General Relief ( 521-527) o Default judgments and stays - 521, 522, 524, 525 o Statutes of Limitation - 526 o Maximum rate of interest - 527 Title III ( 531-538) Rent, Installment Contracts, Mortgages, Liens, Assignment, Leases, Telephone Service Contracts o Major substantive protections against evictions, termination of installment contracts, foreclosure on mortgages and termination of leases by lessees, protection to dependents Title IV - Life Insurance ( 541-549) Title V - Taxes and Public Lands ( 561-571) Title VI - Administrative Remedies ( 581-583) Title VII - Further Relief ( 591-596) Title VIII Civil Liability ( 597-597b) 1 Boone v. Lightner, 319 U.S. 561, 575 (1943). 2 Le Maistre v. Leffers, 333 U.S. 1, 6 (1948). 3 Franklin Soc. for Home-Building & Savings v. Flavin, 40 N.Y.S.2d 582, 583, aff'd, 291 N.Y. 530, cert. denied 320 U.S. 786 (1943). 6 Locke Lord LLP Locke Lord LLP

Military Service Defined An important concept in understanding the SCRA is the meaning of military service. Qualifying military service is defined in Section 511. 4 There is an important distinction between federal active duty military service and other military duty statuses, such as state active duty military service. The type of military service the employee is performing is actually a legal duty status, and with that status comes entitlement to SCRA benefits and protections. There are three distinct types of qualifying military service, which are described in the following subsections. Active Duty Military service includes active duty service pursuant to 10 U.S.C. 101(d)(1), which is commonly referred to as Title 10 status. From a layperson s perspective, this is what one thinks of as traditional military service in the United States Armed Forces the Army, Navy, Air Force, Marine Corps, or Coast Guard. In other words, the military is the fulltime occupation of these individuals. Yet, the definition of the term military service also includes those individuals who are commissioned officers in the Public Health Service and the National Oceanographic and Atmospheric Administration. 5 Reservists and National Guard Members Individuals may provide occasional military service through the National Guard or Reserve components of the Armed Forces that do not qualify as active duty under a Title 10 status. However, Reserve and National Guard personnel are entitled to SCRA protections if they are called to duty for a period of more than 30 consecutive days under section 502(f) of Title 32 to the United States Code. 6 This specific Title 32 status is for the purpose of responding to national emergencies declared by the President of the United States on missions supported by federal funds. For example, service in support of the Hurricane Katrina rescue efforts are one example of such a qualifying duty status under Title 32. All other Reserve and National Guard duty statuses do not qualify for SCRA protections. It is important to note, however, that a number of State laws provide protections to duty statuses that would not otherwise be subject to SCRA protections. For instance, state active duty is performed in accordance with state law, meaning National Guard members performing duty at the call 4 50 U.S.C. App. 511. 5 50 U.S.C. App. 511(2)(B). 6 50 U.S.C. App. 511(2)(A)(ii). 7 Guide to Benefits Guide to Benefits

of the State Governor. Governors utilize state active duty status when deploying the National Guard in response to floods, earthquakes, wild fires, other natural disasters, manmade emergencies and in support of other states under Congressionally-chartered state mutual assistance compacts. Miscellaneous Duty Statuses Entitled to SCRA Protections The term military service is also defined to include any period during which a servicemember is absent from duty on account of sickness, wounds, leave, or other lawful cause. 7 For instance, a servicemember could be entitled to SCRA protection while convalescing from an injury, but in a less intuitive situation, a servicemember may also be entitled to the same protections while incarcerated in a military prison. 8 The period of military service begins on the date the servicemember enters military service, and the period of military service ends upon the servicemember s release from military service or death. 9 Certain protections extend for a period beyond release from military service. Dependent Status Qualifying for SCRA Protections In certain situations, dependents of servicemembers in qualifying duty statuses are also entitled to protections under the SCRA. 10 A dependent is defined to include a spouse, a child, or a person receiving more than one-half of their support from a qualifying servicemember. 11 Overview of SCRA Benefits and Protections The SCRA provides many forms of relief for individuals engaged in qualifying military service, and below are some of the most common forms of relief. It is important to note that some SCRA benefits and protections, like the cap on interest rates, must be affirmatively requested by the servicemember, while others place the duty to ensure compliance on the entity to whom the servicemember is doing business. Servicemembers are protected from repossessions, foreclosures, and evictions even if the individual does not tell the creditor about their military status. In other words, the burden is on the creditor to ensure SCRA compliance. 7 50 U.S.C. App. 511(2)(C). 8 See Lowe v. United States, 79 Fed. Cl. 218, 227 (U.S. Ct. Fed. Claims 2007) (addressing whether military confinement of a servicemember who has not been discharged or separated constitutes active duty. ). 9 50 U.S.C. App. 511(3). 10 50 U.S.C. App. 538. 11 50 U.S.C. App. 511(4). 8 Locke Lord LLP

Interest Rates Capped at 6% Under the SCRA, a servicemember can cap the interest rate at 6% for certain obligations or liabilities entered into before beginning qualifying military service if that military service materially affects his or her ability to meet the obligations. 12 Servicemember Must Affirmatively Request Relief and Show Entitlement To qualify for the interest rate cap the servicemember has to show that he or she is now in qualifying military service, that the obligation or debt was incurred prior to entry on qualifying military service, and that military service materially affects the servicemember s ability to pay. To begin the process, the servicemember usually sends a letter requesting relief under the SCRA, along with a copy of current military orders, to the creditor. If orders are not readily available at the time a request is made to the creditor, then the servicemember has 180 days after release from qualifying military service to provide copy of orders. 13 Duration of Benefit The interest rate cap lasts for the duration of qualifying military service, except in the case of mortgages, in which case the protections extend for a period of one-year after military service. 14 The interest rate cap will apply from the first date of active-duty service. What is Interest? The SCRA defines interest to include service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability. 15 Any interest above 6% must be forgiven. 16 It cannot be added to the principal amount of the obligation and it cannot be deferred until after military service. A number of recent lawsuits and enforcement actions have centered upon how creditors calculate the 6% interest rate cap. It is best to conceptualize the 6% interest rate cap as a ceiling that simply cannot be exceeded. Creditors should include in the interest calculation any 12 50 U.S.C. App. 527. 13 50 U.S.C. App. 527(b)(1). 14 50 U.S.C. App. 527(a)(1)(A). 15 50 U.S.C. App. 527(d)(1). 16 50 U.S.C. App. 527(a)(2). 9 Guide to Benefits

fees or charges incurred on the debt covered by the SCRA, including late payment fees and other fees incurred after origination of the obligation. What is the Effective Date from which to Provide Relief? Creditors often ask how to handle the situation where a servicemember does not notify the creditor of military service until several months after receiving military orders. The question that arises is whether the creditor must go back to the original date of the military order or make the effective date of the 6% interest rate cap as the date of notification? The answer is that the 6% interest rate cap must be made retroactive to the date on which the servicemember is called to military service. A servicemember need not request this relief at the time that he or she becomes entitled to it. The SCRA provides that a servicemember has up to 180 days after release from military duty to request this relief. 17 If requested before this 180 day period, the creditor still must go back and retroactively adjust the interest calculation to ensure the 6% interest rate cap is made effective to the date on which the servicemember was called to military service. What Can a Creditor Do If It Believes a Servicemember is Not Entitled to Relief? The SCRA provides a mechanism by which a creditor can challenge a servicemember s claim to the 6% interest rate cap. A creditor may open a legal proceeding through which is can establish that the ability of the servicemember to pay interest is not materially affected by reason of his or her military service. 18 Admittedly, this procedure is not often used, and there are public relations elements to consider in bringing such affirmative litigation. Installment Contracts for Purchase or Lease The SCRA protects servicemembers who enter into installment contracts for real or personal property prior to entry into qualifying military service. Specifically, an installment contract for purchase or lease may not rescinded or terminated, nor may the property be repossessed, for any breach occurring before or during the servicemember s qualifying military service without a court order. 19 A rental-purchase, or rent-to-own, transaction is a perfect example of a contract that would fall into this protection. If the contract was entered into 17 50 U.S.C. App. 527(b)(1). 18 50 U.S.C. App. 527(c). 19 50 U.S.C. App. 532(a). 10 Locke Lord LLP

prior to military service and if an installment payment has been made, then the creditor must apply to a court before seeking to repossess or otherwise dispose of the property. This is another provision that places the duty to ensure compliance on the entity with whom the servicemember is doing business. The safest practice is to run SCRA compliance searches prior to repossession. Aside from exposing the creditor to a civil action under the SCRA and possibly for wrongful conversion, a knowing violation of this provision of the SCRA could result in a misdemeanor conviction. 20 Mortgage Foreclosure Protections The SCRA provides protections against foreclosure of real property for a breach of an obligation secured by a mortgage or trust deed, which originated before the period of the servicemember s military service. 21 The first protection is the ability to obtain a stay of those proceedings during the period of military service and for a period of time after military service. 22 This period of additional protection was originally 90 days after release from qualifying military service, but has been repeatedly extended to one-year for a limited period of time during the financial crisis. 23 In addition to the ability to stay proceedings, a sale or foreclosure of such property is not valid if made during, or within a certain defined period of time after the servicemember has left qualifying military service, unless pursuant to court order. 24 This requirement is important to note in non-judicial foreclosure states. Sources of Authority Regulating Mortgage Foreclosure Practices Involving Servicemembers Beyond the text of the SCRA, a number of enhanced mortgage-related benefits and protections are imposed on certain mortgage servicers by other authorities, such as servicing guidelines of and consent orders entered with federal and/or state regulators. The United States Department of Housing and Urban Development (HUD) requires a delinquency letter be provided to servicemembers who are 45 days 20 50 U.S.C. App. 532(b). 21 50 U.S.C. App. 533. 22 50 U.S.C. App. 533(b). 23 See Housing and Economic Recovery Act of 2008, Public Law 110-289, Title II, Section 2203(a) (effective July 30, 2008 with sunset December 31, 2010) and Honoring America s Veterans and Caring for Camp Lejeune Families Act of 2012, Public Law 112-154, Title VII, Section 710 (extending sunset to December 31, 2014). 24 50 U.S.C. App. 533(c). 11 Guide to Benefits

delinquent, advising them of their benefits and protections under the SCRA. 25 As another example, the Fannie Mae Servicing Guide outlines undue hardship guidelines, and requires servicers to consider forbearance as an option prior to foreclosure for servicemembers injured while performing military duty. 26 The area most different from the text of the SCRA involves obligations imposed on certain lenders and their servicers by way of the National Mortgage Settlement. This settlement involved the United States Department of Justice and HUD along with nearly all State Attorneys General. The defendants in that consent order included Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Ally Financial, but other parties have either signed on or are otherwise bound to its terms. Regulators used the settlement as a convenient method to obtain relief for servicemembers that might not have been so easily obtained in the legislative process. Some of the additional benefits and protections in the National Mortgage Settlement include: 1. granting special status to servicemembers who are forced to move when they receive permanent change of duty station (PCS) orders and face difficulties obtaining a short sale and maintaining their credit; 2. prioritizing servicemembers for loan modifications 3. addressing DMDC time lag for getting accurate information and allowing servicemembers to submit a certified letter from a commanding officer as proof of such status; and 4. extending SCRA foreclosure protection to servicemembers who were in military service at the time the mortgage was originated. Eviction Protections Except upon issuance of a court order, a landlord may not evict a servicemember in qualifying military service, or that individual s dependents. 27 This protection applies only to individuals leasing a house or apartment with rent below a certain amount, which is adjusted annually for consumer price index (CPI) changes. 28 For 2014, the maximum monthly rental amount is $3,217.81. 29 The formal notice of current year rental amounts is published by the Office of the Under Secretary for Personnel and Readiness within the Department of Defense. The SCRA can protect from eviction for a period of time, usually three months; however, the law provides that justice and equity might require shorter 25 See HUD Mortgage Letter 2006-28, Mortgage and Foreclosure Rights of Servicemembers under the Servicemembers Civil Relief Act (SCRA) (issued November 20, 2006). 26 See Fannie Mae Announcement SVC-2010-11 (August 16, 2010). 27 50 U.S.C. App. 531(a)(1). 28 50 U.S.C. App. 531(a)(2). 29 See Publication of Housing Price Inflation Adjustment Under United States Code, 79 Fed. Reg. 115 (Jan. 2, 2014). 12 Locke Lord LLP

or longer periods of time in a given situation. 30 The law also provides that a court may adjust the obligation under the lease to preserve the interests of all parties. 31 As with other provisions, the servicemember must show that military service materially affects his or her ability to pay rent to be entitled to a stay of eviction of a rental amount adjustment. 32 If a landlord continues to try to evict a servicemember or does actually evict a servicemember, the landlord is subject to criminal sanctions such as fines or even imprisonment. 33 Residential Lease Terminations The SCRA also allows servicemembers who are just entering active duty service to lawfully terminate a lease without repercussions. 34 Likewise, servicemembers that are required to make a permanent change of duty station or called to military service in excess of 90 days may also terminate a lease without repercussions. 35 Mechanics of Requesting Residential Lease Termination To properly request termination of a residential lease, the servicemember needs to show that the lease was entered into prior to the commencement of his or her qualifying military service and that the lease was signed by or on behalf of the servicemember. Proper written notice with a copy of military orders must be provided to the landlord. 36 The termination of a lease that provides for monthly payment of rent will occur 30 days after the first date on which the next rental payment is due after the landlord receives proper written notice. 37 What About Joint Leases with Non-Servicemembers? A servicemember s termination of a residential lease is effective as to a joint lease, provided that the joint lessee is a dependent of the servicemember. 38 Where a joint lessee is not a qualifying dependent of the servicemember, then the landlord may seek to hold the joint lessee liable on the lease. 39 30 50 U.S.C. App. 531(b)(1)(A). 31 50 U.S.C. App. 531(b)(1)(B). 32 50 U.S.C. App. 531(b)(1). 33 50 U.S.C. App. 531(c). 34 50 U.S.C. App. 535(a)(1)(A). 35 50 U.S.C. App. 535(a)(1)(B). 36 50 U.S.C. App. 535(c). 37 50 U.S.C. App. 535(d)(1). 38 50 U.S.C. App. 535(a)(2); see also 50 U.S.C. App. 511(4) (defining dependent ). 39 See, e.g., Corrado v. Harris, 822 N.Y.S.2d 365, 366 (N.Y. App. Term. 2006). 13 Guide to Benefits

Can a Lessor Charge an Early Termination Fee? A lessor may not charge an early termination fee when a servicemember exercises his or her rights under the SCRA. 40 While an early termination fee may not be charged, a lessor may collect any taxes and may enforce other obligations and liabilities of the lessee that are due and unpaid at the time of termination. For example, the relevant provision specifically provides that a lessor may seek to collect reasonable charges to the lessee for excess wear if warranted and so provided for in the lease document. 41 What Can a Lessor Do If It Believes a Servicemember is Not Entitled to Relief? The SCRA provides a mechanism by which a lessor can challenge a servicemember s attempt to terminate a lease early. A creditor may open a legal proceeding through which it can establish that the ability of the servicemember to pay interest is not materially affected by reason of their military service. 42 Admittedly, this procedure is not often used, and there are public relations elements to consider in bringing litigation. Automobile Lease Terminations Similar to residential lease terminations, the SCRA allows servicemembers to terminate automobile leases in certain situations. 43 Servicemembers may terminate automobile leases entered into before or during military service if they are called up for military service of 180 days or longer, as well as if they are required to make a permanent change of duty station. 44 Proper written notice with a copy of military orders must be provided to the lessor. 45 The effective date of the termination of an automobile lease is the date on which proper notice to the lessor is provided. 46 As with residential leases, relief is also available to a lessor who believes a request is not proper. 47 How to Handle Automobile Lease Amounts Paid in Advance of Termination Automobile leases present unique lease termination issues different from residential leases. Upon termination of either type of lease, a lessor must refund 40 50 U.S.C. App. 535(e)(1). 41 50 U.S.C. App. 535(e)(1). 42 50 U.S.C. App. 535(g). 43 50 U.S.C. App. 535(b)(2). 44 50 U.S.C. App. 535(b)(2)(A,B). 45 50 U.S.C. App. 535(c). 46 50 U.S.C. App. 535(d)(2). 47 50 U.S.C. App. 535(g). 14 Locke Lord LLP

to the lessee all [r]ents or lease amounts paid in advance for a period after the effective date of the termination of the lease. 48 Capitalized cost reduction payments are a frequent feature of automobile leases, which represent an amount of money paid up-front in order to lower monthly lease payments. These payments often come from rebates, factory-to-dealer incentives, trade-in credit, or a cash down payment. While the exact details of a given transaction are important to determine SCRA impacts, one recent case found a capitalized cost reduction payment to be refundable to the servicemember upon termination. 49 Adverse Action Prohibited Against Individuals Exercising SCRA Rights Under the SCRA, creditors are prohibited from using the fact that a servicemember exercised his or her rights under the SCRA as a basis for determining that the servicemember is unable to pay the obligation in accordance with its terms, or making an adverse report as to the creditworthiness of the servicemember. 50 This protection in Section 518 of the SCRA, entitled Exercise of rights under Act not to affect certain future financial transactions, is effectively an anti-retaliation provision for individuals asserting SCRA rights. Can Creditors Ever Report to Consumer Reporting Agencies Concerning Military Members? One question that often arises is how the exercise of SCRA rights affects credit reporting under the Fair Credit Reporting Act. The answer is actually straightforward and understandable: a servicemember s exercise of SCRA rights does not prohibit a lender from reporting accurate information to the CRAs. Creditors may take adverse action against servicemembers who fail to comply with obligations adjusted by reason of the SCRA as well as other obligations not impacted by the SCRA. For instance, a servicemember who fails to pay monthly installments on an obligation reduced to six percent could be subject to an adverse credit report. As one court recently commented: It is only doing one of the enumerated activities solely because of a service member s application for, or receipt of, a [protection] that 518 prohibits. 51 Student Loans The SCRA permits a servicemember to request an interest-rate reduction to six percent for student loan obligations incurred prior to entry onto qualifying 48 50 U.S.C. App. 535(f). 49 Durm v. Am. Honda Fin. Corp., 2013 U.S. Dist. LEXIS 176274 (D. Md. Dec. 6, 2013). 50 50 U.S.C. App. 518. 51 Murphy v. Bank of America, Case No.: 2:12-CV-2520-VEH (N.D. Ala. Nov. 28, 2012). 15 Guide to Benefits

military service. 52 This protection has always applied to private student loans; however, the Higher Education and Opportunity Act of 2008 extended the protection to federal student loans. 53 To qualify for the interest rate cap, a servicemember has to show that he or she is now in qualifying military service, that the obligation or debt was incurred prior to entry on qualifying military service, and that military service materially affects the servicemember s ability to pay. As with other protections, this protection must be affirmatively requested by the servicemember-borrower, and that request must be in writing along with a copy of military orders. This request may be submitted at any time during a servicemember s active service, and up to 180 days after completion of qualifying military service. This is an emerging area for compliance given recent class action litigation and regulatory focus. 54 The Consumer Financial Protection Bureau (CFPB) recently issued a report, The Next Front: Student Loan Servicing and the Cost to Our Men and Women in Uniform, which noted many deficiencies with SCRA compliance in the student loan origination and servicing industry. 55 The report recounted consumer complaints filed with the CFPB by military servicemembers and their families, noting that complaints indicated [m]any servicemembers navigate hurdles that may be unnecessary in order to receive the SCRA interest rate cap. Storage Liens Unlike other provisions of the SCRA that apply only to pre-service obligations, the section pertaining to the foreclosure of liens for storage of household goods or other personal property of military personnel applies whether the goods were stored prior to entry upon qualifying military service or after. 56 A person holding a lien on the property or effects of a servicemember may not foreclose or otherwise enforce a lien during the period of military service and for 90 days thereafter, unless the lienholder obtains an order from a court. 57 This is another provision that places the duty to ensure compliance on the entity with whom the servicemember is doing business. The safest practice is to run SCRA compliance searches prior to repossession. Aside from exposing the creditor to a civil action under the SCRA and possible for wrongful 52 50 U.S.C. App. 527. 53 Public Law 110-315, Title IV, Part B, 422 (g)(1) (codified at 20 U.S.C. 1078(d)) (Aug. 14, 2008). 54 See, e.g., Olson, et. al. v. Citibank (New York State), et. al., Case No. 0:10-cv-02992 (D. Minn.) (resulting in over $2 million settlement for alleged Section 527 interest rate cap violations). 55 Available at http://files.consumerfinance.gov/f/201210_cfpb_servicemember-student-loanservicing.pdf 56 50 U.S.C. App. 537. 57 50 U.S.C. App. 537. 16 Locke Lord LLP

conversion, a knowing violation of this provision of the SCRA can result in a misdemeanor conviction. 58 Insurance The SCRA also provides protection with regard to life and health insurance, as well as certain professional liability insurance, for qualifying servicemembers. 59 Life Insurance A servicemember s private life insurance policy is protected against lapse, termination, and forfeiture for nonpayment of premiums during a period of military service plus two years. The total amount of life insurance coverage protection provided may not exceed $ 250,000, or an amount equal to the Servicemember s Group Life Insurance maximum limit, whichever is greater, regardless of the number of policies submitted. 60 As with other protections, this life insurance protection must be affirmatively requested by the insured, the beneficiary or the insured s legal representative, and that request must be in writing. 61 This provision is administered in conjunction with the United States department of Veterans Affairs, which makes entitlement determinations. 62 Any policy entitled to protection under the SCRA shall not lapse or otherwise terminate or be forfeited for the nonpayment of a premium, or interest or indebtedness on a premium, after the date of the application for protection. 63 If a protected policy matures, such as by death of the servicemember, the insurer "shall deduct from the insurance proceeds the amount of the unpaid premiums guaranteed under this title, together with interest due at the rate fixed in the policy for policy loans." 64 Premiums and interest for the protection period may be paid at the time of notice of entitlement, but if not, such sums are treated by operation of law as a policy loan on the policy, guaranteed by the United States. 65 58 50 U.S.C. App. 537(c). 59 50 U.S.C. App. 541-547, 594. 60 50 U.S.C. App. 542(c). 61 50 U.S.C. App. 543. 62 50 U.S.C. App. 544(a). 63 50 U.S.C. App. 544(b). 64 50 U.S.C. App. 546(b). 65 50 U.S.C. App. 547(a). 17 Guide to Benefits

Professional Liability Insurance The SCRA provides protections for professional liability insurance of certain servicemembers providing healthcare, legal or any other services which the Secretary of Defense determines to be professional services. 66 Qualifying insureds called to military service may request suspension of a professional liability policy by sending a written request to the insurance carrier. 67 Professional liability insurance policies covered by this section are suspended from the time the insurer receives a request for protection until the insured requests in writing to have the policy reinstated. The insurer may not charge premiums for coverage that is suspended. The insurer must either refund any amount already paid for coverage that is suspended or, if the insured elects, apply the amount toward payment of any premium that comes due after coverage is reinstated. The insurer is required to reinstate the insurance coverage on the date the servicemember transmits a written request for reinstatement, which must occur within 30 days after the covered servicemember is released from qualifying military service. 68 The insurer must notify the policyholder of the due date for payment of any premium required for reinstatement of the policy, and that the premium must be paid within 30 days after the notice is received by the professional person. 69 An insurer will not be liable with respect to any claim that is based on professional conduct, including any failure to take any action in a professional capacity, of a servicemember that occurs during a period of suspension of that servicemember s professional liability insurance. 70 With respect to claims based upon an act or omission that occurred before the date on which the suspension became effective, and commenced during the period of the suspension, such action shall be stayed until expiration of the period of suspension 71 The period of any stay granted under this provision is not counted when computing whether or not the relevant statute of limitations has run on the underlying professional liability claims. Health Insurance 66 50 U.S.C. App. 593. 67 50 U.S.C. App. 593(b)(1). 68 50 U.S.C. App. 593(c). 69 50 U.S.C. App. 593(c)(2). 70 50 U.S.C. App. 593(c)(3). 71 50 U.S.C. App. 593(f)(1). 18 Locke Lord LLP

The SCRA provides for the reinstatement of any health insurance upon termination or release from service. 72 The insurance must have been in effect before such service commenced and terminated during the period of military service. 73 The reinstatement of the health insurance is not subject to exclusions or a waiting period if the medical condition in question arose before or during the period of service, the exclusion or waiting period did not apply during coverage, and the medical condition has not been determined by the Secretary of the Veteran Affairs to be a disability incurred or aggravated by reason of military service. 74 The servicemember must apply for the reinstatement of the health insurance within 120 days after termination or release from military service. 75 A request to the insurance company should be in writing with a copy of the orders evidencing military service and release from service. Litigation Involving Servicemembers During Periods of Military Service Another important protection the SCRA extends to servicemembers is the ability ensure that civil legal proceedings do not proceed without their involvement during military service. Again, the purpose of the SCRA is to protect those who have been obliged to drop their own affairs to take up the burdens of the nation. 76 The protections of the SCRA reach a broad range of courts and administrative tribunals, mandating stays of proceedings and protections from default judgment entry. The SCRA also suspends the running of limitations periods and allows servicemembers to vacate default judgments that might have been entered in their absence. Reach of SCRA: Courts and Agencies The protection of the SCRA applies to any judicial or administrative proceeding commenced in any court or agency in any jurisdiction subject to this Act. 77 The language of the law defines the term court to specifically include any political subdivision of a State, which would include a county, municipality, city, town, township, or other special district created pursuant to State law. 78 This law tucked in the appendix at the end of the United States Code has a farreaching impact by operation of the Supremacy Clause of the United States Constitution. 79 Accordingly, the SCRA protections apply with as much force to federal and state court proceedings as to proceedings of units of local government, including among others, zoning board hearings, property tax assessment hearings, and building code review hearings. In one recent case, governmental officials learned of the SCRA s reach the hard way, through a 72 50 U.S.C. App. 594. 73 50 U.S.C. App. 594(a). 74 50 U.S.C. App. 594(b). 75 50 U.S.C. App. 594(d). 76 Boone v. Lightner, 319 U.S. 561, 575 (1943). 77 50 U.S.C. App. 512(b) (emphasis added). 78 50 U.S.C. App. 511(5). 79 U.S. Const., article VI, paragraph 2. 19 Guide to Benefits

lawsuit and without any applicable governmental immunity because the SCRA is a clearly established right. 80 Tolling of Statutes of Limitation The SCRA provides that the period of a person s military service cannot be counted against them in computing the period of limitations for the bringing of any civil legal action or proceeding. 81 The tolling period begins on the first day of military service and end once the servicemember is released from military service. It is critical to review military orders in order to calculate the exact time period for tolling purposes. While sometimes overlooked, this tolling is a two-way street, as the period of qualifying military service is excluded in computing the period of limitations provided for the bringing of any civil legal action or proceeding either by or against a member of the Armed Forces. Situations Where Servicemembers Have Notice of Legal Proceedings The protections available to servicemembers in legal proceedings initially depend on whether they have notice of the proceedings and whether they have entered an appearance in the proceeding. Where a servicemember has notice of a proceeding or has entered an appearance, the burden of requesting relief under the SCRA falls upon them. Stay of Proceedings Servicemembers with notice that they are being sued can obtain a stay or postponement of those proceedings if their military service materially affects the ability to proceed in the case. 82 A court may also enter a stay sua sponte, or by its own motion. A stay can be used to stop the action altogether, or to hold up some phase of it. According to the SCRA, a servicemember can request a stay during any stage of the proceedings. The burden is on the servicemember to request this relief and show that military service has materially affected the ability to appear in court. 83 This request for a stay must also include a communication from the servicemember s commanding officer stating that military duty prevents appearance and that leave is not authorized. 84 Upon receiving such a request for stay, the court must stay the matter for 90 days, but has the discretion to 80 Jimenez v. Miami-Dade County, 2013 U.S. Dist. LEXIS 7764 (S.D. Fla. Jan. 18, 2013). 81 50 U.S.C. App. 526. 82 50 U.S.C. App. 522. 83 50 U.S.C. App. 522(b). 84 50 U.S.C. App. 522(b)(2)(B). 20 Locke Lord LLP

grant a longer stay. 85 The servicemember can always apply for an extension of the stay if required. 86 Appointment of Counsel if Further Stays Not Granted If the court determines that a further stay will not be granted, the court must appoint counsel for the servicemember. 87 The SCRA is silent with regard to how the appointed attorney is to be compensated. Situations Where Servicemembers Do Not Have Notice of Legal Proceedings When a servicemember has no notice of a proceeding or no appearance has been entered, the burden of ensuring compliance with the SCRA falls upon the opposing party and its counsel. Protection from Entry of Default Judgments A default judgment is one entered against a party who has failed to appear and defend against a claim. Under the SCRA, the term judgment means any judgment, decree, order, or ruling, final or temporary. 88 It does not refer solely to a final judgment on the merits for the claim or claims for relief involved in the lawsuit. Accordingly, even preliminary injunctive relief triggers the protections of the SCRA. In situations where a servicemember does not have notice of a proceeding and has not entered an appearance, in order to obtain a default judgment, a plaintiff must file an affidavit a written declaration of fact stating that the defendant is not in the military service and has not requested a stay of proceedings. 89 This default judgment protection is automatic and need not be requested by the servicemember; instead, it is the affirmative obligation of the moving party. Affidavit Required in Seeking Default Judgment Before any default may be taken, the SCRA requires the plaintiff to sign and file an affidavit with the court or agency stating whether or not defendant is in qualifying military service, or whether plaintiff is unable to determine the military status of defendant. 90 The affidavit should be made contemporaneously with filing of the motion for default judgment, and, out of 85 50 U.S.C. App. 522(b, d). 86 50 U.S.C. App. 522(d)(1). 87 50 U.S.C. App. 522(d)(2). 88 50 U.S.C. App. 511(9). 89 50 U.S.C. App. 521(b)(1). 90 50 U.S.C. App. 521(b)(1). 21 Guide to Benefits

an abundance of caution, the defendant s military status should be rechecked prior to entry of default judgment. An affidavit that the defendant is or is not in military service is required to be filed only where the defendant does not appear or appoint someone to appear for him or her. The SCRA does not specify what constitutes an appearance, which is a procedural matter governed by state law in proceedings in state courts or agencies. Statement of Military Service to Accompany Affidavit The SCRA states that either party or the court may apply to the Department of Defense (DOD) for information on whether a person is in the Armed Forces. The DOD must issue a statement as to military service. 91 The office in DOD to contact is the Defense Manpower Data Center (DMDC). Servicemembers Civil Relief Act Website To facilitate SCRA searches, DMDC has developed a secure public internet access system through which any requester can quickly determine whether an individual is currently in the Armed Forces. The website for SCRA queries is https://www.dmdc.osd.mil/appj/scra. The report generated via this website serves as the basis for an affidavit of military service. It is recommended that the generated report be included as an attachment to the affidavit of military service. Required Information The requester must provide a Social Security Number or date of birth and a last name. A first name, middle name, birth year, and birth month are optional. Further information is available on the Help section of the above website. Obtaining a Report via the Website The SCRA website contains a User s Guide, which provides information on how to obtain SCRA reports as well as how to interpret the report contents. Reports may be generated on an individual or a larger group. An account must be created on the SCRA website to facilitate the larger group search ability. To execute a report, click on the Submit button, which will open up a second window holding the report generated by DMDC. If the individual is in 91 50 U.S.C. App. 582. 22 Locke Lord LLP

qualifying military service, the report will show his or her branch of service and beginning date of qualifying military status. If DMDC does not have information as to whether the individual is in military service, the generated report will indicate that based on the information furnished, the DMDC does not possess any information indicating that the individual is currently in qualifying military service. The report is signed by the DMDC Director. Why is Compliance with the Military Service Affidavit Requirement Important? A default judgment rendered without SCRA compliance is voidable. The SCRA allows a servicemember who has not received notice of the proceeding to seek to vacate or set aside a default judgment. 92 The servicemember must apply for reopening the judgment while in qualifying military service or within 90 days thereafter, and establish that, at the time the judgment was rendered, he was prejudiced in his ability to defend himself due to military service. Further, the servicemember must show that there is a meritorious or legal defense to the initial claim. Default judgments will not be set aside when a litigant s position lacks merit, and this requirement avoids a waste of effort and resources in opening default judgments in cases where servicemembers have no defense to assert. Further, the failure to comply with the military affidavit requirement of the SCRA could result in a misdemeanor or fine. If a false affidavit is knowingly filed, that can subject the filer to misdemeanor prosecution; the maximum punishment is one year s imprisonment, a fine of $1,000, or both. 93 What Happens if the Report Shows an Individual is in Qualifying Military Service? If the plaintiff s affidavit indicates that the defendant is in military service, then the court or agency may not enter a default judgment until it has first appointed an attorney to represent the defendant s interests. 94 The role of the appointed attorney is to protect the interests of the absent servicemember. By way of example, the appointed attorney might attempt to contact the absent servicemember in order to seek application for a stay of proceedings. It is important to note that if the appointed attorney is unable to 92 50 U.S.C. App. 521(g). 93 50 U.S.C. App. 521(c). 94 50 U.S.C. App. 521(b)(2). 23 Guide to Benefits

contact the servicemember, then the actions of the attorney do not waive any defense of the servicemember or in any way bind him or her. 95 Upon request of the appointed attorney, the court or agency must grant a stay for at least 90 days if there may be a defense which cannot be presented in the absence of the servicemember, or the attorney has been unable to contact the servicemember to determine the existence of a defense. 96 Alternatively, the court or agency may enter a stay sua sponte if it determines there is a defense to the action that cannot be presented without the presence of the defendant or if after due diligence counsel has been unable to contact the defendant or otherwise determine whether a meritorious defense exists. 97 After appointment of an attorney and the expiration of any stay, the court or agency may proceed to enter default judgment. 98 The failure of the court or agency to appoint an attorney for an absent servicemember renders a resultant default judgment merely voidable, and not void. 99 What if an Individual s Military Service Status is Not Ascertainable? If the court or agency is unable to determine whether the defendant is in military service based upon the affidavits filed in the proceeding, then the court or agency may require the plaintiff to file a bond in an amount approved by the court or agency before entering judgment. 100 If the defendant is later found to be in military service, then the bond is available to indemnify the defendant against any loss or damage suffered by reason of any judgment subsequently set aside in whole or in part. The bond is to remain in effect until expiration of the time to appeal under applicable law. How Can a Servicemember Obtain Relief from a Default Judgment? If a servicemember is sued while in qualifying military service and fails to respond, and as a result a default judgment is obtained, the servicemember can reopen the default judgment by taking several steps. First, the servicemember must show that the judgment was entered during military service or within 60 days after service. 101 Second, the servicemember must write to the court requesting that the default judgment be reopened while still in qualifying 95 50 U.S.C. App. 521(b)(2). 96 50 U.S.C. App. 521(d). 97 50 U.S.C. App. 521(d). 98 50 U.S.C. App. 521(d). 99 See, e.g., Hawkins, v. Hawkins, 999 S.W.2d 171 (Tex. App. Austin 1999). 100 50 U.S.C. App. 521(b)(3). 101 50 U.S.C. App. 521(g)(1). 24 Locke Lord LLP

military service or within 90 days of leaving the service. 102 Third, the servicemember must not have made any kind of appearance in court, through filing an answer or otherwise, prior to the default judgment being entered. Finally, the servicemember must indicate that military service prejudiced the ability to defend the case and show that a valid defense to the action exists. 103 Enforcing Prior Judgments Against Servicemembers The SCRA does not prevent the enforcement of prior orders. The SCRA has very limited effect on the enforcement of prior orders; however, a servicemember can seek relief from prior orders, but it is the servicemember s duty to do so and show entitlement to relief. 104 If an individual s military service materially affects his or her compliance with a court judgment or order, the servicemember may file a motion in court to stay the execution of any judgment or order, including requesting to vacate or stay an attachment or garnishment proceeding. 105 Waivers of SCRA Benefits and Protections A servicemember may waive any of the rights and protections provided by the SCRA. 106 For actions affecting contracts, bailments, mortgages, trusts, security instruments, and similar obligations, the waiver is effective only if it is in writing and is executed as an instrument separate from the obligation or liability to which it applies. 107 It is recommended that any waiver be reduced to writing in a manner directed by the SCRA. The waiver must be executed during or after military service, as a waiver of SCRA rights executed before entry into military service will be considered invalid. Further, the waiver must be in at least 12 point type. 108 A servicemember s legal representative may have the authority to sign a waiver on his or her behalf if that authority is granted by a power of attorney form. Enforcement of SCRA Benefits and Protections Although the SCRA has been around for nearly 100 years, it was only recently clarified, through the Veterans Benefits Act of 2010, that a private right of action exists under the SCRA. 109 As numerous banks and other entities have discovered in recent years, the SCRA can also be enforced by regulators including the United States Department of Justice, Civil Rights Division, as well as the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau. 102 50 U.S.C. App. 521(g)(2). 103 50 U.S.C. App. 521(g)(1)(A,B). 104 50 U.S.C. App. 524. 105 50 U.S.C. App. 524(a)(1,2). 106 50 U.S.C. App. 517(a). 107 50 U.S.C. App. 517(a). 108 50 U.S.C. App. 517(c). 109 Public Law 111-275 (effective October 13, 2010). 25 Guide to Benefits

The United States Attorney may initiate an enforcement action against any person who engages in a pattern or practice of violating the SCRA or in a situation raising an issue of significant public importance. 110 A court may grant equitable or declaratory relief, including monetary damages to any person aggrieved by the violation. 111 The court may also assess a civil penalty in the amount not exceeding $55,000 for a first violation and an amount not exceeding $110,000 for any subsequent violation. 112 In a private civil action, a party with an SCRA claim may obtain equitable or declaratory relief as well as actual monetary damages. 113 The court may award costs and attorney fees to the prevailing party. 114 There is also a possibility of punitive damages being assessed in an appropriate case. 115 It is likely that SCRA claims are subject to arbitration. This issue has only been raised in a few cases, but the more reasoned view is that SCRA claims are arbitrable. 116 As one court stated, because the SCRA does not contains provisions similar to the anti-arbitration provision found in legislation such as the Dodd-Frank Act, the Court finds that an arbitration proceeding satisfies the right to a civil action under the SCRA. 117 Additional Considerations When Dealing with Servicemembers Dealing with our Nation s men and women in uniform is an important part of being a good corporate citizen. Knowing and understanding not just the SCRA, but also the unique language of the military, is key to providing those men and women with the benefits to which they are entitled. Moreover, avoiding issues resulting from difficulty in translating military into legalese is essential to avoiding complaints from consumers, regulators, or in formal litigation. As recent news events highlight, one of the larger concerns with SCRA compliance is the negative publicity that comes along with being perceived as not being accommodative to servicemembers. The negative publicity might seem unfair, but consider that the other party is figuratively wrapped in the American flag. Accordingly, an important part of any SCRA compliance plan is to also have a public relations plan. One aspect of such a public relations plan is to have personnel that know the military culture and can navigate the 110 50 U.S.C. App. 597(a). 111 50 U.S.C. App. 597(b)(1,2). 112 50 U.S.C. App. 597(b)(3)(A,B). 113 50 U.S.C. App. 597a(a). 114 50 U.S.C. App. 597a(b). 115 50 U.S.C. App. 597b. 116 See, e.g., Beard v. Santander Consumer USA, Inc., 2012 U.S. Dist. LEXIS 53882, at 17-18 (E.D. Cal. Apr. 13, 2012). 117 Beard v. Santander Consumer USA, Inc., 2012 U.S. Dist. LEXIS 53882, at 20 (E.D. Cal. Apr. 13, 2012). 26 Locke Lord LLP