Alston & Bird Consumer Finance Blog

Servicemembers Civil Relief Act (SCRA)

Massachusetts Enacts Emergency COVID-19 Measure Addressing Residential Mortgage Foreclosure Moratoria, Forbearance, Evictions, Reverse Mortgage Counseling

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A&B Abstract:

On April 20, 2020, Massachusetts Governor, Charlie Baker, signed into law HB 4647 (2020 Mass. Acts 65), an emergency measure, effective immediately, providing for mortgage forbearances and a moratorium on evictions and foreclosures during the COVID-19 emergency. This measure also waives the in-person counseling requirement for reverse mortgage loans.  This law follows guidance issued by the Division of Banks on March 25, 2020, setting forth the Division’s expectations of mortgage servicers to provide relief to borrowers adversely impacted by the COVID-19 pandemic.

Forbearance

The emergency measure requires a creditor or mortgagee to grant a forbearance on a mortgage loan for residential property if the borrower submits a request to the servicer affirming that the borrower has experienced a COVID-19 hardship, subject to the following terms:

  • the forbearance shall not be for more than 180 days;
  • no fees, penalties or interest beyond the amounts scheduled and calculated as if the borrower made all contractual payments on time and in full under the mortgage contract shall accrue during the forbearance;
  • a payment subject to the forbearance shall be added to the end of the term of the loan, unless otherwise agreed to by the borrower and mortgagee;
  • a borrower and mortgagee are not prohibited from entering into an alternative payment agreement for the mortgage payments subject to forbearance;
  • the mortgagee must not furnish negative mortgage payment information to a consumer reporting agency related to forborne mortgage payments; and
  • a creditor or mortgagee is not required to grant this forbearance if the borrower’s request is made after the expiration of this provision of the emergency measure (the sooner of 120 days from its effective date or 45 days the Governor’s COVID-19 emergency declaration has been lifted).

For purposes of this section, “residential property” includes real property located in the commonwealth, on which there is a dwelling house with accommodations for 4 or fewer separate households that is the borrower’s principal residence; excluding investment property, property taken, in whole or in part, as collateral for a commercial loan, and property subject to condemnation or receivership.

This forbearance provision is similar to a federal Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) forbearance, with some notably differences.  First, this provision is not limited to federally backed mortgage loans.  Second, the forborne payments are to be tacked on to the end of the mortgage term unless otherwise agreed to by the parties.  Last, the terms differ in two respects.  First, unlike the CARES Act, Massachusetts does not require an additional 180 extension of the forbearance.  Second, the requirement for a servicer to offer a forbearance will remain in effect until the Governor’s COVID-19 emergency declaration is lifted, which at this point is unknown.

Foreclosure

For purposes of foreclosure of “residential property,” as that term is defined above, the emergency measure  imposes a foreclosure moratorium, meaning a mortgagee (or a person acting in the name of a mortgagee) is prohibited from:

  • causing a notice of foreclosure sale to be published;
  • exercising a power of sale;
  • initiating a judicial or nonjudicial foreclosure process; or
  • filing a complaint to determine the military status of the borrower under the federal Servicemembers Civil Relief Act.

Vacant or abandoned properties are expressly excluded from this foreclosure moratorium.  The foreclosure moratorium became effective immediately and expires after the sooner of 120 days or 45 days after the COVID-19 emergency declaration has been lifted.  This moratorium appears broader than the moratorium imposed under the CARES Act in that it likely will extend beyond the CARES Act’s moratorium of May 18, 2020 and that it is not limited to “federally backed” loans. Note, most residential mortgage foreclosures are nonjudicial in Massachusetts and begin by sending a delinquent borrower a notice of default and right to cure as required by Mass. General Laws chapter 244, Section 35A.  It is likely that such notice could be viewed as initiating a foreclosure, and thus not allowed during this foreclosure moratorium.

Evictions

 With respect to evictions, the emergency measure provides as follows:

  • notwithstanding any law, rule, regulation or order to the contrary, a landlord or owner of a property shall not, for purposes of a “non-essential eviction” for a residential dwelling unit, terminate a tenancy or send any notice requesting or demanding that a tenant vacate the premises;
  • a landlord shall not impose a late fee for non-payment of rent for a residential dwelling unit;
  • a landlord shall not furnish rental payment data to a consumer reporting agency related to the non-payment of rent if, not later than 30 days after the missed rent payment, the tenant provides notice and documentation to the landlord that the non-payment of rent was due to a COVID-19 financial impact;
  • subject to certain conditions, a lessor who received rent in advance for the last month of tenancy pursuant to Mass. Gen. Law chapter 186, § 15B, may access and utilize the funds received in advance for certain enumerated uses; and
  • nothing in the emergency measure shall be construed to relieve a tenant from the obligation to pay rent or restrict a landlord’s ability to recover rent.

Related to residential dwelling units, a “non-essential eviction” is an eviction: (i) for non-payment of rent, (ii) resulting from a foreclosure, (iii) for no fault or cause, or (iv) for cause that does not involve allegations of: (a) criminal activity that may impact the health and safety of other residents, health care workers, emergency personnel, persons lawfully on the property or general public, or (b) lease violations that may impact the health and safety of other residents, health care workers, emergency personal, persons lawfully on the subject property or the general public. The Massachusetts executive office of housing and economic development has authority to issue emergency regulations to implement this section and develop forms for notice and documentation to a landlord that the non-payment of rent was due to COVID.  Also note that the measure contains similar restrictions for landlords of small business premises and limits the ability of a court, sheriff or others to process or enforce non-essential evictions.

Temporary waiver of In-Person Counseling for Reverse Mortgage

Massachusetts is temporarily waiving the in-person counseling requirement set forth in Mass. Gen. Law chapter 167E, § 7A and chapter 171, § 65C1/2 for reverse mortgage loans during the state-declared COVID-19 emergency and until such emergency has been lifted.  In lieu of in-person counseling, the requirement is satisfied by a written certification from a counselor with a third-party organization indicating that a borrower has received counseling via a synchronous, real-time videoconferencing or telephone counseling, provided that the counselor is approved by the executive office of elder affairs for purposes of such counseling.  The measure does not specifically address the reverse mortgage counseling regulation set forth in 209 CMR 55.04. However, given that the regulation is provided under the statutory authority cited above, there is reason to believe that it should also be covered by this temporary waiver.

Takeaway

In addition to ensuring compliance with the federal CARES Act, mortgage servicers need to monitor newly enacted state measures responding to the COVID-19 pandemic and develop policies and procedures to ensure compliance.

Changes to the Department of Defense’s SCRA Website Database Could Impact Servicers

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A&B ABstract: Servicers should be aware of changes being made to the Department of Defense’s (“DoD”) Servicemembers Civil Relief Act (“SCRA”) website in response to a complaint that the DoD failed to protect the privacy of servicemembers’ personal information.

Discussion

The SCRA provides certain financial and legal protections to active duty service members.  Servicers are encouraged to identify and verify eligible populations of active duty servicemembers to ensure they are obtaining the relief benefits to which they are entitled.  Under scrutiny for failing to protect the personal information of servicemembers, the DoD is making changes to the SCRA website database that may impact how servicers identify and verify eligible servicemembers.

The Complaint

The complaint alleged that the DoD’s SCRA website violates the Administrative Procedures Act and the federal Privacy Act of 1974 (which regulates how the federal government may collect, maintain, use and disseminate personal information about citizens and permanent residents).

Specifically, the Vietnam Veterans of America, New York State Council, Vietnam Veterans of America Chapter 7, and Thomas Barden (“Plaintiffs”) alleged that the SCRA portal leaves a servicemember’s private information unprotected. (Private information on the site includes dates of active duty service; specific dates on which a reservist, guardsman or individual not currently on active duty has been called up for future active duty; the specific component of the military in which an individual served; and confirmation that the individual served on active duty.)  Further, Plaintiffs asserted that the DoD is violating the Federal Information Security Modernization Act by failing to comply with policies that strictly limit the use of social security numbers (“SSNs”).  Finally, Plaintiffs asserted that the SCRA website’s purpose is only to determine whether someone is protected by the SCRA; Plaintiffs had no objections to limited disclosure of information for legitimate SCRA purposes.

The Settlement Agreement

The parties reached a settlement agreement (“Agreement”) on October 1, 2019.  The Agreement requires the DoD to

make significant changes to the SCRA website to enhance security of the site and better protect the personal information of servicemembers while restricting access, pursuant to the website’s “Terms of Use,” to those individuals and entities who are using the website for its intended purpose, so as to ensure the website achieves its intended purpose.

On or before October 31, 2019, the Agreement requires all users to register for an account on the SCRA website in order to run searches (i.e., single-record or batch searches). DoD will collect the name, mailing address and company name of every user as part of the account creation process.

DoD Obligations under the Agreement

The Agreement also imposes a series of obligations on the DoD.   First, on or before October 31, 2019, the Agreement required the DoD to:

  • Implement analytics to monitor the use of the SCRA website in order to: (i) identify, among other things, patterns of misuse that would indicate a user is attempting to misuse the database; and (ii) flag accounts that are searching the same name against multiple SSNs (or vice versa); and
  • Adopt a procedure to investigate potential misuse and for deactivation of accounts.

Second, within three months after the date of the Agreement, the DoD will:

  • Implement Terms of Use Language as provided for in Appendix A of the Agreement (which restricts the purposes for which the site may be accessed, and sets penalties for violations), and require users to agree to the terms and certify under penalty of perjury that they are using the website for permissible purposes;
  • Add language to the SCRA website to discourage collection of SSNs for third-party users of the SCRA website, where the sole purpose for using the website is for SCRA verification; and
  • Post a reasonable notification on the SCRA website stating that changes are made to prohibit misuse, including for non-SCRA commercial purposes, with the language set forth in Appendix C of the Agreement.

Finally, the Agreement requires DoD to:

  • Publish a new Systems of Records Notice in the Federal Register that specifies the circumstances in which information may be disclosed through the SCRA website; and
  • Subject to applicable laws and regulations, provide quarterly reports to Plaintiffs for two years.

Specifically, the required reports must list: (i) the company name of active users, (ii) information on volumes of searches per active user, (iii) the number of suspected and terminated accounts, (iv) the company names of suspended and terminated accounts, so long as those company names would not identify individuals, and (v) a description of the back-end analytics that have been implemented, and the results thereof.

Takeaways

Based on the Terms of Use reflected in the Agreement, servicers may only use the SCRA website for purposes of ensuring that servicemembers receive SCRA protections.  Servicers may run multiple searches in the SCRA website throughout the life of a loan.  In fact, some investors require searches on a quarterly basis.  While servicers should be permitted to continue good faith searches conducted for purposes of ensuring SCRA protections are afforded, it is unclear whether excessive searches (even if conducted for good faith purposes) could nevertheless constitute misuse of the website and result in account termination.

To the extent that the DoD publishes the procedures it is obligated to adopt for investigation of potential misuse, such procedures should provide additional clarity.  In the meantime, servicers should review their existing policies and procedures for conducting SCRA searches to ensure appropriate guardrails are in place to prevent the unintentional misuse of the SCRA website.

North Carolina Enacts Servicemember Protections

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A&B Abstract:

North Carolina is the latest state to extend the protections of the federal Servicemembers Civil Relief Act (“SCRA”), 50 U.S.C. §§ 3901 et seq., to active duty members of its National Guard.  What does the new law require?

North Carolina Servicemembers Civil Relief Act

On July 25, North Carolina Governor Roy Cooper signed into law the North Carolina Servicemembers Civil Relief Act, which extends the protections of the federal SCRA to North Carolina residents serving on active National Guard duty.  Although the statute generally mirrors federal law, a few distinctions are worth note.

Who is a Servicemember?

For purposes of the new law, a “servicemember” has the same meaning as under the federal SCRA.  The term also includes a member of the North Carolina National Guard (or a resident of North Carolina in another state’s National Guard) called to active duty by the governor for more than 30 consecutive days.  However, for the statute’s protections to apply, a member of the National Guard must provide the lender or servicer with a written or electronic copy of the order to military service no later than 30 days after the termination of such service.  As a result, some servicemembers must act affirmatively in order to receive the law’s protections.

The law also grants a dependent of a servicemember the same rights and protections as are provided to a servicemember under Subchapter II of the federal SCRA.  Thus, dependents are eligible for protection against default judgments, stays of proceedings, and restrictions on the maximum rate of interest an obligation may bear.

Who Can Enforce the Statute?

The new North Carolina law provides various enforcement mechanisms.  First, a violation of the federal SCRA is a violation of the North Carolina law.  Second, a violation of the North Carolina law is an unfair or deceptive trade practice for purposes of Chapter 75 of the North Carolina General Statutes.  Finally, either the North Carolina Attorney General or an aggrieved servicemember (through a private right of action) may bring an action to enforce the statute.