The Servicemembers Civil Relief Act ("SCRA") prohibits nonjudicial foreclosure proceedings during, or one year after, a servicemember's military service. In Brewster v. Sun Trust Mortgage Inc., 742 F.3d 876 (9th Cir. 2014), the Ninth Circuit Court of Appeals held that this provision of the SCRA was violated when a lender abandoned foreclosure proceedings but sought to recover associated foreclosure fees from a servicemember.
Christopher Brewster ("Brewster") is a Lieutenant in the United States Marine Corps Reserve. He was called up to active duty on three occasions between 2008 and 2011. During this time, Brewster failed to make the full payments owed on the mortgage on his home in California. Brewster had originally taken out the mortgage in 2007 with Sun Trust Mortgage, Inc. ("Sun Trust").
Pursuant to California law, Sun Trust began nonjudicial foreclosure proceedings in 2009 by filing a Notice of Default, which was accompanied by various fees. Sun Trust rescinded the Notice of Default in August 2010, but did not remove the fees. In November 2010, Sun Trust transferred the servicing rights on the mortgage to Nationstar Mortgage, LLC ("Nationstar"). Nationstar attempted to recover the fees during roughly five months of Brewster's active-duty service.
Brewster filed an SCRA action against Nationstar alleging that the SCRA was violated by Nationstar maintaining the foreclosure fees in Brewster's account. The district court granted Nationstar's motion to dismiss. Brewster appealed.
The Ninth Circuit reversed the district court's decision, holding that the scope of "foreclosure" under the SCRA includes the imposition of Notice of Default fees. To reach this decision, the Ninth Circuit analyzed the text of the SCRA, California's nonjudicial foreclosure process, and the Supreme Court's policy of broadly construing the SCRA.
The court relied on two textual arguments to show that "foreclosure" under the SCRA should be broadly interpreted to include foreclosure-related fees. First, the SCRA refers to the foreclosure "proceedings." This suggests a process rather than a single act. Second, the SCRA bars a "sale, foreclosure, or seizure of property," which suggests that "foreclosure" means more than just a sale or seizure.
The Ninth Circuit concluded: "Because the state-law statutory definition of foreclosure contemplates the inclusion of specified fees as part of the foreclosure proceeding, and because the United States Supreme Court has unambiguously required courts to give a broad construction to the statutory language of the SCRA to effectuate the Congressional purpose of granting active-duty members of the armed forces repose from some of the trials and tribulations of civilian life, we hold that the attempted collection fees related to a Notice of Default on a California property constitutes a violation of [the SCRA]."
What This Means To You
In this opinion, the Ninth Circuit clarified that fees associated with the foreclosure process may not be imposed on servicemembers protected by the SCRA. Loan servicers considering instituting foreclosure proceedings on houses owned by servicemembers should consult an attorney to ensure compliance with federal law.