Real Estate Help for Active Duty Military Servicemembers
By Ted Ricasa
VIDEO: The Servicemembers Civil Relief Act: Housing Protections
The men and women who honor and protect our nation through their military service face most of the same real estate issues as civilian homeowners, along with many unique challenges. Perhaps the greatest challenge confronting active duty military homeowners is what to do with their homes when they receive Permanent Change of Station (PCS) orders. Such orders are inevitably stressful for servicemembers and their families under the best of circumstances; factor in the additional stresses of home ownership, and the situation can become overwhelming.
First of all, if you or your spouse is an active duty member or a veteran of the U.S. Armed Forces, we'd like to thank you for your service to our country. You have sacrificed greatly to protect our interests, and we want you to have the information necessary to protecting your interests as a homeowner. By knowing your rights and options when it comes to issues concerning your home, you can make the decisions that are best for you, your family, and your community.
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What is the Servicemembers Civil Relief Act?
The Servicemembers Civil Relief Act is a federal law that was enacted in 1940 to postpone or suspend select civil obligations of active duty military personnel. The law was originally passed as the United States was on the verge of entering World War II, but has been amended more than a dozen times since then to reflect the changing needs of servicemembers.
As a homeowner, it is vital that you understand your rights under this law. The law requires that, in most cases involving civil claims against military personnel, financial institutions, landlords, and other potential litigants first seek and obtain a court order. Generally, such orders will not be granted unless the litigant can show that the servicemember is no longer on active duty. Even then, certain protections are extended to veterans.
Specifically, the law protects servicemembers against:
- Termination of lease
- Eviction due to failure to pay monthly rent under a certain amount (originally $1,200, but now adjusted for current cost of living)
- Wage garnishment
- Collection of unpaid credit card debt and taxes
- Pending trials
- Legal actions for terminating a lease due to permanent change of station (PCS)
- Paying more than 6 percent interest on credit obligations incurred prior to commencing military service
It is essential that you, as a member of the United States Armed Forces, understand your rights under this extremely important act, and that you do not waive those rights if asked to do so by a financial institution, even as a prerequisite for assistance.
I have received my PCS orders. Is it better to rent or sell my home?
Many military families who either have difficulty selling their homes or simply don't want to sell their homes end up renting them out, often to fellow servicemembers. If you have received PCS orders and are considering renting your home, it is important to keep the following in mind:
- You will assume the obligations of a landlord under landlord-tenant law. These obligations include keeping the property clean, safe, and habitable.
- If you rent to another military family, they will be protected under the same laws that protect you and your family. Specifically, they will be protected under the Servicemembers Civil Relief Act, which protects them from eviction due to nonpayment without a court order. The courts will not approve an eviction if the servicemember is unable to afford rent due to the effects of military service. Likewise, servicemembers may break a lease at any time if they receive PCS orders or orders to deploy with a military unit for at least 90 days, potentially leaving you without rental income for a period of months.
If you decide to rent your home to a fellow servicemember, it is a good idea to establish an emergency fund to cover your mortgage payments and other expenses in the event that your tenant receives PCS orders.
I want to sell my home, but I haven't had any success so far. What can I do?
If you have had your PCS orders and have been trying to sell your home without success, you are probably feeling frustrated and upset. It may seem as though there are no great options available to you, and unfortunately that may well be the case. In such circumstances, you may have to accept that there isn't a single definitive solution to your problem and settle for the option that best serves the interests of you and your family.
Among other available options, you can:
- Lower your asking price for the home: If your home appears not to be drawing much interest for the price you are asking for it, you may want to simply drop the price and try to limit your financial bleeding as much as possible. Weigh the costs of dropping your asking price against the cost of keeping the home without tenants for several months, including mortgage payments, taxes, insurance payments, and maintenance costs. In the end, you may actually save money by dropping the price.
- Consider a short sale, which could be your best option if your home is worth less than you owe on it. Fast Home Help may be able to assist you in your short sale.
- Leave your family behind until the home sells: This may seem like an unattractive option; however, it would eliminate some of the costs of maintaining and insuring your home while it is unoccupied.
Whatever you do, try to avoid defaulting on your mortgage payments or feeling pressured into bankruptcy. There are always alternatives to these actions, especially for military personnel, who enjoy certain protections against civil actions under the Servicemembers Civil Relief Act. You should be particularly wary of any financial professional who implies that you should deliberately default on your mortgage payment in order to create the impression of substantial financial hardship. Defaulting on your mortgage payments or declaring bankruptcy can jeopardize your security clearance as a member of the United States military.
Does my home qualify for a short sale?
Before 2012, military families who wanted to sell a home for less than was owed on it had to meet the same delinquency and hardship requirements as civilian homeowners. That is, they had to demonstrate to their lenders that the home was indeed underwater (worth less than was owed) and that they were faced with a long-term financial hardship.
Fortunately for military homeowners with GSE-backed mortgages (e.g., mortgages backed by Fannie Mae or Freddie Mac), they now automatically qualify for short sales when they receive PCS orders. Therefore, even if you are current with your mortgage payments and not suffering any substantial financial problems, you will receive short sale consideration from your lender as long as:
- You have valid PCS orders
- Your home was purchased on or before June 30, 2012
- You have a GSE-backed mortgage
In most states, it is possible for lenders to sue homeowners for the difference between the amount for which the home was sold and the amount still owed. However, even if your state allows lenders to collect deficiencies, they are prohibited from doing so in short sales that meet the above-listed criteria.
While a short sale might not necessarily be your best option as a military homeowner, it is an option that you should understand and be prepared to pursue if essential to your best interests.
I want to keep my home, but cannot afford my mortgage payments. What are my options?
If you decide that you want to keep your home, but are unable to keep up with mortgage payments, there are several potential options open to you. These include:
- Military forbearance: If you feel that your financial problems will be short-lived - for example, you need just a couple of months to find tenants for your property - you may want to request a military forbearance from your lender. This forbearance would temporarily suspend or reduce your mortgage payments for an agreed-upon period, after which you would continue to make your payments as usual. One of the benefits of a military (as opposed to a civilian) forbearance is that will not necessarily affect your credit score, depending on the terms of the agreement.
- Negotiate a repayment plan: Again, if your financial hardship is temporary, you may wish to negotiate a plan that would distribute the money you owe over a period of months, tacked onto your usual monthly mortgage payments.
- Refinancing your mortgage: You may be eligible to receive a new mortgage with more favorable terms and interest rates, as well as lower monthly payments, especially if you are current on your mortgage payments and have equity built up in your home. This may be an excellent option if you have a clean financial bill of health and are anticipating a forced change of location.
- Military mortgage modifications: Most major lenders, in light of their violation of the Servicemembers Civil Relief Act during the housing crisis, now offer special military mortgage modification programs. Contact your lender to discuss whether you might qualify from a reduced mortgage interest rate without refinancing, foreclosure protection, special loan modification, or other services designed to protect your interests as a military homeowner.
Do I have any special mortgage protections as a military homeowner?
In a word, yes.
In 2012, the Interagency Guidance on Mortgage Servicing Practices Concerning Military Homeowners with Permanent Change of Station Orders was issued jointly by the Consumer Financial Protection Bureau (CFPB) and other regulatory boards. According to CFPB Director Richard Cordray, "This guidance provides specific notice to mortgage servicers that this country already has substantial laws in place to help military members in this still-recovering housing market."
The interagency guidance specifically deals with issues that arise between lenders and active duty military personnel who have received PCS orders. It has the full support of the Federal Housing Finance Agency, and the Departments of Agriculture, Defense, Justice, Treasury, Veterans Affairs, and Housing and Urban Development. The purpose of the guidelines is to help lenders avoid violations of federal consumer financial laws and subsequent enforcement actions by the U.S. government.
Among other guidelines, the interagency guidance recommends that lenders:
- Upon learning of servicemembers' PCS orders, provide those servicemembers with precise, comprehensible information about the mortgage assistance options available to them.
- Do not, under any circumstances, ask servicemembers with PCS orders to waive the legal rights afforded to them under the Servicemembers Civil Relief Act.
- Provide a reasonable method by which servicemembers can access information about the status of their request for mortgage help.
- Do not advise servicemembers to skip mortgage payments solely to create the impression that they are having financial difficulties in order to qualify for mortgage assistance.
- Reply in a timely manner to all requests for assistance by servicemembers, including detailed explanations for denials if necessary.
If your lender has failed to follow these or any of the other guidelines set forth in the interagency guidance, you are urged to call the CFPB toll free: 1-855-411-2372.
Are there any other mortgage protections I should be aware of?
Many active duty members of our nation's military want to enjoy the many benefits of homeownership and believe strongly that it is their right as Americans to do so, despite the fact that they are routinely forced to move. Unfortunately, military personnel have been subject to the same issues that affected civilians with mortgages during the housing crisis: poor recordkeeping and other incompetent, sometimes even shady practices by lenders.
As a result, in March 2014, the Consumer Financial Protection Bureau wrote new rules designed to help servicemembers with mortgage problems or problems created by Permanent Change of Station (PCS) orders. These rules include:
- Limits on dual tracking: The practice of dual tracking, in which the lender initiates foreclosure proceedings while simultaneously working with homeowners on a loan modification plan, is now restricted by clear, strict guidelines.
- Improved help with foreclosure avoidance: When lenders work with servicemembers toward plans to avoid foreclosure, they must be immediately forthcoming with all options available to homeowners upon receiving an initial, completed application for help. Multiple applications are no longer necessary to receive information on multiple avenues for assistance.
- Improved customer services: To avoid lost paperwork and create a more efficient experience, lenders must be trained to answer basic questions regarding your mortgage options as a military servicemember rather than "passing the buck." If your problems require more intensive thought and specialized knowledge, the lender must assign a single person or team to your case.
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How has the housing crisis specifically affected active duty military personnel?
According to Holly Petraeus, who leads the Office of Servicemember Affairs for the Consumer Financial Protection Bureau, "More than a third of the consumer complaints we've received from the military are mortgage-related. And at listening sessions around the country, concerned military families have told me about the painful consequences of poor mortgage servicing, sloppy lender recordkeeping, and inconsistent foreclosure practices."
Complaints that active duty military personnel were losing their homes to foreclosure while deployed in war zones drew the ire of the American public and resulted in the commencement of Congressional hearings in 2011. Several lenders settled claims that they had improperly foreclosed on military properties in light of these hearings.
However, the matter of banks foreclosing on the homes of military families came to a very public head in March 2013, when ten of the nation's largest lenders - including Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo - reported that they had wrongfully foreclosed on more than 700 military properties during the housing crisis. These wrongful foreclosures were uncovered during mortgage analyses conducted as part of an $8.5 billion settlement deal between the lenders and federal regulators.
The foreclosures directly violated the Servicemembers Civil Relief Act, which required that they obtain court orders before initiating foreclosure proceedings against the homes of active-duty military personnel.
Why should I contact Fast Home Help?
Whether you interested in selling your current home or buying a new home, or you simply want to understand the options available to you as an active duty military homeowner, we urge you to contact the real estate professionals of Fast Home Help today. We can offer you the guidance you need to make the best possible decisions for you and your family, leaving you free to focus on your duties as you proudly serve your country.
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