More of this Feature • Main Menu • Chapter 1 • Chapter 2 • Chapter 3 • Chapter 4 • Chapter 5 • Chapter 6 • Chapter 7

Join the Discussion Visit Our Message Forum

Related Resources • SSCRA Simplified • SSCRA Resources • Employment Rights • Military Lawyers

Mortgage Foreclosures

Section 302

(50 U.S.C. App. § 532)

(1) The provisions of this section shall apply only to obligations secured by mortgage, trust deed, or other security in the nature of a mortgage upon real or personal property owned by a person in military service at the commencement of the period of the military service and still owned by him which obligations originated prior to such person's period of military service.

(2) In any proceeding commenced in any court during the period of military service to enforce such obligation arising out of nonpayment of any sum thereunder due or out of any other breach of the terms thereof occurring prior to or during the period of such service the court may, after hearing, in its discretion, on its own motion, and shall, on application to it by such person in military service or some person on his behalf, unless in the opinion of the court the ability of the defendant to comply with the terms of the obligation is not materially affected by reason of his military service--

(a) stay the proceedings as provided in this Act; or

(b) make such other disposition of the case as may be equitable to conserve the interests of all parties.

(3) No sale, foreclosure, or seizure of property for nonpayment of any sum due under any such obligation, or for any other breach of the terms thereof, whether under a power of sale, under a judgment entered upon warrant of attorney to confess judgment contained therein, or otherwise, shall be valid if made during the period of military service or within three months thereafter, except pursuant to an agreement as provided in section 107 [App. § 517], unless upon order previously granted by the court and a return thereto made and approved by the court.

(4) Any person who shall knowingly make or cause to be made any sale, foreclosure, or seizure of property, defined as invalid by subsection (3) hereof, or attempts so to do, shall be fined as provided in title 18, United States Code, or imprisoned not to exceed one year, or both.

General. This section contains language similar to section 301 and attempts to accomplish similar results. Section 302, however, is specifically designed to protect service members against foreclosure of mortgages and other security instruments. The essential difference between these two sections is that section 302 requires a secured obligation, whereas section 301 does not require a security interest in the property. Section 302 requires the secured creditor to seek a court order authorizing foreclosure.

Application. Relief under section 302 is available to service members and, pursuant to section 306 (50 U.S.C. App. § 536), to their dependents. Subsection (1) clearly defines the obligations to which section 302 applies. In order to come within the provisions of this section, the service member (or dependent) must establish the following:

(1) That relief is sought on an obligation secured by (a) mortgage, (b) trust deed or (c) other security in the nature of a mortgage on either real or personal property;

(2) That the obligation originated prior to his/her entry into military service;

(3) That the property was owned by him/her or his/her dependent prior to the commencement of military service; and

(4) That the property is still owned by the service member or his/her dependent at the time relief is sought.

Action in court. Subsection (3) of section 302 prohibits the foreclosure and sale of mortgaged property in the absence of an agreement executed subsequent to the service member's receipt of notice of induction, or in the absence of a court order, regardless of any contractual provisions. A foreclosure in violation of subsection (3) may render the action voidable, and might also subject the mortgagee or trustee to criminal prosecution.

The requirement for a court order prior to foreclosure and sale of mortgaged property is contained in the clause, "unless upon an order previously granted by the court. . . ." Two courts construing this clause have differed as to exactly when the order must have been previously granted. A New Jersey court held that the order must have been granted prior to the service member's entry on active duty. A New York court, however, held that this clause means that the order must have been granted prior to foreclosure and not prior to the service member's entry on active duty. The New York rule appears to be the correct rule, in view of the language of section 302(2): "In any proceedings commenced in any court during the period of military service to enforce such obligation arising out of nonpayment of any sum thereunder due or out of any other breach of the terms thereof occurring prior to or during the period of such service. . . ." The New Jersey rule could not reasonably be applied to a breach which occurred after the mortgagor's entry upon active duty. In a Texas case, the 5th Circuit held that a sale at a bank-organized auction of mortgaged property by an agent of the service member was not within the confines of this section absent evidence that the agent of the service person was also the agent of the bank.

Nature of ownership. The Act requires the service member (or his/her dependent) to have "owned" the mortgaged property prior to his/her entry upon active duty, continuing up to the time relief is sought from the court. Several questions relating to the nature of the ownership required to bring an obligation within the Act's coverage have been litigated.

Generally, the courts have interpreted the word "owned" to mean equitable and legal interests in property. This was the usage given under the Act of 1918 and the same meaning has been applied to the present Act. While the weight of authority supports this proposition, difficulties arise when innocent third parties who are purchasers for value without notice are involved. In these instances, the courts avoid exercising their equitable powers in favor of the service member by stating that "equitable" title must be recorded.

Material effect. A mortgagee bringing a foreclosure action will provide the court with proof of the existence and the extent of the mortgage debt upon which suit is instituted and the date of default in payment. If favorable to him/her the mortgagee will often present the mortgagor's pre-service payment record. This is done when the record demonstrates pre-service default or a continuous pattern of tardy payments.

Having determined that the service member "owned" the property as required by section 302(1), the trial court must then form an opinion on the ability of the service member to meet his/her financial obligations. That is, the court must determine whether military service has materially affected the service member's ability to discharge his/her pre-service responsibilities in the manner agreed upon. As one court has stated, "[t]he criteria, then, is a combination of two factors, i.e., (1) whether the defendant's inability to comply results by reason of such military service, and (2) that such military service has materially affected the ability to comply."

To secure relief under section 302, the service member should provide the court with sufficient financial information on the material effect of military service. Two pieces of financial information are always essential: pre-service income and in-service income. Pre­-service income, out of which the agreed mortgage payments were previously paid on time, is considered as a standard. In-service income must not only be smaller, but it must be insufficient to reasonably maintain the service member before a court will grant relief. Proof of in-service income should include showing the amount of (1) military pay and allowances, (2) allotments to dependents, and (3) any other nonmilitary income, even if earned by dependents. In-service income should be treated as a net amount, because proof of any additional expense caused by military service is proper. When material effect is found, the courts exercise their discretion in fashioning appropriate relief.

Nature of relief. In a mortgage foreclosure proceeding, the Act generally provides the service member with three types of relief, which, under proper circumstances, are as follows:

(1) A stay of the proceedings, or an extension of the maturity dates of his/her obligations by way of diminished payments;

(2) Where foreclosure judgment has already been ordered, a reopening or setting aside of the judgment in order that the reviewer may assert a defense; and

(3) Where a sale has been had under a judgment of foreclosure, invocation of the statutory redemption period, extended by a period equal to his/her military service

The extent of the mortgagor's financial disability resulting from military service heavily influences a court's decision on the measure of relief to be granted. Courts attempt to make equitable disposition of individual cases on their particular facts, in an effort "to conserve the interests of all parties." This effort frequently results in granting the mortgagor, in appropriate cases, some form of conditional relief.

Conditional relief usually constitutes a stay of the foreclosure proceedings on condition that the mortgagor makes some partial periodic payment on the outstanding mortgage debt. In its discretion, the court determines to which of the incidents of the debt the payment will be applied. Although section 302 prescribes no priority of application, a pattern has emerged from the cases. Usually, payments are applied in the following order: current and accrued taxes; hazard insurance; interest on the debt; and principal. Arrearages and FHA mortgage insurance premiums have been inserted in the priority scale in various fashions. So also have the application of sums from casualty insurance recoveries, amounts held in escrow by the mortgagee, and property surpluses. Sometimes, when a court has granted a stay and ordered partial payments, the court has also required the service member to make periodic sworn statements of his/her financial condition either to the court or to the mortgagee. Conditional stay orders occasionally grant a mortgagee the right to apply for an amended stay order if the mortgagor's ability to discharge his/her debt becomes less impaired. Such an amendment is within the court's power as a matter within its equitable powers and its continuing jurisdiction over the case.

Next page > Applied for Relief > Page 1, 2, 3, 4, 5, 6

Above Information Courtesy of United States Army JAG Corps