Servicemembers Civil Relief Act (SCRA) of 2003
Mortgage Interest Rate Reduction for Active Duty Military Personnel

• Income Tax Deductions: Home Mortgage Interest

Servicemembers Civil Relief Act SCRA interest rate reduction limit military personnel

This federal law (formerly known as The Soldiers' and Sailors' Civil Relief Act of 1940) provides military personnel important rights and protections as they enter active duty, on issues that include mortgage interest rates, mortgage foreclosure, and credit card interest rates. A major benefit is the ability to reduce mortgage interest rates and consumer debt interest rates (including debts incurred jointly with a spouse) to a 6% limit under certain circumstances. The mortgage or debt must have been incurred before entry into active military service, and the servicemember must show that military service has had a "material effect" on the legal or financial matter involved. This provision applies to both conventional and government-insured mortgages.

SCRA applies to active duty military personnel who had a mortgage obligation prior to enlistment or prior to being ordered to active duty. This includes members of the Army, Navy, Marine Corps, Air Force, Coast Guard; commissioned officers of the Public Health Service and the National Oceanic and Atmospheric Administration who are engaged in active service; reservists ordered to report for military service; persons ordered to report for induction under the Military Selective Service Act; and guardsmen called to active service for more than 30 consecutive days. In limited situations, dependents of servicemembers are also entitled to protections.

The mortgage interest rate limit is not automatic. To request this temporary interest rate reduction, you must submit a written request to your mortgage lender and include a copy of your military orders. The request may be submitted as soon as the orders are issued but must be provided to your mortgage lender no later than 180 days after the date of your release from active duty military service. When you contact your mortgage lender, you should provide the following information:

• Notice that you have been called to active duty
• A copy of the orders from the military notifying you of your activation
• Your FHA case number, if applicable
• Evidence that the debt precedes your activation date

When notified that you are on active military duty, your mortgage lender must reduce the interest rate to no more than six percent per year during the period of active military service, recalculate your payments to reflect the lower rate, advise you of the adjusted amount due, provide adjusted coupons or billings, and ensure that the adjusted payments are not returned as insufficient payments. If a mortgage lender believes that military service has not affected your ability to repay your mortgage, they have the right to ask a court to grant relief from the interest rate reduction, but this action is not common.

Interest in excess of 6 percent per year that would otherwise have been charged is forgiven. However, the reduction in the interest rate and monthly payment amount only applies during the period of active duty. Once the period of active military service ends, the interest rate will revert back to the original interest rate, and the payment will be recalculated accordingly.

If you cannot afford to pay your mortgage even at the lower rate, your mortgage lender may allow you to stop paying the principal amount due on your loan during the period of active duty service. Lenders are not required to do this, but they generally try to work with service members to keep them in their homes. In such a case, you would still owe this amount but would not have to repay it until after your complete your active duty service.

Furthermore, mortgage lenders may not foreclose, or seize property for a failure to pay a mortgage debt, while a service member is on active duty or within 90 days after the period of military service unless they have the approval of a court. In a court proceeding, the lender would be required to show that the service member's ability to repay the debt was not affected by his or her military service.

Servicemembers who have questions about the SCRA or the protections that they may be entitled to may contact their unit judge advocate or installation legal assistance officer. Dependents of servicemembers can also contact or visit local military legal assistance offices where they reside. A military legal assistance office locator for each branch of the armed forces is available at the Armed Forces Legal Assistance (AFLA) website.

Most lenders have other programs to assist borrowers who cannot make their mortgage payments. If you or your spouse find yourself in this position at any time before or after active duty service, contact your lender immediately and ask about loss mitigation options. Borrowers with FHA insured loans who are having difficulty making mortgage payments may also be eligible for special forbearance and other loss mitigation options.

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