In 2009, a Frisco, Texas homeowners association foreclosed on the home of a Texas Army National Guard officer while he was deployed overseas in Iraq. The reason: He was delinquent in paying his homeowners association fees.
According to the Dallas Morning News, Captain Michael Clauer owed $977.55 in back homeowners fees. The Heritage Lakes Homeowners Association sent a series of registered letters demanding payment.
His wife May, however, was suffering from severe depression during her husband’s deployment, and let the unopened mail pile up. Eventually, the HOA finally foreclosed on the family’s $315,000 home.
The home was eventually sold for about $3,000 – likely to an insider contact of a corrupt board member – who flipped it for $135,000.
And under the non-judicial foreclosure system that Texas had in place it the time, it is actually perfectly legal. HOAs normally do have the ability to foreclose homes for nonpayment of association fees, and it’s not particularly uncommon.
The whole process happened while Michael Clauer was still in Iraq. He didn’t even know his home was foreclosed on until the property’s new owner demanded rent from Mrs. Clauer, and in August, the owner sent the Clauers and eviction notice.
But in this case, the new owner and the HOA both had a big problem: The 1940 Soldiers and Sailors Civil Relief Act substantially restricts the ability of landlords, homeowners associations and other creditors to foreclose, garnish or otherwise force collection if the individual, subsequent to incurring the debt or obligation, has entered active duty in the Armed Forces of the United States.
Since Captain Clauer was not on active duty when he bought the house (he was merely serving as an “M-day” soldier on the one-weekend per month/two weeks a year plan (HAR!)).
As soon as he was mobilized to active duty on Title 10 or Title 32 federal orders, he became eligible for protection under the Soldiers and Sailors Civil Relief Act. When that happened, the SSCRA qualified Capt. Clauer – and all others in a similar situation for these benefits:
- Interest rate on credit card debt, mortgages, car loans, and all other consumer debt is limited by statute to 6 percent.
- If the service member rents housing, he or she is protected from eviction if the monthly rent is $3,017.45 or less.
- Mobilization or entry into active duty is generally legal grounds for termination of an existing lease.
- Delay of all civil court collection actions, including bankruptcy proceedings, divorce proceedings and foreclosures.
- Absent a court order, the SSCRA mandates a moratorium on all foreclosures for the period of active duty and for nine months thereafter.
- The court order requirement applies even in states with non-judicial foreclosures.
- No fines or penalties under contracts may be imposed for late payments, etc., while proceedings are stayed by a court order.
- The service member can agree to waive rights under the SSCRA, but such waiver must be in writing.
The act does not apply to retirees, reserve component members of the Armed Services who are not on active duty. The act does not apply to Army and Air National Guard members called up on state orders – for example, to work disaster relief missions at the order of the State Governor. However, state law may provide some protections to these service members.
Note: A number of media outlets incorrectly state that the law protects all service members who are on active duty in this way. In fact, this portion of the law applies only to those who enter active duty – whether as mobilized Reservists/Guardsmen or whether they transition directly from civilian life – with existing debts.
The law does not apply do debts the service member incurs after he or she enters active duty.
A few notes that property managers and HOA boards should be aware of:
The law allows landlords and other creditors to challenge the protections of the Soldiers and Sailors Act if they can show a court that the entry into active duty does not materially affect the service members’ ability to pay bills. The law was designed to protect those who take a big pay cut when they leave civilian employment to serve in the Armed Forces. But if the creditor can show that the service member did not take a significant pay cut, or even got a pay increase, then a judge may allow the collection or other civil proceeding to go forward.
Furthermore, in order to get a default judgment from a court on a foreclosure, the creditor must present an affidavit of non-military service. If you don’t have an affidavit filed, the court may not enter a default judgment for you unless the court first appoints an attorney to represent the absent party’s interest.
In some cases, if the situation is not clear, the court may require the plaintiff to post a bond to protect the defendant if information surfaces later that he or she was in the military and protected under the SSCRA or by some other law. If the judgment is later reversed, based on new evidence, the defendant is compensated out of the bond proceeds.
In the Clauer case, the HOA foreclosing filed such an affidavit, but it was either based on erroneous information or was falsified.
If you attempt to falsify an affidavit of non-military service to get your foreclosure (or eviction) through, you could face imprisonment of one year and a fine of up to $100,000.
Where do I Get an Affidavit of Non-Military Service?
This is an excellent question, because the answer is not intuitive. The issuing authority for affidavits of non-military service for the purposes of enforcing the Soldiers and Sailors Civil Relief Act isn’t exactly a household name. But you can get it from the Defense Manpower Data Center (DMDC) East:Defense Manpower Data Center 1600 Wilson Boulevard, Suite 400 ATTN: Military Verification Arlington, VA 22209-2593
Include a self-addressed, stamped envelope and a duplicate copy of the request.
If you are within the District of Columbia area, or you have a toll-free return FAX line, you can also FAX your request to
(703) 696-4156, ATTN: Military Verification.
Third Party Protections
The law has a provision to protect innocent third parties who purchase a home, for example, that they thought was properly foreclosed on. Section 520(4) of the SSCRA states that “vacating, setting aside or reversing any judgment because of the provisions of [the] Act shall not impair any right or title acquired by a bona fide purchaser for value under such judgment.”
In the Clauer case, the parties managed to reach a settlement. The HOA in this instance admitted no wrongdoing, and the Clauers got their home back, and all the equity. The terms of the settlement are confidential, and both sides are complying with a non-disclosure agreement.
In this case, it was relatively easy for the parties to unravel the case because the third-party buyer had only invested $3,000 out of pocket. It would have been much more difficult to make the Clauers whole while protecting the interests of an innocent third party buyer if the buyer had paid anything close to the $315,000 value of the home. However, another buyer had bought the house for $135,000, so this individual would have had to be compensated to release his or her title to the home – money that would have to be raised somehow by the Homeowners Association, and by extension from the innocent property owners who were members.
This is precisely why HOAs should employ experienced legal counsel at every step of a foreclosure of this nature, or should employ a property manager. An established property management firm may well have been able to detect the issue of military service, because a request for an affidavit of non-military service through the correct channels would have been denied. This would have allowed the Board and the property management firm to take other measures – perhaps simply visiting Mrs. Clauer in person – to clear things up.
Even if the procedure had gone forward in error, the HOA Board of Directors – and by extension, the other owners – may have had recourse to the property managers’ professional liability or errors and omissions insurance to handle the claim and protect them from directly incurring damages.
It’s also a great reason why HOA board members should retain D&O insurance (directors and officers insurance) to help insulate them from claims arising from the performance of their duties as association board members.
Writing about personal finance and investments since 1999, Jason Van Steenwyk started as a reporter with Mutual Funds Magazine and served as editor of Investors’ Digest. He now publishes feature articles in many publications including Annuity Selling Guide, Bankrate.com, and more.