Ninth Circuit Holds Attempted Collection of Foreclosure-Related Fees Violates Servicemembers Civil Relief Act

The U.S. Court of Appeals for the Ninth Circuit ruled that a successor mortgage servicer violated Section 533(c) of the Servicemembers Civil Relief Act (SCRA) when it attempted to collect, or failed to remove, fees incurred in connection with a rescinded Notice of Default.

In Brewster v. Sun Trust Mortgage, Inc., No. 12-56560, ___ F.3d ___ (9th Cir., Feb. 7, 2014), the successor mortgage servicer continued to charge fees charged by the predecessor servicer during an earlier foreclosure proceeding. Although the prior servicer had terminated the foreclosure proceedings, it, and later the successor servicer, continued to charge to the mortgagor unpaid fees previously incurred in connection with the earlier foreclosure proceedings. Such fees are authorized and regulated by the foreclosure statutes of California (where the mortgaged property is located). Cal. Civ. Code sec. 2924c. While the district court had dismissed the servicemember-mortgagor’s claim, the Ninth Circuit reversed and remanded the case.

Section 533(c) of the SCRA prohibits any “sale, foreclosure, or seizure of property for a breach of [a mortgage that originated before the servicemember's military service]…if made during, or within one year after, the period of the servicemember’s military service” unless approved by a court. While noting that Section 533 does not define the term “foreclosure”, the Ninth Circuit gave the term an expansive reading to include the act of continuing to charge, and failing to remove, fees incidental to an earlier (later-rescinded) Notice of Default under the California foreclosure statutes.

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