In our last article, we discussed the purpose of the Servicemembers Civil Relief Act (“the Act”) and identified the individuals who are covered. In this article, we will begin exploring the types of protections the Act provides to servicemembers, how those protections affect you as you do business with servicemembers and their families, and issues that may arise in litigation with a servicemember.

The substantive protections of the Act begin with several procedural requirements that apply in administrative and judicial proceedings at all levels of state and federal government. Section 521, discussed in this article, safeguards servicemembers from having default judgment entered against them and provides a remedy that can be used if precautionary measures fail and a default judgment is entered. Section 521 is important to servicemembers whose service prevents them from receiving notice of proceedings filed against them, making them particularly susceptible to default judgment.

Section 521 is also important for several other reasons:
1.    It is necessary to comply with the section 521 procedures because some courts have found that failure to do so constitutes a violation of section 1692e(5) of the Fair Debt Collection Practices Act, which prohibits a threat to take any action that cannot legally be taken.
2.    The provisions of section 521 may require an institution to file a bond before obtaining a default judgment.
3.    Compliance with the extra procedural steps required by section 521 may slow down the path to a judgment.
4.    Failure to comply with section 521 may cause a judgment to be voidable.
5.    Finally, failure to comply could result in reputational harm to your business.

So what does section 521 require and how does a banking institution comply? Before a default judgment may be entered, the plaintiff must file an affidavit stating whether the defendant is or is not in military service and the facts supporting the statement of the defendant’s status. Alternatively, the affidavit may state that the plaintiff is unable to determine whether the defendant is in military service. The affidavit requirement is mandatory. Some courts have found that a plaintiff’s failure to file an affidavit when it was known that the defendant was a servicemember on active duty violated section 1692e(5) of the Fair Debt Collection Practices Act.

    If the court is unable to determine whether the defendant is in military service, it may require the plaintiff to file a bond before the court enters default judgment. If it is later determined that the defendant was in military service, then the judgment can be set aside in whole or in part, and the bond may be used to indemnify the defendant for any loss or damages suffered because of the judgment.  

If it appears to the court that a non-appearing defendant is in military service, the court may not enter a judgment until it appoints an attorney to represent the defendant. The court must grant a stay of the proceedings for at least 90 days if requested by appointed counsel.  The court may also stay the proceedings at its own discretion if it determines that there may be a defense that cannot be presented without the defendant’s involvement or if, after due diligence, counsel has been unable to contact the defendant or otherwise determine if the defendant has a meritorious defense.
 
Judgments entered in violation of this section are considered voidable. If a default judgment is entered in an action during the servicemember’s period of military service or within sixty days after termination or release from his or her service, the servicemember may apply to the court to reopen the judgment to allow the servicemember to defend the action. The servicemember’s application to the court must be filed within 90 days of the date of his or her termination or release from military service. The court must then reopen the action if it finds that the servicemember’s military service materially affected his or her ability to defend the action and the servicemember has a meritorious legal defense to the action or any part of it. However, even if a court vacates, sets aside, or reverses a default judgment entered against a servicemember because of a provision of the Act, it will not impair a right or title acquired by a bona fide purchaser for value under the default judgment.
 
By understanding the procedural protections and remedies provided by section 521, your business will be better prepared to take the necessary precautionary measures to avoid additional litigation, obtain valid judgments, promote your good will in the community, and reduce the chance of damage to your reputation.