Even though some of the nation's military families have been sending their breadwinners into war zones for almost a decade now, some of the nation's biggest lenders are still fumbling one the basic elements of this law — its foreclosure protections.
While Sgt. James B. Hurley was away at war, he lost a heartbreaking battle at home.
In violation of a law designed to protect active military personnel from creditors, agents of Deutsche Bank foreclosed on his small Michigan house, forcing Hurley’s wife, Brandie, and her two young children to move out.
When the sergeant returned in December 2005, he drove past the wooded riverfront property outside Hartford, Mich. The home was still there — winter birds still darted over the gazebo he had built near the water’s edge — but it almost certainly would never be his again. Less than two months before his return from the war, the bank’s agents had sold the property to a buyer in Chicago for $76,000.
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Since then, Hurley has been on an odyssey through the legal system, with little hope of a happy ending — indeed, the foreclosure that cost him his home may also cost him his marriage. “Brandie took this very badly,” said Hurley, 45, who was disabled in Iraq and is now unemployed. “We’re trying to piece it together.”
In March 2009, a federal judge ruled that the bank’s foreclosure in 2004 violated federal law. But the battle did not end there for Hurley.
Typically, banks respond quickly to public reports of errors affecting military families. But today, more than six years after the illegal foreclosure, Deutsche Bank Trust and its primary co-defendant, a Morgan Stanley subsidiary called Saxon Mortgage Services, are still in court disputing whether Hurley is owed significant damages.
A spokesman for Deutsche Bank declined to comment. A spokesman for Morgan Stanley, which bought Saxon in 2006, said Saxon revised its policy to ensure that it complied with the law and was willing to make “reasonable accommodations” to settle disputes, “especially for our servicemen and women.”
But the Hurley litigation has continued, he said, because of a “fundamental disagreement between the parties over damages.”
In court papers, lawyers for Saxon and the bank assert the sergeant is entitled to recover no more than the fair-market value of his lost home. His lawyers argue that the defendants should pay much more than that, including an award of punitive damages to deter big lenders from future violations of the law. The law is called the Servicemembers Civil Relief Act, and it protects active service members from many of the legal consequences of their forced absence.
Under the law, only a judge can authorize a foreclosure on a protected service member’s home, even in states where court orders are not required for civilian foreclosures, and the judge can act only after a hearing where the military homeowner is represented.
By 2005, violations of the civil-relief act were being reported across the country, some involving prominent banks such as Wells Fargo and Citigroup. Publicity about the violations spared some military families from foreclosure, prompted both banks to promise better compliance and put lenders on notice that service members were entitled to special relief.
But the message apparently didn’t get through. By 2006, a marine captain in South Carolina was doing battle with JPMorgan Chase to get the mortgage interest rate reductions the act requires. Chase eventually reviewed its policies and, earlier this month, acknowledged it had overcharged thousands of military families on their mortgages and improperly foreclosed on 14 of them. After a public apology, Chase began mailing out about $2 million in refunds and working to reverse the foreclosures.
Chase’s response, however belated, is in sharp contrast to the approach taken by Deutsche Bank and Saxon in the Hurley case.
Hurley bought the riverfront parcel in 1994 and “was developing this property into something special,” he said in a court affidavit. He put a double-wide manufactured home on the site and added a deck, hunting blinds, docks and storage buildings.
According to his lawyers, his financial troubles began in the summer of 2004, when his National Guard unit sent him to California to be trained to work as a power-generator mechanic in Iraq. Veterans of that duty advised him to buy certain tools not readily available in the war zone, he explained in his affidavit. With that expense and his reduced income, he said, he fell behind on his mortgage — a difficulty many part-time soldiers faced when reserve and National Guard units were mobilized.
Believing he was protected by the civil relief act — as, indeed, he was, as of Sept. 11, 2004 — his family repeatedly informed Saxon that Hurley had been sent to Iraq. But Saxon refused to grant relief without copies of his individual military orders, which he did not yet have.
Although Saxon’s demand would have been legitimate if Hurley had been seeking a lower interest rate, the law did not require him to provide those orders to invoke his foreclosure protections.
Nevertheless, Saxon referred the case to its law firm, Orlans Associates in Troy, Mich., which completed the foreclosure without the court hearing required by law. The law firm filed an affidavit with the local sheriff saying there was no evidence Hurley was on military duty. At a sheriff’s sale in October 2004, the bank bought the property for $70,000, less than the $100,000 the sergeant owed on the mortgage.
Orlans acknowledged in a court filing that one of its lawyers learned in April 2005 that Hurley had been on active duty. Nevertheless, neither Saxon nor the law firm backtracked to ensure the foreclosure had been legal or took steps to prevent the seized property from being sold, according to the court record.
When Hurley sued in May 2007, the defendants initially argued that he was not allowed to file a private lawsuit to enforce his rights under the civil relief act. U.S. District Judge Gordon J. Quist agreed and threw the case out in fall 2008.
That drew a fierce reaction from Col. John S. Odom, Jr., a retired Air Force lawyer in Shreveport, La., who is working with Hurley’s local lawyer, Matthew R. Cooper, of Paw Paw, Mich.
Odom, recognized by Congress and the courts as an expert on the Servicemembers Civil Relief Act, knew Quist had missed a decision that overturned the one he cited in his ruling. In December 2008, Odom appealed the judge’s ruling.
In March 2009, Quist reversed himself, reinstated the Hurley case, ruled that the foreclosure had violated the civil-relief act and found that punitive damages would be permitted, if warranted.
Despite that legal setback, the defendants soldiered on. As the court docket grew, they argued against allowing Hurley to seek substantial compensatory or punitive damages in the case.
Quist ruled last month that punitive damages were not warranted — a ruling Odom has said he has challenged in court and, if necessary, will appeal.
“Nothing says, ‘You screwed up’ as clearly as a big punitive-damages award,” he said. “They are a deterrence that warns others not to do the same thing.”
When the trial on damages begins in early March, Hurley will have been fighting for almost four years over the illegal foreclosure, a fight he could not have waged without a legal team that will probably only be paid if the court orders the defendants to cover the legal bills.
Regardless of the outcome of the trial, Hurley’s dream home is likely to remain as far beyond his reach as it was when he was in Iraq. Its new owner has refused to entertain any offers for it and recently bought an adjoining lot.
Hurley said he still loved the wooded refuge he drives past almost every day. “I was hoping I could get the property back,” he said. “But they tell me there’s just no way.”