How dangerous to your net income might it be to rent to a serviceman or woman?
Yes, I know, they are serving their country and we need to support them. But we need to review what is known as the “Soldiers’ and Sailors’ Civil Relief Act,” (SSCRA) the name of which was recently changed to the “Service Members Civil Relief Act.”
You can fall into the clutches of this law even if you don’t rent or sell a property to a serviceman or woman, but someone who later joins up.
The US Supreme Court ruled said that the SSCRA should be read “with an eye friendly to those who dropped their affairs to answer their country’s call.” Le Maistre v. Leffers, 333 U.S. 1, 6 (1948). So in spite of the qualifications to the contrary, figure that if it comes to that, a judge will come down on the side of the serviceman or woman.
The act uses the term “material effect” often. There is no one definition for “material effect.” Guidelines to judges state that a “material effect” is in place when “a military member’s ability to prosecute or defend a civil suit is impaired by military duties which prevent the member from appearing in court at the designated time and place, or from assisting in the preparation or presentation of the case. An adverse material effect might also be found when military service impairs substantially the member’s ability to pay financial obligations.”
Judges Guide to the Soldiers’ and Sailors’ Civil Relief Act. The protections of this act begin on the date of entry and end 30 to 90 days (sometimes even six months) after the serviceman or woman is discharged from the service.
1. Service members can get out of a lease or rental agreement. Any lease may be terminated by the tenant as long as they give notice in writing. However, the tenant must have signed the lease when he was not on “any form of active duty.” He must have received his active-duty orders. He still has to pay rent until 30 days after the next rent is due. So if he gave you notice on December 15 and the next rent would be due on January 1, you can require payment until January 31. Any rent that the tenant has paid in advance, such as “last month’s rent,” must be refunded. You can keep the security deposit only for damages, and be prepared to prove the damages, since the bad tenant may claim that you were simply keeping the deposit to cover the lost rent or to punish him for breaking the lease. This section applies to any lease or rental agreement “occupied for dwelling, professional, business, agricultural or similar purposes.”
2. Service members cannot be evicted, as long as the rent is less than $1,200. (Some documents use the figure $2,400, I can’t determine which is correct.) The property must be “occupied chiefly for dwelling purposes by the wife, children, or other dependents of a person in military service. The judge can stay the eviction proceedings for “no longer than three months.” The tenant (or dependents) will have to show that his military service materially affects his ability to pay the rent.
3. Service members cannot be foreclosed. Courts can stay proceedings “until members are available to answer, extend the mortgage maturity date to allow reduced monthly payments, grant foreclosure subject to being reopened if challenged by a member, and extend the period of redemption by a period equal to the member’s military service.” (Judges Guide) The service member must have bought the property before he or she joined the service or went on active duty, still own it at the time he or she seeks relief, and be unable to pay because of his or her “active duty obligation.” The debt must be secured by a mortgage, deed of trust, or similar security on “either real or personal property.” That means if you sell a house to someone on a land sale contract or trust deed where the buyer pays you, and he or she later goes on active duty, you are affected. Likewise if you were to sell a mobile or manufactured home that does not qualify as real property, and you carry the paper, you have the same situation.
4. Courts may stay the execution of a judgment. Suppose a tenant trashes the place, moves out, you sue him for the damages, get a judgment and then a writ of execution to attach assets or garnish wages. Then he goes on active duty. The court may grant or even vacate a stay of that attachment or garnishment without the deadbeat ever even requesting it or upon the request of the deadbeat, as long as the inability of the service member to comply with the judgment or order is materially affected by reason of military service.
Here is how the courts will decide whether a “material effect” caused the eviction, foreclosure or inability to comply with the terms of the judgment. The judge can require an affidavit “setting out all the facts and circumstances, usually executed by the member or the member’s commander.”The judge can also “ask for a copy of the member’s Leave and Earnings Statement (the military equivalent of a pay stub) to show his or her Base Pay, Basic Allowance for Housing, Basic Allowance for Subsistence, tax withholdings, voluntary allotments to pay bills or support, and accrued leave.”
5. If you sue a tenant, you may have to wait a while. Suppose a bad tenant moves out, then goes on active duty, and you sue him for the damages. If the bad tenant’s ability to defend himself in court is “materially affected by reason of his . . . active duty service” the judge may postpone the suit against the tenant as long as necessary until the material effect is over. That could mean until the tenant can come back from the Middle East, Germany, or someplace in the deepest darkest reaches of the jungle, or until he is discharged from the service. The one saving grace is that the statute of limitations “tolls,” meaning stops, until the “material effect” is over. So the bad tenant won’t be able to say “fooled you, too late, it’s been more than two years so the lawsuit can’t be filed.” Time stops until the material effect is not a factor and then starts again. So if you sued a bad tenant on January 15, 2003, five days after he went on active duty, and the judge stayed the suit, just because the bad tenant wasn’t discharged from the service until April 15, 2005 doesn’t mean he’s home scot free. The clock stopped on January 15, 2003 and didn’t start again until April 15, 2005. He wouldn’t be able to claim a statute of limitations defense until at least April 15, 2007 (and possibly even 30 to 90 days after that).You really don’t have a way to head off being affected by this law.
You could get stuck even after you rented to someone who wasn’t in the service at the time, but joined later. Just be aware of it. Penalties for trying to “get around” the law or interfere with the service member’s rights are onerous with a fine of up to $1,000 and a year in jail.
(Originally from the March 2004 issue of the Rental Property Reporter )
ROBERT L. CAIN
Reprinted by Permission. Copyright 2011 Cain Publications, Inc. Robert Cain is a nationally-recognized speaker and writer on property management and real estate issues. For a free of the Rental Property Reporter call 800-654-5456 or visit www.rentalprop.com.
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