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#1401932 - 06/10/10 05:02 PM SCRA & Commercial Loans?
Anonymous
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We have a Servicemember who was called to active duty due to the earthquake in Hati and reported May 24, 09' and scheduled release July 10, 10'. We have given the Servicemember the 6% rate reduction on all his consumer loans for the dervice period & these are still in place at a reduced rate. The servicemember & Lender now want the rate reduction under SCRA for a comm. ln. the servicemember is a partner on and the loan in in non-Accrual and the partners are in legal proceedings.

Does the Servicemeber get the SCRA rate reduction on the comm. ln.? Any help with specific ref. would be greatly appreciated.

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#1401963 - 06/10/10 05:18 PM Re: SCRA & Commercial Loans? Anonymous
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I would say 'no', but hope others chime in.

The act applies to "...debts incurred by the servicemember, or a servicemember and spouse jointly...". I take it by adding the clause about the spouse, that they are limiting it to only those joint debts and debts of the servicemember alone. So, if this is a loan in the name of the service member and other parties, or in the name of partnership that includes the service member, I don't believe that the act covers it.
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#1401973 - 06/10/10 05:26 PM Re: SCRA & Commercial Loans? Doug Hendrickson
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#1401994 - 06/10/10 05:42 PM Re: SCRA & Commercial Loans? Dan Persfull
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Many thanks! I wonder if Cathey and his wife were the sole shareowners of the corporation and therefore argued that it was a joint debt.
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#1402005 - 06/10/10 05:52 PM Re: SCRA & Commercial Loans? Doug Hendrickson
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From the summary:

The fact that other persons happen to be signatories to those obligations is, again irrelevant. For if the Bank could insist on co-makers paying the contractual rate, then the serviceman maker's rights under the Act would be eviscerated. This would be particularly true where one of the serviceman's co-makers cannot pay or refuses to pay. Allowing an obligee to force a serviceman's co-makers to pay the contractual rate of interest on an obligation would place pressure on the serviceman to pay the contractual rate and would allow the lender to skirt the protections offered by the SSCRA. Therefore, while it is the serviceman who is provided interest rate protection under the SSCRA and not his co-makers, the result is the same. Interest on that obligation may not be charged in an amount in excess of the statutory rate of 6% per annum."
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#1402010 - 06/10/10 05:56 PM Re: SCRA & Commercial Loans? Dan Persfull
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Consider me enlightened! Thanks.
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#1402015 - 06/10/10 05:58 PM Re: SCRA & Commercial Loans? Dan Persfull
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Quote:
The servicemember & Lender now want the rate reduction under SCRA for a comm. ln.


BTW, you have to retro this back to the beginning date of his active duty. And yes you owe him the refund under the law, not a credit to the account although he can opt for that.
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#1402077 - 06/10/10 06:54 PM Re: SCRA & Commercial Loans? Dan Persfull
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So I take it we really don't have any options on whether we can or can not give the SCRA relief even on commercial loans to servicemenbers? This is our first one in the 3 yrs. I've been here. Doesn't it matter how big or how many partners are on the comm. ln. in question?

I'm just looking at it from a Compliance Risk with the SCRA side.

Do you think I should refer to our legal counsel because its past due & in Non-accrual?

PLMK
Thanks Dan,

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#1402099 - 06/10/10 07:11 PM Re: SCRA & Commercial Loans? Anonymous
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You can, and should consult your attorney, but the bottom line is the debt is the servicememeber's debt no matter how many other parties are on the debt with them.

The above summary from the court case makes that pretty clear.

And since the servicemember is entitled to the relief by law I would opine that any offset right you may have is negated because you did not afford him the protection under the SCRA that you should have. But again that is my opinion.

If you read the above cited case you will recall the bank in that case basically presents the same argument about additional signers (the loan was made to the corporation) which the summary opinion by the court shot down.

PS. Also from reading the case you should recall the servicemember was in default and foreclosure when he brought suit against the bank.

You should however consult your attorney regardless and you would benefit them by giving them the reference to this case.
Last edited by Dan Persfull; 06/10/10 07:14 PM.
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#1403257 - 06/14/10 05:18 PM Re: SCRA & Commercial Loans? Dan Persfull
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We opted to give the SCRA relief of 6% back to the start of active service with a refund of the difference on all amounts paid up to the point the last pmt. recieved. and moving forward to the tentative (end of active service) EOS date.

Thanks for all the input.

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#1554084 - 05/19/11 10:01 PM Re: SCRA & Commercial Loans? Anonymous
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If the individuals in this case would not have signed personally on this debt, would the bank have a case?

We have a loan to a corporation where the sole owner is going on active duty, but he is not signed personally on the loan. He has signed only as President of the Corporation.

However, he is the brains behind the operation, and the business would most likely suffer a setback. My personal feelings feel we should lower the rate since this guy is going on active duty and I have such respect for the soldiers, but I also need to make sure I have the law correct for future cases should they come up.
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#1554139 - 05/20/11 02:26 AM Re: SCRA & Commercial Loans? Yada...Yada...Yada...
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If he is not directly or indirectly liable for the debt and has not pledged any personal assets as collateral then I would think there may be an argument the relief does not apply if the bank is serious about putting forth the argument to the courts to get a stay on the relief however I highly recommend you talk this over with legal counsel.
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#1818626 - 05/30/13 03:18 PM Re: SCRA & Commercial Loans? Anonymous
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Are individuals who make loans for a mortgage obligated to reduce the rate to 6%?

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#1819082 - 05/31/13 02:59 PM Re: SCRA & Commercial Loans? Anonymous
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The SCRA does not define Creditor that I could find by a quick search. IMHO an individual who makes loans is a creditor for the purposes of the SCRA.

The SCRA may not define creditor that I could find but it does define "obligation or liability". A mortgage is included in that definition therefore any mortgage would IMO be covered.
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#2020794 - 06/16/15 07:22 PM Re: SCRA & Commercial Loans? Anonymous
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Question regarding the NOTICE: Do we need to send the SCRA notice when the client is past due or going into foreclosure when: a. the asset is a commercial property and b. the loan and property are in their personal names and c. the property is NOT their primary residence?
Thank you
Robert Brookes

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#2118920 - 02/21/17 02:59 PM Re: SCRA & Commercial Loans? Anonymous
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For commercial loans, do you have the customer sign the SCRA form at application, the same as you do with consumer applications?

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#2174499 - 04/20/18 05:31 PM Re: SCRA & Commercial Loans? Anonymous
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@Dan, I tried to go to the link above, but it no longer seems to go to a specific case. It goes to a place with a laundry list of cases, and I am not going to read through all of them. Bottom line, it sounds like in transaction specific scenarios, the Bank should consult legal counsel. I know there was a recent ruling, Davis vs. City of Philadelphia, where the court ruled that an obligation in the name of a corporation that the servicemember owned was not eligible for SCRA protections.

In cases where other parties are involved in the corporation, it sounds like the above thread is saying SCRA protections apply. The "obligation and liability" definition is very vague. Would it apply to a loan to a business where the SCRA member is only a guarantor? I would see that a guarantor could be "liable" on the obligation, making it sound like SCRA protections may be available. Again, for such situations, is it just best to be left for legal interpretation?

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#2174589 - 04/23/18 02:48 PM Re: SCRA & Commercial Loans? Anonymous
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The link to the case is no longer valid but here is a summary.

Cathey v. BancorpSouth Bank

Case URL: https://www.bankersonline.com/lending/catheycase.html

Federal district court granted summary judgment on the Section 526 SSCRA claims to the plaintiffs. A bank acquired by BancorpSouth had made a loan to Cathey's corporation. Cathey and his wife were listed as co-borrowers and also as guarantors and their personal house was one of the pieces of collateral. When Cathey was called up on active duty as a reservist, the bank declined to reduce the interest rate to 6%. Disastrous consequences ensued. Ultimately, the Catheys sued and the court granted summary judgment.
UPDATE: This case was scheduled to go to jury trial on the issue of damages beginning May 6, 2002. Instead, the case was settled. Read the Press Release announcing the settlement.


where the court ruled that an obligation in the name of a corporation that the servicemember owned was not eligible for SCRA protections.

I have not read the case but if the servicemember is not directly or indirectly obligated on the debt to the corporation then the corporation would have no protection under the SCRA.
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#2174642 - 04/23/18 04:26 PM Re: SCRA & Commercial Loans? Anonymous
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Okay, what may be different in the Cathey's case is that they were were also listed as individual co-borrowers. In the Davis case, the Servicemember was basically trying to "protect" his personal assets by putting "stuff" under the corporation umbrella. The Court basically said, "you can't have your cake and eat it too." In other words, if you want to protect your assets by putting things in the corporation name, then you also cannot come and claim SCRA protection from the loan that is now under the corporation name.

Or, perhaps, concepts have changed. Looks like the Cathey case was more than 15 years ago. Couldn't being a guarantor be looked at as being indirectly liable for the debt?

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#2174748 - 04/23/18 08:07 PM Re: SCRA & Commercial Loans? Anonymous
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This is the case I was referring to: http://www2.ca3.uscourts.gov/opinarch/152937p.pdf

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#2174759 - 04/23/18 08:49 PM Re: SCRA & Commercial Loans? Anonymous
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I read very quickly through the case but the two cases are not similar IMO. In the Davis case the property is not owned by Davis. It's owned by the LLC and the LLC is not entitled to SCRA protection. The tax liability (unless I missed something) was the LLC's not Davis' and he had no personal direct or indirect obligation on the LLC's tax liability.

I have to agree with the court ruling that Davis, since he had no personal liability, had no claim under the SCRA on behalf of the LLC.

In the Cathey case they were personally obligated on the corporate debt and had pledge their personal property as security.
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#2174777 - 04/24/18 02:04 AM Re: SCRA & Commercial Loans? Anonymous
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Understood. That's what I hinted at originally as the difference.

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#2232220 - 03/03/20 07:36 PM Re: SCRA & Commercial Loans? Compliance NABW
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What if the Servicemember personally and unconditionally guarantees the debt of the LLC and the LLC owns the collateral (big rig). Does the Servicemember have rights under SCRA in relation to the guaranteed debt of the LLC?

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#2232667 - 03/09/20 08:16 PM Re: SCRA & Commercial Loans? Anonymous
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If the Servicemember is directly or indirectly obligated on the debt the Servicemember has protection under the SCRA.
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#2267275 - 03/08/22 11:27 AM Re: SCRA & Commercial Loans? Anonymous
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cz3une

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