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5th Cir. Holds SCRA Does Not Apply to Louisiana Confessions of Judgment

mortgage lawIn a case of first impression, the U.S. Court of Appeals for the Fifth Circuit recently held that the protections against default judgment under the Servicemembers Civil Relief Act (SCRA) do not apply to the seizure and sale of real property in in rem proceedings under Louisiana law where the debtors have agreed to a confession of judgment in the mortgage or security agreement.

A copy of the opinion in Fodge v. Trustmark National Bank is available at:  Link to Opinion.

A group of individuals filed a putative class action seeking damages and declaratory and injunctive relief against two banks, two loan servicers and a federal credit union, alleging that the defendants violated the SCRA by foreclosing on their properties in Louisiana state courts while they were on active military duty using confession of judgment clauses contained in the mortgages or security agreements.

The complaint alleged that the foreclosure actions violated sections 3931 and 3918 of the SCRA. Section 3931 “provides active duty servicemembers with protections against default judgment absent a waiver that meets certain requirements.” Section 3918 sets forth “the requirements for waiving SCRA protections.”

Four of the defendants moved to dismiss for failure to state a claim, which the trial court granted with prejudice. The remaining defendant moved for judgment on the pleadings, which was also granted with prejudice.

On appeal, the Fifth Circuit first rejected the borrowers’ argument that the “state court orders authorizing seizure and sale” of their properties were default judgments under FCRA section 3931 because the section “does not encompass Louisiana executory proceedings where, as here, the debtors confessed judgment.”

The Court explained that “[u]nder Louisiana law, an executory proceeding is an expedited in rem civil action … used to effect the seizure and sale of property … to enforce a mortgage … importing a confession of judgment. … By virtue of a confession of judgment, a debtor in an executor proceeding ‘has appeared in the suit, and answered the demand.’”

Because under Louisiana law the debtors were deemed to have “appeared,” the Court concluded that “§ 3931 does not apply to Louisiana executor proceedings where, as here, the debtors have confessed judgment.”

Next, the Court rejected the borrowers’ argument that “their confessions of judgment do not constitute proper waivers under the SCRA” section 3918 because “§ 3931 does not apply to Louisiana executory proceedings where the debtor has confessed judgment,” and the SCRA’s “waiver requirements are therefore inapplicable because there is nothing to waive here; Appellants were never protected under § 3931 against seizures and sales ordered through Louisiana executory proceedings.”

The Court affirmed the trial court’s orders of dismissal.

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Hector E. Lora manages the firm’s Florida office and has substantial experience in all phases of complex commercial litigation, including bench and jury trials as well as appellate practice. Hector represents lenders, servicers, debt collectors and debt buyers in complex mortgage foreclosure actions, quiet title actions, federal TILA, RESPA, TCPA, and FDCPA actions and Florida FCCPA actions brought by borrowers or debtors. He also represents creditors in bankruptcy litigation, purchasers of accounts receivable or factoring companies that provide revenue-based financing to small and mid-sized businesses in collection actions, and landlords in commercial and residential evictions. Hector’s broad litigation experience includes over a decade of defending civil enforcement actions filed by the Federal Trade Commission as well as real estate contract disputes and partition actions, contested mortgage foreclosure and condominium lien foreclosure actions and the foreclosure of UCC Article 9 security interests. Hector also has advised a variety of types of businesses regarding their compliance with applicable federal and state consumer protection laws, including the Federal Trade Commission Act, the Telephone Consumer Protection Act (TCPA), the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Controlling the Assault of Nonsolicited Pornography and Marketing Act of 2003, and Florida laws governing telephone solicitation and communication. Hector received his Juris Doctor from the Georgetown University Law Center, and his undergraduate degree with honors from the University of Florida. For more information, see