Bank of America's $35M+ SCRA Settlement: Wrongful Foreclosures on Active Duty Servicemembers

In 2012, the Department of Justice reached a landmark settlement with Bank of America as part of the National Mortgage Servicing Settlement, the largest joint federal-state civil enforcement action in American history. Bank of America’s SCRA component was the largest individual servicemember relief package in the settlement, totaling over $35 million to compensate more than 265 servicemembers whose homes were unlawfully foreclosed or whose interest rates were not properly reduced during active-duty military service.

The settlement exposed a systemic failure at one of the nation’s largest mortgage servicers: Bank of America foreclosed on the homes of servicemembers who were deployed overseas, stationed at military bases, or otherwise serving on active duty, without obtaining the court orders required by federal law.

What the DOJ Found

The DOJ’s investigation, conducted jointly with the Department of Housing and Urban Development and 49 state attorneys general, revealed that Bank of America violated two core provisions of the Servicemembers Civil Relief Act.

Unlawful foreclosures under Section 3953. Bank of America foreclosed on homes owned by active-duty servicemembers without first obtaining court orders. Under 50 U.S.C. Section 3953, a mortgage lender cannot foreclose on a servicemember’s property during the period of military service or within one year after the end of military service (extended from the original 90 days by the Housing and Economic Recovery Act of 2008 and subsequently to one year) without a court order. The court must find that the servicemember’s ability to meet the mortgage obligation is not materially affected by military service.

Bank of America’s foreclosure process failed to identify servicemembers before initiating foreclosure proceedings. Homes were sold at auction. Families were displaced. Servicemembers returned from deployments to find that they no longer owned their homes.

Interest rate cap violations under Section 3937. Bank of America also failed to properly reduce interest rates to the 6% cap required under Section 3937 for pre-service mortgage obligations. When servicemembers submitted requests for the rate reduction along with their military orders, Bank of America either denied the requests, delayed processing, or applied the reduction incorrectly. The excess interest charged above 6% was required to be forgiven, not deferred. Bank of America’s systems did not consistently apply this provision.

More than 265 servicemembers were identified as having their homes wrongfully foreclosed. Thousands of additional servicemembers were affected by interest rate cap violations across Bank of America’s mortgage portfolio.

The Settlement

The SCRA component of Bank of America’s settlement required:

• Payment of at least $116,785 to each servicemember whose home was unlawfully foreclosed, representing the minimum compensation per wrongful foreclosure
• Compensation for any lost equity in the foreclosed property, with interest, on top of the minimum payment
• Restitution to servicemembers who were overcharged interest above the 6% cap under Section 3937
• Full credit repair for all affected servicemembers, including removal of negative credit reporting related to the wrongful foreclosures
• Implementation of a comprehensive SCRA compliance program across all mortgage servicing operations
• DMDC verification before initiating any foreclosure proceeding
• Designation of a dedicated SCRA compliance officer
• Annual SCRA training for all mortgage servicing and loss mitigation staff
• Quarterly reporting to the DOJ on SCRA compliance metrics
• Independent compliance monitoring

Total SCRA-related payments: over $35 million.

The $116,785 minimum per wrongful foreclosure was significant. It established a DOJ benchmark for mortgage-related SCRA enforcement that would influence subsequent cases. The amount reflected not just the financial harm of losing a home but the severity of foreclosing on a servicemember during active duty.

What Went Wrong

Bank of America’s failure was systemic and structural, embedded in the institution’s mortgage servicing infrastructure.

No military status verification in the foreclosure pipeline. Bank of America processed millions of mortgages. Its foreclosure workflow was designed for volume. When a borrower became delinquent, the system moved the loan through a pipeline: default notice, loss mitigation review, referral to foreclosure, and sale. At no point in this pipeline did the system check whether the borrower was an active-duty servicemember. The DMDC database existed. The check was free. But the foreclosure pipeline did not include it.

Decentralized servicing operations. Bank of America’s mortgage servicing was spread across multiple systems, platforms, and acquired portfolios (including the Countrywide Financial portfolio acquired in 2008). Each servicing platform had its own processes, and SCRA compliance was not uniformly implemented across all of them. A servicemember whose loan was serviced on one platform might receive SCRA protections. The same servicemember on a different platform might not.

Interest rate processing failures. Even when servicemembers proactively requested the 6% interest rate cap and submitted their military orders, Bank of America’s systems could not consistently process the request. The rate reduction had to be applied retroactively to the date the servicemember entered active duty, the excess interest had to be forgiven (not deferred), and the reduction had to be applied correctly across the remaining loan term. Manual processing of these requests introduced errors at every step.

Scale magnified every gap. As one of the largest mortgage servicers in the country, Bank of America’s compliance gaps affected servicemembers nationwide. A process failure that might affect a handful of borrowers at a smaller servicer affected hundreds at Bank of America’s scale. The 265+ wrongful foreclosures were not isolated incidents. They were the predictable output of a system that lacked the controls to prevent them.

Lessons for the Industry

Foreclosure requires the same verification discipline as repossession. The auto lending industry learned through Wells Fargo and Santander that DMDC checks before repossession are mandatory. The mortgage industry must apply the same standard. Every foreclosure proceeding must begin with a military status verification. If the borrower is on active duty, the foreclosure cannot proceed without a court order.

Acquired portfolios inherit SCRA obligations. Bank of America acquired Countrywide’s mortgage portfolio in 2008. The SCRA obligations attached to those loans did not disappear with the acquisition. Every mortgage servicer that acquires or assumes a portfolio must ensure SCRA compliance across all acquired loans from the first day of servicing.

The 6% interest rate cap is not optional processing. Section 3937 requires lenders to reduce interest rates to 6% upon receipt of a valid request and military orders. The reduction is retroactive to the date of active-duty service. The forgiven interest is permanent, not deferred. Mortgage servicers must have automated systems that can process these requests accurately and promptly. Manual processing at scale guarantees errors.

Minimum payouts set precedent. The $116,785 per-servicemember minimum for wrongful foreclosures established a benchmark that the DOJ has referenced in subsequent cases. Mortgage servicers can calculate their own exposure: multiply the number of unverified foreclosures by at least six figures per servicemember, plus lost equity.

How Civrel Prevents This

Bank of America’s violations trace back to a foreclosure pipeline that operated without military status verification and a servicing infrastructure that could not consistently process SCRA protections. Civrel addresses both.

DMDC verification integrated into the foreclosure workflow. Civrel checks every borrower’s military status before any foreclosure proceeding is initiated. If the borrower is on active duty or within the post-service protection period, the foreclosure is automatically blocked and the account is routed for legal review under Section 3953. The check is mandatory. It cannot be bypassed.

Automated interest rate cap processing. When a servicemember requests the 6% interest rate cap under Section 3937, Civrel calculates the reduction retroactively to the date of active-duty service, applies the forgiveness of excess interest, and adjusts the loan accordingly. The process is automated, eliminating the manual errors that caused Bank of America’s interest rate failures.

Unified compliance across all portfolios. Civrel applies the same SCRA compliance process to every loan in the system, regardless of origination source or servicing platform. Whether a loan was originated in-house or acquired from another servicer, the same verification and protection rules apply. There are no platform-specific gaps.

Complete audit trail. Every verification, every hold, every interest rate adjustment is logged with timestamps, user attribution, and the underlying DMDC response. When regulators ask for documentation, the answer is immediate and complete.

Bank of America demonstrated that even the largest financial institutions cannot rely on manual processes and decentralized operations to meet SCRA obligations. Civrel provides the automated, centralized compliance infrastructure that makes wrongful foreclosures structurally impossible.

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Sources: DOJ National Mortgage Servicing Settlement, 2012 (justice.gov/archives/opa/pr/federal-government-and-state-attorneys-general-reach-25-billion-agreement-five-largest); DOJ SCRA Enforcement Page (justice.gov/crt/servicemembers-civil-relief-act-702)