BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2013-2014 Regular Session
SB 720 (Correa)
As Amended April 4, 2013
Hearing Date: April 30, 2013
Fiscal: Yes
Urgency: No
TH
SUBJECT
Military Service: Benefits
DESCRIPTION
Existing law protects federal military reservists and California
National Guard service members from the adverse effects of
military deployment by providing various protections with regard
to financial obligations, liabilities, taxes, assessments, and
installment contracts incurred before being called to active
duty. Existing law provides enhanced financial protections to
military reservists and National Guard personnel ordered to
active duty as part of the conflicts taking place in Iraq and
Afghanistan.
This bill would extend the enhanced protections currently
offered only to service members ordered to active duty as part
of the conflicts in Iraq and Afghanistan, including protection
from having to pay interest on the accumulated principal or
interest of a deferred financial obligation, to all federal
military reservists and California National Guard service
members ordered to active duty. This bill would also
incorporate specific safeguards afforded to financial
institutions under other deferment statutes to financial
obligations deferred by service members under these enhanced
protections.
BACKGROUND
California law provides various financial and consumer-related
protections for military service members. These provisions
generally seek to provide protections against the potential
(more)
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adverse effects of a deployment, and include provisions enacted
by AB 1433 (Horton, Chapter 60, Statutes of 2002), which
provided financial protection with regards to court proceedings,
credit contract obligations, rental agreements, taxes, health
insurance, and eviction protection, and AB 1666 (Frommer,
Chapter 345, Statutes of 2005), which provided additional
protection for members called into active duty with regards to
fees for recording a power of attorney, termination of mobile
telephone contracts, academic tuition, state bar fees, vehicle
leases, and residential utility service.
Existing law permits military reservists and National Guard
members ordered to active federal or state military service to
defer certain loans and financial obligations under two
different provisions of the Military and Veterans Code.
Military and Veterans Code Section 409.3 suspends enforcement of
specified civil liabilities, including financial obligations
such as mortgages, automobile loans, and installment contracts,
for service members during periods of active military service.
The relief afforded under this section is available only upon
application to a court, and at the conclusion of the period of
suspension, the maturity date of the financial obligation is
extended by the period of military service, and all unpaid
principal and accumulated interest is added to the principal
balance of the financial obligation. Consequently, a service
member who defers an obligation under this provision incurs
interest on any deferred interest, potentially increasing the
amount due on an obligation after all deferred sums are rolled
back into the obligation's principal at the conclusion of the
deferment period.
Military and Veterans Code Section 800 et. seq., in contrast,
permits service members called to active duty specifically as
part of the Iraq or Afghanistan conflicts to defer payments on
similar financial obligations for a period of up to six months.
Rather than petitioning a court, a service member need only send
a letter to their lender requesting deferment of a financial
obligation in order to receive benefits under this provision.
Additionally, Military and Veterans Code Section 804 provides
that "[n]o interest shall be charged or accumulated on the
principal or interest on which the payment was delayed."
This bill, sponsored by the California Military Department,
would amend Military and Veterans Code Section 409.3 to ensure
that military reservists and National Guard members ordered to
active federal or state military service are able to defer
financial obligations for all active duty assignments under
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terms currently reserved only for those recalled to active duty
as part of the Iraq and Afghanistan conflicts. Specifically,
this bill would exempt specified financial obligations,
including installment contracts for real estate purchases and
mortgages secured by real estate, from charging interest upon
deferred interest during a period of deferment, and would
prohibit penalties from being imposed for the nonpayment of
principal or interest during this period. This bill would also
prohibit foreclosure or repossession of property for which
payments have been deferred, but would preclude a service member
from deferring any payments owed to a mortgage impound account
for the payment of property taxes, special assessments, and
insurance. This bill would extend these enhanced protections,
currently available for a maximum of six months under Military
and Veterans Code Section 800 et. seq., to the full duration of
a military deployment or active duty activation.
This bill was heard by the Senate Veterans Affairs Committee on
April 23, 2013, and was approved by a vote of 7-0.
CHANGES TO EXISTING LAW
Existing law permits a federal military reservist or National
Guardsman who is called to active duty as part of the Iraq and
Afghanistan conflicts to defer payments on a financial
obligation for a period of up to six months without accruing
interest on the principal or interest of a deferred payment.
(Mil. & Vet. Code Sec. 800 et. seq.)
Existing law permits a federal military reservist or National
Guardsman who is called to active duty to, at any time during
his or her period of active duty service or within six months
thereafter, apply to a court for relief from an obligation or
liability incurred by the member prior to his or her period of
military service, or from any tax or assessment falling due
prior to or during the period of service. (Mil. & Vet. Code
Sec. 409.3(a).)
Existing law authorizes, in the case of an installment contract
for the purchase of real estate, or other instrument in the
nature of a mortgage upon real estate, a stay of the enforcement
of the obligation during the applicant's period of military
service, or, if application is made after the service, for a
period of time up to the length of the period of military
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service. At the conclusion of the stay of enforcement, the
principal and accumulated interest due and unpaid shall be
repaid in equal installments during the remaining life of the
installment contract or other instrument, extended by a period
of time equal to the stay of enforcement, at the rate of
interest on the unpaid balance as prescribed in the contract, or
other instrument evidencing the obligation, for installments
paid when due, and subject to any other terms as may be just.
(Mil. & Vet. Code Sec. 409.3(d)(1).)
Existing law authorizes, in the case of any other obligation,
liability, tax, or assessment, a stay of the enforcement during
an applicant's period of military service, or, if application is
made after the service, for a period of time equal to the period
of military service of the applicant or any part of that period.
At the conclusion of the stay of enforcement, the balance of
principal and accumulated interest due and unpaid at the date of
termination of the period of military service or the date of
application, as the case may be, shall be repaid in equal
periodic installments during a period of time equal to the stay
of enforcement, at the rate of interest as may be prescribed for
the obligation, liability, tax, or assessment, if paid when due,
and subject to any other terms as may be just. (Mil. & Vet.
Code Sec. 409.3(d)(2).)
Existing law permits a court to grant this specified relief
after appropriate notice and hearing, unless in its opinion the
ability of the service member to comply with the obligation or
pay the tax or assessment has not been materially affected by
reason of the member's military service. (Mil. & Vet. Code Sec.
409.3(d).)
This bill would instead authorize, in the case of an installment
contract for the purchase of real estate, or other instrument in
the nature of a mortgage upon real estate, a deferment of the
payments on the obligation during the service member's period of
military service, or should the service member request such
relief after the start of his or her current period of military
service, or within 6 months thereafter, a deferment of such
payments for a period of time equal to the period of military
service starting from the date of application.
This bill would also authorize, in the case of any other
obligation, liability, tax, or assessment, a deferment of any
payments on the obligation during an applicant's period of
military service, or, from the date of termination of the period
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of military service or from the date of application if made
after the service, for a period of time equal to the period of
military service.
This bill would prohibit penalties from being imposed for the
nonpayment of principal or interest during a period of
deferment, and would prohibit interest from being charged or
accumulated on the principal or interest on which the payment
was delayed. The bill would also prohibit foreclosure or
repossession of property on which payment has been deferred, as
specified.
This bill would require mortgage payments deferred during this
period to be due and payable upon the occurrence of certain
specified conditions, including the sale of the property, the
maturity of the obligation, or the further encumbrance of the
property other than for preservation or protection of the
property.
This bill would provide that a service member with a mortgage
subject to an impound account for the payment of property taxes,
special assessments, and certain insurance shall not be relieved
from making monthly payments, as specified, and that a service
member shall not be precluded from making payments toward a
deferred mortgage.
COMMENT
1. Stated need for the bill
According to the author:
Senate Bill 720 revises MVC §409.3 to conform to its
companion code in MVC §§800 to ensure that all
Servicemembers ordered to state or federal active service
receive the State's intended financial protections.
The proposed amendments in SB 720:
1. Ensure that Servicemembers, who are eligible to defer
loans and obligations, can do so without being financially
penalized by having to pay interest on deferred interest at
the end of their deferment;
2. Ensures that the protections afforded to financial
institutions in MVC §§800 are incorporated in MVC §409.3;
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and
3. [Enact] [n]on-substantial, clarifying amendments to MVC
§409.3 [that] will ensure the protections provided by this
section for deployed Servicemembers shall be interpreted
consistently by both Servicemembers and financial
institutions.
According to the sponsor:
It is not practical to treat the two deferments in
distinctively different ways. By amending MVC §409.3 to
treat the repayment of deferred loans and obligations in
the same manner as MVC §§800, all Servicemembers who are
called to state or federal active service, regardless of
the geographical location, would be able to defer loans and
obligations under a single code section. This eliminates
the situation where Servicemembers have to defer loans and
obligations under two code sections and provides financial
institutions with a singular mechanism in which to
calculate deferred monies back into the original loan.
Protections for financial institutions do not currently
exist in MVC §409.3. In codifying MVC §§800, the
Legislature recognized the inherent risks of financial
institutions during the deferment process and built in
protections for lenders. This proposal would add the
protections provided to financial institutions in MVC §802
to MVC §409.3, ensuring that financial institutions are not
forced to take on additional financial risk.
Military and Veterans Code §§800 will become null and void
in the near future. As the conflicts in Afghanistan come
to a close, the financial protections offered under MVC
§§800 will become inactive. However, this legislation
anticipates the National Guard's continued deployments in
support of the Department of Defense in the post-conflict
era. This legislation ensures the protections provided by
California to those that defend and serve their state and
nation remain.
2. Elimination of interest accrual on deferred interest and
enhanced protection for financial institutions
This bill makes two important changes regarding the financial
protections afforded California's deployed military reservists
and National Guardsman. First, it harmonizes certain
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protections currently available under Military and Veterans Code
Section 800 et. seq. with those available under Military and
Veterans Code Section 409.3, by eliminating the accrual of
interest on deferred interest payable under pre-existing
financial obligations, such as mortgages and real estate
purchase installment contracts, in the latter provision.
Second, it incorporates certain protections afforded financial
institutions under Section 800 et. seq. into deferments
authorized under Section 409.3.
Under current law, these two code sections are inconsistent in
the way that deferred or stayed monies are repaid after a period
of deferment or stay ends. The author offers the following
illustration:
MVC §§800 contemplates that the maturity date of the loan
will be extended by the deferred amount (in essence the six
months of payments deferred are paid at the end) and that
"no interest shall be charged or accumulated on the
principal or interest on which the payment was deferred."
Example of Deferred Loan Under §§800: A Servicemember's
monthly mortgage payment is $2,000, in which $400 is
applied to their principle balance and the remaining $1,600
is applied to interest. At the end of the six month
deferral, $2,400 ($400 x 6) would be added to the
Servicemember's principle balance, the maturity date of the
loan would be extended by six months and interest would be
paid on the deferred amount at the rate called for by the
obligation.
In contrast, MVC §409.3 extends the maturity date of the
loan by the period of military service and, at the end of
the deferment, rolls the unpaid principal and accumulated
interest into the principle balance of the loan or
obligation. The Servicemember then pays in equal
installments at the rate of interest on the unpaid balance
as prescribed in their contract, which effectively means
the Servicemember pays interest on the deferred interest.
Example of Deferred Loan Under §409.3: A Servicemember's
monthly mortgage payment is $2,000, in which $400 is
applied to their principle balance and the remaining $1,600
is applied to interest. At the end of a six month
deferral, $12,000 ($2,000 x 6) would be added to the
Servicemember's principle balance, the maturity date of the
loan would be extended by six months and interest would be
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paid on the deferred amount at the rate called for by the
obligation.
Consequently, according to the author, "[s]ervicemembers who
defer loans and obligations under MVC §§800 are only adding the
deferred payments of their principle to the end of their loan
and therefore are not increasing their original principle loan
amount." In contrast, "[s]ervicemembers deferring pursuant to
MVC §409.3 are actually increasing their original principle
balance due to both the deferred principle and interest being
added to their principle balance at the end of their deferment,
causing the Servicemember to pay interest on interest."
This bill eliminates this discrepancy by adding a provision to
Military and Veterans Code Section 409.3 stating that "interest
shall not be charged or accumulated on the principal or
interest" of a deferred payment. According to the California
Military Department, the sponsor of this bill, this change
brought by SB 720 "will ensure that Servicemembers who are
eligible to defer loans and obligations when ordered to active
duty can do so without being financially penalized by having to
pay interest on deferred interest at the end of their deferment
period."
This bill also incorporates new protections for financial
institutions with customers who defer obligations under Section
409.3. As in Section 800 et. seq., SB 720 would amend Section
409.3 to disallow deferment of mortgage payments when a service
member sells a property or engages in another specified event in
a mortgage (other than the deferment of payments) that would
permit a lender to accelerate the loan, when a service member
further encumbers a mortgaged property other than for
preservation or protection of the property, or upon the maturity
of the obligation. The bill would also preclude a service
member from deferring payments under Section 409.3 owed to a
mortgage impound account used for the payment of property taxes,
special assessments, mortgage insurance, and hazard insurance,
without first obtaining the permission of the lender. These
additional safeguards offered by SB 720 would help to mitigate
some of the risk incurred by financial institutions that defer
mortgage obligations under Section 409.3 by, for example,
lessening the chance that a tax lien could be placed against a
mortgaged property, or that a service member could sell an
encumbered property without first extinguishing his or her
mortgage obligations.
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3. Support of California's armed forces
California public policy has continually affirmed the need to
help protect military service personnel from the adverse effects
of military deployments. In 2002, the Legislature amended the
provisions of the Military and Veterans Code that are the
subject of this bill, and in so doing, it found and declared
that:
(a) In order to provide for, strengthen, and expedite the
national or state defense under the emergent conditions
that are threatening the peace and security of the United
States and the State of California, and to enable the
United States and the State of California to more
successfully fulfill the requirements of the national or
state defense, provision is made to suspend enforcement of
civil liabilities, in certain cases, of persons in the
military service of the United States or the State of
California in order to enable these persons to devote their
entire energy to the defense needs of the nation or state.
(b) For these purposes, provisions are made in [California
law] for the temporary suspension of legal proceedings and
transactions that may prejudice the civil rights of persons
in this service . . . (AB 1433 [Horton], Chapter 60,
Statutes of 2002.)
Courts across the United States have recognized the paramount
importance of protecting our service personnel from the
dislocating effects that military service can have on a
soldier's civil obligations. The Supreme Court has held that
the federal Servicemembers Civil Relief Act (50 U.S.C. 510 et
seq.), which parallels many of the protections offered under
California law, "must be read with an eye friendly to those who
dropped their affairs to answer their country's call" (Le
Maistre v. Leffers (1948) 333 U.S. 1, 6), and is "to be
liberally construed to protect those who have been obliged to
drop their own affairs to take up the burdens of the nation"
(Boone v. Lightner (1943) 319 U.S. 561, 575). The public policy
underlying statutes such Military and Veterans Code Sections
409.3 and 800 et. seq. "is to allow military personnel to
fulfill their duties unhampered by obligations incurred prior to
their call." (Omega Indus., Inc. v. Raffaele (D. Nev. 1995) 894
F. Supp. 1425, 1434 [citing Patrikes v. J.C.H. Service Stations,
Inc. (N.Y.City Ct.1943) 41 N.Y.S.2d 158, 165].) This policy
extents to protect military personnel in times of peace where no
national emergency exists (Conroy v. Aniskoff (1993) 113 S.Ct.
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1562, 1564-66), is "always to be liberally construed" (Boone,
319 U.S. at 574), and is to be applied in a "broad spirit of
gratitude" towards service personnel (Patrikes, 41 N.Y.S.2d at
166).
This bill furthers that important public policy by allowing
service members mobilized into state or federal active duty not
only to petition a court for relief from paying certain
financial obligations while deployed as existing law permits,
but also by lessening the financial cost of doing so. It
recognizes that when service members are deployed, particularly
to overseas locations or to combat zones, it may be difficult or
impossible for them to manage financial obligations remotely,
and that the added stress of worrying about finances back home
could undermine their effectiveness and safety. The demands
placed upon our deployed service personnel must be balanced
against the importance of honoring contractual obligations made
in the course of civic life. Public policy in California weighs
these competing interests, and allows service members to defer
certain financial obligations with the understanding that they
will be required to honor their contractual commitments when
they return home from service. This bill ensures that service
members are not penalized by having to pay a penalty in the form
of interest accrued upon deferred interest for taking advantage
of this benefit.
4. Retroactive application
Staff notes that the text of this bill could be construed as
having a retroactive impact. Should the bill be chaptered, upon
its entry into force on January 1, 2014, a service member who
completed a qualifying period of military service during the
previous six months could petition a court for relief under the
bill's enhanced financial protection provisions. The U.S.
Supreme Court has previously observed that:
[T]he presumption against retroactive legislation is deeply
rooted in our jurisprudence, and embodies a legal doctrine
centuries older than our Republic. Elementary
considerations of fairness dictate that individuals should
have an opportunity to know what the law is and to conform
their conduct accordingly; settled expectations should not
be lightly disrupted. For that reason, the principle that
the legal effect of conduct should ordinarily be assessed
under the law that existed when the conduct took place has
timeless and universal appeal. (Landgraf v. USI Film
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Products (1994) 511 U.S. 244, 265 (internal citations
omitted).)
"A statute does not operate [retroactively] merely because it is
applied in a case arising from conduct antedating the statute's
enactment, or upsets expectations based in prior law. Rather,
the court must ask whether the new provision attaches new legal
consequences to events completed before its enactment."
(Landgraf, 511 U.S. at 269-70 (internal citations omitted).)
"This is not to say," however, "that a statute may never apply
retroactively." (McClung v. Employment Dev. Dept. (2004) 34
Cal.4th 467, 475.) In California, "[a] statute's retroactivity
is, in the first instance, a policy determination for the
Legislature and one to which courts defer absent some
constitutional objection to retroactivity." (Id., at 475.)
Under California law, "a statute may be applied retroactively
only if it contains express language of retroactivity or if
other sources provide a clear and unavoidable implication that
the Legislature intended retroactive application." (Myers v.
Philip Morris Companies, Inc. (2002) 28 Cal.4th 828, 844.)
Neither the author nor the sponsor of SB 720 have expressed an
intent that this bill should be applied retroactively.
Consequently, courts are unlikely to interpret this bill as
applying to periods of military service that took place before
January 1, 2014.
5. Clarifying amendments
The following amendments are suggested to clarify and streamline
subsection (d) of section 1.
Suggested amendments :
On page 3, lines 3-8, delete the existing text and insert:
(d) If, after notice and hearing, the court finds the
ability of the service member to comply with the terms of
any such obligation or liability, or to pay any such tax or
assessment, has been materially affected by reason of his
or her most current period of military service as defined
in this Chapter, the court may grant the following relief:
On page 3, lines 9-33, delete the existing text and insert:
(1) In the case of an obligation payable in installments
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under a contract for the purchase of real estate, or
secured by a mortgage or other instrument in the nature of
a mortgage upon real estate, a deferment of the payments
due on the obligation for a period of time equal to the
period of military service, even if the service member
requests such relief after the start of his or her current
period of military service, subject to subsection (a) of
this section, and even if such payments extend beyond the
termination of the period of military service. The
obligation shall be extended for the period of time that
payments were deferred, and the deferred payments shall be
paid in equal installments during the combined period at
the rate of interest on the unpaid balance as is prescribed
in the contract, or other instrument evidencing the
obligation, for installments paid when due, and subject to
any other terms as may be just.
Support : California Military Department; American Legion -
Department of California; AMVETS - Department of California;
California State Commanders Veterans Council; Vietnam Veterans
of America - California State Council; National Guard
Association of California
Opposition : None Known
HISTORY
Source : California Military Department
Related Pending Legislation :
AB 526 (Melendez) would amend Military and Veterans Code Secs.
800, 803, and 811 to extend certain financial protections to a
larger class of military reservists and National Guard members,
their spouses and legal dependents, and would add utility bills
to the current list of obligations subject to deferment, which
include mortgages, credit card payments, installment accounts,
vehicle loans, and property taxes. This bill was voted out of
the Assembly Committee on Veterans Affairs on April 4, 2013, by
a vote of 9-0, the Assembly Committee on Appropriations on April
17, 2013, by a vote of 17-0, and the Assembly Floor on April 25,
2013, by a vote of 76-0.
Prior Legislation :
AB 713 (Block, Chapter 105, Statutes of 2011) clarified that
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recall to active military service gives a service member the
ability to apply to a court for relief from certain financial
obligations. This bill also extended an existing provision of
law that protects service members from the assessment of
interest at a rate greater than six percent to the dependents of
those service members.
AB 2455 (Nava, Chapter 124, Statutes of 2010) extended certain
financial protections with respect to deferment of vehicle loans
to spouses and dependents of service members.
AB 2365 (Lieu, Chapter 385, Statutes of 2010) enabled a service
member to recover actual damages, reasonable attorney fees, and
costs from any person who violates specified rights and
protections of the Military and Veterans Code. Granted service
members an expedited review of certain petitions for relief from
financial obligations, and provided that a court shall not
charge a filing fee or court costs for specified actions.
AB 306 (Baca, Chapter 291, Statutes of 2005) authorized service
members who are called to active duty as a result of the Iraq or
Afghanistan conflicts to defer payments on specified obligations
for the period of active duty, plus 60 calendar days, or 180
days, whichever is less.
AB 1433 (Horton, Chapter 60, Statutes of 2002) enabled service
members to petition a court for specified relief with respect to
credit contract obligations, rental agreements, taxes (except
income taxes), and health insurance, as well as eviction
protection for the service members' families.
SB 1284 (Battin, 2002) would have extended certain financial
protections to military reservists called to serve on active
duty for national emergencies caused by the terrorist attacks on
New York City and the Pentagon. This bill would have extended
certain existing misdemeanor provisions relating to rent relief
to a larger class of military reservists. This bill died in the
Senate Committee on the Judiciary.
Prior Vote : Senate Committee on Veterans Affairs (Ayes 7, Noes
0)
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