Whether or not we go to war with Iraq, to date thousands of military personnel have been called to active duty, and it is not clear how many more will be called upon to serve in the days or months to come. Borrowers who have been called up for military duty are entitled to relief under a very old law known as the Soldiers and Sailors Civil Relief Act. And these benefits apply regardless of the nature of the debt -- mortgage, auto loans and even credit card debt.

Enacted by Congress at the start of World War II, this act requires all lenders to automatically reduce the interest rate obligations of persons in active military service down to six percent. It should be noted that interest rates were higher when the law was first passed.

How does this law work? Quite simply. If you - or a family member - have been called into active duty, your lender should be notified immediately. The lender is then required by law to immediately reduce the interest rate on your loan so that it does not exceed this six percent cap.

It is to be noted that this law applies only to debts incurred prior to the debtor going into active service. Debts incurred while in the military -- or after discharge -- are not covered under this law.

The law is straightforward - and a very powerful tool designed to assist servicemen and women whose income is less while on active duty than what it was in civilian life. The law simply states:

No obligation or liability bearing interest at a rate in excess of 6 percent per year incurred by a person in military service before that person's entry into that service shall, during any part of the period of military service, bear interest at a rate in excess of 6 percent per year unless, in the opinion of the Court, upon application thereto by the obligee, the ability of such person in military service to pay interest upon such obligation or liability at a rate in excess of 6 percent per year is not materially affected by reason of such service...

In simple terms, if you are on active military duty (which includes the Coast Guard, Officers of the Public Health Service and the National Oceanic and Atmospheric Administration) your interest rate on your debt obligation must be reduced down to this six percent rate.

You should immediately advise your lender that you have been called to active duty. Send your lender (or lenders) a letter, certified, return receipt, and enclose a copy of your mobilization orders. Your letter should also outline -- in general terms -- why your income will be (or has been) significantly reduced as a result of the call-up.

Unless the lender does not believe you, your lender must immediately comply with your request -- and with the law. If your lender does not believe that your income today is materially lower than when you were a civilian, the lender has the right take you to Court ,but the burden to prove that you have not been "materially affected by reason of such service" falls squarely on the lender. You do not need an attorney to defend yourself, but you should at least consult with legal counsel so as to understand the court process. You may also want to talk with the military (JAG) officer assigned to your unit.

The benefits of the Soldiers and Sailors Civil Relief Act are retroactive. Thus, everything you have paid over six percent from the time you were called into military service must be credited toward your account.

It should be noted that the reduction in the interest rate must be accompanied by a reduction of the monthly payment. The lender cannot require you to continue to pay your same payment each month, and credit more toward principal.

Unfortunately, federally guaranteed student loans are not protected by the interest rate cap. However, from past experience, the Department of Education has deferred -- or even suspended -- payments on these student loans while the debtor was on active military duty.

In addition to mortgage and other debt payments, the Act provides other important relief to the men and women in our Armed Services.

Published: January 20, 2003

Use of this article without permission is a violation of federal copyright laws.

Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of Kass, Mitek & Kass, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts. Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.