Feds Start Probe Into Saxon For Possible SCRA Violations As Mortgage Servicer Settles With Screwed Over, Foreclosed Sevicemember During Damages Trial

The New York Times reports:

• The Justice Department is investigating allegations that a mortgage subsidiary of Morgan Stanley foreclosed on almost two dozen military families from 2006 to 2008 in violation of a longstanding law aimed at preventing such action.

• A department spokeswoman confirmed on Friday that the Morgan Stanley unit, Saxon Mortgage Services, is one of several mortgage and lending companies being investigated by its civil rights division. The inquiry is focused on possible violations of a federal law that bars lenders from foreclosing on active-duty service members without a court hearing.

• Mark Lake, a Morgan Stanley spokesman, declined on Friday to comment on the investigation. However, in the fine print of a recent regulatory filing, Morgan Stanley disclosed that it was “responding to subpoenas and requests for information” from various government and regulatory agencies concerning, among other issues, its “compliance with the Servicemembers Civil Relief Act,” [SCRA] the law that governs the actions creditors can take against service members on active duty.

• The investigation came to light in a document that Saxon’s lawyers filed on Tuesday in federal court in Grand Rapids, Mich., during a trial to assess damages against Saxon and two co-defendants after a federal judge ruled late last year that they had illegally seized and sold the home of Sgt. James B. Hurley, a Michigan National Guard member who lost his home while he was serving in Iraq in 2005. That case was ultimately settled on Thursday.

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• Sergeant Hurley was one of the service members affected by a violation of the act. He returned from duty as a power generator mechanic in Iraq in December 2005 to find that Saxon had foreclosed on his riverside home outside Hartford, Mich., and sold it to someone else. He sued Saxon and two co-defendants, Orlans Associates, the law firm in Troy, Mich., that handled the foreclosure paperwork, and Deutsche Bank Trust Company Americas, the trustee for the mortgage involved in the foreclosure.

• The case dragged on until late last year, when Judge Gordon J. Quist of United States District Court ruled that the foreclosure and sale of the Hurley home had violated the civil relief act and ordered a jury trial to determine damages.

• On Thursday, the fifth day of that trial, Sergeant Hurley settled with all the defendants in the case for an undisclosed sum, according to Col. John S. Odom, a retired Air Force lawyer who represented the Hurley family. The terms of the settlement are confidential, Colonel Odom said. “But the Hurleys are well pleased,” he added.

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• The settlement came two days after the brief courtroom drama on Tuesday that led to the disclosure of the Justice Department investigation. It began when Colonel Odom unexpectedly served a subpoena on Saxon’s general counsel, Gregory Smallwood, who was present in the courtroom.

For more, see U.S. Inquiry on Military Family Foreclosures.

For the lawsuit, as initially filed in Detroit Federal Court, see Hurley vs. Deutsche Bank National Trust, et al.