Richard Sibert v. Wells Fargo Bank, N.A.

Affirmed by published opinion. Judge Niemeyer wrote the majority opinion, in which Judge Duncan joined. Judge King wrote a dissenting opinion.

NIEMEYER, Circuit Judge:

While serving in the U.S. Navy, Richard Sibert obtained a loan secured by a mortgage to purchase a house in Virginia Beach, Virginia. Soon after his discharge from the Navy, he defaulted on the loan, and the lender began foreclosure proceedings. During those proceedings, however, and before any foreclosure sale was held, Sibert enlisted in the U.S. Army. The lender continued to pursue foreclosure and sold Sibert’s house at a foreclosure sale shortly after Sibert had begun his service in the Army.

Sibert commenced this action against Wells Fargo Bank, N.A., alleging , that the foreclosure sale was invalid under the Ser-vicemembers Civil Relief Act (“SCRA”), which requires a lender to obtain a court order before foreclosing on or selling property owned by a current or recent service-member where the mortgage obligation “originated before the period of the, servicemember’s military service.” 50 U.S.C. § 3953(a); see id. § 3953(c). The district court granted summary judgment to Wells Fargo, concluding that, because Sibert incurred his mortgage obligation during his service in the Navy, the obligation was not subject to SCRA protection.

For the reasons that follow, we affirm.

I

Sibert entered the Navy in July 2004, and while in the Navy—on May 15, 2008— he purchased a house in Virginia Beach, financing the purchase with a loan of $174,650 from Advance Mortgage, which was secured by a deed of trust on the house. Sibert’s loan was subsequently acquired by Wells Fargo Bank, N.A.

After his discharge from the Navy in July 2008, Sibert went into default on his loan, and, several months later, Wells Fargo mailed him a notice a default. In March 2009, Wells Fargo notified Sibert that it had begun steps to foreclose on his house. But, a month later, before the foreclosure sale, Sibert enlisted in the Army. In May 2009, just after Sibert entered the Army, Wells Fargo sold Sibert’s house at 'a foreclosure sale. After signing a move-out agreement; Sibert also executed a “Ser-vicemembers’ Civil Relief Act Addendum to Move Out Agreement,” in which he stated that he was “affirmatively waiving] any rights and protections provided by [50 U.S.C. § 3953] with respect to the May 15, 2008 Deed of Trust ... and the May 13, 2009 foreclosure sale.”

Over a year later, Sibert and his wife filed a voluntary Chapter 7 bankruptcy petition. In their filings, they did not list any potential claims against Wells Fargo, nor did they advise the bankruptcy court *333or the trustee of any such possible claim. The bankruptcy court granted Sibert and his wife a discharge on May 9, 2011.

Sibert commenced this action on October 29, 2014, more than five years after the foreclosure sale, alleging that Wells Fargo, by foreclosing on his property and selling his house without a court order while he was in the Army, violated the SCRA, rendering the foreclosure invalid. See 50 U.S.C. § 3953(c). The parties filed cross-motions for summary judgment, and, in its motion, Wells Fargo argued, as threshold matters, that Sibert was judicially estopped from bringing an SCRA claim against Wells Fargo because he failed to list the claim in his bankruptcy proceedings and that, because his debts had been discharged, he lacked standing to bring the claim. After conducting an evidentiary hearing, the district court held that Si-bert’s claim was not barred by judicial estoppel and entered an order staying the action pending the reopening of Sibert’s bankruptcy case to allow the trustee to decide whether to pursue the SCRA claim. The trustee filed á motion to substitute herself as the real party-in-interest, and the district court granted the motion and lifted the stay, allowing this case to proceed.

In an opinion and order entered in this case, the district court granted Wells Fargo’s motion for summary judgment, concluding that Sibert’s mortgage obligation was not protected by the SCRA. The court stated that resolution of the case “turn[ed] on the interpretation of the phrase ‘originated before the period of the servicemem-ber’s military service’” .in 50 U.S.C. § 3953(a), and noted that the application of that language to multiple periods of military service was an issue of first impression. “On its own,” the court explained, “the language ... is unclear on whether it contemplates multiple periods of military service,” but the court found that “the specific context of the language indicates that the statute does not apply to obligations incurred while one is in the military, because the underlying concern is the impact military service may .have on a servicemember’s income and status, uncon-templated at the time when they incurred the obligation.” The court accordingly concluded that “[bjecause it is undisputed that Sibert’s mortgage originated while he was in the military, that obligation does not qualify under [§ 3953(a) ]” and, “[a]s a result, Sibert cannot claim the remedy provided in [§ 3963(c) ].” Because of its ruling, the court , did not reach Wells Fargo’s alternative argument that Sibert had waived his rights under the SCRA by executing the addendum to his move-out agreement.

From the district court’s judgment dated May 4,-2016, Sibert filed this appeal. After Sibert filed his opening brief, Wells Fargo filed a motion to dismiss the appeal, contending that Sibert was not a proper party to the appeal and therefore lacked standing. We denied the motion by an order dated November 30, 2016.

II

The relevant section of the SCRA provides protection to servicemembers’“obli-gation[s] on real or personal property” only when the obligation “originated before the period of the servicemember’s military service.” 50 U.S.C. § 3953(a). The protections afforded by the SCRA include stays of enforcement, adjustments to preserve the interests of the parties, and the invalidation of foreclosures and sales pursued without a court order while the ser-vicemember is in service and for one year thereafter. Id. § 3953(b), (c).

In this case, Sibert incurred his obligation during his service in the Navy, and Wells Fargo began foreclosure proceedings after Sibert left the Navy. Before *334the sale of his house in foreclosure, however, Sibert entered the Army, and his house was sold while he was in the Army.

The district court concluded that 50 U.S.C. § 3953(a) “does not apply to obligations that originate while a servicemem-ber is already in the military” and that therefore it did not provide protection to Sibert’s mortgage, which was incurred while he was in the Navy. The court reasoned that “[t]he Act was designed to ensure that servicemembers do not suffer financial or other disadvantages as a result of entering the service,” explaining that the Act accomplishes this goal “by shielding servicemembers whose income changes as a result of them being called to active duty, and who therefore can no longer keep up with obligations negotiated on the basis of prior levels of income. Such a change in income and lifestyle was not a factor in Sibert’s case, as the mortgage at issue here originated while he was already in the service.” We agree with the district court’s interpretation of the statute.

Section 3953(a) explicitly creates two classes of obligations—those protected and those not. It provides protection to only those obligations that originate before the servicemember enters the military service. It thus grants protection to obligations incurred outside of military service, while denying protection to obligations originating during the service-member’s military service. In this case, Sibert’s obligation originated while he was in the Navy and therefore was not in the class of obligations protected by the statute.

In choosing to protect obligations incurred during civilian life, Congress recognized that those obligations could unexpectedly be impacted by entry into military service and the changes in the servicemember’s income and status, which were not contemplated at the time the obligation was incurred. Conversely, it chose not to protect obligations incurred during military service because both the servicemembers and lenders would be aware of the servicemember’s income and military status. The history of the SCRA and its predecessors further supports this distinction that Congress made. The Soldiers’ and Sailors’ Civil Relief Act, Pub. L. No. 65-103, 40 Stat. 440 (1918), a World War I-era law, invalidated non-judicial foreclosures on certain mortgages, limiting its application to obligations (1) “originating prior to the date of [the law’s] approval” and (2) “owned by a person in military service at the commencement of the period of the military service and still so owned by him.” Id. § 302, 40 Stat. at 444. That law expired after World War I.

Congress reenacted a largely identical bill as World War II unfolded—The Solders’ and Sailors’ Civil Relief Act of 1940, Pub. L. No. 76-351, Ch. 888, 54 Stat. 1178—containing the same relevant limitations on covered mortgage obligations. See 54 Stat. at 1182. But in 1942, in reaction to the attack on Pearl Harbor and the United States’ entry into the war, Congress amended the 1940 law to expand its protections. H.R. Rep. 77-219, at 1. Among many changes, the 1942 amendments eliminated the requirement that a mortgage obligation be incurred prior to the Act’s approval to receive protection. It replaced that requirement—one onerous to recent draftees and enlistees—with the requirement that the “obligations originated prior to such person’s period of military service.” See Pub. L. No. 77-732, § 9(b), 56 Stat. 769, 771. As such, the 1942 law protected mortgage obligations “owned by a person in military service at the commencement of the period of the military service and still so owned by him which obligations originated prior to such per*335son’s period of military service.” H.R. Rep. 77-219, at 11. This language remained in force until the 2013 enactment of the SCRA, which was designed only as a “comprehensive restatement” of prior versions, made for the sake of “clarity.” H.R. Rep. 108-81 at 2380, 2390. Thus, the current language of 50 U.S.C. § 3953(a) aimed simply to restate the 1942 law’s two restrictions on covered mortgages—(1) that the obligation was owned by a servicemember at the commencement of his military service, and (2) that it originated before that person’s period of military service. In order to give these two requirements independent legal force, the word “before” (or “prior” in the 1942 version) must be read as excluding obligations made during military service.

Sibert argues that, even though his obligation was not a protected obligation at the time he incurred it, as it was not incurred before he entered the Navy, he obtained retroactive protection when he later entered the Army because the obligation was incurred before he entered the Army. This construction, however, reads the singular word “before” myopically. It would lead to inconsistent treatment of substantially identical obligations and would introduce arbitrariness into Congress’ distinction between protected and unprotected obligations.

Under Sibert’s reading, a servicemem-ber could incur an obligation fully aware of his military pay and lifestyle, yet defeat the statutory exclusion of his obligation by leaving military service and thereafter reenlisting. But allowing a subsequent period of service to trigger statutory protection for an obligation incurred during military service defíes the distinction between protected and unprotected obligations that is embodied in the SCRA. Additional military service does not retroactively erase the servicemember’s and lender’s knowledge of the risks attending an obligation incurred during service or alter the substance of the risks for which the SCRA provides protection. This is why the statute provides protection based on when the obligation was incurred, distinguishing between before and during military service. Under Sibert’s argument, the statute would grant protection based not on the circumstances under which the obligation was incurred but rather on his subsequent decision to leave and then reenter the service, treating substantially identical obligations in two different and inconsistent ways.

We conclude that, because Sibert’s mortgage obligation originated when he was in the Navy, it was not a protected obligation under § 3953(a), and his later enlistment in the Army did not change that status to afford protection retroactively. Accordingly, we affirm the district court’s judgment.

Because of our ruling, we need not determine, whether, in the alternative, Sibert executed a valid waiver of his rights under the SCRA.

AFFIRMED