Last month we reported the enactment of Oregon HB 4204, which imposed a foreclosure moratorium, limited the exercise of secured lender rights and remedies, and created a mandatory legislative loan modification and deferral program applicable to both commercial and residential loans through at least September 30 (additional information can be found here). The Oregon legislature quickly passed HB 4204 in a Special Session in the span of approximately one week, and it was signed by Governor Brown on June 30. HB 4204 (a) in certain circumstances requires secured real estate lenders with Oregon real property collateral to defer installment payments due to the lender under the governing loan documents during what the law defines as the “emergency period” until the maturity date of the loan and limits the interest rate and fees that a lender may charge; and (b) prevents lenders from foreclosing on real property collateral during the emergency period.
Despite its intent — to assist borrowers facing challenges caused by the effects of the COVID-19 pandemic — the text of HB 4204 left many questions unanswered for both borrowers and lenders. Some of the uncertainties included the moratorium’s retroactive application, its constitutionality with respect to the legislatively imposed loan deferral program, and the procedures required of lenders to comply with its requirements.
On August 13, the Oregon Bankers Association and three community banks sued the state of Oregon, challenging the enactment of HB 4204. According to the complaint filed in U.S. District Court, HB 4204 changes the payment schedule and due date of loans and prohibits institutions from imposing negotiated interest rates and fees, and requires financial institutions to provide disclosures not mandated by federal law.
Among other arguments, the banks argue HB 4204 causes undue confusion when combined with the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided for borrower forbearances of 180 days and prohibited servicers of federally backed mortgage loans from initiating foreclosure efforts for an initial 60-day period that has been subsequently extended by the relevant federal housing agencies on multiple occasions. CARES Act, §4022(b)(1)-(2); 4022(c)(2). The banks also argue that the law disregards the voluntary forbearance and modification programs that many banks have implemented for the benefit of their borrowers.
The banks’ legal challenge attacks HB 4204 across three fronts. First, the banks argue that HB 4204 violates the Supremacy Clause of the U.S. Constitution, U.S. Const. Art. VI, clause 2, which mandates that federal law “shall be the supreme law of the land . . . anything in the Constitution or laws of any State to the contrary notwithstanding.” The banks’ preemption argument identifies the National Bank Act, the Home Owners’ Loan Act, and the Federal Deposit Insurance Act, and Depository Institutions Deregulation and Monetary Control Act as controlling authorities that are being restricted by HB 4204.
Next, the banks challenge HB 4204 under its presumptive impairment of the banks’ contracts with their borrowers under the Contracts Clause, U.S. Const., Art. I, section 10, clause 2, because HB 4204’s provisions alter the rights and responsibilities of borrowers in a way that is not reasonably tailored to alleviating the financial hardship faced by borrowers.
Finally, the banks contest HB 4204’s retroactive application, and its constitutionality under the Due Process Clause, U.S. Const. amend. XIV, section 1, and the Takings Clause, U.S. Const. amend. XIV, clause 4. According to the banks, the retroactive application of HB 4204 between the beginning of the “emergency period” — March 8 — and the date it was signed — June 30 — “arbitrarily and irrationally impos[es] substantial retroactive liability for banks based on conduct that was legal at the time it occurred, and by voiding final judgments and other vested property rights.” Such portion of the lawsuit challenges the power of the Oregon legislature to void judgments and foreclosure actions that occurred prior to the June 30 effective date of HB 4204.
Notably, while the lawsuit challenges (a) the portion of HB 4204 that orders lenders to change the due date of loan payments and what lenders may charge for interest rates and fees; (b) the required notice to borrowers; and (c) the retroactive effect of the law, the suit does not directly challenge the general stay of real estate foreclosures during the emergency period.
Check back for future updates as the lawsuit progresses by subscribing to our Real Estate mailing list here.
Before proceeding, please note: If you are not a current client of Lane Powell PC, please do not include any information in this email that you or someone else considers to be confidential or secret in nature. Prior to the establishment of a lawyer-client relationship, unsolicited emails from non-clients containing confidential or secret information cannot be protected from disclosure.