New Oregon Law Imposes Moratorium on Foreclosures and Notice Requirements on Lenders

By Michele Sabo Assayag, Victor J. Roehm III and Raminta A. Rudys

Oregon lawmakers held a three-day special legislative session in June during which they tackled, among other issues, legislation aimed at relief for both consumers and businesses impacted financially by the COVID-19 crisis. Along with extending the state’s moratorium on residential and commercial evictions through September 30, 2020, Oregon Governor Kate Brown also signed into law Oregon HB 4204, companion legislation to the moratorium on evictions, which prohibits lenders from pursuing foreclosures with respect to both residential and commercial real property through September 30, 2020. However, the moratorium could last longer if the governor takes action to extend the emergency period not later than 30 days prior to the current expiration date.

The new legislation prohibits all nonjudicial or judicial foreclosure or forfeiture actions from being commenced or continued during the moratorium period, except in certain outlined cases, such as tax foreclosures, judgments obtained prior to the emergency period or property subject to an abandonment order. For any foreclosure actions that have been commenced prior to the start of the emergency period, the time for conducting such foreclosure sale is tolled during the pendency of the emergency period. Courts are instructed to dismiss without prejudice any lawsuit filed to foreclose a lien during the emergency period.

In addition to a blanket moratorium on foreclosure actions, HB 4204 also prevents a lender from treating a failure to make payments due on a loan as a default, once the borrower notifies the lender that it is unable to make payments as a result of the COVID-19 pandemic during the emergency period. If the subject property is a residential property with four or fewer units, then it is sufficient for the borrower to attest to the lender that the inability to pay is a result of loss of income due to the COVID-19 pandemic. If the subject property is commercial or a residential property comprising of more than four units, then the borrower is required to provide a financial statement or other evidence demonstrating a loss of income due to the COVID-19 pandemic, and the borrower must also disclose whether it has received any funds from the U.S. Small Business Administration (SBA) under the Paycheck Protection Program (PPP) or other state or federal relief programs. The borrower is not required to give this notice to the lender more than once.

Once the borrower gives this notice, the lender must defer from collecting further installment payments during the emergency period and any payments deferred during the emergency period are to be collected upon maturity of the loan or other obligation, unless the lender and borrower can agree to otherwise modify, defer or mitigate the loan. Lenders are also prohibited from declaring a default based upon failure to satisfy financial covenants when the failure is due to inadequate operating revenue resulting from COVID-19 upon receipt of the notice from the borrower.

The new legislation also specifically prohibits the imposition of penalties that a lender might otherwise be entitled to undertake as a result of a payment default, such as default interest, late fees, penalties and attorneys’ fees or other amounts related to the failure to pay during the emergency period, new lockbox or cash management procedures. Lenders are also prohibited from denying foreclosure avoidance remedies as a result of the failure to pay during the emergency period, taking control of operating revenue from secured real property or seeking a new appraisal or inspection if lender is not permitted to do so absent a default, if it is notified by the borrower that it is unable to make payments due to COVID-19 during the emergency period defined in the statute.

This legislation does not impact a lender’s ability to enforce loan obligations that are unsecured or that are secured by only personal property (other than personal property used as a residence), which enforcement actions still may proceed, although court calendars and trial scheduling continue to be impacted by COVID-19 and motion hearings are still proceeding primarily on a remote basis. This legislation does not specifically address enforcement of a guarantor’s obligations (that are themselves unsecured) with respect to a loan where the borrower’s obligations are secured by real property and so it is unclear whether under this law, notification of a borrower’s inability to pay precludes a lender from taking action to enforce the guaranty. However, lenders may want to proceed with caution to try to avoid exercising default remedies in violation of this new law, as the legislation imposes liability to the lender for damages sustained by the borrower as a result of a violation, in the form of money damages as well as costs and attorneys’ fees.

Lenders should also be aware that the new legislation imposes upon any lender authorized to do business in the State of Oregon an obligation to send written notice by mail no later than 60 days after the effective date of the law (i.e., August 29, 2020) to each of its borrowers of the borrower’s right to seek accommodation under this new law.