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Oregon HB 4204: Protections From Foreclosure and Default Due to COVID-19
July 24, 2020

By Gary L. Blacklidge, Attorney

Many may already know that the Oregon legislature passed HB 4204 affecting borrower defaults and foreclosures, which became effective on June 30, 2020.  The new law protects borrowers from foreclosure and the effects of default which arise as a result of the COVID-19 pandemic.  It established an “Emergency Period” beginning March 8, 2020, through September 30, 2020, and may be extended by an executive order issued by Governor Brown before August 29, 2020.

The new law protects commercial and residential borrowers whose loans are secured by real property in Oregon, or by personal property used as a residence in Oregon (e.g., houseboats and trailers).  The protections arise if the borrowers provide notification to their lenders that they will not be able to make their periodic installment payments.  Borrowers do not need to provide notification to the lender more than once.  Residential borrowers do not need to provide any financial information, but commercial borrowers must also include financial statements or other evidence that demonstrates a loss of income related to the COVID-19 pandemic and must disclose any funds the borrower received from the United States Small Business Administration under the Paycheck Protection Program.

Lenders should take notice that the new law requires each lender authorized to do business in Oregon to provide written notice by mail, no later than August 29, 2020, to all of the lender’s Oregon borrowers of a borrower’s rights for accommodation under this new law.

If the borrower has notified the lender at any time during the Emergency Period of its inability to make the loan payments, the protections against default prohibit the lender from declaring a default during the Emergency Period for the borrower’s failure to make payments.  In such a case, absent a mutual agreement otherwise between the borrower and the lender, the loan payments are deferred and the lender may not impose or collect charges, fees, penalties, attorney fees, or other amounts that might otherwise be imposed or collected from a borrower on account of the default.  In addition, the lender may not:
 
(i) impose a default rate of interest that would otherwise be available to charge due to default;
(ii) treat the borrower’s failure to make payments during the Emergency Period as an ineligibility for a foreclosure avoidance measure;
(iii) require or charge for an inspection, appraisal, or broker opinion of value not otherwise permitted in the absence of the default;
(iv) initiate cash management not already in existence before the effective date of the new law;
(v) implement lockbox procedures not already in existence before the default;
(vi) take control of the operating revenue from the property secured by the loan documents, unless that control was established before the effective date of the new law; or
(vii) declare a default on the failure of the borrower to meet financial covenants due to inadequate operating revenue resulting from the COVID-19 pandemic.

In addition, lenders are prohibited from foreclosing either judicially or non-judicially during the Emergency Period.  Foreclosures initiated before the effective date of the new law are tolled during the Emergency Period.  Pending foreclosures may continue after the Emergency Period expires, provided that the lender gives written amended notice of default and complies with other legal requirements.  Oregon courts may not issue a foreclosure judgment during the Emergency Period, but must dismiss without prejudice any foreclosure action commenced during the Emergency Period.  For non-judicial foreclosures, except where the Notice of Trustee’s Sale was issued prior to March 8, 2020, any trustee sale held during the Emergency Period is void and does not transfer or foreclose any rights to the property.  Execution sales of property may not occur during the Emergency Period.  Any purported execution sale of the property during the Emergency Period is void and does not transfer or foreclose any rights to the subject property.  A borrower that suffered an ascertainable loss of money or property because a lender took an action prohibited under the new law may bring an action in the circuit court to recover the borrower’s actual damages.  A borrower who prevails in such an action may recover the borrower’s court costs and attorney fees.

The new law does not apply to judgments of foreclosure and sale, writs of execution, and/or notices of trustee sale that were issued or given before the Emergency Period began, nor does it apply to tax foreclosure proceedings.  It also does not apply after property has been abandoned from a bankruptcy case and a person has recorded a notice or judicial order confirming the abandonment of the property pursuant to ORS 93.770(2).

Moreover, the new law does not relieve a borrower of the duty to repay the full amount of any obligation that is subject to waiver, deferral, modification, or forbearance under the provisions of the new law.  All amounts deferred during the Emergency Period must be repaid upon maturity or the earlier payoff of the loan.  The new law is automatically repealed ninety (90) days after the expiration of the Emergency Period. 

Since the law is being repealed, certain questions arise.  For instance, how does the repeal affect the provision that allows the borrower until the maturity date to pay the payments deferred during the Emergency Period?  When the new law is automatically repealed, can the lender make demand for the deferred payments and initiate foreclosure if the payments are not made?  It would seem that the automatic repeal would eliminate the authority that allows the borrower to defer making the payments missed during the Emergency Period but it is not clear.

Due to the unprecedented breadth of this new law, lenders are urged to familiarize themselves with the new law and send out the required notice to the borrowers of their rights under the new law by August 29, 2020, to be in compliance.  If you have any questions regarding the effect of this law, please feel free to contact us with your questions and we will update this article should the law change or if Governor Brown extends the Emergency Period.