Oregon law prohibits seizures in COVID emergencies

On June 30, 2020, Oregon Governor Kate Brown signed Bill 4204 titled “Relating to Strategies to Protect the Residents of Oregon from the Effects of the COVID-19 Pandemic; and declare an emergency ”(the“Oregon Status“). In response to the COVID-19 pandemic, Oregon law establishes temporary limitations on the ability of lenders to enforce default remedies during the period beginning March 8, 2020 and ending September 30, 2020 (which may be extended by executive decree no later than September 1, 2020) (the “Emergency period“).

Specifically, during the emergency period, a lender cannot default a borrower for failure to make a payment on a mortgage loan if, at any time during the emergency period, the borrower notifies the lender that ‘he will not be able to make such a payment. Unless the Lender and the Borrower otherwise agree to modify, defer or mitigate a loan, the Lender must: (a) defer receiving payment during the emergency period; and (b) allow the borrower to pay the deferred amount on the due date. A borrower does not need to notify the lender of their inability to pay more than once. If the mortgaged property is a commercial property or a residential property with more than four units, the notice must include financial statements or other evidence demonstrating loss of income from the COVID-19 pandemic. The notice must also disclose any funds the borrower has received under the Paycheck Protection Program or other state or federal relief programs.

In addition, Oregon law prohibits the Lender from taking any of the following actions during the Emergency Period: (a) impose or collect any charges, fees, penalties, attorneys’ fees or other amounts in connection with default by the borrower; (b) the imposition of a default interest rate for default of payment; (c) consider the borrower’s failure to make a payment as ineligible for foreclosure avoidance; (d) require or charge for any inspection, appraisal or valuation notice from a broker, otherwise unauthorized in the absence of default; (e) initiate cash management or implement lockbox procedures that do not already exist before June 30, 2020; (f) take control of the operating income from the mortgaged property unless control has been established before June 30, 2020; or (g) declare a default on the basis of a borrower’s failure to meet its financial covenants due to insufficient operating income resulting from the COVID-19 pandemic. It is also prohibited for the lender to seize by advertising and sale, to bring an action or a lawsuit for foreclosure of a mortgage, to exercise a recourse for confiscation or to bring an action or a lawsuit for foreclosure of a lien or other security on the mortgaged property.

If a lender takes any of the above prohibited actions and as a result the borrower suffers a verifiable loss of money or property, Oregon law allows the borrower to bring an action for recover its actual damages. A successful borrower can also recover legal costs and attorney fees from the borrower. Within 60 days of June 30, 2020 (i.e. before August 29, 2020), each lender licensed to do business in Oregon must notify all of its borrowers in writing of a borrower’s rights in under Oregon law. Note, however, that Oregon law does not apply to foreclosure judgments that: (a) were rendered before the start of the emergency period; (b) occur in connection with tax foreclosure proceedings; or c) occur after a person has registered a notice of intention to abandon an immovable or a court order authorizing the abandonment of an immovable.

Oregon’s statute isn’t the first step a state government has taken to limit lender default recourse in light of the COVID-19 pandemic, and it likely won’t be the last. For example, Executive Order No. 202.28 of New York, as extended by Executive Order No. 202.45, prohibits, until August 19, 2020, the initiation or enforcement of: (a) the seizure of any commercial mortgage for non-payment of a mortgage and; (b) the initiation of proceedings or the execution of an eviction for non-payment of rent of commercial tenants, in each case where the property is owned or leased by a person eligible for unemployment insurance or benefits under federal or state law, or is otherwise facing financial hardship due to the COVID-19 pandemic. The state of Ohio introduced Senate Bill 297 on March 25, 2020 (referred to committee May 6, 2020), which would require a stay of filings and foreclosure proceedings during the state of emergency declared in due to the COVID-19 pandemic. After the end of the state of emergency, any foreclosure proceedings initiated due to a breach during and 60 days after the state of emergency would be suspended and referred to mediation.

We recommend that all lenders with borrowers in Oregon send the required notice described above as soon as possible. Additionally, since Oregon law allows borrowers and lenders to make other arrangements with their loans, lenders should consider entering into more favorable terms with their borrowers to avoid the statutory outcome. Lenders may also consider banning or penalizing a borrower for invoking the law, but it is currently unclear whether such agreements would be enforceable.

We will continue to provide any new information on Oregon’s status or any similar action taken in other states as the country grapples with this unprecedented crisis.

© Copyright 2021 Cadwalader, Wickersham & Taft LLPRevue nationale de droit, volume X, number 197

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