This was originally published on our blog, Bank Law Monitor.
In an effort to provide relief to homeowners, businesses, landlords, and tenants affected by COVID-19, Governor Brown signed two bills that impose significant limitations on lenders and landlords. Under HB 4204, lenders cannot foreclose on loans secured by real estate in Oregon and must defer payments for borrowers on those loans who are unable to pay because of loss of income due to COVID-19. HB 4204 may provide some relief to landlords that, under HB 4213, are prohibited from taking specified eviction and termination actions based on tenants’ nonpayment. Lenders and landlords should be aware of the important requirements and limitations created by the new bills and how these bills affect their current practices.
Judicial and Non-Judicial Foreclosures Prohibited
HB 4204 prohibits lenders from foreclosing on consumer and commercial loans secured by real estate in Oregon during the “emergency period,” which runs from March 8, 2020, through September 30, 2020, unless extended by the Governor. The foreclosure prohibition is absolute and prohibits foreclosure of real property in Oregon. Any foreclosure sales and executions on real property during the emergency period are void. As written, HB 4204’s foreclosure moratorium is not limited to foreclosures arising from defaults during the emergency period. Regardless of when the loan went into default or why (whether related to COVID-19 or not), the lender may not foreclose during the emergency period.
Foreclosures initiated before June 30, 2020, the effective date of the bill, are suspended during the emergency period. The time that must elapse between foreclosure and sale will be tolled, and the foreclosure process can be resumed after the emergency period ends, provided that the lender complies with all necessary statutory notice requirements.
There are limited exceptions for judgments of foreclosure, writs of execution, and notices of sale that were given before the emergency period, tax foreclosures, and foreclosure where the borrower has recorded notice of intent to abandon the property.
Required Payment Deferrals
HB 4204 limits the ability of lenders to declare defaults for non-payment if the borrower notifies the lender that the borrower will not be able to make the payment as a result of loss of income related to the COVID-19 pandemic. Unless otherwise agreed by borrower and lender, the lender cannot collect the missing payment during the emergency period but rather, must allow the borrower to pay that payment at maturity of the loan. The lender may, however, adjust escrow impounds.
To initiate the mandatory loan payment deferral relief, the borrower need only to provide one notice to the lender. For residential property with four or fewer dwelling units, the borrower must merely state that the inability to pay is a result of loss of income due to COVID-19. For commercial property or residential property with more than four dwelling units, the borrower must provide financial statements or other evidence to show the inability to pay is a result of loss of income due to COVID-19 and must disclose any funds received under the Paycheck Protection Program or other state or federal relief programs.
Lenders must pay careful attention to the significant restrictions HB 4204 imposes on the following:
- Imposing or collecting charges, fees, penalties, attorney fees, or other amounts.
- Imposing default interest rates.
- Treating borrower’s failure to make a payment due as an ineligibility for a foreclosure avoidance measure.
- Requiring or charging for an inspection, appraisal, or broker opinion of value.
- Initiating cash management or lockbox procedures not already in existence.
- Taking control of the operating revenue from real property secured by the financing documents.
- Declaring covenant defaults due to inadequate operating revenue due to the COVID-19 pandemic.
Borrowers who are damaged by a lender’s violation of these rules have the right to sue to recover damages and may also recover costs and attorney fees.
Lenders Must Provide Written Notice to Borrowers Within 60 Days
Lenders have to provide a written notice by mail to borrowers regarding the borrowers’ rights for accommodations under HB 4204 on or before August 29, 2020, which is 60 days after the bill’s June 30, 2020, effective date.
HB 4213 replaced the eviction moratorium under Governor Brown’s Executive Order 20-13 which expired on July 1, 2020. HB 4213 extends the moratorium on residential and commercial eviction until September 30, 2020, and provides a six-month grace period (until March 31, 2021) to pay past-due rents. During the emergency period, which runs from April 1, 2020, through September 30, 2020, landlords are prohibited from terminating leases due to tenant nonpayment, initiating or continuing eviction actions, interfering with a tenant’s possession, or assessing late charges.
After the emergency period, landlords can provide written notices to tenants regarding the amount due, but must tell tenants that they have until March 31, 2021, to pay, and that there are no late charges. The written notice should also state when the emergency period ended and that the landlord may terminate the tenancy for failure to timely pay rents that are due after the emergency period. A tenant must respond to such notice within 14 days of delivery and either pay the nonpayment balance or give notice that the tenant intends to use the six-month grace period. If they do not, then the landlord is entitled to damages of 50% of one month’s rent.
Tenants may seek injunctive relief against landlords that violate the statute, as well as seek up to three months’ rent plus actual damages.
HB 4213 contains additional provisions that apply only to residential evictions, including that landlords may not deliver a termination notice without cause or file an action for forcible entry or wrongful detainer based on a termination notice without cause. If the first year of occupancy would end during the emergency period, for the purposes of a termination notice without cause, the “first year of occupancy” is extended to mean a period lasting until 30 days following the emergency period. The bill also specifies that landlords must apply payments from tenants to unpaid charges in the following order: (1) current rent, (2) utility/service charges, (3) late rent, and (4) fees. During the emergency period, landlords have the option to provide residential tenants notice about the fact that unpaid rent remains due, but must include a statement that eviction is not allowed before September 30, 2020. Reporting a tenant’s nonpayment balance as delinquent to any consumer credit reporting agency is prohibited.
Landlords may offer alternative voluntary repayment plans to tenants, but must state that the alternative plan is voluntary.
The statute of limitations is tolled until March 31, 2021, for landlords to make claims against tenants for nonpayment of rent.
If you have further questions, please feel free to contact any member of our Oregon creditors’ rights team, including Teresa Pearson, David Foraker, Garrett Ledgerwood, or Jesús Miguel Palomares.
Teresa Pearson‘s practice focuses primarily on creditors’ rights, insolvency, and reorganization. She represents lenders, trade creditors, creditors committees, trustees, receivers, debtors, and other clients in all forums where debtor-creditor issues appear—out of court, bankruptcy court, state and federal trial court, and appellate court. Email Teresa.
David Foraker focuses his practice on bankruptcy, receivership, foreclosures, out-of-court workouts, and other matters relating to debtor-creditor relationships, as well as business transactional matters in the context of insolvent businesses, across a broad spectrum of industries. Email David.
Garrett Ledgerwood focuses his practice on bankruptcy and creditors’ rights, including all aspects of the restructuring of financially distressed businesses and representation in senior secured, ABL, and mezzanine financings. Email Garrett.
Jesús Miguel Palomares has extensive experience in debtor-creditor litigation in state, federal, and bankruptcy court, where he assists financial institutions in commercial breach-of-contract litigation, including workouts and postjudgment collections. Email Jesús.