United States: Banks pursue moratorium on foreclosures in Oregon
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Two recent lawsuits filed in the United States District Court for the District of Oregon show that Oregon banks are not very happy with HB 4204. This legislation, passed by the Oregon legislature in June 2020, prohibits residential and commercial foreclosures in Oregon from March 8, 2020 until December 31, 2020.1 The legislation was originally scheduled to expire in September 2020, but was extended by decree. In response to this legislation, the Oregon Bankers Association (“OBA”) and a number of other banks sued the state of Oregon in August, saying the lawsuit “challenges Oregon’s attempt to interfere with the ability of banks and other financial institutions to make and administer home loans to consumers and businesses in Oregon, as agreed by the parties.”
In his complaint, OBA first argues that federal law takes precedence over HB 4204, stating that Congress has chosen to provide housing relief related to COVID by enacting the CARES Law and that HB 4204 conflicts with the housing protections for federally guaranteed mortgages under the CARES Act. Second, the OBA relies on the Contract clause of the United States Constitution, which prohibits states from enacting “any law that interferes with the obligation of contracts.” According to OBA, HB 4204 deprives banks of the possibility of asserting their contractual rights in the event of default. The OBA has particularly raised concerns about section 3 of HB 4204, as this section prohibits banks from taking action in the event of default, regardless of the rights they may have under the contract. Finally, OBA argues that HB 4204 amounts to government taking possession and that the retroactivity of the legislation is an unconstitutional deprivation of due process, as the bill was enacted on June 30, 2020, but applied from 8 March.
The third argument of the OBA is that HB 4204 deprives member banks of their contractual rights. This argument raises interesting questions about choice of law provisions. If, hypothetically, a contract provides that New York or Delaware law is in control, then could a lender impose contractual remedies that it has negotiated since Oregon law would not apply? In addition, if foreclosure and eviction measures are not considered, do lenders have any additional remedies apart from HB 4204? Lawyers will closely follow developments in this area of ââlaw in real time.
In response, the state argued that the claims should be denied under sovereign immunity. The state further argued that the lawsuit was moot because lenders operating in Oregon had until August 30, 2020 to comply with the notice requirement of HB 4204 and that deadline had passed. . Finally, the state argued that the OBA and its other complainants lacked standing because âOBA’s only claims of injury are that its unidentified members suffered injury. could be traced back to the defendants or a favorable decision could redress. “
October 2, 2020, Axos Bank filed a similar complaint against the state of Oregon, which seems unresponsive to the enduring arguments facing the OBA. Axos Bank is a federally chartered savings and loan association headquartered in San Diego, California. HB 4204, according to the complaint, prevents the bank from declaring defaults on loans it has made to two different hotels in Oregon and denies the bank the ability to collect installments, expedite loans and d ‘assessing the default interest rate, among other concerns. Axos Bank claims that federal law prevails over HB 4204, that the contractual clause in the US Constitution makes HB 4204 unconstitutional, and HB 4204 is a due process violation because of its retroactivity.
While it’s not clear what developments await, there’s no doubt that landlords, tenants, and lenders will keep a close eye on how the courts rule in these initial lawsuits. Some also speculate that the state’s various actions to prevent foreclosure and eviction have caused the relative lack of bankruptcy and receivership activity in Oregon since COVID-19 began ravaging the economy. If any of these lawsuits are successful, or if the state gives in to the pressure and stops expanding these preventative measures, that could be the spark that will ignite this powder keg. Both debtors and creditors should look beyond eviction and foreclosure and develop strategies for the whole journey, not just the first step.
1. This legislation is slightly different from HB 4213 and Governor Kate Brown’s Orders in Council restricting residential and commercial evictions. As detailed here, commercial tenants are no longer protected against eviction for non-payment of rent accrued after October 1, while residential tenants cannot be evicted for non-payment of rent at least until the end. from 2020.
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