Oregon House Bill 4204 Puts a Hold on Lender Remedies

In response to the effects of the COVID-19 pandemic, the Oregon legislature enacted House Bill 4204, dated July 7 and effective June 30, establishing temporary restrictions on commercial and residential lenders from the exercise of certain remedies through, at the earliest, Sept. 30, 2020. While the restrictions were initially slated to expire on Sept. 30, Gov. Kate Brown further extended the "emergency period," which dates retroactively to March 8, 2020, until Dec. 31, 2020, via Executive Order No. 20-37. 

Most notably, HB 4204 prohibits any foreclosure, whether judicial or non-judicial, during the emergency period. More specifically, unless a judgment was "issued or given" prior to March 8, a foreclosure is automatically void. By way of example, if a lender initiated judicial or non-judicial foreclosure proceedings on Feb. 1 but was set to foreclose on Aug. 1, the foreclosure is automatically void and may not be reinstated until Jan. 1 at the very earliest. There are very limited exceptions to the moratorium, specifically including tax foreclosures.

The statute's impact is not limited to a moratorium on foreclosures and contains the following restrictions on lenders during the emergency period:

• Deferral of any periodic payments due under a secured loan due to COVID-19 until the maturity date of the loan
• Prohibition on charging penalties for late payments or other defaults, including (but not limited to) restrictions upon imposition of default interest, charges for inspections, appraisals or opinions of value, or initiation of cash management procedures
• Prohibition on declaring defaults based on failure of a financial covenant such as maintenance of a specified net worth

While the foreclosure moratorium is automatic under the statute, borrowers were required under HB 4204 to deliver notice within 60 days of the June 30 effective date to gain the benefit of the restrictions noted above. Because of the extension, borrowers can now give the notice up through Dec. 31, 2020, and have it apply to any missed payments during the entirety of the emergency period, dating back to March 8, 2020. There are specific distinctions as to the evidence a borrower must provide with the notice, depending upon whether the property is commercial or residential, the number of dwelling units (if residential) and whether the borrower has received funds under the Paycheck Protection Program (PPP). HB 4204 also specifically contemplates the scenario where the borrower and lender negotiate an agreement to modify the loan in lieu of reliance on the statute.

Lenders should be careful to comply with the provisions of HB 4204, as borrowers have a private right of action to cover actual damages if suffering "an ascertainable loss of money or property" and may recover attorneys' fees and costs. Specifically, lenders authorized to do business in Oregon were required to provide their borrowers with written notice of their rights and accommodations under HB 4204 within 60 days of the June 30 effective date. It is unclear whether HB 4204 applies to new loans.

As extended, HB 4204 is automatically repealed on April 1, 2021, 90 days after expiration of the emergency period.

HB 4204 is currently subject to legal challenge on multiple fronts, including the Oregon Bankers Association and three community banks – Lewis & Clark Bank, Bank of Eastern Oregon and People's Bank of Commerce – in U.S. District Court for the District of Oregon, filed on Aug. 13.