Definitions
Emergency period: This is the period between March 8, 2020, and September 30, 2020, with an option to extend by executive order.
Financing agreement: Defined either as (i) a contract where a borrower makes payments to a lender, with those payments secured by a mortgage, trust deed, land sale contract, or lien or other security interest in subject property or (ii) a retail installment contract for personal property used as a residence.
Subject property: Either (i) real property in Oregon or (ii) personal property used as a residence in Oregon.
Default Provisions
The Bill prohibits a lender, during the emergency period, from treating as a default any failure to make an installment payment “or to pay any other amount that is due to the lender on or in connection with an obligation that is subject to a financing agreement.”
The borrower must notify the lender that the borrower will be unable to make the installment payment. A borrower need only notify the lender once to be covered for future installment payments during the emergency period.
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- For borrowers with subject property that is a residence with four or fewer dwelling units, the borrower must attest that its inability to pay is due to Covid-19.
- For borrowers with a subject property that is a commercial property or a residential property with more than four dwelling units, the borrower must provide financial statements or similar evidence to demonstrate a loss of income from Covid-19. The borrower must also disclose any funds received from state or federal relief efforts, including any received under the Paycheck Protection Plan.
In place of the failure to pay being a default, the lender and borrower may otherwise agree to alter the terms of their agreement. But in any event, and if the parties do not otherwise agree to modify their agreement, the lender must (i) defer all installment payments due during the emergency period and (ii) allow the borrower to repay those deferred amounts in a balloon payment at the maturity date.
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- Although the Bill is unclear on whether the maturity date of an obligation that matures during the emergency period must be extended, we believe that, because the Bill prohibits declaring a default for “other amounts” related to the obligation, obligations that would otherwise have a maturity date during the emergency period must be extended until the end of the emergency period.
Lenders are—with respect to a borrower’s failure to make an installment or other payment related to the obligation—prohibited from collecting fees and similar amounts, imposing a default rate of interest, treating such a failure as disqualification for foreclosure avoidance, and other similar default-related actions.
Importantly, a lender cannot implement lockbox procedures or take control of operating revenue from real property as a result of the nonpayment, unless the procedures or control were established before the effective date of the Bill. It is unclear whether that provision of the Bill would prevent receivership, but we conclude that the scope of the provision would prevent a receivership.
Foreclosure Provisions
Except as provided in subsection (10) of the Bill:
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- Lenders are prohibited from foreclosing on a trust deed by advertisement and sale, bringing an action to foreclose on a trust deed, mortgage, or other security interest, or enforcing a forfeiture remedy.
- If a foreclosure suit was initiated before the effective date, the trustee’s sale is tolled until after the end of the emergency period. No trustee’s sales or execution sales may occur during the emergency period, and any such sale that occurs during the emergency period is void.
- Courts are prohibited from entering a judgement of foreclosure and sale or issuing a writ of execution during the emergency period.
- Any foreclosure proceeding that is instituted during the emergency period will be dismissed without prejudice.
If a borrower suffers an “ascertainable loss” because of a lender’s violation of the Bill, the borrower will have a cause of action against the lender for actual damages, plus costs and attorney fees if the borrower prevails.
Any lender that is authorized to do business in Oregon must provide written notice by mail to all of its borrowers of their rights under the Bill within 60 days of the effective date.
Pursuant to subsection (10) of the Bill, the Bill does not apply to foreclosure proceedings that began before March 8, 2020, are in connection with a tax foreclosure, or occur after abandonment.
The Bill does not relieve a borrower of the obligation to pay the full amount of any obligation, despite any waiver, deferral, modification, or forbearance under the Bill.
The foreclosure provisions prohibit a lender from foreclosing on a subject property during the emergency period for any reason, not just for nonpayment of the obligation.
For more information, contact:
For more information about this topic or other employment law issues, please contact:
Caulin Price, Real Estate and Litigation Attorney
Chelsea J. Glynn, Real Estate and Litigation Attorney, Portland, Oregon.
J. David Zehntbauer, Real Estate and Business Partner
