Last month we reported on the passing of Oregon HB 4204, which imposed a moratorium on enforcement, restricted exercise of secured lender rights and remedies, and a mandatory statutory loan modification and deferral program for commercial and personal loans until at least 30. For more information, please see here). The Oregon Legislature swiftly passed HB 4204 in a special session within about a week and on June 30th by Governor Brown signed the lender’s installment payments due in accordance with the relevant loan documents during the period defined by law as the “Emergency Period” up to the loan due date and limits the interest rate and fees a lender can charge; and (b) prevents lenders from foreclosing real estate collateral during the contingency period.
Despite its intent – to help borrowers facing challenges from the effects of the COVID-19 pandemic – the text of HB 4204 left many questions unanswered for both borrowers and lenders. Uncertainties included the retrospective application of the moratorium, its constitutionality in relation to the statutory loan deferral program, and the procedures required by lenders to comply with the requirements.
On August 13, the Oregon Bankers Association and three community banks sued the state of Oregon, contesting HB 4204 enactment. According to the complaint filed in the U.S. District Court, HB 4204 amends the payment schedule and due date of loans, prohibiting institutions from imposing negotiated interest rates and fees, and requiring financial institutions to make disclosures that are not required by federal law.
Among other arguments, the banks argue that HB 4204, in conjunction with the federal Coronavirus Aid, Relief and Economic Security (CARES) Act, which allowed borrowers to forbear for 180 days and forbidding federally supported mortgage loan service providers to initiate foreclosure efforts, was inappropriate Confusion caused for an initial period of 60 days, which was later extended several times by the responsible federal housing authorities. CARES Act, §4022 (b) (1) – (2); 4022 (c) (2). The banks also argue that the law disregards the voluntary deferral and change programs that many banks have put in place for the benefit of their borrowers.
The banks’ lawsuit attacks HB 4204 on three fronts. First, the banks argue that HB 4204 violates the Supremacy Clause of the US Constitution, US Const. Arts. VI, paragraph 2, which stipulates that federal law is “the supreme law of the country. . . regardless of any contrary provisions in the constitution or the laws of a state. ”The banks’ preemptive argument identifies the National Bank Act, the Home Loans Act and the Federal Deposit Insurance Act as well as the Deregulation and Money Control Act for deposit institutions as control authorities that are restricted by HB 4204.
Next, the banks are suing HB 4204 for their alleged reduction in the value of the banks’ contracts with their borrowers in accordance with the contractual clause, US Const., Art Change manner that is not adequately tailored to alleviating the financial distress of borrowers.
Finally, the banks contest the retrospective application of HB 4204 and its constitutionality under the Due Process Clause, US Const. change. XIV, Section 1 and the Income Clause, US Const. change. XIV, Clause 4. In the banks’ view, the retrospective application of HB 4204 between the start of the “Emergency Period” – March 8th – and the date it was signed – June 30th – “is arbitrary and irrational[es] Banks have significant retroactive liability for their lawful conduct at the time they occurred, as well as the waiver of final judgments and other property rights. ” on June 30th.
Specifically, while the lawsuit challenges (a) the portion of HB 4204 that instructs lenders to change the due date of loan payments and what lenders may charge for interest rates and fees; (b) the required notification to the borrowers; and (c) the retroactive effect of the law, the action will not directly challenge the general stay of foreclosures during the emergency period.