On August 31, 2020, Governor Kate Brown extended House Bill 4204’s (“HB 4204”) temporary foreclosure moratorium through December 31, 2020, by signing Executive Order No. 20-37 (“EO 20-37”). The Oregon Legislative Assembly enacted HB 4204 during its first special session in June 2020, imposing a moratorium on mortgage foreclosures until September 30, 2020 (the “Emergency Period”). HB 4204 permits the Governor to extend the moratorium by executive order 30 days before the Emergency Period expires.
This moratorium applies to commercial as well as residential real estate loans. It serves to protect businesses at risk of foreclosure or businesses operating within premises at risk of foreclosure by preventing lenders with secured real estate loans from exercising certain rights and remedies in the event of a borrower’s default. As a result, businesses that might shut down because of their inability to pay are able to remain open and continue to provide important goods and services during the pandemic.
The moratorium prevents a lender from treating a borrower’s failure to make a payment or pay any other amount due during the Emergency Period as a default. To be entitled to this protection, the borrower, at any time during the Emergency Period, must first provide notice to the lender that the borrower cannot make the payment. The borrower need only provide this notice once during the Emergency Period. For commercial properties, this notice must include financial statements or other evidence of loss of income related to the pandemic. Further, the notice must disclose any funds received under the United States Small Business Administration’s Paycheck Protection Program Flexibility Act of 2020 (P.L. 116-142) or other state or federal relief programs. Upon receiving notice from the borrower, the lender must offer forbearance and may not pursue foreclosure during the Emergency Period. Foreclosures started before the enactment of HB 4204 are stalled under this moratorium but may continue after the Emergency Period ends.
Importantly, EO 20-37 does not prevent the lender and borrower from agreeing between themselves to modify, defer, or otherwise mitigate the loan. EO 20-37 is not intended to “undermine contractual bargains, interfere with parties’ reasonable expectations, or prevent parties from safeguarding or reinstating their rights.” Only if the lender and borrower cannot agree must the lender (1) defer from collecting payments during the Emergency Period and (2) permit the borrow to pay the deferred amounts at the maturity of the loan.
Similar to the moratorium on evictions due to nonpayment of rent, HB 4204 and EO 20-37 do not excuse the borrower’s obligation to repay the deferred amounts. In addition, lenders are not prohibited from seeking remedies for defaults due to reasons other than the borrower’s inability to pay. However, with limited exceptions, HB 4204 prohibits courts from entering judgments of foreclosure or writs of execution and voids trustees’ sales during the Emergency Period, so lenders’ remedies for non-monetary defaults are still limited.
Looking ahead, the Oregon Legislature is scheduled to convene for a long session starting in January 2021, at which time it is expected that further legislation addressing long-term solutions to this and other issues related to the pandemic, will be discussed.