June 30, 2020, Oregon Governor, Kate Brown, signed sweeping mortgage payment forbearance and foreclosure moratorium provisions into law. Virtually all loans secured by real property and certain installment contracts secured by personal property used as a residence in Oregon are covered, including but not limited to 1-4 family residential, multifamily residential, bare land, and commercial properties. Oregon lenders must provide written notice to borrowers of their right to accommodations. Additionally, if designated by an executive order of the governor on or before August 31st, the end date for the emergency period may be extended beyond the designated emergency period that runs from March 8th to September 30, 2020.

This article addresses highlights of the lender notice requirement, forbearance requirements, borrower qualification for forbearance, the foreclosure moratorium, and borrower damages.

Lenders must notify borrowers of right to accommodation

By August 29th, “each lender” must provide notice to borrowers of their right to accommodation. The form of the notice is not prescribed.

“Lender” is broadly defined to include both trustees and beneficiaries of trust deeds, mortgagees on mortgages, persons licensed under Oregon’s Mortgage Lender Law, and sellers under land sale contracts or retail installment contracts secured by personal property used as a residence. Lender also includes “an agent, affiliate or employee of a beneficiary, trustee, mortgagee, seller, retail seller or licensee.” Because each lender is required to provide written notice of accommodation, a literal interpretation would result in borrowers receiving notice from every employee, agent, and affiliate of the organization that actually made the loan. The definition also fails to distinguish between an originator and a servicer, and suggests an originator may have an obligation to mail written notice to borrowers even if the loan will be sold before the first payment is due. Similarly, a broker that table funds or is deemed an agent of the lender could be obligated to mail written notice.

While requiring every employee to send a letter would be an absurd interpretation, we do advise agents, affiliates, and trustees to mail written notice when they have had or anticipate reason to initiate mortgage related communications with the borrower during the emergency period. We advise brokers and correspondent lenders that will not service loans, to document that their investor or servicer has indicated it is mailing the notice to justify their inaction.

Forbearance Requirements

“During the emergency period, a lender may not treat as a default a borrower’s failure to make a periodic 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 1 if at any time during the emergency period the borrower notifies the lender that the borrower will not be able to make the periodic installment payment.” Because the emergency period began on March 8, and “a borrower does not need to provide a notification to a lender… more than once,” the language suggests borrower notification of a COVID related inability to make a payment is effective even if it occurred prior to the passage and effective date of the law.

A lender must:

1. Defer collection of the periodic installment payment during the emergency period and permit the borrower to pay the deferred amount at the scheduled or anticipated date on which full performance of the obligation is due, but “only if the lender and borrower do not otherwise agree to modify, defer or otherwise mitigate the loan.” A lender’s power to negotiate this is greatly reduced by its obligation to provide the written notice of a borrower’s right to accommodation. Intimidating a borrower into a shorter repayment period would likely be deemed an unfair practice, as might omitting that notice during oral communications negotiating an alternative repayment. However, lenders are explicitly permitted to adjust escrow impounds pursuant to RESPA, which is appropriate as these amounts are not due to the lender.

A lender may not:

1. Impose or collect charges, fees, penalties, attorney fees or other amounts that might have been imposed or collected for failing, during the emergency period, to make a payment or failure to pay another amount due on or in connection with the obligation;

2. Impose a default rate of interest that might have been imposed or collected for failing, during the emergency period, to make a payment or failure to pay another amount due on or in connection with the obligation;

3. Treat in any manner the failure, during the emergency period, to make a payment or failure to pay another amount due on or in connection with the obligation as an ineligibility for a foreclosure avoidance measure;

4. Require or charge for an inspection, appraisal or a broker opinion of value, not otherwise permitted in the absence of a default;

5. Declare a default based on the failure of a borrower to meet financial covenants due to inadequate operating revenue resulting from the COVID-19 pandemic.

6. Initiate or implement cash management or lockbox procedures or take control of operating revenue from real property security, unless the procedures or control was already in existence before June 30, 2020; or

7. Declare a default based on the Borrower’s failure to meet financial covenants due to inadequate operating revenue resulting from the COVID-19 pandemic.

Qualification for Forbearance

A borrower on 1-4 unit residential properties “must attest that the borrower’s failure to pay is a result of a loss of income related to the COVID-19 pandemic.” Here, the “failure to pay” language is different from inability to pay and, while not without defenses, may suggest that a borrower can benefit from these provisions when notification is made after the payment becomes delinquent. This suggests that payments previously missed could be argued to be covered even if the consumer's notice is not given until some time in the future (though still within the emergency period).

“If the subject property is commercial property or residential property with more than four dwelling units, the notification must include financial statements or other evidence that demonstrates a loss of income related to the COVID-19 pandemic and must disclose any funds the borrower received from the United States Small Business Administration under the Paycheck Protection Program, as implemented under the Paycheck Protection Program Flexibility Act of 2020 (P.L. 116-142) or other state or federal relief programs.” While commercial lenders are required to provide additional documentation to lenders, there are no explicit provisions authorizing the lender to truly uverall, this law dwarfs the CARES Act, provides no liquidity protection for lenders, includes loans on skyscrapers and minivans and purports to allow lenders to negotiate modifications but mandates lenders to provide notice to borrowers of their right to postpone payments until the maturity date of the loan. First steps for all lenders include preparing and sending a notice to every Oregon secured property, identifying any loans already covered, and talking with your attorneys about your options before taking any action on Oregon delinquencies. Lenders on personal property loans where the property is located in Oregon and occupied as a residence have an untenable burden to notice, they must know where the personal property is located. That may work for titled mobile homes, but not for RVs or other vehicles that could be occupied as residences. Stay tuned for a potential executive order extending the end date of the emergency period. Governor Brown must issue such an order by August 31st or the end date will be September 30th. Of course, the legislature could also pass an extension of its own.

Here is a copy of the enrolled HB 4204. Here is a link to Oregon Division of Financial Regulation Guidance for its 1-4 residential property licensees.

1 For purposes of this law, “financing agreement” includes: “A contract under which a borrower must make payments to a lender to satisfy an obligation that is secured by a mortgage, a trust deed, a land sale contract or a lien or other security interest in subject property; and A retail installment contract, as defined in ORS 83.010, for which the subject matter is personal property that is used as a residence.”nderwrite the documents. Even so, evidence of a loss of income related to COVID-19 is not merely gratuitous. If a lender can show the documentation provided did not provide evidence of COVID-19 related loss of income, the lender might prevail in foreclosure actions. Accordingly, lenders should review and retain all documentation provided in multi-family and commercial transactions.

The law is unclear about bare land documentation. In the absence of other guidance, we recommend reliance on land use zoning.

Foreclosure Moratorium

A lender may not, at any time during the emergency period, foreclose a lien or other security interest, whether by advertisement and sale or by action or suit in court, and may not enforce a forfeiture of subject property. A foreclosure action initiated prior to June 30, 2020, will be tolled (delayed) until the emergency period ends, at which time it may resume with certain provisions called out for non-judicial trust deed foreclosures and land sale contract forfeitures.

Additionally, during the emergency period, any purported trustee’s sale or execution sale is void and does not transfer or foreclose any rights to subject property, and courts are prohibited from entering a judgement of foreclosure and sale and from issuing writs of execution on any real property in Oregon or personal property used as a residence in Oregon. Note that the requirement for occupancy of personal property as a residence is not tied to the owner, arguably including any RV located in Oregon if anyone is sleeping in the RV.

The law does not affect tax foreclosures or foreclosures occurring pursuant to specific abandonment procedures.

Borrower Damages

The law establishes that borrower’s suffering from ascertainable loss of money or property resulting from a lender’s noncompliance are entitled to recover the borrower’s actual damages, court costs, and attorney fees. However, the law does not “relieve a borrower of the duty to repay the full amount of any obligation that is subject to a waiver, deferral, modification or forbearance under the provisions of this section.” Keep in mind that individuals may also be argued to be liable here, because the definition of lender includes every employee, agent, and affiliate of a beneficiary, trustee, mortgagee, seller, retail seller or licensee.

Recommended Clarifications

While there is likely to be another special session of the Oregon Legislature this year, it is less likely that changes will be made to clarify HB 4204. However, if such an amendment were considered, here are some thoughts on how to eliminate some of the more problematic ambiguities:

Notice related clarification:

1. The notice required to be sent by lenders should have prescribed language and should:
2. the language should indicate the accommodations under this law and indicate that taking full advantage of these accommodations may affect the consumer’s ability to qualify for a future loan;
3. to avoid scams using similar language, include a prohibition barring use of similar language in materials sent to borrowers by persons who are not a lender, as defined, with respect to the borrower;
4. Clarify that only the current loan servicer needs to mail written notice to borrowers;
5. Loan servicers should only be obligated to mail written notice to borrowers on transactions secured by 1-4 unit residential properties that were represented as owner-occupied by the borrower at time of origination;
6. Loans secured by personal property loans should be excluded from requirement to mail written notice, unless secured by mobile homes;
7. Clarify that notice must only be mailed to one borrower per loan and may be mailed to the last known address of the borrower;
8. Clarify that no notice must be provided to borrowers on loans made after August 29 (60 days after effective date).

Other areas where clarification would help:

1. Bare land and agricultural purpose loans should be explicitly treated as commercial unless zoned for 1-4 unit residential;
2. Specify that lenders may require modifications for loans covered by the CARES Act to conform to government agency requirements (we want government agencies to continue to buy, insure, or guarantee Oregon loans);
3. Lenders should be explicitly permitted to deny forbearance to borrowers required to submit financial documentation where the documentation does not show revenue loss to support requested forbearance;
4. Specify that statutes of limitation in ORS 12.080 and 88.110 are tolled with respect to covered loans for the emergency period;
5. Clarify that § 10(a)’s reference to notices of a trustee sale given before the emergency period began, extend the exception to all subsequent actions arising from those notices so that it is clear that non-judicial sales conducted prior to the effective date are not rendered void;
6. Add borrower fraud as grounds for exception under § 10.

Conclusion

Overall, this law dwarfs the CARES Act, provides no liquidity protection for lenders, includes loans on skyscrapers and minivans and purports to allow lenders to negotiate modifications but mandates lenders to provide notice to borrowers of their right to postpone payments until the maturity date of the loan. First steps for all lenders include preparing and sending a notice to every Oregon secured property, identifying any loans already covered, and talking with your attorneys about your options before taking any action on Oregon delinquencies. Lenders on personal property loans where the property is located in Oregon and occupied as a residence have an untenable burden to notice, they must know where the personal property is located. That may work for titled mobile homes, but not for RVs or other vehicles that could be occupied as residences. Stay tuned for a potential executive order extending the end date of the emergency period. Governor Brown must issue such an order by August 31st or the end date will be September 30th. Of course, the legislature could also pass an extension of its own.

Here is a copy of the enrolled HB 4204.

Here is a link to Oregon Division of Financial Regulation Guidance for its 1-4 residential property licensees.

1 For purposes of this law, “financing agreement” includes: “A contract under which a borrower must make payments to a lender to satisfy an obligation that is secured by a mortgage, a trust deed, a land sale contract or a lien or other security interest in subject property; and A retail installment contract, as defined in ORS 83.010, for which the subject matter is personal property that is used as a residence.”