The COVID-19 pandemic has affected business in ways unseen before. Lawyers at Schwabe are monitoring legislative updates to help our clients understand the effects to their business and options available. Today we’re exploring House Bill 4204, which significantly alters the remedies available to certain lenders, based on a borrower’s nonpayment, and essentially prohibits any foreclosures until October 1, 2020, at the earliest. Governor Kate Brown signed the bill on June 30, 2020. Read on to learn how HB 4204, enacted during the Oregon Legislature’s First Special Session of 2020, impacts lenders and borrowers.
In short, HB 4204 prevents a “lender” from taking certain action against a borrower during the “Emergency Period,” which is defined to be March 8, 2020, to September 30, 2020, unless further extended by the Governor (more on that below). HB 4204 defines a “lender” as someone who lends money where the loan is secured by real property—whether that be a mortgage, trust deed, land sale contract, or retail sales contract. HB 4204 applies to both residential and commercial loans. The bill also applies to loans secured by personal property—e.g., manufactured home or floating home—if that property is used as a residence in the State of Oregon.
During the Emergency Period, a lender cannot declare a borrower in default for failing to make a regular payment (or pay any other amount due to the lender under the loan) if the borrower notifies the lender that the borrower will not be able to make the payment because of the COVID-19 pandemic. If properly notified, the lender must (1) defer from collecting the payment, and (2) permit the borrower to pay the missed payment on the loan’s maturity. In other words, if the borrower gives a lender notice that it cannot make an installment payment because of the COVID-19 pandemic, the lender cannot demand the repayment of the deferred monthly payment or payments until the end of the loan. A borrower need not provide notice to the lender more than once during the Emergency Period, and the lender cannot charge any late fees, attorney fees, or default interest as a result of the deferred payments. The bill does not relieve a borrower of the obligation to pay the full amount of the loan; it only defers payments during the Emergency Period.
To take advantage of the payment deferral, a borrower must provide the lender with appropriate notice that the payment or payments cannot be made because of the COVID-19 pandemic. If the loan is secured by a residence with four or fewer dwelling units, the borrower need only “attest” that the borrower’s failure to pay is a result of loss of income related to the COVID-19 pandemic. HB 4204 does not define “attest”; and the bill does not require this notice to be in wring. Thus, a residential borrower could arguably comply with the notice provisions by calling the lender and claiming that a payment could not be made because of the COVID-19 pandemic.
For all other residential and commercial properties, the borrower’s notification must include financial statements or other evidence demonstrating a loss of income from the COVID-19 pandemic, and must disclose the receipt of any funds from the Paycheck Protection Program. While the bill does not require the actual notification to be in writing for commercial and certain residential loans, it does require the production of certain written materials to justify the deferral request. If such a borrower cannot justify the payment deferral, the lender may still treat the missed payment as a default.
Even if the borrower provides no notice to the lender, or the notice is deficient, the bill prohibits all foreclosures—judicial or non-judicial—during the Emergency Period. Any trustee sale or execution of real property is void and does not transfer or foreclose any rights to the applicable property. In other words, even silent borrowers will not be subject to any foreclosures during the Emergency Period.
The bill also does not apply to any judgments of foreclosure and sale, writs of execution, or notice of a trustee’s sale that were issued before the Emergency Period began. This provides a large exception to the foreclosure ban and appears intended to protect certain foreclosures that occurred after the Emergency Period.
For all foreclosures that were pending on March 8, 2020, HB 4204 freezes the proceedings until the end of the Emergency Period, and tolls all applicable statutes of limitation. Foreclosures that were pending on March 8, 2020, can resume on October 1, 2020, unless the Governor extends the Emergency Period. The Governor has the right to extend the Emergency Period by providing notice of her decision to do so not later than August 31, 2020. HB 4204 is automatically repealed 90 days from the expiration of the Emergency Period—i.e., December 29, 2020—which appears to limit the Governor’s ability to extend the Emergency Period beyond that date.
On or before August 29, 2020, all lenders covered by HB 4204 must provide written notice by mail to all of the lender’s borrowers of a borrower’s rights to payment deferral. For larger residential lenders, this could amount to a Herculean task. Lenders should immediately take action to prepare appropriate notices to all borrowers covered under HB 4204. Failure to do so could result in liability under HB 4204.