On June 30, 2020, Oregon joined D.C., Massachusetts, and New York in passing state-specific COVID-19 mortgage assistance programs into law. This new law further confuses the patchwork quilt of compliance issues for mortgage lenders and servicers. Oregon also became the first state to create an express cause of action allowing borrowers to enforce the state law.

The new law mandates that Oregon-regulated banking organizations and mortgage servicers take several steps to assist borrowers suffering hardships related to COVID-19. Key elements of the new law are below.

Forbearances

• The law is keyed to the Oregon “emergency period,” which currently spans from March 8, 2020, to September 30, 2020. The governor may extend this time period via an executive order as well.
• During the emergency period, a lender may not treat a residential mortgage borrower as in default if the borrower has “notified” the lender that he or she will not be able to make the monthly mortgage payment. No specific information is provided about how such notice shall be given, but the notice needs only be given once during the emergency period and needs only to include an attestation that the failure to pay is a result of loss of income related to the COVID-19 pandemic. This single notification rule may cause problems for servicers who contact their customers frequently to confirm their financial situation while in a forbearance.
• Commercial property borrowers, or those with residential property with more than four dwelling units, may also request forbearance during the emergency period. Their notification must include financial statements or other evidence that demonstrates a loss of income related to the COVID-19 pandemic. Such borrowers must also disclose any funds they received from the Paycheck Protection Program.
• The language of the statute implies that a borrower can ask for forbearance for any previously missed payments back to March 8, 2020.
• A borrower must be allowed to later defer the forborne payments to the “scheduled or anticipated date on which full performance of the obligation is due,” (which should mean maturity, sale, or refinance of the loan) if the parties cannot otherwise agree to modify, defer, or otherwise “mitigate” the loan under several identified portions of Oregon statute Chapter 86, which all relate to loss mitigation and foreclosure.
• Unlike the similar law in D.C., Oregon has not made clear whether loans in foreclosure before the emergency period are excluded from the ability to obtain a forbearance. For now, Oregon joins New York and Massachusetts in having that as an open question.
• The law requires that servicers provide written notice by mail to all borrowers of their rights to accommodation under the new law. Such notice must be sent no later than 60 days after the law’s effective date (i.e., by August 29, 2020).
• The new law is the first we have seen that expressly gives a borrower the right to bring an action for any violation of the law. A borrower is permitted to bring an action in Oregon circuit court to recover their actual damages, court costs, and attorneys’ fees if they suffer an ascertainable loss of money or property due to a lender’s noncompliance with the law.
• Notably, Oregon does not carve out government-backed loans that are already subject to the CARES Act. Therefore, Oregon borrowers with GSE-backed loans may claim the right to deferral of their forborne payments, even if they do not qualify for the GSE Deferral Programs. They may also file a legal action seeking to establish their forbearance rights under the state statute even if their rights are governed by the GSE programs.

Foreclosure

• The new law imposes a continued moratorium on foreclosure by advertisement and sale, judicial foreclosure, and forfeiture proceedings until the end of the emergency period. During that time, lenders may not foreclose on a trust deed, bring a judicial foreclosure action, or enforce a forfeiture remedy.
• Any trustee’s sale or execution of sale that goes forward during the moratorium is rendered void.
• For pending foreclosures, a court may not enter a judgment of foreclosure and sale or issue a writ of execution regarding any property. If the foreclosure proceeding was brought during the emergency period (i.e., after March 8), then it must be dismissed without prejudice. If a lender initiated a foreclosure before the effective date of the new law, then all statutory waiting periods are tolled for the duration of the emergency period.

Constitutional Observations

As we noted in our earlier post, state laws requiring forbearances and other borrower relief raise constitutional concerns under the Contracts Clause. Oregon’s Legislature apparently anticipated a Contracts Clause challenge, and included language in the new law specifically asserting that the provisions of the new law “do not undermine a contractual bargain, interfere with a party’s reasonable expectations or prevent a party from safeguarding or reinstating the party’s rights.” The new law even includes an alternative assertion which to implement the significant and legitimate public purpose of responding to the declaration of a state of emergency ….”

Those legislative assertions would be relevant to a Contracts Clause challenge, but they are not dispositive. By mandating forbearance for all mortgage loans and requiring a lender to allow borrowers to add the balance to the end of the mortgage term, Oregon is altering key financial terms of private mortgage contracts. To our knowledge, no state had ever claimed that power before the COVID-19 pandemic. Ultimately, a court will have to decide whether those measures are constitutional.