Two recent lawsuits filed in the U.S. District Court for the
District of Oregon illustrate that Oregon banks are none too
pleased about HB 4204. This legislation, passed by the
Oregon legislature in June 2020, prohibits residential and commercial real estate
foreclosures in Oregon from March 8, 2020 until December 31,
2020.1 The legislation was
initially set to expire in September 2020, but was extended by
executive order. In response to this legislation, the Oregon
Bankers Association ("OBA") and a number of other
banks sued the State of Oregon in August, stating
that the lawsuit "challenges Oregon's attempt to interfere
with the ability of banks and other financial institutions to make
and manage real-estate loans to Oregon consumers and businesses as
agreed by the parties."
In its complaint, OBA argues first that federal
law preempts HB 4204, stating that Congress elected to provide
COVID-related housing relief by passing the CARES Act and that HB 4204 conflicts with
the housing protections for federally-backed mortgages provided for
in the CARES Act. Second, OBA relies on the Contract Clause of the U.S. Constitution,
which prohibits states from passing "any Law impairing the
obligation of Contracts." According to OBA, HB 4204 is denying
banks the ability to pursue their contractual rights in the event
of default. OBA particularly raised concerns regarding section 3 of
HB 4204 as that section prohibits banks from taking action in the
event of a default, regardless of rights they may have under the
contract. Finally, OBA argues that HB 4204 amounts to a
governmental taking and that the legislation's retroactivity is
an unconstitutional deprivation of due process, as the bill was
signed into law on June 30, 2020—but applied March 8
onwards.
OBA's third argument is that HB 4204 deprives member banks of
their contractual rights. This argument raises interesting
questions pertaining to choice of law provisions. If,
hypothetically, a contract provides that New York or Delaware law
controls, could a lender then impose contractual remedies that they
bargained for since Oregon law would not apply? Further, if
foreclosure and eviction measures are off the table, do lenders
have additional remedies available regardless of HB 4204? Attorneys
will be closely watching as this area of the law develops in real
time.
In response, the State has argued that the claims should be
dismissed as a matter of sovereign immunity. The State further
argued that the lawsuit was moot, as lenders conducting business in
Oregon had until August 30, 2020, to comply with HB 4204's
notice requirement and that deadline has passed. Finally, the State
argued that OBA and its fellow plaintiffs lacked standing to sue,
as "OBA's only allegations concerning injury are that its
unidentified members have suffered harm. It does not plead, nor can
it plead, any harm that it personally suffered that fairly could be
traced back to Defendants or that a favorable ruling could
redress."
On October 2, 2020, Axos Bank filed a similar suit against the State of
Oregon, which does not seem susceptible to the standing arguments
confronting OBA. Axos Bank is a federally chartered savings and
loan association headquartered in San Diego, California. HB 4204,
according to the complaint, is preventing the bank from declaring
defaults on loans it made to two different hotels in Oregon and
denying the bank its ability to collect installment payments,
accelerate the loans, and assess the default rate of interest,
among other concerns. Axos Bank asserts that federal law preempts
HB 4204, that the Contract Clause of the U.S. Constitution renders
HB 4204 unconstitutional, and that HB 4204 is a violation of due
process as a result of its retroactivity.
While it is unclear what developments await, there is no question
that landlords, tenants, and lenders will be keeping a close eye on
how the courts will rule in these initial lawsuits. Some also
speculate that the State's various actions to prevent
foreclosure and eviction have caused the relative lack of
bankruptcy and receivership activity in Oregon since COVID-19 began
ravaging the economy. If either of these lawsuits succeeds, or the
State bows to the pressure and stops extending these preventative
measures, it could be the spark that lights that powder keg.
Debtors and creditors both should be looking beyond the eviction
and foreclosure and develop strategies for the whole journey, not
just the first step.
Footnote
1. This legislation is slightly different from HB 4213 and Governor Kate Brown's executive orders limiting residential and commercial evictions. As detailed here, commercial tenants are no longer protected from eviction for non-payment of rent accumulated after October 1, while residential tenants cannot be evicted for non-payment of rent at least through the end of 2020.
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