Navigating Bankruptcy Exposure for Landlords Arising from Anticipated Lease Terminations During COVID-19
Lease terminations may result in fraudulent transfer claims.
On June 30th, 2020, Oregon governor Kate Brown signed into law HB 4204, providing sweeping protections to mortgagors and putting a moratorium on foreclosure proceedings. This law also requires all lenders operating within the state to provide written notice by mail to every borrower by August 29, 2020 of the protections added by the bill. This law applies to all lenders who hold a collateral interest in property or a retail installment contract within the state of Oregon, regardless of the lenders’ location. These protections will remain in place until 90 days after the end of the state’s COVID-19 “emergency period,” which is currently ends on September 30th but is likely to be extended.
The new bill provides extensive foreclosure protection to borrowers, requiring negotiation between lenders and borrowers. Upon receiving notice from a borrower, the lender must either agree to a foreclosure avoidance measure (in accordance with the state program established in 2013), or defer collections of periodic installment payments during the emergency period. These payments may then be paid at the end of the current mortgage period, and lender may not charge any fee or penalty for such a deferral. Lenders may, however, adjust the amount of any escrow impound payment the borrower may have an obligation to make. The bill further limits lenders’ abilities to: require a new inspection or appraisal, initiate lockbox or cash management procedures, declare a default or otherwise impose a contractual fee or default interest rate that might otherwise apply when a borrower defaults on a payment. The bill does not relieve borrowers of any payment obligation, and any deferred payment must be paid at the end of the mortgage, unless otherwise agreed upon.
These restrictions apply to both residential and commercial mortgages, with slightly varied requirements. In the case of a residential mortgage for a building with four or fewer dwelling units, a borrower need only notify their lender that their failure to pay is a result of loss of income related to the COVID-19 pandemic. For residential buildings over four units, or commercial buildings, a borrower must also include financial statements or other evidence demonstrating a loss of income, and must disclose any funds received from the Paycheck Protection Program.
This bill also restricts lenders’ other enforcement remedies, forbidding lenders from enforcing a forfeiture remedy or foreclosing on a lien or trust deed. These restrictions do not apply to any foreclosure judgments that were issued prior to June 30th, are related to abandonment of property, or are in relation to a tax foreclosure proceeding. Judges are instructed to dismiss without prejudice any foreclosure suit commenced within the emergency period, and are further instructed to toll any pending cases requesting foreclosure or forfeiture. Finally, in the event a lender makes any action contrary to this law that harms a borrower, that borrower may seek actual damages, costs and attorneys’ fees in court.