Banks Sue Over Oregon’s Foreclosure Moratorium

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.


[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.