Oregon banks are suing the state government over a blanket moratorium on foreclosures passed this summer they describe as an unconstitutional violation of contract law.
Filed Thursday in the U.S. District Court of Oregon’s Eugene division, the lawsuit names the Oregon Bankers Association, the Lewis & Clark Bank, the Bank of Eastern Oregon, and the People’s Bank of Commerce as plaintiffs.
It names Oregon Attorney General Ellen Rosenblum and Oregon Department of Consumer and Business Services Director Andrew Stolfi as defendants.
The suit claims legislation passed by Oregon lawmakers “broadly adjusts the rights and responsibilities of lenders and borrowers beyond the degree necessary to advance the purpose of addressing the conditions caused by COVID-19.”
The lawsuit refers back to a bill passed by Oregon lawmakers during a special legislative session in June, House Bill 4204, which bans lenders from pursuing foreclosures with respect to both residential and commercial real property through September 30.
The bill was part of a financial aid package addressing hardships caused by the COVID-19 pandemic which also extended the state’s moratorium on residential and commercial evictions.
House Bill 4204 bans all foreclosures or forfeiture actions during the moratorium, except in certain cases like tax foreclosures, pre-pandemic judgments, or abandonment orders. It also bans lenders from imposing penalties for payment defaults, such as interest, late fees, penalties and attorney fees.
Lenders, such as banks, are banned from treating missed payments as a default on the condition that borrowers can provide financial statements or other evidence demonstrating lost income due to the COVID-19 pandemic.
The lawsuit claims that the bill violates the Contracts Clause of the U.S. Constitution which provides that no state may pass a “Law impairing the Obligation of Contracts.”
The lawsuit also paints House Bill 4204 as unlawful under a state code providing Oregon-chartered banks with the same powers as federal banks. House Bill 4204, the lawsuit argues, would require plaintiffs to issue disclosures not required under federal law as well as restrict them from imposing normal fees.
The lawsuit further cites the U.S. Constitution’s Supremacy Clause, which holds federal law “shall be the supreme law of the land…anything in the Constitution or laws of any State to the contrary notwithstanding.”
It also claims that the law does not provide lenders any recourse for property damage or require borrowers to maintain adequate escrow funds, hurting lenders’ ability to preserve collateral value.
Gov. Kate Brown may take action to extend the state’s moratorium on evictions no later than 30 days prior to its September 30 expiration date.
