Oregon Passes Mortgage Forbearance and Foreclosure Moratorium Law

A new state law in Oregon enables homeowners affected by the coronavirus national emergency to get a mortgage payment forbearance. The law also prohibits foreclosures during the emergency period.

Update: On August 13, 2020, Oregon banks filed a lawsuit in U.S. District Court against the state government claiming the new law described below is an unconstitutional violation of contract law. The suit also argues that this new law unconstitutionally preempts federal law and unfairly seeks to establish retroactive protections beginning March 8, which is more than three months before the bill was passed. We'll provide updates as the lawsuit progresses, but as of June 2021, the law stands.

Also, on August 31, 2020, Governor Kate Brown issued Executive Order 20-37, extending the foreclosure moratorium and emergency period in Oregon through December 31, 2020. She later signed HB 2009, which continued the existing foreclosure moratorium in the state through June 30, 2021, and then extended the moratorium until September 30, 2021, under the authority of HB 2009. The Act further allows the Governor to issue an executive order to extend the emergency period through December 31, 2021, which she did.

On June 30, 2020, Oregon Governor Kate Brown signed House Bill 4204 into state law. This new law requires lenders to offer forbearances to Oregon homeowners affected by the coronavirus (COVID-19) pandemic. The law also prohibits foreclosures during the emergency period.

Oregon's New Forbearance Law

Oregon's new law requires lenders to let borrowers with residential properties of four or fewer dwelling units to forbear payments during the "emergency period" (see below) if they attest that their failure to pay is a result of a loss of income related to the COVID-19 pandemic.

Commercial properties and residential properties with more than four dwelling units can get a forbearance too. But the borrower must provide financial statements or other evidence that demonstrates a loss of income related to the COVID-19 pandemic and must disclose any funds received from the United States Small Business Administration under the Paycheck Protection Program.

The law doesn't explicitly say whether loans in foreclosure before the emergency period are eligible for forbearance. (A similar law in the District of Columbia does exclude loans that were already in foreclosure from getting a forbearance.)

What Is the Emergency Period?

The law applies to the Oregon "emergency period," which runs from March 8, 2020, to September 30, 2020. The governor may extend this time frame at some point in the future with an executive order.

The statutory language seems to imply that a borrower can get a forbearance for any missed payments retroactive to March 8, 2020.

Repaying the Skipped Amounts

A forbearance isn't the same as loan forgiveness; you'll still owe the amounts you skipped paying after your forbearance period ends. If you and the lender can't agree to modify, defer, or otherwise mitigate the loan under Oregon law, the lender has to let you defer paying the forborne payments until the "scheduled or anticipated date on which full performance of the obligation is due." So, if you and the lender can't agree otherwise, you don't have to repay the skipped amounts until:

  • the loan's maturity date
  • you sell the property, or
  • you refinance of the loan.

Forbearances Under Oregon Law and the Federal CARES Act

Under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, a homeowner with a federally backed mortgage loan, regardless of delinquency status, who's experiencing a financial hardship that's due directly or indirectly to COVID-19, can get a forbearance of up to 360 days.

The Oregon legislature didn't choose to exclude federally backed mortgage loans from getting a forbearance under its new law. This means that borrowers in Oregon with federally backed mortgage loans may claim the right to obtain a deferral of forborne payments, even if they don't qualify for a deferral under other programs designed for government-backed loans.

How to Get a Forbearance

To get a forbearance under this new law, contact your loan servicer. If your servicer isn't helpful or you need assistance enforcing your rights, consider talking to a foreclosure attorney.

Lenders must mail written notice about this new law to mortgage borrowers no later than August 29, 2020.

No Foreclosures During the Emergency Period

During the emergency period, a lender can't treat a residential mortgage borrower as in default if the borrower notifies the lender about an inability to make the monthly mortgage payments. The borrower must give the notice only once during the emergency period and needs to include an attestation that the failure to pay is a result of the loss of income related to the COVID-19 pandemic. So, the lender can't charge late fees or other default-related penalties.

In addition, the new law imposes a continued moratorium on judicial and nonjudicial foreclosures in Oregon until the end of the emergency period. A court may not enter a judgment of foreclosure and sale or issue a writ of execution regarding any property. Any trustee's sale or execution of sale that happens during the moratorium is void.

Raising Noncompliance as a Defense to Foreclosure or as Basis for a Lawsuit

If a lender fails to comply with this new law, the borrower may raise the noncompliance as a defense to a foreclosure. Also, Oregon created an express cause of action that allows borrowers to enforce this state law (meaning, you can file a lawsuit if your lender doesn't comply).

Effective date: June 30, 2020