A group of Oregon banks and banking organizations have come together to challenge the legality of that state’s emergency COVD-19 banking regulations. Enacted on June 30, 2020 and in effect until it expired on December 31, Oregon’s House Bill (HB) 4204 placed limitations on financial institutions’ abilities to enforce mortgage contracts. Specifically, HB 4204 mandated that banks provide forbearance from mortgage payments to individual and commercial borrowers who attested that their inability to pay related to the COVID-19 pandemic. Banks also could not pursue collection or foreclosure actions during this time. Even though these emergency forbearance provisions have now expired, lenders will not be able to collect accumulated overdue sums until their borrowers’ loans reach maturity-often years or decades in the future. Borrowers have the power to enforce HB 4204 by filing a lawsuit against any lender who violates these emergency regulations.
Shortly after HB 4204 was enacted, the Oregon Bankers Association (OBA), Bank of Eastern Oregon, and People’s Bank of Commerce filed a lawsuit in federal court challenging its legality. The plaintiffs assert three different claims against the State of Oregon, the Attorney General of the State of Oregon and the Oregon Department of Consumer and Business Services. First, they claim HB 4204 cannot be enforced because the federal government’s CARES Act, which provides forbearance and prohibits foreclosures on certain federally backed mortgage loans, takes precedence over (or “preempts”) Oregon’s attempt to go further with its own regulation. Second, the plaintiffs claim the State of Oregon, in enacting HB 4204, has impaired the contracts between Oregon lenders and borrowers and, therefore, violates the Contracts Clause of the U.S. Constitution. Finally, the plaintiffs claim HB 4204 has resulted deprived them of property in the form of otherwise-due mortgage payments in violation of the Due Process Clause and Takings Clause of the U.S. Constitution.
The Defendants filed a targeted motion to dismiss some of these claims against some of the defendants. Notably, the plaintiffs agreed that the State of Oregon should be dismissed as a defendant due to immunity conferred by the 11th Amendment. Judge Ann Aiken asked the parties to explain the impact, if any, of a recent decision in another Oregon case, Axos Bank v. Rosenblum. Axos Bank also challenged the constitutionality of HB 4204, making similar arguments as the OBA plaintiffs. The same federal district court dismissed Axos Bank’s claims, finding that the bank did not have the right to sue the Attorney General because the Attorney General did not have any power to enforce HB 4204. Axos Bank has appealed this decision to the Ninth Circuit Court of Appeals.
It will be interesting to see whether Judge Aiken agrees with the Axos Bank court’s reasoning, and whether she narrows or dismisses some or all of the OBA plaintiffs’ claims. The OBA case may also have implications for other states, like Massachusetts, who have enacted their own forms of foreclosure and eviction relief during the COVID-19 pandemic.