The Oregon Bankers Association sued Thursday to overturn part of a new state law that protects homeowners from foreclosure and other penalties if they cannot pay their mortgages during the coronavirus pandemic.
The bankers said they weren’t attacking the eviction moratorium itself, only provisions in the legislation that apply retroactively and those that prohibit fees and penalties banks could otherwise charge people who don’t make timely mortgage payments.
However, an attorney for the bankers said he wasn’t sure if lenders might seek to take homes through civil litigation rather than foreclosure if people cannot pay the fees and penalties the lawsuit seeks to restore.
“I do not know and I can’t speculate what lenders may or may not do in those circumstances,” said attorney Tim Cunningham of the Portland law firm Davis Wright Tremaine.
The Oregon Department of Justice said Friday that it cannot comment while it is reviewing the litigation. Bloomberg and The Portland Business Journal reported on the suit previously.
Oregon lawmakers passed House Bill 4204 in June, prohibiting banks from foreclosing on homeowners through September, seeking to establish protections for people caught up in the economic devastation of the coronavirus pandemic. The state established similar protections for rental housing and commercial leases.
The bill’s champions said it was designed to give homeowners in financial distress the option of suspending mortgage payments for several months without penalty during the pandemic’s initial phase. They would still owe the money, tacked on to the end of their mortgage repayment period.
“The moratoriums on evictions and foreclosure will go a long way to ensuring working families can stay in their homes and small businesses can continue operating amidst the pandemic,” Gov. Kate Brown said at the time.
The law applies through September, but authorizes the governor to extend its provisions until a later date.
The bankers’ lawsuit, filed in U.S. District Court in Eugene, argues that Oregon’s new law unconstitutionally pre-empts federal law and said it unfairly seeks to establish retroactive protections beginning March 8 – more than three months before the bill was passed.
The suit also seeks to reverse provisions of the new Oregon law that prevent banks from enacting fees, higher interest rates or other charges for nonpayment during the pandemic.
“It would allow lenders to pursue whatever recourse they have under their agreements, absent the foreclosure remedies that are outlined in” the legislation, Cunningham said.
The lenders’ suit argues the absence of penalties could hurt banks’ liquidity and affect them for decades in the case of long-term loans.
The bankers are taking no position on whether the foreclosure ban itself is unconstitutional, according to Cunningham. He said that even if the court rules in favor of the bankers on other provisions, he expects the court would allow the foreclosure ban to stand.
“My position is the court would only rule on the provisions that the plaintiff presents,” Cunningham said.
Democratic House Speaker Tina Kotek believes the suit has “no merit,” according to her spokesman, Danny Moran.
“At a time when a declining number of Oregonians are able to make rent or mortgage payments due to the COVID-19 pandemic, we should be focused on extending housing protections, not weakening them, particularly in the midst of a public health crisis,” Moran said.
-- Mike Rogoway | mrogoway@oregonian.com | twitter: @rogoway | 503-294-7699
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