OAR 340-122-0120: Security Interest Exemption

(1) Pre-foreclosure. A person or “holder” who maintains indicia of ownership primarily to protect a security interest in a facility, and who does not participate in the management of the facility, is not an “owner or operator” of such facility under ORS 465.255(1)(a) and (b). Whether a transaction falls within this exemption will depend on the facts and on the law otherwise applicable to the transaction: (a) “Holder” for the purposes of ORS 465.200 et seq. and this rule means a person who maintains indicia of ownership (as defined below) primarily to protect a security interest (as defined below). A holder includes the initial holder (such as a loan originator), any subsequent holder (such as a successor-in-interest or subsequent purchaser of the security interest on the secondary market), a guarantor of an obligation, a surety, or any other person who holds ownership indicia primarily to protect a security interest, or a receiver or other person who acts on behalf or for the benefit of a holder; (b) “Indicia of Ownership” as used in ORS 465.200 et seq. and this rule means evidence of a security interest, evidence of an interest in a security interest, or evidence of an interest in real or personal property securing a loan or other obligation, including any legal or equitable title to real or personal property acquired incident to foreclosure or its equivalents. Evidence of such interests include, but are not limited to, mortgages, deeds of trust, liens, judgment liens, statutory liens, surety bonds and guarantees of obligations, title held pursuant to a lease financing transaction in which the lessor does not select initially the leased property (hereinafter “lease financing transaction”), legal or equitable title obtained pursuant to foreclosure, and their equivalents. Evidence of such interests also include, but are not limited to, assignments, pledges, or other rights to or other forms of encumbrance against property that are held primarily to protect a security interest. A person is not required to hold title or a security interest in order to maintain indicia of ownership; (c) “Primarily to Protect a Security Interest” as used in ORS 465.200 et seq. and this rule means that the holder’s indicia of ownership are held primarily for the purpose of securing payment or performance of an obligation. The term “primarily to protect a security interest” does not include indicia of ownership held primarily for investment purposes, nor ownership indicia held primarily for purposes other than as protection for a security interest; (d) “Security Interest” as used in ORS 465.200 et seq. and this rule means an interest in a facility created or established for the purpose of securing a loan or other obligation. Security interests include, but are not limited to, mortgages, deeds of trusts, liens, judgment liens, statutory liens, and title pursuant to lease financing transactions. Security interests may also arise from transactions such as sale and leasebacks, conditional sales, installment sales, trust receipt transactions, assignments, factoring agreements, accounts receivable financing arrangements, and consignments, if the transaction creates or establishes an interest in a facility for the purpose of securing a loan or other obligation; (e) “Participating in the Management of a Facility” as used in ORS 465.200 et seq. and this rule means that the holder is engaging or has engaged in acts of facility management, as defined herein: (A) Actions that Are Participation in Management. Participation in the management of a facility means actual participation in the management or operational affairs of the facility by the holder, and does not include the mere capacity to influence, or ability to influence, or the unexercised right to control facility operations. Whether the holder has participated in management sufficiently to void the exemption is a fact-sensitive inquiry. In all cases, the determination of whether a holder is participating in management depends on the holder’s actions with respect to the facility rather than the outcomes associated with such actions. A holder is participating in management, while the borrower is still in possession of the facility encumbered by the security interest, only if the holder either: (i) Exercises decision-making control over the borrower’s environmental compliance, such that the holder has undertaken responsibility for the borrower’s hazardous substance handling or disposal practices; or (ii) Exercises control at a level comparable to that of a manager of the borrower’s enterprise, such that the holder has assumed or manifested responsibility for the overall management of the enterprise encompassing the day-to-day operational (as opposed to financial or administrative) decision-making of the enterprise. Operational aspects of the enterprise include, but are not limited to, functions typically performed by positions such as that of facility or plant manager, operations manager, chief operating officer, or chief executive officer. Financial or administrative aspects include, but are not limited to, functions typically performed by positions such as that of credit manager, accounts payable/receivable manager, personnel manager, controller, or chief financial officer. (B) Actions That are not Participation in Management: (i) Actions at the Inception of the Loan or Other Transaction. No act or omission prior to the time that indicia of ownership are held primarily to protect a security interest constitutes evidence of participation in management. A prospective holder who undertakes or requires an environmental inspection of the facility in which indicia of ownership is to be held, or requires a prospective borrower to clean up a facility or to comply or come into compliance (whether prior or subsequent to the time that indicia of ownership are held primarily to protect a security interest) with any applicable law or regulation, is not by such action considered to be participating in the facility’s management. Neither the statute nor this rule requires a holder to conduct or require an inspection to qualify for the exemption, and the liability of a holder cannot be based on or affected by the holder not conducting or requiring an inspection. NOTE: A person who desires to preserve or claim a defense under ORS 465.255(2)(a) must undertake the appropriate inquiry described in ORS 465.255(6). (ii) Policing the Security Interest or Loan. A holder who engages in policing activities prior to foreclosure or its equivalents will remain within the exemption provided that the holder does not by such actions participate in the management of the facility. Such policing actions include, but are not limited to, requiring the borrower to clean up the facility during the term of the security interest; requiring the borrower to comply or come into compliance with applicable federal, state, and local environmental and other laws, rules, and regulations during the term of the security interest; securing or exercising authority to monitor or inspect the facility (including on-site inspections) in which indicia of ownership are maintained, or the borrower’s business or financial condition during the term of the security interest; or taking other actions to adequately police the loan or security interest (such as requiring a borrower to comply with any warranties, covenants, conditions, representations, or promises from the borrower); (iii) Work Out. A holder who engages in work out activities prior to foreclosure or its equivalent will remain within the exemption provided that the holder does not by such action participate in the management of the facility. For purposes of this rule, “work out” refers to those actions by which a holder, at any time prior to foreclosure or its equivalents, seeks to prevent, cure, or mitigate a default by the borrower or obligor; or to preserve, or prevent the diminution of, the value of the security. Work out activities include, but are not limited to, restructuring or renegotiating the terms of the security interest; requiring payment of additional rent or interest; exercising forbearance; requiring or exercising rights pursuant to an assignment of accounts or other amounts owing to an obligor; requiring or exercising rights pursuant to an escrow agreement pertaining to amounts owing to an obligor; providing specific or general financial or other advice, suggestions, counseling, or guidance relating to work out activities; and exercising any right or remedy the holder is entitled to by law or under any warranties, covenants, conditions, representations, or promises from the borrower; (iv) Actions Taken Under ORS 465.255(7)(a). A holder does not participate in the management of a facility merely by taking a response action in accordance with ORS 465.255(7)(a). (2) Post-foreclosure. A person who holds indicia of ownership after foreclosure or its equivalents primarily to protect a security interest is not an “owner or operator” of such facility under ORS 465.255(1)(a) and (b) provided that the holder undertakes to sell, release property held pursuant to a lease financing transaction (whether by a new lease financing transaction or substitution of the lessee), or otherwise divest itself of the property in a reasonably expeditious manner, using whatever commercially reasonable means are relevant or appropriate with respect to the facility, taking all facts and circumstances into consideration, and provided that the holder did not participate in management prior to foreclosure or its equivalents: (a) “Foreclosure or its equivalents” as used in this rule include, but are not limited to, purchase at foreclosure sale; acquisition or assignment of title in lieu of foreclosure; termination of a lease financing transaction or other repossession; acquisition of a right to title or possession; an agreement in satisfaction of the obligation; or any other formal or informal manner (whether pursuant to law or under warranties, covenants, conditions, representations, or promises from the borrower) by which the holder acquires title to or possession of the secured property. Indicia of ownership that are held primarily to protect a security interest include legal or equitable title acquired through or incident to foreclosure or its equivalents; (b) A holder who did not participate in management prior to foreclosure or its equivalents, may sell, release property held pursuant to a lease financing transaction (whether by a new lease financing transaction or substitution of the lessee), liquidate, maintain business activities, wind up operations, undertake any response action in accordance with ORS 465.255(7)(a), and take measures to preserve, protect, or prepare the secured asset prior to sale or other disposition without voiding the exemption, provided that the holder undertakes to sell, re-lease property held pursuant to a lease financing transaction (whether by a new lease financing transaction or substitution of the lessee), or otherwise divest the facility in a reasonably expeditious manner. To show that the holder has acted in a “reasonably expeditious manner,” the holder may: (A) Use whatever commercially reasonable means to sell, re-lease, or divest as are relevant or appropriate with respect to the facility; or (B) Establish that the ownership indicia maintained following foreclosure or its equivalents continue to be held primarily to protect a security interest if, within 12 months following foreclosure, the holder lists the facility with a broker, dealer, or agent who deals with the type of property in question, or advertises the facility as being for sale or disposition on at least a monthly basis in either a real estate publication or a trade or other publication suitable for the facility in question, or a newspaper of general circulation (defined as one with a circulation over 10,000, or one suitable under any applicable federal, state, or local rules of court for publication required by court order or rules of civil procedure) covering the area whether the property is located. For purposes of this provision, the 12-month period begins to run from the time that the holder acquires marketable title, provided that the holder, after the expiration of any redemption or other waiting period provided by law, acts diligently to acquire marketable title. If the holder fails to act diligently to acquire marketable title, the 12-month period begins to run on the date of the foreclosure or its equivalents. (c) A holder that outbids, rejects, or fails to act upon an offer of fair consideration for the facility establishes that the ownership indicia in the secured property are not held primarily to protect the security interest, unless the holder is required, in order to avoid liability under federal or state law, to make a higher bid, to obtain a higher offer, or to seek or obtain an offer in a different manner: (A) “Fair consideration,” in the case of a holder maintaining indicia of ownership primarily to protect a senior security interest in the facility, is the value of the security interest calculated as follows: (i) An amount equal to or in excess of the sum of the outstanding principal (or comparable amount in the case of a lease that constitutes a security interest) owed to the holder immediately preceding the acquisition of full title (or possession in the case of property subject to a lease financing transaction) pursuant to foreclosure or its equivalents; plus (ii) Any unpaid interest, rent, or penalties (whether arising before or after foreclosure or its equivalents); plus (iii) All reasonable and necessary costs, fees, or other charges incurred by the holder incident to work out, foreclosure or its equivalents, retention, maintaining the business activities of the enterprise, preserving, protecting and preparing the facility prior to sale, re-lease of property held pursuant to a lease financing transaction (whether by a new lease financing transaction or substitution of the lessee), or other disposition; plus (iv) Remedial action costs incurred under ORS 465.255(7)(a); less (v) Any amounts received by the holder in connection with any partial disposition of the property, gross revenues received as a result of maintaining the business activities of the enterprise, and any amounts paid by the borrower subsequent to the acquisition of full title (or possession in the case of property subject to a lease financing transaction) pursuant to foreclosure or its equivalents. (B) In the case of a holder maintaining indicia of ownership primarily to protect a junior security interest, fair consideration is the value of all outstanding higher priority security interests plus the value of the security interest held by the junior holder, each calculated as set forth above; (C) “Outbids, rejects, or fails to act upon an offer” of fair consideration means that the holder outbids, rejects, or fails to act upon within 90 days of receipt of a written, bona fide, firm offer of fair consideration for the property received at any time after six months following foreclosure and its equivalents. A “written, bona fide, firm offer” means a legally enforceable, commercially reasonable, cash offer solely for the foreclosed facility, including all material terms of the transaction, from a ready, willing, and able purchaser who demonstrates the ability to perform. For purposes of this provision, the six-month period begins to run from the time that the holder acquires marketable title, provided that the holder, after the expiration of any redemption or other waiting period provided by law, acts diligently to acquire marketable title. If the holder fails to act diligently to acquire marketable title, the six-month period begins to run on the date of foreclosure or its equivalents. (3) Holder’s Basis of Liability Independent of Status as Owner or Operator: (a) Notwithstanding this rule, a holder may incur liability in connection with its activities under the independent bases of liability set forth in ORS 465.255(1)(d) to (7); (b) A holder who obtains actual knowledge of a release at a facility acquired by the holder through foreclosure or its equivalent and then subsequently transfers ownership or operation of the facility to another person without disclosing such knowledge shall not be entitled to the security interest exemption and shall be considered an “owner or operator” under ORS 465.255(1)(c); (c) This rule applies only to liability under ORS 465.200 et seq. and does not apply to any right that the state or any person may have under federal statute, common law, or state statute other than ORS 465.200 et seq., to recover remedial action costs or to seek any other relief related to a release.