Moratorium, Cramdowns & Other Provisions of Ohio House Bill 3: Will They Be Constitutional?

Client Advisory

March 27, 2009

By: Larry Rothenberg

Ohio House Bill 3 (H.B. 3), which was introduced in February and remains pending in the state legislature, features the following:

  • Creates a six-month moratorium on foreclosures of occupied properties
  • Authorizes state court judges to impose a “cramdown” by reducing the mortgage amount to the current appraised value of the property
  • Allows defendants to continue occupying their properties after the foreclosure, by paying rent
  • Increases the filing fee for foreclosure cases by $1,500.00, to create funds to assist distressed homeowners

Hearings on the Bill have been conducted before the Ohio House’s Housing and Urban Revitalization Committee. At a hearing held on Wednesday, March 25th, witnesses questioned whether the Bill would pass constitutional muster. Can a state enforce a law that changes the terms of existing contracts?

The “Contracts Clause” contained in the U.S. Constitution states: “No state shall… pass any… law impairing the obligation of contracts.” In its famous depression-era case of Homebuilding & Loan v. Blaisdell , 290 U.S. 398 (1934), the U.S. Supreme Court upheld a Minnesota state law allowing homeowners to remain in their homes for reasonable rent, because of the emergency that existed at the time. Although some have compared our current crisis to the Great Depression, during that time more than 50% of families with mortgages were in default and unemployment rose to about 30%. Today, only about 10% of mortgages are in arrears or in foreclosure, and unemployment in Ohio is still in single digits.

Since Blaisdell, the U.S. Supreme Court may have lowered the bar by stating that a state law impairing the obligation of contracts might be upheld if it has a “significant and legitimate public purpose and the legislation is reasonably related to that goal.” However, it is questionable whether the court intended that approach to be applicable in all circumstances.

Ohio’s constitution provides a separate basis for a challenge, based on its prohibition against retroactive laws. An argument can be made that all four of the provisions of H.B. 3 may, at least to some extent, be in violation of the prohibition against retroactivity.

In view of these issues, one of the witnesses testifying against H.B. 3 at the March 25th hearing warned the legislature, stating, “I am confident that the issue will be raised and litigated through our court system until the Ohio Supreme Court decides the constitutionality of the statute. It will be a long and costly road to get that determination.”

Further hearings and discussion are anticipated. Weltman, Weinberg & Reis will keep you advised of further developments.

For a copy of the Ohio Mortgage Bankers Association’s Summary of the testimony at the March 25th hearing, go here.

If you have any questions on this information, please contact Mr. Larry R. Rothenberg, Esq. Larry Rothenberg is the partner-in-charge of the Cleveland real estate and foreclosure department of Weltman, Weinberg & Reis Co., L.P.A. He is the author of the Ohio Jurisdictional Section contained within the treatise, “The Law of Distressed Real Estate”, published by The West Group. The firm handles foreclosures and related litigation throughout Ohio, Kentucky, Indiana, Illinois, Pennsylvania and Michigan. Larry can be reached at (216) 685-1135 or via e-mail at

Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation. The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship. Contact any of our offices or visit our website at for more real estate related information, company facts and attorney profiles. ©2009


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