Puerto Rico is facing a serious economic crisis. The government is deeply in debt and a large number of unemployed residents are falling behind on mortgage payments and leaving their island homes to find opportunities elsewhere. As a result, foreclosure rates are skyrocketing. In fact, in early 2016, Puerto Rico’s foreclosure rate was second only to New Jersey. In this article, you’ll learn about the foreclosure process in Puerto Rico. (To learn what to do, and not to do, in a foreclosure, see Foreclosure Do's and Don'ts.)
Most foreclosures start the same way—a homeowner loses a job, falls prey to an illness, or suffers some other calamity that prevents the borrower from paying house payments in a timely fashion. When the borrower falls behind, or “defaults” on the mortgage, the borrower must fix or “cure” the problem by bringing the loan current to keep the house. If successful, the borrower “reinstates” the loan and resumes making the regular payments as if the default never took place.
If the borrower is unable to cure the default, however, the next step is foreclosure. The law in Puerto Rico is comparable to foreclosure law in many states and incorporates many familiar principles.
A lender cannot start the foreclosure in Puerto Rico as soon as the borrower falls behind. Under federal mortgage servicing laws, which apply in Puerto Rico as well as the states, the lender generally must wait until the borrower is more than 120 days delinquent to begin the foreclosure process.
Puerto Rico law also dictates the pacing of the foreclosure. Here are the initial steps that must take place before the foreclosure officially begins.
Notice required by Puerto Rico law. Under Puerto Rico law, the lender is required to give a borrower a written notice that provides 20 days to cure the default (bring the loan current) before the lender can start the foreclosure process. After the lender sends out the notice of default and the 20 days elapses, the lender can proceed with foreclosing on the home.
The mortgage terms may require a longer cure period. The mortgage contract may require the lender to provide additional time to cure the default. For example, Puerto Rico mortgages sometimes state that the lender must mail the borrower a notice that gives 30 days to cure the default before starting a foreclosure.
How much it will cost to cure the default. To cure the default and prevent a Puerto Rico foreclosure, the borrower must pay the exact amount owed, excluding court costs and attorneys’ fees. If the borrower does not cure the default, the lender will foreclose.
Foreclosures in Puerto Rico go through a judicial process in the court system. The lender initiates the foreclosure by filing a brief in court, along with certain documents. The brief must contain an exact breakdown of the following:
The court will then examine the brief. If the lender meets all legal requirements, the court will instruct the marshall to serve the borrower with a “demand for payment,” which gives the borrower 30 days to pay off the total amounts claimed due, along with a copy of a summons to court. The notice further informs the borrower that if the delinquency is not cured within 30 days, the home will be sold at auction.
A borrower who disagrees with the foreclosure has 20 days to file an objection to the foreclosure in a document called a “deposition.” If the borrower does not object or pay the amount due, the home will be sold at auction to the highest bidder after the 30-day period passes. If the borrower objects, and the court resolves the objection in the lender’s favor, the auction will be allowed to proceed.
After the auction takes place, the court has ten days to review the record of the transaction. If the lender correctly followed all procedures, the court will confirm the sale and the proceeds will be used to pay off the mortgage debt.
If the total amount owed on the mortgage exceeds the foreclosure sale price, the difference is a “deficiency.” Puerto Rico law allows the lender to seek a personal judgment—called a “deficiency judgment”—against the borrower for this amount.
For instance, if the loan balance were $250,000 and the house sold for $200,000, the lender can generally get a deficiency judgment for $50,000. However, the foreclosing lender cannot get a deficiency judgment if the mortgage contract is a “non-recourse” loan, which means that the contract prohibits a deficiency judgment.
A redemption period is an amount of time following the foreclosure sale when the borrower can pay off the total debt (or reimburse the amount paid to the purchaser who bought the home at the foreclosure sale) to reclaim the property.
Puerto Rico doesn’t have a redemption period after the sale.
To find and review Puerto Rico’s foreclosure laws, go to the Laws of Puerto Rico Unannotated and click on Title 30, Mortgage Law and Regulations. You’ll find the foreclosure statutes under Subtitle 4, Chapter 121—Mortgage Foreclosure Proceedings.
If you're going through a foreclosure in Puerto Rico and want to learn more about laws that apply to foreclosures, as well as whether you have any defenses to the foreclosure, consider talking to a foreclosure attorney.
To get information about different ways to avoid foreclosure—like with a loan modification, short sale, or deed in lieu of foreclosure—speak to an attorney or a HUD-approved housing counselor.