May 14, 2021

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Alert for the high number of delinquent mortgages

Like many families in Puerto Rico, Doña Ana (not her real name) lives under the torture of an eviction threat that robs her of sleep and peace of mind. In her case, there is added concern that she and her husband have a daughter with conditions that force her to use a wheelchair.

Their problems began when an uncle betrayed the trust they had placed in him, and stopped paying the mortgage on the land on which this family built their house, without giving them any notice.

According to Dona Ana, that uncle allowed him to use part of a piece of land to build his house there, and promised to segregate that part of the farm to give it to him. Little by little they built the house there, taking into account the mobility needs of their daughter. However, every time I inquired with the uncle about the situation on the land, “he would pitch at me, he would tell me that he couldn’t do it because I was still paying his mortgage.”

And so time went by, until the eviction order arrived. Then they learned that the uncle had mortgaged the land three times without telling them anything, and he even mortgaged the house that was not his. He had stopped paying for everything, including other structures on the farm, and did not respond to the bank or attend court appointments, so he was declared in default and the bank decided to seize everything.

Ana commented that a court bailiff came to her house, “with attitude, saying that we had to get all the things out as soon as possible, that we had 10 days, that if they didn’t arrive, they would throw everything on the street.”

Contrary to what happens with the land, the house has no debts.

In the midst of the alarming situation, Ana sought help and guidance, eventually reaching the organization Pro-Bono, Inc., which assists people facing situations like her family’s.

Fortunately, they were able to go to court and the court allowed time to segregate the land, and with that some hope. However, with the arrival of the COVID-19 pandemic, all the efforts have been delayed, stuck in various agencies, while Ana’s family continues to be mired in uncertainty.

Many families in uncertainty

Stories like Ana’s are lived daily throughout the Island, either due to ignorance, lack of information or other reasons. In fact, as explained by lawyers Ricardo J. Ramos González, who works with the Clinic for the Prevention of Mortgage Foreclosures of the University of Puerto Rico, and Alexis Sánchez Morales, who works with Pro-Bono, Inc., there are currently dozens of thousands of delinquent mortgages, in many cases with up to 18 months unpaid, which in the coming months could be in serious trouble.

The threat of a sudden increase in homes in danger of foreclosure after the moratorium that was issued due to the pandemic expires is such that the federal regulator, the Consumer Financial Protection Agency (CFPB, in English) is proposing a series of measures to extend protections and prevent millions of families from suddenly facing executions, and this has been made known in a communication in which its director speaks of an “urgent crisis” and calls for preventive action.

“But the situation is that the banks here do not necessarily comply with what is established there, and when the CFPB finds out, it is later when they come in later years to make routine visits,” said Ramos. “That is the concern, that even with the amendments, things are not done as God intended, and we have consequences that are not what we want.”

The situation on the island is “serious”

And if the matter is cause for concern in the United States, where the CFPB estimates that 6% of mortgages are in default due to the pandemic, “in Puerto Rico it is much more serious,” since the number of loans in default is around the 28% of active residential loans, according to the most recent figures from the Office of the Commissioner of Financial Institutions (OCIF).

“And it is only by counting the loans that are in default on payments, we are not talking about those that are in execution paralyzed or in mediation paralyzed, only those that are in default due to the pandemic,” said Ramos, clarifying that that 28% is equivalent to more than 106,000 mortgage loans, for an amount of more than $ 11,000 million.

Sánchez explained that, in Puerto Rico, “we have already been dragging an alarming situation in executions, due to Hurricane María, the earthquakes and all the crises that have been coming. When the pandemic arrives, contrary to Maria’s moratoriums that were three months, these moratoriums in payment are opened, which many began in March (2020), and the CFPB is saying, look, these are people who are going to end in September or April with more than a year, many of them with 18 months in payments, so what are you going to do with that person who carries that debt? Are you going to execute him, what options are you going to give him?

“The volume is so much that the CFPB is concerned about how they are going to deal with this. Because you can’t sing about it, “added Ramos. “And the message that we and our organizations want to carry is that we need the banks to prepare and comply with the rules that will be established by CFPB, so that then they do not penalize people and do not pass like the lady of the field (Mrs. Ana) they met. In other words, that it be done in an orderly manner ”.

The picture is further complicated by the fact that both the banks that remain on the island and the investment companies that acquire part of those loans, have few personnel to work on mitigating losses on those mortgage loans and would be overwhelmed. Nor would local agencies that intervene in eviction situations, such as the Department of the Family and the Department of Housing, as well as the courts and mediation offices, would be prepared for a scenario in which more than a quarter of residential mortgages they would be in possible execution.

They ask for intervention of the Legislature

Although banks in Puerto Rico would in principle have to follow the directives of the CFPB, which among other things is proposing that no new enforcement cases be initiated until next year, experts commented that the local Legislature could take action to strengthen protections to families, as has happened in previous emergencies.

Meanwhile, lawyers have some very important recommendations for anyone whose mortgage is in default or at risk of foreclosure.

“The important thing here is that people have to communicate with their loan server, with their bank, through methods that can be verified, that is, phone calls, email, certified mail, to have evidence of their attempts to communicate with the bank, ”said Ramos. “Be proactive and call. Ask what we are going to do once the moratorium ends, what are my alternatives, and if it is possible that they put it in writing, “he added.

He explained that the bank, depending on the type of loan, “has to offer alternatives”, which can be putting the months in arrears at the end, making a second mortgage that does not generate interest and pays off when the loan is sold or refinanced, extending the term up to a maximum of 40 years, lower the interest, defer part of the principal to lower the payment, among others. However, although the bank is required to evaluate your case, it is not required to approve anything.

In fact, currently, due to the current situation, the regulations have been relaxed so that banks can make determinations with an incomplete application. However, it is recommended to try to comply with what the bank requests.

Something that you should not do, as it would be to your detriment, is to hide or leave the residence.

The experts recalled that, even when an execution sentence has already been issued by the court, you still “have the opportunity to reach an agreement with the bank, in theory until the day of the auction, but by regulation up to 37 days before. After the auction, the bank is obliged to evaluate your case. And one important thing is that, when you are in ‘loss mitigation’, regardless of the case started or not, if you have already delivered all the documentation, the bank has to stop everything, it cannot continue in court, until the evaluation of Your case”.

In fact, if, as expected, the recommendation that the CFPB is making is approved and foreclosures are prohibited until next year, Ramos and Sánchez urge anyone with a delinquent loan to understand that they will not be able to pay once the moratorium expires on June 30, to contact the bank and ask for the loss mitigation process, and thus, when entering the negotiation, they would avoid falling into default.

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