New York City Bar Association Urges Foreclosure Relief for Puerto Rico

The New York City Bar Association has sent a letter urging the Department of Housing and Urban Development (HUD) to grant a further extension of the currently-existing moratorium for foreclosures on FHA-backed mortgages, due to the extensive damage caused by Hurricane Maria, for an additional twelve (12) months. The current moratorium is set to expire on March 19, 2018.

Due to the devastating damage caused by Hurricane Maria, ongoing power outages “have created unique difficulties for homeowners attempting to pay off their mortgages” states the letter signed by City Bar President John S. Kiernan and the City Bar’s Task Force on Puerto Rico Chair Roger Juan Maldonado and citing to a similar request made by Senators Rubio, Cortez Masto, Nelson and Menendez.

The letter notes that HUD has acknowledged its power to grant similar extensions, and explains the benefits of granting an extension in this case. Home foreclosures were a significant problem affecting residential properties located in Puerto Rico even before Hurricane Maria, and “Puerto Rico’s thirty-five percent foreclosure and delinquency rate—as of December 2017—is more than double what the national average was during the worst of the housing market collapse in January 2010.” The letter characterizes the problem as “both severe and unprecedented.”

Moreover, it appears that many of the mortgages held by Puerto Rican banks have been sold to third parties. “As of June 2017, banks in Puerto Rico had reportedly ‘sold more than 70 percent of their mortgage portfolio on the secondary market.’ These mortgages appear to have been sold to outsiders who may not be so willing to accept restructurings and refinancing in lieu of foreclosures.” Since outside investors have appeared on the scene, the number of foreclosure actions has spiked dramatically. The letter notes that “[a]lthough the current moratorium on FHA-insured mortgages has temporarily prevented these investors from moving forward with some foreclosures, Hurricane Maria has created a unique situation where homeowners are at an extreme disadvantage relative to those mortgage loan servicers seeking foreclosure, due to both macroeconomic forces and acts of nature that are outside of their control.”

The letter notes that there are indications that certain mortgage loan servicers are engaging in illegal and improper behavior to force homeowners out of their homes in Puerto Rico, citing complaints of internal miscommunications, misplaced documents, improper late fees, homeowners given the run-around when they sought mortgage modifications, foreclosure notices sent in English rather than Spanish, and dual tracking. The letter adds that, “to the extent that any of these issues have historically been caused by error rather than fraud, this only serves to further justify the extension of the foreclosure moratorium….We anticipate that these errors would only be compounded in the case of Puerto Rico, where—as of this writing—more than 400,000 U.S. citizens do not have electricity.”

“These are not normal times,” the letter states, explaining that a surge in foreclosures would further depress the Puerto Rican economy, and adding that “[t]o allow a wave of home foreclosures to happen now would be both cruel and economically destabilizing.” Extending the moratorium on foreclosures would provide needed relief to both homeowners and the Federal government, providing Puerto Rican families “the breathing room that they need to get back on their feet as the conditions in Puerto Rico improve, and it would help to stabilize their communities and lives during this time of crisis.” The letter adds that this relief would also benefit HUD, as the agency has previously noted that when foreclosures are prevented, it “not only allows families to retain homeownership, it also significantly reduces the financial impact of foreclosure claims against the FHA Insurance Funds.”

Citing previous instances in which HUD issued strong guidance to mortgage servicers seeking to foreclose on homeowners affected by natural disasters, the letter requests that HUD provide the same guidance by advising servicers that they must seek alternatives to foreclosure in Puerto Rico; and make every effort to meet with mortgagors who do not respond to their correspondence, rather than seeking default judgments against them.

The letter concludes that “[a]lthough an extension of the moratorium is not a complete solution of this matter, it will at least grant some temporary relief to a limited number of homeowners in Puerto Rico who have been impacted by Hurricane Maria. We hope that the requested relief will give homeowners a second chance, and give them the space that they need to navigate the complex—sometimes Kafkaesque—foreclosure process.”

The letter can be read here.

About the Association
The New York City Bar Association, since its founding in 1870, has been dedicated to maintaining the high ethical standards of the legal profession, promoting reform of the law and access to justice, and providing service to the profession and the public. The Association, through its 24,000 members, continues to work for political, legal and social reform, while implementing innovative means to help the disadvantaged. Protecting the public’s welfare remains one of the Association’s highest priorities. www.nycbar.org