In our real estate practice at Lampón & Associates we regularly deal with entities and individual clients, who during the course of their business become accustomed to handling real estate transactions in the United States and other countries of the world. When the time comes to perform a real estate transaction in Puerto Rico, the executives and individuals become aware that real estate procedures and practices in Puerto Rico significantly differ from those they commonly come in contact with.
A document that regularly causes some headaches to the parties is the deed of trust which is the subject of this article.
On this regards I do want to state, that the purpose of this article is to enlighten the reader about the differences and issues involved with this type of transaction. The purpose is not to discourage anyone from performing real estate transactions in Puerto Rico. To the contrary, through this article and other posts in this blog, I am in fact showing that real estate transactions in Puerto Rico are manageable and are in fact consistently closed in a successful fashion if the right procedures are followed.
As an introduction to the issue, loans obtained for the purpose of acquiring a real estate property require that the property be used as a guarantee. The tool to secure this guarantee is a mortgage which, throughout the United States is achieved ny means of a deed of trust. In the event the borrower defaults on the loan, the terms within the deed of trust allow lenders to file a suit against a the borrower with the purpose of obtaining title over the property to use it to recover amounts not paid by the borrower.
This same process or mechanism is available in Puerto Rico, but there are three key differences a lender and a borrower have to bear in mind–particularly the lender.
First and foremost, the form of the document is significantly different. If a lender uses and has the borrower execute the deed of trust in the format commonly used throughout the Unites States, the deed will not be recorded at the Puerto Rico Property Registry and the lien protecting the lender would not be created. This would mean that–while the loan would be valid–the attempts to register the mortgage lien upon the borrower’s property would fail.
The second issue is directed at the use of a notary licensed in Puerto Rico and the fact that the deed of trust needs to be signed in Puerto Rico by all parties concerned.
This issue goes hand in hand with the first issue, because the correct format can only be prepared and authorized by a notary in Puerto Rico. This means that if the lender uses the incorrect format and has the borrower sign the document before a notary licensed in Puerto Rico, the deed would not be recorded by the Property Registrar. Moreover, if the lender uses the correct format but it is signed before a notary anywhere in the United States and/or by a notary not licensed in Puerto Rico, the property deed would not be recorded.
Thus far we have two issues. Moving into the third issue I note that it is directed at the content of the document.
A deed of trust in Puerto Rico is called a “Mortgage Deed.” I would estimate that 96% of the contents of a Deed of Trust would be found within a Mortgage Deed in Puerto Rico with a 4% being different in one way or the other. The remaining 4% would be unique to Puerto Rico and could result critical. I personally call this the “uniqueness requirement.”
Within the 96% you would find the FHA requirements if it is an FHA loan, or the Rural, VA or Conventional loan requirements depending on the type of financing offered to the client. Conversely, the manner in which parties are identified is unique to Puerto Rico. The description of the property for Property Registry purposes is unique in Puerto Rico. Some of the clauses used in Puerto Rico are certainly unique to our island, and would not be found in the deed of trust I am normally presented with which is used throughout the United States.
Now on this subject, I must add that the deeds of mortgage used in Puerto Rico do match and in fact are ordinarily in compliance with FHA, Rural, VA and other Federal banking requirements for such a transaction. The uniqueness rests on the additional requirements established under Puerto Rico Law, normally absent in a deed of trust and which do not collide with federally mandated requirements for the banking/mortgage industry in the United States.
In sum, while the deed of mortgage used in Puerto Rico is comparable to some extent to the deed of trust used throughout the United States, the form, the content and the notary who authorizes the deed are particular to Puerto Rico. These and other aspects of the mortgage business in Puerto Rico require close scrutiny by lenders and borrowers alike.
Very truly yours,
Santiago F. Lampón