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American College of Mortgage Attorneys — Partner with the Best®

Formed in 1974, the American College of Mortgage Attorneys (ACMA) is comprised of 500 lawyers in North America who are experts in mortgage law.

Canada

Prince Edward Island

Mortgages, debentures, and trust indentures are recognized security instruments, as are any other documents relating to or affecting any interest in or title to land in the nature of a mortgage. Registry Act, R.S.P.E.I. 1988, c. R-10 &sect;&nbsp;1(e) (the “Registry Act”). Furthermore, PART IV of the Real Property Act, R.S.P.E.I., c. R-3, &sect;&nbsp;55) (“Real Property Act”) provides for the use of Short Forms of Indentures, which among other instruments cover a short mortgage form for use in the Province of Prince Edward Island.

SECURITY INSTRUMENT USED

The Registry Act governs the recording of mortgages in Prince Edward Island. Pursuant to the Registry Act, documents evidencing real property ownership, such as deeds and mortgages, are registered and filed with the Registry of Deeds. The Registry Act provides that deeds and mortgages must be registered separately and in the prescribed form. Registry Act &sect;&nbsp;7(2). A mortgage is defined as including every mortgage, deed of further charge, debenture, assignment of mortgage, release of mortgage, certificate of discharge of mortgage, release of judgment lien, and writing relating to or affecting any interest in or title to land. Registry Act &sect;&nbsp;1(e).

RECORDING REQUIREMENTS

If a second mortgage is registered by a lender, a registered first mortgage that is made to secure past and future advances will continue to secure such advances up to the point when the first lender receives actual notice of the second mortgage. This priority can be lost, however, where the bank receives notice from a lien claimant. The requirement of actual notice is set out in Bank of Nova Scotia v. Farm Credit Canada, 2008 PESCTD 22.

SECURING FUTURE ADVANCES

So long as the security instrument contains satisfactory provisions to that effect, a lender may claim in a Power of Sale proceeding reimbursement of reasonable costs, charges, and expenses properly incurred with respect to the carrying out and enforcement of its mortgage security.

SECURING ADDITIONAL ADVANCES TO PROTECT THE COLLATERAL

It is the practice of lawyers in Prince Edward Island to use the Power of Sale as the primary method of remedying default mortgages, although the Real Property Act &sect;&nbsp;72 also allows for a judicial sale as well. Most lenders prefer to place a Power of Sale clause in their mortgage instruments since they can recover their losses for a lower cost and more quickly than going through a Court of Law to repossess properties in default. Local law does not place any further restrictions on how the Power of Sale is used other than what is already enforced through the Real Property Act. There is no enforced time period that a property is in arrears before a lender can notify the parties of a Power of Sale, although it is the practice to wait until the mortgage is at least 90 days in default. The form of notice is not controlled by legislation, so lenders develop their own notices. The notice should advise of the property particulars as well as the time, place, and date of sale. Once served, the borrowers have a specific time period, generally 15 days but other time periods can be specified in the notice, to bring the mortgage back up to date and have it reinstated. Once that time period has passed the lender then attempts to sell the property through public auction. If the auction fails, then the property can be listed on the market with a real estate agent. During the time leading up to the auction, the lender must place notifications in the local newspapers that a public auction is going to happen. The lender may also, as a courtesy, individually notify all parties affected by the mortgage and sale of the property, though it is not obliged to do so. The lender should also obtain an appraisal, usually done in this time period as well. Notifications usually are ongoing for about 4 consecutive weeks before the auction. At the auction the Sheriff usually acts as auctioneer, but the lender can hire a private auctioneer if desired. The bidding is opened by reading the notice of sale as well as any conditions of sale that the lender may require. If not sold at auction, it is listed for sale or sold privately. The Real Property Act defines how the monies from the sale are used. They are first used to pay for the cost of the sale and any other costs incurred by the lender during the sale. Then they are applied to the mortgage balance.

BRIEF DESCRIPTION OF PROCEDURE

If a mortgage is made pursuant to the Short Form of Indentures, the mortgagor can exercise his or her right of redemption at any time before the completion of the sale. The mortgagor must pay the amount of any principal owing, as well as any interest in arrears and costs incurred by the mortgagee. Real Property Act &sect;&nbsp;14 sch. 2.

REDEMPTION PERIOD AND PRICE

WAIVER OF REDEMPTION; REDUCTION OF REDEMPTION PERIOD

The mortgagee may seek a deficiency judgment against the borrower by action in the Supreme Court.

DEFICIENCIES

Leases and mortgages are registered in the Registry of Deeds pursuant to the Registry Act &sect;&nbsp;7(2). The registry system gives priority to instruments as they are entered in the register. Actual notice of a prior unregistered instrument in favour of a third party does not affect the title acquired by a purchaser for value. Registry Act &sect;&nbsp;43. Where the lease has priority over the mortgage, the mortgagee takes subject to the lease and cannot obtain possession of the demised premises until the term of the lease has expired.

EFFECT OF FORECLOSURE ON LEASES

The Criminal Code makes it an offence to charge an annual interest rate that exceeds 60% on the credit advanced under an agreement. Criminal Code, R.S.C. 1985, c. C-46 &sect;&nbsp;347. The Consumer Protection Act requires lenders to disclose the cost of borrowing through an expression of the annual percentage rate or by disclosing the method of determining such a rate. The lender must also disclose the manner of calculating the cost of borrowing. This disclosure must be given at the time of borrowing. Lenders of loans that are subject to variations in the annual percentage rate, must also disclose that the rate is liable to change, as well as the basis on which the change will occur. Moreover, the lender is required to issue to the borrower an annual written statement showing the number and total amount of payments made during the year, the amount applied to the cost of borrowing, the amount of principal repaid, and the amount of principal outstanding. Consumer Protection Act, R.S.P.E.I. 1998, c. C-19 &sect;&sect;&nbsp;16(2)(a), 16(2)(c), 16(3). The Unconscionable Transactions Relief Act &sect;&sect; 2, 3 allows the court to interfere to assist the debtor if it finds that, having regard to the risk and all the circumstances, the cost of the loan is excessive and the transaction is harsh and unconscionable. This power to assist the debtor may be exercised in an action by the creditor or, the debtor, or any other action in which the amount due or to become due in respect of money lent is in question.

USURY CEILING

USURY EXEMPTIONS

Filings can be made with the Personal Property Registry (P.P.R.), a centralized electronic registry that serves the entire province of Prince Edward Island. Secured parties can use the P.P.R. to register security interests in personal property. Personal property is defined by the Personal Property Security Act as, goods, a document of title, chattel paper, a security, an instrument, money or an, intangible. Personal Property Security Act, R.S.P.E.I. 1988, c. P-3.1 &sect;&nbsp;1(dd). Secured parties must register an electronic financing statement in the prescribed form. Personal Property Security Act Regulations, P.E.I. Reg. EC270/98 &sect;&nbsp;15(1). The fee to register a financing statement is $26; an additional $9 fee is incurred per year for the duration of the registration, or $500 for a registration with an infinite term. Upon completing the registration, the secured party is issued a verification statement confirming the details of the security interest. P.P.S.A. Reg. &sect;&nbsp;8(1). The secured party must provide the debtor with a copy of the verification statement within 30 days of the date of registration, unless the debtor has waived in writing the right to receive the verification statement. P.P.S.A. &sect;&nbsp;43(11). Existing registrations can be amended electronically with the P.P.R., for a fee of $10. P.P.S.A. Reg. &sect;&nbsp;52(1). Pursuant to the amendment of a registration, a notice of change report is generated and distributed electronically or by mail to the secured parties listed in the registration. Unless otherwise provided for by statute, security interests in the form of a lien, charge or other interest given by rule of law or statute cannot be filed with the P.P.R. P.P.S.A. &sect;&nbsp;4(a).

LOCATIONS FOR FILING

Fixture is not exhaustively defined, except to say that a fixture does not include building materials. Fixtures are however, included in the definition of goods. Crops are defined to include crops, whether or not those crops are matured, and whether naturally grown or planted, attached to land by roots or forming part of trees or plants attached to land, as well as trees that are being grown as nursery stock or for uses other than the production of lumber and other wood products, and trees intended to be replanted in another location for the purposes of reforestation. P.P.S.A. &sect;&sect;&nbsp;1(s); 1(u); 1(l). A secured party may register a notice of a security interest in a fixture or crop with the Registry of Deeds, which must be in the prescribed form; this registration incurs a fee of $77.25. P.P.S.A. &sect;&nbsp;49(2); P.P.S.A. Reg. &sect;&nbsp;61(1); Registry Act &sect; 50.1(3). If the filing does not take place within 15 days after the fixture or crops attaches to the land, the secured party's interest may be subordinate to the interest of the land owner and any mortgagee of the land. The secured party must provide the debtor with a copy of the notice within 30 days after it is registered, unless the debtor has provided a written waiver of his or her right to the notice. P.P.S.A. &sect;&sect;&nbsp;49(5), 36(10), 37(8). Generally, a secured party with an interest in goods that attaches before or when the goods become fixtures has priority with respect to the goods over a claim to the goods made by a person with an interest in the land. However, this priority becomes subordinate to a person who acquires an interest in the land after the goods become fixtures if the interest is acquired without fraud and before notice of the security interest is registered. The interest of a secured party with an interest in goods that attaches before or when the goods become fixtures is also subordinate to the interest of a person with a registered mortgage of the land if, after the goods become fixtures, the mortgagee makes an advance under the mortgage (only with respect to that advance), obtains an order for sale, foreclosure or foreclosure and sale, without fraud and before notice of the security interest in the fixture is registered. The interest of a secured party that attaches before, at the same time as, or after the goods become fixtures is subordinate to the interest of a creditor of the debtor who has registered a notice under the Judgment and Execution Act prior to the perfection or registration of the secured party's interest. P.P.S.A. &sect;&sect;&nbsp;36(2), 36(3), 36(4), 36(9). Generally, a secured party with an interest in crops has priority over a person with an interest in the land. However, the secured party's interest is subordinate to a person who acquires for value an interest in the land while the crops are growing crops, if the interest is acquired before notice of the security interest is registered. The secured party's interest is also subordinate to the interest of a person with a registered mortgage of the land if after the crops become growing crops, the person makes an advance under the mortgage (only with respect to that advance), or obtains an order for sale, foreclosure or foreclosure and sale, without fraud and before notice of the security interest in the crops is registered. A creditor who registers a notice of judgment under the Judgment and Execution Act has priority over a secured party with an interest in crops, so long as the notice is registered before the security interest is registered or perfected. P.P.S.A. &sect;&sect;&nbsp;37(2), 37(3), 37(4), 37(7).

SECURITY INSTRUMENT AS FIXTURE FILING

Proceedings charged on land or payable out of land, including mortgages, judgments, and liens, must be brought within 20 years after the right to recover accrued. Statute of Limitations, R.S.P.E.I. 1988, c. S-7 &sect;&nbsp;11(1). Likewise, proceedings to recover land or any sum of money payable under an agreement for the sale of land must also be brought within 20 years. Limitations &sect;&sect;&nbsp;12, 16. In the event that a mortgagee has obtained the possession of real or personal property or is in receipt of the profits from such land, the mortgagor must bring an action to redeem the mortgage within 20 years from the time at which the mortgagee obtained possession or first received any such profits. Similarly, a mortgagee must begin proceedings for foreclosure or sale under any mortgage of real or personal property, or to recover the property mortgaged, within 20 years from the date the right to take the proceedings first accrued to the mortgagee. Where payments on the account are received, the mortgagee's right to take proceedings are deemed to have first accrued at the time the last payment was made. Limitations &sect;&sect;&nbsp;34(1), 35, 36.

STATUTE OF LIMITATIONS PERIOD

If an action is not commenced within 90 days of registration, the lien expires and ceases to exist and a judge, upon a unilateral application, may order the discharge of the registration. Mechanics' Lien Act, R.S.P.E.I. 1988, c. M-4 &sect;&sect;&nbsp;27, 28(5). After 30 days from the date of registration of a lien, a person so entitled may send the lienholder written notice that the lien shall cease to exist unless an action is commenced within 30 days from the notice's mailing date. Unless an action is commenced within this period, a judge may order the discharge of the lien upon the application of any interested person. M.L.A. &sect;&sect;&nbsp;28(1), 28(3). Where an action has been commenced, a certificate of the Prothonotary (an officer of the court) may be registered to discharge a lien. This certificate indicates that the action has been disposed of or discontinued. M.L.A. &sect;&nbsp;28(4). A lien may also be discharged upon the registration of a certificate of discharge signed by the lienholder or his or her agent and verified by affidavit. M.L.A. &sect;&nbsp;30(1). Additionally, a judge may order the discharge of a lien upon any proper ground. M.L.A. &sect;&nbsp;53. A release of mortgage lien must be registered. Registry &sect;&nbsp;47(2).

REQUIREMENTS FOR RELEASE OF MECHANICS' LIEN

Neither a person who is non-resident of the Province of Prince Edward Island nor a corporation shall have an aggregate land holding in excess of 5 acres or having shore frontage in excess of 165 feet without obtaining the Executive Council's prior written permission. Prince Edward Island Lands Protection Act, R.S.P.E.I. 2002, c. L-5 &sect; 4.

LAND HOLDING RESTRICTIONS

The family home is defined as every property in which a married person has an interest and every property that is, or was at the time of separation, ordinarily occupied by the person and his or her spouse as their family residence. Family Law Act, R.S.P.E.I.&nbsp;1988, c F-2.1 &sect;&nbsp;19(1). Regardless of which spouse owns the property, both spouses have an equal right to possession of a family home. F.L.A. &sect;&nbsp;20(1). If the property is not used for a residential purpose, the family home will only consist of that part of the property that may reasonably be regarded as necessary to the use and enjoyment of the residence. F.L.A. &sect;&nbsp;19(3). 1 or both spouses may designate a property as a family home and, when both spouses register such a designation, any other property that is a family home but is not designated by both spouses as such ceases to be a family home until the designation is cancelled. F.L.A.&nbsp;&sect;&nbsp;21(4). Except in limited circumstances, such as the enforcement of an authorized court order, consent is needed by both spouses to dispose of or encumber an interest in a family home. F.L.A. &sect;&nbsp;22(1). A spouse or other person having an interest in the property may apply to the court to determine whether the property is a family home. The court may authorize the disposition or encumbrance of a family home if a spouse whose consent is required cannot be found or, is unavailable, is not capable of giving or withholding consent, or is unreasonably withholding consent. F.L.A. &sect; 24.

FAMILY PROPERTY

A $77.25 fee is incurred in registering a deed of conveyance where the value of the real property is less than $10,000. This fee increases with the value of the real property, the high end of the fee scale being $463.65, a fee incurred when the value of the property is $200,000 or greater. The fee scale for the registration of a deed of mortgage is based on the value of the principal sum of the mortgage and, as with deeds of conveyance, begins at $77.25 where the principal sum is less than $10,000, and increases to $463.65 where the principal sum is $200,000 or greater. The fee for registering every collateral mortgage is $103. Registry Act, R.S.P.E.I. 1988, c. R-10 &sect;&nbsp;50.1(3).

DOCUMENTARY STAMP TAX

Any person who registers a deed of conveyance must, before the deed is registered, pay a tax computed at the rate of 1% of the greater of the sale price or the assessed value of the real property. Real Property Transfer Tax Act, R.S.P.E.I. 1988, c. R-5.1 &sect;&nbsp;3(1). A number of exemptions apply; for instance, if a person who meets the definition of a first-time home buyer-files a declaration to that effect on the registration of the deed, and intends to occupy or use the property as a primary residence, then no tax is payable on the registration of the deed. Real Property &sect;&nbsp;5(2).

TRANSFER TAX

The Consumer Protection Act Cost of Credit Disclosure Regulations &sect; 5(d) contain a number of regulatory requirements that lenders must comply with. However, an exemption from these requirements exist where the principal amount of the loan exceeds $150,000 and the loan is secured by a mortgage on real property. The Unconscionable Transactions Relief Act allows a court that finds that the cost a loan is excessive and the transaction is harsh and unconscionable, to interfere in the debtor's favour. Such powers may be exercised in an action by the creditor, the debtor, or any other action in which the amount due under the terms of the loan is in question. Unconscionable Transactions Relief Act &sect;&sect; 2, 3.

ANY PROHIBITION OR SPECIAL RULES REGARDING LOAN APPLICATION, LOAN FEES OR COMMITMENT FEES

Prince Edward Island does not have any formal licensing nor any education requirements for mortgage brokers.

LENDER QUALIFICATION AND/OR LICENSURE

<ol start="8">
 <li> INCEPTION OF L&M LIEN (Priority of Lien of Deed of Trust or Mortgage): A person has an L&M lien when he or she does, or causes to be done, any work upon or in respect of an improvement, or furnishes material to be used in an improvement for an owner, contractor, or sub-contractor. This lien arises when the work is begun or upon the furnishing of the first material. M.L.A. &sect;&sect;&nbsp;2, 8. Material is deemed to be furnished when it has been delivered on the land or in the immediate vicinity of the land upon which it is to be used. M.L.A. &sect;&nbsp;3(4). A claim of lien must be registered with the proper registry office and verified by an affidavit prepared by the lienholder or his or her agent or assignee. M.L.A. &sect;&sect;&nbsp;19(1), 19(2), 19(3), 21(2). A lien has priority over all judgments, executions, attachments, garnishments, and receiving orders recovered, issued, or made after the lien arises. M.L.A. &sect;&nbsp;9(1). Upon registration, the lien has priority over all claims under conveyances, mortgages, and other charges, as well as agreements for sale of land, registered or unregistered, made by the owner after the lien arises. If a mortgage or conveyance is registered after a lien for material arises, but before the registration of the claim of lien, the mortgage or conveyance has priority over the lien to the extent of payments made by a person in good faith before learning of the lien. M.L.A. &sect;&nbsp;9(2), 9(3); P.P.S.A. &sect;&nbsp;32. Where land is encumbered by a mortgage or other charge registered before a lien arises, the mortgage or other charge has priority over the lien to the amount of the moneys owing at the time the lien arises, but only to the extent of the value of the land. Similarly, a mortgage or other charge has priority over a lien for material furnished to the extent of payments or advances made under the mortgage or charge after the lien arose, but before the person making payments or advances has received written notice of the lien. M.L.A. &sect;&nbsp;9(4).</li>
 <li> PRIORITY OF REMOVABLE FIXTURES (Priority of Lien of Deed of Trust or Mortgage): During the existence of an L&M lien, no part of any material affected shall be removed to the prejudice of the lien. M.L.A. &sect;&nbsp;13(1). If the material has been delivered either on the land or in the immediate vicinity of the land upon which it is to be used, it is deemed to be furnished and is subject to a lien in favor of the person furnishing it until it is placed in the improvement. While the lien exists, any furnished material is not subject to execution or other processes to enforce any debt other than that for the purchase money thereof. M.L.A. &sect;&sect;&nbsp;3(4), 13(2). Where material furnished to be used is incorporated in an improvement, a lien attaches. The lien attaches even if the material does not strictly meet the statutory definition of material deemed to be furnished. M.L.A. &sect;&nbsp;3(5). With some exceptions, a security interest that attaches before or at the time the goods become fixtures, as is the case with L&M liens, has priority over a claim to the goods made by a person with an interest in the land. A secured party who has the right to remove goods from the land must exercise that right in a manner that causes no unnecessary damage or injury to the land and to other property situated on it, and causes no greater inconvenience to the occupier than is necessarily incidental to the removal of the goods. The secured party must give at least 15 days' notice to the debtor by registered mail before removal of the goods. P.P.S.A. &sect;&sect;&nbsp;36(2), 36(11), 36(18).</li>
</ol>

LABOR AND MATERIAL LIEN CLAIMS - PRIORITY ISSUES

Starting to become more popular with commercial lenders in the Province of Prince Edward Island.

TITLE INSURANCE (COMMERCIAL LOAN POLICY

Typical standard commercial loan policies are designed for use specifically in Atlantic Canada by most title insurers.

FORMS AVAILABLE TO LENDER

It is possible to request that the title insurer provide special loan coverage via endorsements to the commercial loan policy where the subject matter of the security is unique or otherwise raises legal and/or commercial issues not adequately covered by the conventional standard commercial loan title insurance policy. &nbsp;

ENDORSEMENTS AVAILABLE

Real estate mortgages must be in the form of “public deeds,” which are subject to formalities required by the Puerto Rico Notarial Law and must be executed before a Puerto Rico notary public. Puerto Rico notaries public are civil law notaries, and the function they exercise with respect to “public deeds” goes significantly beyond the functions of a typical common-law notary. All Puerto Rico notaries must also be licensed attorneys. The deed of mortgage is initialed on all pages and signed by the mortgagor and the notary (execution by the mortgagee is optional), and the notary retains the original deed as part of his or her protocol of public instruments for the year in which it is executed. The notary then issues a certified copy of the deed, which is filed for recording in the Registry of Property. The mortgagor and any holder of the mortgage note may request additional certified copies, but because certification requires payment of a significant sum in documentary stamps, in practice the parties usually receive simple photocopies or pdf scans. Mortgages are presented to the Registry electronically (see the “Recording Requirements” paragraph below). Once the mortgage is recorded, the notary and any other person who presented the document (for example, the lender's counsel or the title insurer) will receive an email notice of recording from the Registry that will include the recording data. The notary will usually then remit the certified copy to the mortgagee with the recording data. The FannieMae/FreddieMac Puerto Rico single-family and multi-family forms of mortgage and note are the ones typically used for conventional residential mortgages. Commercial loan mortgage security usually involves 3 documents: (1)&nbsp;a deed of mortgage, which secures a (2)&nbsp;collateral mortgage note payable on demand to the order of the lender or to the bearer, and which is delivered to the lender under a (3)&nbsp;pledge and security agreement by which the lender is granted a possessory security interest in the note. Neither the deed of mortgage nor the demand note will contain any reference to the underlying loan(s). The demand note's principal amount might or might not coincide with the amount of the underlying loan(s), and its stated interest rate will usually be a fixed rate that is higher than the actual loan rate (to cover fluctuations or changes in the loan rate). The main function of the deed and the note is to establish the maximum amounts of principal, interest, and additional credits the secured creditor may recover from the foreclosure sale of the mortgaged property. The pledge and security agreement connects the collateral to the secured obligation(s), which may include a particular credit or may extend to all present or future indebtedness, whether of the mortgagor or of another party, to the note holder. The collateral note is a negotiable instrument, and negotiations or assignments of the note are not recordable in the registry. The deed of mortgage must state the minimum bid price that the parties assign to the mortgaged property for the 1st judicial sale in case of foreclosure (30 LPRA &sect;6107). A commercial mortgage securing a demand mortgage note has a useful life of 20 years, during which it can collateralize various obligations to a series of creditors, who may acquire an interest in the collateral through negotiation of the note and the execution of new pledge and security agreements. The 20-year term can be extended under certain conditions.

The Real Estate Registry Law, Act No. 210 of December 8, 2015, as amended, governs the recording of mortgages and foreclosures. The Property Registry has approximately 30 sections, each covering a particular geographic area. Mortgages are presented to the registry in either of 2 ways: (i) through an on-line computer application through which a pdf scan of the certified copy of the mortgage, deed is sent and registry fees, are paid, or (ii) by personal delivery of the certified copy to the appropriate Registry section where the certified copy of the deed is scanned, entered to the filing system, and returned to the notary. As stated above, the deed is subject to a number of documentary and execution formalities that require the intervention of a Puerto Rico notary. Upon presentation of the mortgage, the registry issues a dated receipt with a specific entry number, which will preserve rank since instruments affecting a particular property must be recorded in strict order of presentation. Actual recordation requires the registrar's review and approval of the instruments and may happen months or even years after the date of presentation, but the legal effects of recordation will be retroactive to the date of presentation. Mortgages of $500,000 or more in principal amount require that the lender file certain financial information regarding the borrower with the P.R. Treasury Department (30 LPRA &sect;6111) through the Treasury's on-line computer application. A Treasury certificate confirming that the filing was made should be attached to the mortgage deed presented to the Registry, but in practice this is seldom required by registrars. Purchase money loans to non-Puerto Rico residents, and reverse mortgages, are exempt from this requirement.

Homestead rights may be waived in certain residential mortgages (FHA, VA, FHMA, conventional mortgages, and certain others covered by specific laws, such as SBA mortgages).

STATUTES TO BE WAIVED

UNUSUAL TREATMENT OF STANDARD PROVISIONS

Future advances are secured up to the maximum stated principal amount of the mortgage note.

The P.R. Mortgage Regulations permit the mortgage to include additional credits such as one to secure advances made by the mortgagee to preserve and protect the collateral, including payment of taxes and insurance, but the amount of such credit(s) must be quantified in the deed of mortgage. Under normal practice, the credit for advances to protect the collateral is set at 10% of the principal amount of the mortgage.

Deeds of trust are not recognized in Puerto Rico.

TRUSTEE UNDER DEED OF TRUST

Puerto Rico law provides for a judicial foreclosure proceeding with a mixed character, with elements of both in rem and in personam actions including the collection claim against the borrower. As an ordinary legal action, it includes all stages of normal civil actions (pleadings, discovery, trial, etc.) under the Puerto Rico Rules of Civil Procedure, which are based on the Federal Rules of Civil Procedure. The lender usually will file the action against the borrower (and the owner of the mortgaged property, if different from the borrower), and obtain a judgment for the amount of the secured indebtedness that will recognize the enforceability of the mortgage. Absent an appeal, the judgment will become executory within 30 days of entry. If the mortgaged property is the mortgagor's principal residence, the Principal Residence Protection and Mandatory Mediation in Foreclosure Proceedings Act, 32 L.P.R.A. &sect;2881 et seq., requires the presiding judge in the case to order the parties, upon service of process to the mortgagor, to hold a mandatory mediation conference, in which the mortgagor shall be informed of all alternatives to prevent—or minimize the effects of—the foreclosure and judicial sale of the residence. This is a jurisdictional requirement; thus, judgment may not be issued until the mandatory mediation conference is held. Upon judgment becoming final, the mortgagee may request the court to order the foreclosure of the mortgage through the public sale at auction of the property. The sale will be conducted by the court's marshal at the marshal's office, except if the action is in the federal district court, where public sales are conducted by a special master. Notice of sale must be (i)&nbsp;given to all interested parties, including junior lienholders, (ii)&nbsp;posted in 3 public places of the municipality in which the sale will be held, and (iii)&nbsp;published in a newspaper of general circulation at least once a week for 2 weeks prior to the sale, except if the action is in federal court, the notice must be published once a week for 4 weeks. After the auction is held, the marshal and the successful bidder will execute a deed of public sale transferring title to the purchaser. All junior liens (subject to certain notice requirements) will be cancelled as a result of the judicial sale, upon petition to the court. Typical Length of Procedure: A contested collection procedure may take 1 or more years to complete. Uncontested procedures may take 4 to 6 months to complete. Foreclosure Bid Requirements: The deed of mortgage must state the minimum bid price that the parties assign to the mortgaged property for the 1st judicial sale in case of foreclosure (30 LPRA &sect;6107). If the first auction does not produce a bid for the minimum amount stated in the deed, 2 additional auctions may be held. The minimum bid prices at the second and third auctions will be 2/3 and &frac12;, respectively, of the bid price for the 1st one. The mortgagee may bid up to its judgment amount at any auction. Junior lienholders may bid the amount of their credits, but first they must fully pay, in cash or by certified check, the judgment owed to the foreclosing mortgagee (up to the stated amount of the mortgage) and to others with liens having priority. If there is no successful bidder at the third auction, title to the property will be transferred to the mortgagee free and clear of junior liens (subject to notice requirements), and &frac12; of the minimum bid amount stated in the deed will applied to the judgment.

Provisions waiving redemption rights often appear in mortgage deeds, but there is no redemption period after foreclosure.

If the foreclosure sale proceeds are insufficient to pay the judgment, the mortgagee may collect any deficiency as an unsecured credit from other available assets of the debtors. It may also obtain a court order to attach such other assets without posting a bond. As the borrower and any co-debtors (including solidary guarantors) will have been parties to the ordinary proceedings, the judgment will include a determination of their liability, which will be enforceable against them before or after the foreclosure sale. No fair value hearing is necessary.

Foreclosure does not affect a recorded lease that is senior to the foreclosed mortgage. Foreclosure will extinguish any inferior liens, including leases recorded in the registry in junior rank to the foreclosed mortgage, provided the inferior lienholders were given due notice of the foreclosure sale. It also will extinguish any unrecorded lease, even if the lease predates the mortgage. It should be noted that recording a lease in Puerto Rico requires the formality of a public deed and involves significant stamp taxes and recording fees, for which reason the majority of leases in Puerto Rico are drafted as private contracts not recorded in the Registry.

EFFECT OF FORECLOSURE UPON LEASES

In Scotiabank de Puerto Rico v. A.M. Rosario Ramos, et al., 2020 TSPR 123, the Puerto Rico Supreme Court interpreted the Principal Residence Protection and Mandatory Mediation in Foreclosure Proceedings Act (cited in the “Brief Description of Procedure” section above) as categorically requiring the creditor to offer to a mortgagor whose principal residence is being foreclosed all alternatives available in the market to avoid or minimize the effects of foreclosure, and to negotiate with the borrower in “good faith”, as the term is defined in the court's opinion. Creditors that fail to negotiate in good faith may face court-imposed sanctions.

CHANGES DUE TO RECENT FORECLOSURE LITIGATION

There are no limitations on the rates and amounts of interest, points, origination fees, prepayment penalties, and other fees and charges that may be contracted for, assessed, or collected.

If the collateral is crops or timber to be cut or the financing statement is filed as a fixture filing and the collateral is goods that are or will become fixtures, filing is in the section of the Property Registry where the property is recorded. All other filings except titled motor vehicles (which are filed at the P.R. Department of Transportation Motor Vehicle Bureau) are done through an on-line filing program maintained by the Department of State of Puerto Rico. UCC Article 9 is in effect in Puerto Rico, with some minor deviations from the standard text. The basic fee for filing UCC-1 financing statements is $25. Fixture filings are $35. Fixture filings must be signed and notarized by the debtor. If the debtor is not the titleholder of the real estate, the fixture filing must also contain the notarized consent of the titleholder.

A deed of mortgage is effective as a financing statement filed as a fixture filing, provided that it meets the requirements of UCC 9-502(c). The Real Estate Registry Law also extends the lien of a mortgage to fixtures on the mortgaged property, if the deed of mortgage so provides.

Guarantees are addressed in Articles 1472 to 1496 of the Puerto Rico Civil Code on suretyship. The guarantee may be subsidiary (not enforceable until remedies have been exhausted against available assets of the primary debtor) or in solidum. Subject to certain exceptions, a guaranty will not be enforceable in the absence of a valid principal obligation.

UNUSUAL PROVISIONS OR REQUIREMENTS

Civil Code Articles 1483 (on exhaustion of remedies against available assets of the primary debtor), 1487 (on allocation of liability among multiple guarantors), 1738 (on subrogation of collection rights against debtor), 1488 (on discharge of guaranty upon release of other guarantors), and 1495 (on discharge of guaranty by reason of extensions or waivers granted in the principal obligation).

Generally, guarantors are treated as sureties and are entitled to have their obligations strictly construed. If the guaranteed obligation is modified, extended, or otherwise amended without the guarantor's consent, the guarantor may be discharged of his obligations. However, typical forms contain waivers of the guarantor's consent to renewals, extensions, modifications, postponement of payment, etc.

SPECIAL PROBLEMS IN ENFORCEMENT

Guarantees are considered accessory obligations and, unless the primary debtor is under bankruptcy jurisdiction, an action against the guarantor should be included as part of the action against the primary debtor.

ISSUES AND GUIDELINES ON DEFICIENCY JUDGMENTS

An action to foreclose on a mortgage must be brought within 20 years of the note's maturity date. If the mortgage secures a demand note, the limitations period starts on the issue date of the note. If the mortgage note is pledged to secure a commercial note, the period for the in personam action under the commercial note is 3 years after maturity or acceleration. The period to sue on in personam actions under general contract obligations, including actions based on the breach of contractual obligations or negotiations (culpa in contrahendo), is 4 years, unless a different term is provided under applicable law.

Upon satisfaction of the mortgage, the holder of the mortgage note is only required to return the note to the mortgagor, with an appropriate cancellation endorsement. The mortgagor then may cancel the record of the mortgage by delivering the note to a Puerto Rico notary for the execution of a deed of cancellation, with similar formalities as the deed of mortgage, at the mortgagor's expense. Stamp taxes and recording fees are applicable to cancellation deeds and computed on a similar basis as mortgage deeds. A special judicial cancellation procedure must be undertaken (at the mortgagee's expense) if the mortgagee cannot locate the original note or it has been destroyed.

REQUIREMENTS FOR RELEASE OF LIEN

Homestead exemptions do not apply to mortgages.

HOMESTEAD ISSUES

Unless waived or modified as stated below, marriages between parties domiciled in Puerto Rico are subject to a marital partnership regime, and all assets acquired during the marriage are presumed to be property of the marital partnership (similar to community property under common law), pursuant to Article 489 of the Civil Code. The regime may be waived or modified by prenuptial or postnuptial agreement (postnuptial agreements are permissible under Articles 488 and 491 of the Civil Code). Unless stipulated otherwise, either spouse may acquire, manage, encumber, and dispose of community property, except community real estate. Both spouses' consent (even of a non-borrowing spouse) is required to mortgage community real estate, and both spouses must be parties to the mortgage deed.

COMMUNITY PROPERTY

Registry of Property recording fees for mortgages are $50 for the first $25,000 of the principal amount of the mortgage, plus $4 for each $1,000 or fraction thereof for the excess over $25,000, plus a filing fee of $15.50. An additional $10 fee applies to online filings.

MORTGAGE TAX

Notarial law (4 LPRA &sect;851) requires that internal revenue stamps be canceled on both the original and any certified copy of the deed of mortgage. Since the original must be retained by the notary, at least 1 certified copy is needed to record the mortgage in the registry. Stamp taxes for the original are calculated at the rate of $2 for the 1st $1,000 or fraction thereof, and $1 for every $1,000 or fraction thereafter, based on the principal amount of the mortgage plus the amount of any credit to secure protective advances (typically 10% of the principal sum). The internal revenue stamps for the certified copy are half of those required for the original deed. There is an additional stamp tax, used to support the operation of the Legal Aid Society. The Legal Aid stamp tax on the original deed is $5 for each $50,000 or fraction thereof, based on the principal amount of the mortgage plus the amount of any credit to secure protective advances (typically 10% of the principal sum). The Legal Aid stamp tax on the certified copy is &frac12; of the stamp tax on the original.

DOCUMENTARY STAMP TAXES

The deed transferring title to the property upon foreclosure of the mortgage requires the same filing fees and documentary stamps as a mortgage, except that the basis for calculation will be the highest of the following: (i) the sum of liens that are senior to the foreclosed mortgage, (ii) the foreclosure sale price, or (iii) the face amount of the foreclosed mortgage.

Choice-of-law provisions are generally upheld unless the chosen law conflicts with Puerto Rico public policy, or in certain cases such as contracts of adhesion. Out-of-state choice of law provisions may cover substantive law but not procedural matters. Real estate property rights on Puerto Rico properties are subject to Puerto Rico law, so out-of-state choice of law provisions in a mortgage are not likely to be enforceable.

ENFORCEABILITY OF AGREEMENTS AS TO CHOICE OF LAW

Puerto Rico law does not recognize the appointment of a receiver except by court order and upon a showing that no other provisional remedy would be effective (Rule 56.6 of the P.R. Rules of Civil Procedure). The court may require at its discretion the posting of a bond, and while provisions in commercial mortgages waiving the mortgagor's right to require a bond are common, there is no law or judicial precedent that determines that a contractual waiver limits the court's discretion to require a bond under Rule 56.6.

RECEIVERSHIP

Persons transacting business in Puerto Rico as mortgage lenders, mortgage brokers or mortgage originators are required to be licensed under the Puerto Rico Act to Regulate the Business of Mortgage Loans, Law No. 247 of December 30, 2010, codified at 7 LPRA &sect;3051 et seq. (“Law 247”), and its implementing Regulation 8017, issued by the Puerto Rico Commissioner of Financial Institutions. Under Law 247, Puerto Rico adopted the uniform rules of the Nationwide Mortgage Licensing System and Registry. Federally regulated institutions holding a Puerto Rico banking license and insurers licensed in Puerto Rico are exempt from the licensing requirements of Law 247. Law 247 does not clearly state that it regulates only residential mortgage loans, but the Commissioner of Financial Institutions has issued rulings concluding that commercial loans, even if secured by residential real estate, are outside the statute's scope. MODIFICATION - UNUSUAL PROVISIONS OR REQUIREMENTS FOR MODIFICATIONS OF EXISTING MORTGAGE LOANS: Mortgage amendments have the same form and registration requirements as deeds of mortgage. In practice, however, changes to commercial loan terms (other than loan increases that require an increase to the principal amount of the mortgage) usually require no amendment to the terms of the mortgage or the collateral note, since neither of those instruments references the terms of the secured loan.

LENDER QUALIFICATION AND LICENSURE

The principal environmental legislation in Puerto Rico is the Environmental Public Policy Act (the “EPPA”), codified at 12 LPRA &sect;&nbsp;8001 et seq. The EPPA authorizes the P.R. Environmental Quality Board (“EOB”) to file actions to impose fines and to collect costs incurred by any government agency in enforcing environmental laws, or in responding to or remediating environmental problems at any public or private property. Article 44 of the Real Estate Registry Law (30 LPRA &sect; 6064) authorizes the EQB, or any other government agency authorized to impose penalties for environmental harm to real estate, to file a lien over the affected property. The lien will have priority over liens filed after the agency's lien. It should be noted that U.S. federal environmental legislation is fully applicable in Puerto Rico, to the same extent as in all states of the union. Federal environmental liens may thus be imposed on properties located in Puerto Rico. Article 44 cited above, provides for the filing of liens by the EPA for response and remediation costs under CERCLA.

ENVIRONMENTAL LIEN LAW ISSUES

There is no local bar opinion report articulating standard accepted opinion practices for Puerto Rico. LABOR AND MATERIAL LIEN CLAIMS (“L&M LIEN”)—PRIORITY ISSUES: Puerto Rico law does not recognize L&M Liens of the nature and scope granted by most U.S. jurisdictions. The only rights recognized in Puerto Rico that have some similarities to the L&M Liens are: <ol>
 <li>A right granted to a creditor whose credit is due and payable, to retain property of the debtor that is in the creditor's possession, until the sum owed is paid or otherwise secured (Articles 1223-1229 of the Civil Code).</li>
 <li>A preferential right granted to suppliers of labor or materials to a construction project to collect, from moneys the developer may owe to the general contractor, any amounts owed by the general contractor to the supplier (Article 1374 of the Civil Code).</li>
</ol> The first item above may apply to real estate or fixtures therein, but a mortgage would be senior to any such retention right that arises after the filing of the mortgage. It would also be senior to a retention right that arose before the filing of the mortgage, if the right was not recorded in the registry prior to the filing of the mortgage. The second item is not a lien on real estate and cannot affect a mortgage in any way.

LEGAL OPINIONS

The American Land Title Association (ALTA) forms are the standard forms used in Puerto Rico. Lenders customarily require the ALTA Loan Policy.

FORMS USUALLY REQUIRED BY LENDER

A number of form endorsements and special endorsements are available upon request. Some of the more commonly used in Puerto Rico are encroachment endorsements and endorsements on building or zoning restrictions. &nbsp;

Prince Edward Island

Mortgage Law Summary

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Mortgage Law Summary for Prince Edward Island

Prince Edward Island

Mortgage Law Summary

Continue reading theMortgage Law Summary for Prince Edward Island

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Mortgage Law Summary for Prince Edward Island