PUERTO RICO Law and Practice Contributed by: Antonio Santos, Donald Hull and Paola Canino, Pietrantoni Mendez & Alvarez LLC
jurisdictional requirements are met, the foreclo - sure action may also be brought in the United States District Court for the District of Puerto Rico. Since it is an ordinary civil action, the judicial foreclosure proceeding includes all of the dif - ferent stages of legal actions set forth in the Rules of Civil Procedure (including the filing of a complaint, discovery, trial, etc). With regard to enforcement of a mortgage lien on real property that is the principal residence of the debtor, the lender and the debtor are first required to partici - pate in compulsory mediation proceedings for the purpose of attempting to reach an agree - ment that would permit the debtor to retain own - ership and possession of the residence. Howev - er, the mediation proceedings do not oblige the parties to reach such an agreement, but often cause delays in completion of foreclosure of the mortgage lien. 3.7 Subordinating Existing Debt to Newly Created Debt Under Puerto Rican law, existing secured debt may be subordinated to newly created debt by agreement among the parties. There is also a statutory, preferred lien for unpaid real property taxes to which a mortgage lien will always be subordinate. It is also important to point out that the United States Bankruptcy Code applies in Puerto Rico and that US bankruptcy courts have broad discretion, under certain circumstances, to subordinate the claims of competing lien- holders. 3.8 Lenders’ Liability Under Environmental Laws A lender holding or enforcing a lien on real prop - erty in Puerto Rico may be liable under environ - mental laws if it exercises sufficient control over the contaminated property and/or the owner of
the property so as to be deemed responsible for the environmental condition of the property. 3.9 Effects of a Borrower Becoming Insolvent As a general rule, insolvency alone will not void a security interest in real estate under Puerto Rico law. However, if a borrower grants a lien when it is insolvent and does not receive equivalent value in exchange, the lien may be voided or set aside under the fraudulent transfer provisions of the Puerto Rican Civil Code or the fraudulent conveyance provisions of the United States Bankruptcy Code. 3.10 Taxes on Loans In Puerto Rico, there are no rules, regulations or requirements – whether existing, pending or proposed – compelling lenders or borrowers to pay any recording or similar taxes in connection with mortgage loans or mezzanine loans related to real estate. 4. Planning and Zoning 4.1 Legislative and Governmental Controls Applicable to Strategic Planning and Zoning The public policy of the Commonwealth of Puer - to Rico with regard to land use and the develop - ment and conservation of natural resources is set forth in a Land Use Plan, which was adopted by the Puerto Rico Planning Board and approved by the Governor of Puerto Rico. The Land Use Plan establishes land classifications for the entire territory of Puerto Rico, which are general categories of land use based on the land’s char - acteristics and values (urban soil, rustic soil, soil that may be urbanised, etc).
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