Puerto Rico Supreme Court defines ‘good faith’ in compulsory foreclosure mediation cases
Puerto Rico Legal Services (SLPR, in Spanish) celebrated the opinion issued by the Puerto Rico Supreme Court in a mortgage foreclosure case that conclusively defines the concept of “good faith” in compulsory mediation processes that are mandatory in these cases.
“Undoubtedly, the decision in this case will be a game changer for everyone facing foreclosure proceedings. This result tears down major obstacles that the most disadvantaged had and is a triumph for justice,” said Alejandro Figueroa-Quevedo, executive deputy director of SLPR.
In the case before the Commonwealth’s Supreme Court, SLPR Attorney Manuel López-Gay, on behalf of the co-owners of the dwelling, questioned whether the banking institution complied with the jurisdictional requirement to act in good faith during the compulsory mediation process, because it did not present all the alternatives available in the market so that they would not lose their main home. The Supreme Court believed it did not comply.
In an opinion issued by Judge Kolthoff Caraballo in this case (Scotiabank de Puerto Rico v. AM Rosario Ramos, et als, CC-2016-0749), Act 184-2012 on “Compulsory Mediation and Preservation of the home in the foreclosure processes of a main residence,” is interpreted, “categorically establishing the obligation of mortgage creditors to offer all the alternatives available in the market and to negotiate in good faith to avoid foreclosure,” the legal group said.
As compulsory mediation is a jurisdictional requirement, in this case, the concept of good faith is defined in these processes, the attorney said.
The judge’s opinion listed the requirements of good faith in compulsory mediation processes as follows:
- The parties should be prepared to negotiate and reach an agreement, if possible;
- The parties must bring to the hearing or to the act of mediation all the documentation required by the mediation process and any other necessary documentation;
- The representative of the mortgagee must have the authority to reach an agreement. In other words, the bank’s representative cannot be just any employee, they must have the capacity and powers to make decisions in the case; and,
- Creditors must provide debtors with all the alternatives available in the market, such as loan modification, an analysis under the federal Home Affordable Modification Program and Home Affordable Refinance Program, among others. The process includes those alternatives that do not depend on the debtor’s economic capacity, such as a short sale, donation in payment, or a voluntary surrender of title, among others.
The Supreme Court’s decision “obliges the banks to demonstrate to the court that they offer all available alternatives to avoid foreclosure, otherwise the good faith requirement is not met and the court is deprived of jurisdiction to continue the proceedings. In addition, it could lead to the imposition of sanctions on the bank,” the SLPR said.
“This Supreme Court opinion will have a significant impact because, although the law recognized the requirement of good faith, some mortgage institutions didn’t act accordingly and only appear for pro forma mediation,” said Attorney Adalberto Núñez-López, director of the SLPR Aibonito Center where the case originated.
“The court clearly establishes what this negotiation in good faith refers to and that failure to comply with it subjects the bank to possible consequences,” he said.