A report by Matthew Goldstein for the New York Times.
The foreclosure machine that ground to a halt in Puerto Rico after the devastation caused by Hurricane Maria in September is slowly cranking up again. Island residents who fell behind on their payments are facing creditors ranging from Wall Street to the federal government.
Over the last four months, nearly 300 new foreclosure actions were filed in federal court in San Juan and in local courts across the island.
Among the firms filing cases are an investment firm controlled by Credit Suisse, one in which the private equity firm TPG Capital is an investor and banks like Citigroup and Santander. Even the United States Department of Agriculture, which has underwritten more than 3,000 mortgages in mainly rural areas of Puerto Rico, has begun to foreclose on delinquent borrowers.
The filings are some of the first in Puerto Rico since several federal agencies — including the U.S.D.A. — imposed moratoriums on new foreclosures and legal actions in existing cases after the hurricane devastated the island’s electrical grid. But the moratoriums have begun to expire, setting the stage for what housing advocates have feared could be a wave of home foreclosures in the United States territory of 3.4 million people.
“The main problem here is that people are not prepared, and a lot of borrowers will be taken by surprise,” said Ricardo Ramos-González, coordinator of a consumer legal aid clinic at the University of Puerto Rico School of Law. “A lot of people are going to lose their homes.”
He said the situation was complicated by the fact that up to 125,000 island residents temporarily relocated to the mainland after Maria. Some who get sued may not be aware they were served with a foreclosure action — and some may not be able to afford lawyers to defend themselves.
In some of the new foreclosure cases, lawyers have said the homes were severely damaged.
A yearlong moratorium is a long one, but given the slow economic recovery in Puerto Rico, some housing advocates have argued it is not enough time. Lenders counter that at some point a determination needs to be made whether a borrower will ever be able to make payments again.
The power finally may be back on, but life is hardly back to normal. Hurricane Maria, a category 4 storm, caused an estimated $90 billion in damage and may be responsible for more than 1,000 deaths in the weeks after the hurricane. Blue tarps still serve as makeshift roofs on more than 50,000 homes. At least 10,000 small business were affected by the storm and insurance money is flowing slowly.
The Federal Emergency Management Agency, which said in a recent report that it was not prepared for a storm like Maria, has rejected about 60 percent of the assistance claims it received.
In the immediate aftermath of Maria, the number of delinquent mortgages in Puerto Rico swelled to 143,200. The number of homeowners behind on their mortgage payments has fallen to 82,100, according to statistics gathered by Black Knight, an analytics firm.
A slowly improving economy has made it easier for thousands of homeowners to resume making mortgage payments. But the number of delinquent mortgages remains high — roughly double the tally of overdue loans before the storm.
Before the hurricane, there were about 13,000 pending foreclosure cases in federal and local courts.
In all, there are 425,000 home-loan borrowers in Puerto Rico and roughly a quarter of those mortgages are guaranteed against default by the federal Department of Housing and Urban Development, which has its own moratorium on foreclosure filings until Aug. 17. The department, however, recently modified the moratorium to permit some older foreclosure cases to move forward.
The banks and investment firms said most of the new foreclosure filings were against borrowers who had been delinquent on their mortgages long before Hurricane Maria hit. The investors and banks called their actions reasonable first steps in dealing with delinquent borrowers and in line with what the federal agencies were permitting.
“We have respected the moratorium and are beginning to resume foreclosures on properties, most of which were secured by loans in serious delinquency prior to the hurricane,” said Drew Benson, a Citigroup spokesman. The bank, he said, had stopped writing new mortgages in Puerto Rico a decade ago.
Credit Suisse said its DLJ Mortgage Capital subsidiary is only filing foreclosures against borrowers who were already delinquent before the storm.
Ann Davis, a spokeswoman for Banco Santander Puerto Rico, said the bank “fully complies with federal and local laws applicable to foreclosures” and works with borrowers “to help them avoid foreclosure proceedings.”
A spokesman for the firm that manages mortgages for Roosevelt Cayman Asset Company declined to comment.
Roosevelt Cayman owns about 7,000 mortgages. The investment firm, in which TPG is one of several Wall Street investors, was one of the larger buyers of distressed home loans in Puerto Rico before the hurricane hit. Over the past decade, a number of Wall Street banks, hedge funds and private equity firms had swooped in to buy real estate assets in and around San Juan, banking on an economic recovery in Puerto Rico.
Earlier this year, a number of advocacy groups lobbied public pension funds in the United States to put pressure on TPG and other investors that had bought mortgages in Puerto Rico to honor the foreclosure moratoriums. The advocacy groups also met with some of the investment firms to discuss their concerns.
Most private mortgage investors were not bound by the moratoriums since any federal guarantees on those loans had expired when the mortgages were resold at discounted prices. Also, some of those loans were originally issued without federal guarantees.
For the most part, the lobbying effort to honor the moratoriums was successful. Private investment firms, including Roosevelt Cayman, held off on instituting any new foreclosure proceedings until recently.
Julio López Varona, one of the coordinators of the lobbying effort, said that Roosevelt Cayman began filing new foreclosures cases and reopening dormant cases shortly after Fannie Mae and Freddie Mac, two big government-controlled mortgage-finance firms, decided not to extend beyond May 31 a foreclosure moratorium on loans they had guaranteed.
“It is a concern because they are one of the biggest private investors in mortgages,” Mr. López said of Roosevelt Cayman.
Even a federal agency is starting to foreclose. The U.S.D.A. is foreclosing on mortgages issued by its Farm Service Agency. The mortgages typically written by the Agriculture Department are for homeowners, businesses and borrowers living in rural areas.
The U.S.D.A. is filing foreclosures mainly on delinquent farm and emergency loans. John Shea, a spokesman for the Farm Service Agency, said in an emailed statement that the only foreclosure cases it had filed involved mortgages that became delinquent years before Maria hit the island. He added that the agency had “offered substantial assistance to its Puerto Rico borrowers.”
But some housing lawyers said the U.S.D.A. had taken a hard line with borrowers seeking to negotiate lower monthly payments.
“They are very difficult with loan modifications,” said Rafael Rodríguez Roselló, a legal services lawyer.
Mr. Rodríguez said he was working with several borrowers who had mortgages from the U.S.D.A., including a disabled borrower who was denied a loan modification in April. The borrower, who lives in Gurabo, a town of 45,000, wanted to lower his payments after he stopped receiving money from a family member who had been supplementing his income.
The U.S.D.A., according to letters to the borrower, rejected the modification request because Mr. Rodríguez’s client had a prior loan reduction and was not entitled to another one under federal regulations.
Mr. Rodríguez said an appeal of the loan modification denial was pending.