Editor’s Note: This feature originally appeared in the November issue of DS News.
With Puerto Rico having marked the one-year anniversary of Hurricane Maria’s landfall on the island this past September, the long road to recovery still seems very long in many respects. USA Today reported in early October that, to date, the Federal Emergency Management Agency (FEMA) had “approved more than 460,000 applications and more than $1.4 billion in direct individual and household assistance funds” for the island. In April, the U.S. Department of Housing and Urban Development announced that Puerto Rico would receive $18.5 billion to go toward rebuilding its housing market. But even those grand totals seem like mere drops in a very large bucket.
Even a year later, as other damaging storms have long since eclipsed Maria across the hectic 24-hour news cycles, the shadow of the hurricane looms large over Puerto Rico and her people. The Puerto Rico Builders Association estimated that the devastating storm damaged 250,000 housing units and outright destroyed 35,000. The island’s government estimates it will require $139 billion to rebuild the island, with $33 billion needed to restore and reinvigorate Puerto Rico’s housing.
Even more sobering are the death tolls for the storm. An independent study from George Washington University’s Milken School of Public Health, commissioned by Puerto Rico’s Gov. Ricardo Rossello and released in August 2018, raised the official death toll attributed to the storm’s impact on Puerto Rico from 62 to 2,975. A Harvard University study released in May 2018 pegged those numbers even higher, estimating that more than 4,600 people could have died as a result of the storm and delayed medical care during the chaos that followed.
Puerto Rico is in need, and the mortgage and servicing industry has the tools to assist—so long as the will is there as well. That call to action underpins PR18, an upcoming leadership summit organized by the Five Star Institute (DS News’ parent organization) and set to unfold this November 14–16 at the San Juan Marriott in San Juan, Puerto Rico. With the challenges many and the needs dire, DS News spoke to some of the participating industry leaders to learn more about the state of the situation on the ground, where the industry can help, and how PR18 hopes to help drive progress toward Puerto Rico’s full restoration.
THE LOOMING CHALLENGES
When Hurricane Maria hit Puerto Rico, it brought with it winds of nearly 160 miles per hour, coupled with storm-surge flooding. The island’s 3.5 million residents were left without power, and repairing that infrastructure took the better part of the intervening year in many cases—the Puerto Rico Electric Power Authority announced in August that service had finally been restored to all parts of the island. All told, the storm caused nearly $90 billion in damages and forced many residents to flee the island, both in the immediate aftermath and in the long months that have followed.
The long months that have followed. Dealing with the physical damages alone would be daunting enough. While significant progress has been made in urban areas such as the capital of San Juan, Nickalene Badalamenti-Kalas, President, Five Brothers Default Management Solutions, told DS News that “clean-up efforts in rural areas are understandably lagging.”
“Safety has to be in the forefront,” said Angela Hurst, SVP, USRES, Inc. and RESNET. “Statistically, many of the buildings that have been abandoned on the island folded to the wrath of the winds or the rains, more than the surge of the ocean waters. Working with the local government to determine if these properties meet updated building codes is critical to the rebuilding of the island.”
Efforts by field services personnel on the island face abundant difficulties, ranging from funding to a lack of materials and skilled labor—and that’s barely scratching the surface. Property access can also be challenging, Badalamenti-Kalas said. Even reaching a property in order to gauge its status can sometimes be difficult if not impossible.
Moreover, the damages across the island were in many cases exacerbated by the condition of structures even before the storm arrived. Emilio Colón Zavala, President of the Puerto Rico Builders Association, estimated that as much as 55 percent of the island’s housing stock was built “informally,” without permits or failing to meet the island’s building-code standards.
“Homes that were not built up to code were left especially vulnerable to hurricane devastation,” Badalamenti-Kalas told DS News.
With so much damage and so many people leaving the island both before and after Maria, it’s no surprise that the island continues to face both an economic and a foreclosure crisis.
“Even before the hurricane, we were seeing a lot of issues in Puerto Rico financially,” said Andrea Tromberg, Owner, Tromberg Law Group. “There was already economic hardship and issues within the court system and government that the people were trying to improve and resolve. When you take that situation and compound it with a devastating hurricane, it only made matters worse.”
“The biggest challenge our industry faces is the lack of identifiable information,” Hurst said. “Puerto Rico has an MLS (multiple listing service), but it is not widely or consistently utilized, so the information contained within it is not reliable. In our industry, the reliability of values, comparables, and returns is critical and the accuracy of that information determines whether a buyer will make an offer on a property or if an investor will enter the market. The Puerto Rican market is gaining a lot of interest from the states for investment opportunities or vacation properties, but the lack of reliable information is a deterrent.”
Hurst cited First Bank Puerto Rico as an example. She explained that the bank, one of the largest lending institutions on the island, “recognized the challenge they were having gaining outside interest into the island because of the fragmented methods of marketing properties. RES.NET built First Bank Puerto Rico a website in their dialect so their properties can be found and so they can best market their repossessed bank-owned properties.” The bank and RES.NET then sent out a press release in both the U.S. and in Latin American markets in Puerto Rico and the Caribbean. “Since the release of the site, First Bank has tripled the number of buyers interested in their listed assets."
The island also faces a foreclosure crisis. While foreclosure moratoriums snapped into place in the days after the storm, the timelines inherent in those moratoriums are usually not well suited to a disaster of Maria’s scope or the length of the island’s ongoing recovery. In July 2018, The New York Times reported that “over the [preceding] four months, nearly 300 new foreclosure actions were filed in federal court in San Juan and in local courts across the island.”
While some Puerto Rican homeowners may have relocated and now lack either the means or the desire to return to their properties, servicers are faced with a difficult process in even tracking down those owners in the first place.
“The biggest complexity we face when processing the foreclosures is the clear communication with the borrowers,” said Genevieve López-Stipes, Founder and Managing Attorney of GLS Legal Services, a firm founded in 2008 and headquartered in San Juan. “If the investors are located in the states, there is a language barrier. Whenever we are in the process of a foreclosure in which we see that there is a lack of communication we interfere using a third party, so as not to have any conflict of interest, and assist the borrower in getting direct communication with the investor.”
“In many respects, the Puerto Rican recovery effort is similar to the housing crisis recovery a decade ago,” said Steven Horne, Founding Member of HMB Law Group, a new firm Horne formed in October with attorneys Stephen M. Hladik, Miguel Maza, and Rose Marie Brook. “Both involved large populations of borrowers unexpectedly thrown into default,” Horne continued. HMB also operates out of San Juan and was, according to the initial press release, “designed from the ground up to meet the dynamic legal challenges of both financial institutions and Puerto Rican community members as the island recovers.”
“Applying the lessons learned from the housing recovery, we have learned that law firms can be an important safety net to identify and facilitate alternatives for borrowers with the desire and ability to retain their homes,” Horne said.
HOW THE INDUSTRY CAN HELP
Helping facilitate communication between borrowers, servicers, attorneys, government agencies, and field services companies were cited as key needs by many DS News spoke to for this piece.
“Our clients need to understand what the borrower’s intentions are,” Tromberg said. “We need to know if they do not want the property so that we know to do a deed-in-lieu or cash for keys, or whatever we can do to move that property so that it can be put into REO and resold and rehabilitated. If people are looking to modify their loan based on their circumstance, we need to secure the proper documentation so that the lenders can consider a modification. If we aren’t able to get ahold of people, or if people are too afraid to call or communicate, then we won’t be able to resolve the situation.”
The challenges, from a legal standpoint, are numerous. “One of the unique issues is service of process,” Tromberg continued. “It is difficult to serve people on the island. They are very strict about the rules if you do not serve timely.” Failing to abide by those standards could lead to the dismissal of a case, forcing the entire process back to the starting line.
“Our country has never experienced so much devastation in one year,” Hurst said. “Our emergency management infrastructure remains taxed. The best way to work on reconstruction is to look to the future and place priority on avoiding the same mistakes. There is a strong desire to act swiftly and assist Puerto Rico, however, the lines of communication remain fractured due to a difference in local vernacular, custom, and use of resources such as technology and social media.”
“One lesson from the housing crisis a decade ago is that the states that did the best job in quickly acknowledging and resolving the legal issues surrounding real estate were the quickest to recover,” Horne said. “Beyond the core legal processes, our job is to find each borrower, determine their intention—are they coming back to the island, do they still want their house?—and work with the lender to find the solution that best meets their needs.”
“Local law firms have the knowledge to handle all the different hurdles we face on a daily basis with the local government entities, such as property taxes and title issues,” López-Stipes said. “Expeditious delivery of construction materials; rapid evaluation, filing, and review of hazard claims; timely appropriation of local and foreign vendors to facilitate repairs is a start,” Badalamenti-Kalas said. “An estimated 5,000–8,000 small businesses have closed, and there has been a mass exodus of almost 200,000 residents.”
“Improving the availability of materials and a conscious effort to expedite the bid/repair cycle may improve the speed to market,” BadalamentiKalas continued. “The creation of low-income housing, in which vacant units are converted into affordable housing to accommodate the families that lost their homes, may be a viable solution.” She also added that investment in the island, as well as the creation of private-sector jobs to stimulate the economy, will continue to be critical to Puerto Rico’s recovery.
THE WAY FORWARD
This November, the PR18 summit will bring together executives and representatives from mortgage banks, servicers, suppliers, nondepository institutions, government agencies, and officials for a series of discussions about
how to best help move Puerto Rico forward into recovery and renaissance.
Scheduled topics include an overall “State of the Island,” a look at the policies and programs shaping the island’s recovery, an examination of Puerto Rico’s ongoing foreclosure crisis, borrower outreach options, a legal services update, and a breakdown of the unique property preservation challenges presented by Maria’s aftermath.
“When crises happen, we must all react quickly and collaboratively to effect change,” said Ali Haralson, Chief Business Development Officer, Auction.com. “This proactive response is in line with the message of PR18: hope and restoration. By convening in Puerto Rico for this important summit, our industry leaders will be bringing visibility to the needs of the island and supporting relief and recovery efforts collectively.”
“The biggest challenge facing Puerto Rico’s recovery right now is the need to build relationships between all the parties that need to work together for a more successful recovery,” Horne said. “Mainland firms are not familiar with Puerto Rico, and parties based in Puerto Rico need to work with mainland partners they can trust. The beauty of the Five Star PR18 Conference is that it is the perfect time in the recovery process to build those relationships.”