2023 Laws of Puerto Rico › TITLE THIRTY - Mortgage Law and Regulations (§§ 1-5 — 5005) › Subtitle 4 - Mortgage and Property Registry Act of 1979; General Provisions (§§ 2001 — 2821) › Chapter 113 - Cautionary Notices (§§ 2401 — 2415) › § 2409 - Effects on interim financing; applicable rules

A cautionary notice on interim financing shall be entered and it shall become effective in accordance with the following rules:
(1) As long as the projects subject to the interim financing are in the building stage, the creditor may demand that a cautionary notice be entered on the property subject to said interim financing for the amounts or materials that he advances all at once or piecemeal, by presenting a notarized public or private contract as evidence of the interim financing contract with the debtor or a final judicial decision to that effect. However, a supplier or lender who did not demand such a contract as security prior to the delivery of the materials which he may have agreed to provide to the owner of the project, or the money loaned, as the case may be, may not, unilaterally, demand that said security be ordered judicially.
(2) Interim financing contracts shall state the following: the property or properties subject to interim financing, without a legal description of the property being necessary, since a reference permitting its adequate identification, the work or project to be done, or the materials to be supplied, or the money advanced, and the price agreed upon or how the price was arrived at, shall suffice, in addition to the data needed to avoid doubts as to their content and compliance.
(3) It shall not be necessary to specify in the titles the exact amount of money or materials that comprise those same loans by virtue of which the cautionary notice of interim financing is requested, and it will suffice that they contain sufficient data to liquidate them when the contracted work is finished.
(4) If the property which is to be covered by interim financing were not recorded in the Registry as belonging to the debtor, the notation shall be refused.
(5) If the property which is to be covered by interim financing were subject to recorded real obligations, the notation shall only be made either by virtue of unanimous agreement by notarized contract with the owner, the creditor and the person in whose favor these obligations were assumed, on the subject of the interim financing itself and the value of the property before the project is initiated, or pursuant to judicial order rendered in a plenary suit to attest to said value and by notice to all the persons indicated.
(6) If the property to be covered by interim financing were not recorded and if, according to the title presented for registration, it is found to be affected by a real obligation, the Registrar shall enter the registration, but shall refuse the notation until the procedure foreseen in rule (5) of this section is heard and resolved, or until a suitable agreement is reached.
(7) If any of those persons in whose favor the real obligations stated in rule (6) are unknown, are absent and their whereabouts are unknown, or refuse to give their consent, the notation can only be made by judicial order.
(8) To make up the file referred to in rule (5) of this section, the owner, the supplier, or the lender shall file a claim in a court of competent jurisdiction stating the construction needed or being done, its approximate cost and the value of the property before construction, and requesting that the persons who may have a real right on the property be summoned so that they may give their consent or allege whatever may be best for them legally. An expert appraisal certification and a Registry certification containing a listing of titleholders and recorded real obligations shall accompany this petition.
(9) The persons summoned pursuant to the preceding rules may consent to what the owner proposes, in which case the Court shall issue an order authorizing the notation, or they may object, both to the appraisal made on the property and to the project planned if, as a result, their rights are not sufficiently secured.
(10) If the appraisal is objected to after the proceedings have been concluded, the court shall issue an order stating the value of the property which is subject to interim financing and authorizing the recording. If the objection is to the project, the court shall hand down the legal verdict which is in order according to what has been proved, either forbidding the interim financing or authorizing it. No order shall be issued declaring the value of the property before the construction is carried out, or authorizing the construction loan, unless it appears from the proceedings that the rights of the objector will not be less secured than they are at the time.
(11) Whatever value is given to the property that is to be financed before the start of the project shall appear in the notation on the loan.
(12) With respect to interim financing, the notation shall have the same effect as a mortgage.
(13) The persons in whose favor real rights on the financed property are constituted, the value of which appears in the manner prescribed in the preceding rules, shall keep their right of preference with regard to the creditor, but only for an amount equal to that of their preferential credits.
(14) The creditor shall be considered as a mortgagee with regard to whatever exceeds the value of the property after the construction, over the property’s stated value before said construction, or that of the preferential credits should they be higher, and in any event, with regard to the difference between the value of the preferential credits and what may be obtained for the property in a judicial alienation.
(15) The notation in favor of the creditor shall expire 60 days after the completion of the project subject to interim financing.
(16) If the term indicated in the preceding rule is about to expire and the loan has not yet been fully paid off because the period stipulated in the contract has not expired, the creditor may change his cautionary notice to a mortgage registration. If the period is about to expire, the creditor may either extend it by changing the notation to a mortgage registration or, if the term agreed upon for payment has expired, demand payment judicially, for which the notation shall have all the effects of the mortgage.
(17) To change the notation of interim financing into a mortgage registration, the former shall be liquidated if it has not yet been liquidated, and a public document shall be granted.
(18) Issues arising between the creditor and the debtor over the liquidation of the interim financing or the establishment of the mortgage shall be decided in a declaratory action.
Until this action is heard and terminated, the cautionary notice shall subsist and be effective.
History —Mortgage Law, 1979, § 120.