Bankruptcy Court Holds That a Lien Constituted Under the Puerto Rico Condominium Act for an Apartment Owner’s Liability for Common Expenses Is Not

Bankruptcy Court Holds That a Lien Constituted Under the Puerto Rico Condominium Act for an Apartment Owner’s Liability for Common Expenses Is Not

Security Interest Until Registered

Judge Enrique S. Lamoutte of the U.S. Bankruptcy Court for the District of Puerto Rico recently held that a lien constituted under Article 60 of the Puerto Rico Condominium Act, Act No. 129-2020, for an apartment owner's liability for common expenses, is not a statutory lien.

As a result, Judge Lamoutte held that such lien had to be registered in the Property Registry in order to constitute a security interest over an apartment.

In In re ESJ Towers, Inc., the ESJ Towers Condominium Homeowners Association moved the bankruptcy court for relief from the Automatic Stay due to lack of adequate protection of its interest in the Debtor’s property, specifically a statutory lien constituted under Article 60 of the Puerto Rico Condominium Act, for the Debtor’s liability for common expenses. The ESJ HOA argued that the Puerto Rico Condominium Act eliminated the requirement that such lien be registered in the Property Registry, since the prior act expressly required such registration, and the new one did not.

The bankruptcy court did not agree. Judge Lamoutte reiterated his holding in a prior case, and reasoned that the Supreme Court of Puerto Rico had interpreted that registration of the lien was required even when the prior act did not yet expressly include such requirement.

Accordingly, he concluded that “[i]f the legislature intended the creation of a ‘legal mortgage’ or statutory lien, it has had ample opportunities to do so […] and should have stated it in clear terms in the new enacted law, as suggested by the Supreme Court of Puerto Rico.”