The effect of a discharge in a Bankruptcy Court proceeding in relation to a subsequent mortgage foreclosure claim (in rem action) and the application of the principles of retroactivity and of successive chain of title in the registry of deeds according to Oriental Bank v. Díaz Pagán, 2025 TSPR 130

On December 3, 2025, the Supreme Court of Puerto Rico issued an Opinion in Oriental Bank v. Díaz Pagán, 2025 TSPR 130, a case in which Delgado & Fernández LLC represented Oriental Bank who appeared as petitioner. The Supreme Court reversed the judgements issued by the Court of Appeals and the Court of First Instance and determined that Oriental’s in rem claim could proceed forward. By doing so the Supreme Court clarified certain aspects relevant to bankruptcy and real estate law.

In this case, the bankruptcy trustee abandoned the mortgaged property and subsequently Oriental filed an in rem claim to pursue the deficiency. The defendant challenged the validity of the mortgage because, at the time of filing for bankruptcy, the Registrar had not yet recorded the Mortgage Deed. However, the Mortgage Deed was indeed recorded later, and Oriental ascertained that its effect was retroactive to the date of its filing prior to the bankruptcy petition. The trial court disagreed and dismissed the claim. The Court of Appeals –with Justice Sánchez Ramos dissenting– upheld the decision and went even further, establishing that the Registrar exceeded his authority in recording the mortgage. The Supreme Court reversed.

First, the Supreme Court determined that the registration of a mortgage deed is retroactive to the date of its filing. Therefore, the mortgage deed registered in this case predated the filing of the bankruptcy action. This is a well-known rule, but one that the Supreme Court has not had the opportunity to apply in contexts like this case were a bankruptcy action is filed prior to the recording of a pending mortgage deed. Furthermore, and concerning the bankruptcy proceeding, the Supreme Court stated that the established rule in these cases is that when a secured debt can no longer be recovered against certain personal assets of the debtor because of a federal bankruptcy proceeding, the viability of the mortgage foreclosure claim against the property is not affected. In other words, a bankruptcy proceeding extinguishes the personal (in personam) aspect of the mortgage obligation, but not the real (in rem) aspect. Therefore, even though the personal obligation of a debtor has been discharged in a bankruptcy proceeding, the mortgage creditor has the in rem action available against the property that was offered as security. In this instance, although the Bankruptcy Court discharged the defendant’s personal mortgage obligation, this did not eliminate the real mortgage obligation on the Property. Therefore, Oriental had the right to file the mortgage foreclosure claim (in rem action).

On the other hand, the Supreme Court addressed an issue concerning the recording of the Mortgage Deed. Both the Mortgage Deed and the Deed of Individualization were executed on October 16, 2007. However, the Mortgage Deed was filed with the Registry on November 7, 2007, and the Deed of Individualization later, on May 19, 2011. The Registrar, having both documents before him, correctly determined that the Deed of Individualization should be registered first, followed by the Mortgage Deed. The Court of Appeals expressed that the Registrar could not do so. Oriental challenged that conclusion, and the Supreme Court held that even though the Mortgage Deed was filed first and the Deed of Individualization second, the principle of successive chain of title required, prior to the registration of the Mortgage Deed, the registration of the property. Thus, the Mortgage Deed and the Deed of Individualization are compatible with each other, so the Registrar had the duty to register them in the order dictated by the principle of successive chain of title requiring that the Deed of Individualization, by which the property was registered and the defendant was established as its owner, be registered before registering the Mortgage Deed on the same property. In that context, the registration of the Mortgage Deed and its subsequent modification are valid, maintaining a real security interest on the principal obligation.