Basically, foreigner individuals cannot own land in the Philippines, but they can own condominium units provided that the foreign proportion does not exceed the 40% threshold under the Philippine Constitution and specifically RA 4726 or otherwise known as The Condominium Act of the Philippines. They can even purchase a house but not the land on which it is built.
In real estate transactions, it is very common for most developers to enter into a Contract to Sell with the buyer. In such case, the agreement contains basic provisions like:
1. The seller/developer promises to build the house or condominium building.
2. The seller/developer promises to sell the house or the subject condominium unit to the buyer.
3. The buyer promises to buy the house or condominium unit. This can be in installments or in full cash, or in any other arrangement.
4. The ownership of the subject property will only be transferred to the buyer when the house or condominium unit is completely built AND when the buyer has fully paid its price.
In this scenario, the conditions are the completion of the building by the developer and the full payment by the buyer.
For mortgaged condominiums, the buyer pays the seller a certain amount for the unit. Now, the buyer owns the property but the sale obliges to repay the creditor/mortgagee for the remaining debt of the seller. Some mortgage contract requires the consent of the creditor before the property is sold, hence the mortgage debt which is transferred to another person or entity must be respected. Further, the creditor will know from whom it should collect payments and to whom the title will be released.
Simply put, mortgage is a debt with security. This security or collateral is the subject condominium unit or real property. In the event that the debtor fails to pay his obligation/debt, the creditor/lender will be able to take the subject condo unit instead.
II. Scope of HLURB’s Jurisdiction under PD No. 1344 and PD No. 957:
Section 1. In the exercise of its functions to regulate the real estate trade and business and in addition to its powers provided for in Presidential Decree No. 957, the National Housing Authority shall have exclusive jurisdiction to hear and decide cases of the following nature:
(a) Unsound real estate business practices;
(b) Claims involving refund and any other claims filed by subdivision lot or condominium unit buyer against the project owner, developer, dealer, broker or salesman; and
(c) Cases involving specific performance of contractual and statutory obligations filed by buyers of subdivision lot or condominium unit against the owner, developer, dealer, broker or salesman.
Jurisprudence consistently recognizes the rationale behind the enactment of PD No. 957 – to protect innocent lot buyers from scheming developers. For this reason, the Court has broadly construed the jurisdiction of the HLURB to include complaints for annulment of mortgages of condominium or subdivision units.
Under Section 18 of PD No. 957:
Section 18. Mortgages. No mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the Authority. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project and effective measures have been provided to ensure such utilization. The loan value of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness secured by the particular lot or unit being paid for, with a view to enabling said buyer to obtain title over the lot or unit promptly after full payment thereto.
In light of the mandatory nature of the provision, the CA ruled that the failure to secure the HLURB’s approval resulted in the nullity of the mortgage. Despite the mortgage’s nullity, the CA declared that it may be considered as a contract of indebtedness.
At the time PEPI mortgaged the property to the petitioner, the prevailing contract between respondents PEPI and Dee was still the Contract to Sell, as Dee was yet to fully pay the purchase price of the property. On this point, PEPI was acting fully well within its right when it mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by the seller and is not to pass until full payment of the purchase price. In other words, at the time of the mortgage, PEPI was still the owner of the property. Thus, in China Banking Corporation v. Spouses Lozada the Court affirmed the right of the owner/developer to mortgage the property subject of development, to wit: “[P.D.] No. 957 cannot totally prevent the owner or developer from mortgaging the subdivision lot or condominium unit when the title thereto still resides in the owner or developer awaiting the full payment of the purchase price by the installment buyer.”
III. HLURB’s Requirements for Application for Clearance to Mortgage
The Application for Clearance to Mortgage can be downloaded directly from HLURB’s website. The HLURB Form must be filled out and be notarized. The following attachment must likewise be submitted:
1. Two (2) copies of Affidavit of owner/mortgagor;
2. Two (2) copies of Affidavit of mortgage bank; and
3. One (1) Certified True Copy of Titles and list of titles to be mortgaged.
The Revised Implementing Rules and Regulations for PD No. 957 provides that, “In case the subdivision/condominium project or portion thereof is mortgaged, the following must be submitted:
(1) Affidavit of undertaking to submit title;
(2) Certification from the mortgagee regarding outstanding balance of loan and amortization schedule;
(3) Mortgage of contract; and
(4) Affidavit of undertaking of mortgagor”
There is no law that totally prohibits the acquisition of mortgaged condominium units by individual foreigners or foreign corporations. The law states that foreign entities or individuals cannot entirely and absolutely own lands and condominiums. So long as the 40% threshold is complied with, there is no violated and HLURB cannot refuse to issue Clearance to Mortgage the subject condo unit to foreign individuals or entities. The law only protects the buyers of condo units against fraud, misrepresentations of sellers, developers, and operators.
The submission of the required documents imposed by HLURB and other bureaus or departments must be complied with in order to expedite the registration and transfer of property to another.
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