In the Philippines, when a person dies without a will (intestate) and leaves no debts, the heirs may bypass court proceedings through an Extrajudicial Settlement of Estate (EJS). This process is governed by Section 1, Rule 74 of the Rules of Court. However, simply executing the document is not enough to secure a clean title. A critical step is the annotation of this settlement on the Transfer Certificate of Title (TCT).
1. The Purpose of the Annotation
When an EJS is registered with the Registry of Deeds, the existing title in the name of the deceased is cancelled, and a new title is issued to the heirs. However, the law imposes a mandatory annotation on the new title, often referred to as a Section 4, Rule 74 Encumbrance.
This annotation serves as a public notice that the property is subject to the rights of any:
- Excluded heirs who did not participate in the settlement.
- Creditors of the deceased who may have unpaid claims against the estate.
- Preterited (omitted) heirs who might appear within the prescriptive period.
2. The Two-Year Liability Rule
Under Section 4, Rule 74 of the Rules of Court, the estate remains liable for any valid claims for a period of two (2) years from the date of the settlement's registration.
- The Constraint: During these two years, the title is considered "encumbered." While the heirs can technically sell the property, most banks will refuse to accept it as collateral for a loan, and many buyers will be hesitant because their ownership remains subject to the sudden appearance of a "lost" heir or creditor.
- The Risk: If a claimant proves their right within this window, they can legally demand their share from the property, regardless of whether it has already been transferred to a third party.
3. Requirements for Annotation
To successfully annotate an EJS and have new titles issued, the heirs must submit the following to the Registry of Deeds:
- Deed of Extrajudicial Settlement: A notarized document signed by all heirs.
- Affidavit of Publication: Proof that the EJS was published in a newspaper of general circulation once a week for three consecutive weeks.
- Estate Tax Clearance (eCAR): The Certificate Authorizing Registration issued by the Bureau of Internal Revenue (BIR) proving that estate taxes have been paid.
- Owner’s Duplicate Title: The original physical TCT of the deceased.
- Transfer Tax Receipt: Proof of payment of the local transfer tax to the Treasurer's Office.
4. Cancellation of the Annotation
The "cloud" on the title does not automatically disappear after two years. It remains printed on the TCT until a formal request for cancellation is made. There are two ways to clear the title:
A. Administrative Cancellation (After 2 Years)
Once the two-year period has lapsed without any claims being filed, any heir or interested party may file a verified petition for cancellation of the encumbrance with the Registry of Deeds. This is a purely administrative process and does not require a court order.
B. Judicial Cancellation (Within 2 Years)
If the heirs need to clear the title before the two-year period ends (e.g., for an urgent sale or bank loan), they must file a Petition in Court to lift the encumbrance. This usually requires posting a bond to protect the interests of any potential claimants who might emerge before the period expires.
5. Legal Implications of Non-Annotation
If the heirs fail to register the EJS and annotate the title, the property remains in the name of the deceased. This creates several complications:
- Inability to Sell: A buyer cannot verify the seller's legal authority to transfer ownership.
- Property Tax Issues: Real property tax declarations will remain in the deceased’s name, complicating future clearances.
- Successive Deaths: If an heir dies before the title is transferred, the "chain of ownership" becomes even more complex, requiring multiple sets of estate taxes and settlements.
Summary Table: The Lifecycle of an EJS Annotation
| Phase | Action | Requirement/Effect |
|---|---|---|
| Execution | Heirs sign the EJS | Notarized document + Publication. |
| Registration | Filing with Registry of Deeds | Payment of Estate Tax (eCAR) is mandatory. |
| Issuance | New Title created | Contains the "Section 4, Rule 74" annotation. |
| Waiting Period | 2-Year Statutory Period | Property is subject to claims by creditors/heirs. |
| Clearing | Petition for Cancellation | Removes the encumbrance after the 2-year mark. |