Can a Mortgagee Pay Real Property Tax Arrears and Foreclose in the Philippines?

Short answer: Yes. A mortgagee (e.g., a bank) may validly pay a mortgagor’s real property tax (RPT) arrears to protect the collateral and then (i) recover what it paid from the mortgagor—often as part of the secured debt—and (ii) foreclose if there is a contractual default (which commonly includes failure to pay taxes). But there are important limits, timelines, and procedural traps.

Below is a practitioner-level guide keyed to Philippine law (Local Government Code of 1991 or LGC, the Civil Code, Act No. 3135 on extrajudicial foreclosure, and the General Banking Law for bank foreclosures).

1) Why this even comes up: the tax lien outranks mortgages

RPT is a lien on the land itself. Under the LGC, real property tax constitutes a superior lien over the property, preferred over all other liens and encumbrances (including a prior-registered mortgage). It follows the property regardless of changes in ownership and is extinguished only upon payment of the tax (plus interest and charges).
Practical effect: If RPT falls into delinquency, the city/municipal treasurer can levy and sell the property at tax auction. A tax sale can wipe out a mortgage unless the owner or any party with a legal interest (including the mortgagee) redeems within the statutory period.

Bottom line: Mortgagees routinely pay arrears to prevent a tax levy/sale and to keep their mortgage alive.

2) Can the mortgagee pay the taxes? What changes legally after payment?

Yes—payment is allowed and common. LGUs accept payment from any person, because the liability is in rem (against the property). When the mortgagee pays:

The tax lien is extinguished. The government’s lien ends because the tax is paid. The mortgagee does not “inherit” the tax lien; it simply removes it.
Reimbursement/subrogation against the mortgagor.
- By contract: Most mortgages state that the borrower must keep taxes current and authorize the mortgagee to advance taxes, add them to the secured obligation, and charge interest (often at the loan’s contract rate).
- By law: Even without an express clause, a party interested in preserving the obligation (the mortgagee) who pays can recover from the debtor under the Civil Code. Legal subrogation principles support reimbursement; at minimum, the payer can recover as expenses to preserve the collateral, typically earning legal interest if no contract rate applies.
Priority and “dragnet” coverage.
- If the mortgage contains a dragnet clause (blanket security for future loans/advances/charges), tax advances are usually treated as secured by the same mortgage.
- If there’s no dragnet and no “tax advance” clause, the safer view is that the mortgagee still has a reimbursement claim, but whether it is equally secured vis-à-vis junior lienholders can become contentious. Good drafting solves this.

3) Can the mortgagee foreclose because of unpaid taxes?

Usually yes, if the contract makes nonpayment of taxes a default. Act No. 3135 allows extrajudicial foreclosure when there is default on the “obligation secured.” Mortgage deeds almost always define “Events of Default” to include failure to pay taxes/assessments or any action that impairs the security. Typical consequences:

Acceleration: The mortgagee may accelerate the debt (declare the entire loan due).
Advances as part of the debt: Taxes paid by the mortgagee are added to the outstanding obligation.
Foreclosure: The mortgagee can proceed with extrajudicial foreclosure (or judicial foreclosure if there is no power of sale).

If the mortgage is silent on taxes as a default trigger, the mortgagee should still pay the arrears to protect the lien and demand reimbursement. Foreclosure solely on the basis of RPT delinquency (with a current loan) is less defensible unless the deed has a clause treating such delinquency as default or impairment of security.

4) Interplay with tax levy and sale (critical timelines)

Levy & auction: For delinquent RPT, the treasurer may levy the property and sell it at public auction after statutory notices and publication.
Redemption after tax sale: The owner or any person with a legal interest (which includes the mortgagee) may redeem within one (1) year from the date of sale, by paying the required amounts (tax, interest, penalties, and sale expenses, plus the statutory interest on the purchase price).
If no redemption: After one year, the treasurer issues a final deed to the purchaser, and the property is generally conveyed free of prior liens—including mortgages. The mortgagee’s security is gone.

Practical strategy: If a levy or tax sale is looming, the mortgagee should either (a) pay before auction to stop the sale, or (b) if an auction happens, redeem within a year. Letting the one-year window lapse is often fatal to the mortgage.

5) Foreclosure mechanics (when default exists)

Extrajudicial foreclosure (Act No. 3135):

Prerequisites: A real estate mortgage with a power of sale; a default under the secured obligation (often including unpaid taxes); compliance with posting and publication of the Notice of Sale.
Auction & certificate of sale: Highest bidder gets a Certificate of Sale, which is registered.
Redemption (mortgage foreclosure):
- General rule: The mortgagor has one (1) year from registration of the certificate of sale to redeem.
- Special rule for banks/quasi-banks (General Banking Law): If the mortgagee is a bank/quasi-bank and the mortgagor is a juridical person, the redemption period is shorter (often ending upon registration of the sale, subject to statutory caps). For natural persons, the one-year period generally still applies. Always check the current text of Section 47 and jurisprudential updates when timing matters.

Judicial foreclosure (Rule 68, Rules of Court): Available if there’s no power of sale or the mortgagee prefers a court action; different timelines and remedies apply.

6) What exactly may the mortgagee recover after paying RPT?

Principal: The exact amount of taxes paid.
Interest on the advance:
- Contractual (if the mortgage so provides—typical in bank forms), or
- Legal interest if the contract is silent (treated as a sum of money due).
Status as secured debt:
- Yes if covered by a dragnet/advances clause or a specific taxes covenant.
- Debatable vs. third parties if not clearly covered (though still recoverable from the mortgagor personally).

Tip: Keep the official receipts (ORs) and an itemized accounting; ensure the final bid computation at foreclosure includes tax advances and permissible charges.

7) Practical playbook for mortgagees

Audit the tax status early. Get a statement of account or tax clearance from the treasurer before foreclosing or buying at auction.
Pay arrears if needed to neutralize the superior tax lien; secure ORs and a current clearance.
Send demand to the mortgagor for reimbursement, citing the mortgage clauses (tax covenant, advances, dragnet, default, acceleration).
Decide on remedy:
- If the loan is also in monetary default or your deed treats tax delinquency as default, proceed with extrajudicial foreclosure (or judicial).
- If the only breach is tax delinquency and your deed is silent, consider (a) collecting the advance; (b) amending/renewing the facility; or (c) carefully evaluating a default declaration under an impairment-of-security clause (if any).
Watch competing timelines:
- Tax sale redemption (1 year from sale) vs. mortgage redemption (generally 1 year from registration)—they are different clocks that can overlap.
If a tax sale already occurred:
- Redeem within the LGC period to save the lien;
- If you purchase at the tax sale, understand this is a tax title, not a “mortgage foreclosure” title—avoid double recovery and reconcile how (or whether) the debt is satisfied.

8) Common drafting/transaction issues

Taxes & insurance clauses: Make tax delinquency a clear Event of Default; authorize advances “for the account of the mortgagor,” capitalizable to the loan and bearing the contract rate.
Dragnet clause: Ensure the mortgage secures future loans/advances/expenses. Philippine jurisprudence generally respects well-drafted dragnets.
Cross-default: Tie tax delinquency on this or other properties to default.
Transfers & assignments: Require notice/consent; clarify that taxes remain the owner’s responsibility and that obligations run with the land.
Bid computations: Spell out inclusion of advances, trustee/sheriff’s fees, publication, and allowable penalties.

9) Frequently asked questions

Q1: Will paying the mortgagor’s taxes make the mortgagee the owner? No. Payment extinguishes the tax lien, not the borrower’s ownership. Ownership shifts only after a foreclosure (mortgage auction) or a tax sale (followed by lapse of redemption and issuance of a final deed).

Q2: Can a mortgagee foreclose if loan amortizations are current but the borrower is tax-delinquent? Yes, if the mortgage makes tax delinquency or “impairment of security” a default. If not, the safer course is to pay, demand reimbursement, and proceed only if/when a recognized default exists.

Q3: What if the LGU already sold the property at a tax auction? The mortgagee may redeem within one (1) year from the tax sale. Failure to redeem generally causes the mortgage to be cut off by the tax deed.

Q4: Who gets any excess proceeds of a tax sale? After satisfying taxes, interest, and sale costs, any excess typically reverts to the owner, not to other lienholders by default. A mortgagee therefore should not rely on tax sale proceeds to get paid; it should redeem or foreclose.

Q5: What interest/penalties apply to RPT delinquency? The LGC fixes interest on delinquent RPT (commonly computed monthly and capped by statute). The exact rate and cap are statutory; check the current text and any local ordinances on surcharges.

10) Quick compliance checklists

Before paying taxes:

Get the SOA or breakdown of arrears (base, surcharge, interest, costs).
Verify the treasurer’s levy status (any warrants/notices issued?).
Confirm your mortgage clauses (tax covenant, advances, default, dragnet).

When paying:

Pay in the LGU’s name for the tax declaration/ARP/Title in question.
Keep ORs, screenshots, and a tax clearance after posting.
Update your loan ledger to reflect the advance and interest basis (contract or legal rate).

If foreclosing:

Ensure default exists under the deed.
Comply with Act 3135 posting/publication and auction steps.
Include tax advances and allowable charges in the bid computation.
Track the one-year redemption (mortgage foreclosure) and manage possession/consolidation accordingly.
If you’re a bank and the mortgagor is a juridical person, verify the shorter redemption rule under the General Banking Law and the latest jurisprudence.

11) Key takeaways

Yes, a mortgagee can—and often should—pay RPT arrears to protect its lien.
Those payments are recoverable and, with proper clauses, are secured by the same mortgage.
Foreclosure is proper when nonpayment of taxes is a contractual default (or when other defaults exist).
Never ignore a levy or tax auction: the tax lien is superior and can extinguish a mortgage if not timely redeemed.
Always align actions with the LGC, Act 3135, the Civil Code, and (for banks) the General Banking Law on redemption periods.

This is general information for the Philippine context and not a substitute for advice on a specific fact pattern. If you’d like, tell me your scenario (what your mortgage says, arrears amount, any levy notices, and whether the mortgagor is an individual or a corporation), and I’ll map these rules to a step-by-step plan.