In Philippine real estate transactions, the registration of a Real Estate Mortgage (REM) with the Registry of Deeds is often viewed as the final step to secure a lender's interest. However, a common question arises when this step is omitted: Does the failure to register a mortgage elevate a civil obligation into a criminal offense?
Under Philippine law, the answer is generally no, but with critical nuances involving the Revised Penal Code and the nature of the misrepresentations made during the transaction.
1. The Nature of an Unregistered Mortgage
To understand the criminal aspect, one must first understand the civil status of the document. Under Article 2125 of the Civil Code, for a mortgage to be "binding against third persons," it must be recorded in the Registry of Property.
- Between the Parties: Even if unregistered, the mortgage remains a valid contract (an equitable mortgage). The mortgagor is still legally bound to pay the debt, and the mortgagee can still sue for collection or compel the registration of the deed.
- Third Parties: The lack of registration means the mortgage does not "run with the land" as far as innocent third buyers are concerned.
2. Can the Mortgagor be Criminally Charged?
Generally, the mere act of failing to register a mortgage is a civil matter, not a criminal one. However, a mortgagor can face criminal prosecution under the Revised Penal Code (RPC) if specific fraudulent acts are committed surrounding the unregistered status of the property.
A. Other Forms of Deceit (Article 316, RPC)
This is the most common criminal charge related to mortgages. Under Article 316, criminal liability arises if a person:
- Pretends to be the owner of real property and sells, pawns, or mortgages it.
- Sells or mortgages property knowing it is encumbered, even if the encumbrance is not recorded.
- Disposes of real property as free from lien when they know a lien or mortgage actually exists.
Example: If a mortgagor executes an unregistered mortgage with "Bank A," and then later sells the property to "Buyer B" while representing that the property is "clean" and "free from all liens," the mortgagor can be charged with Estafa under Article 316.
B. Estafa (Article 315, RPC)
If the mortgagor used "false pretenses" or "fraudulent acts" to convince a lender to release funds—such as presenting a fake title or promising to register the mortgage but having no intention of doing so—they may be liable for Estafa.
3. The "Double Sale" or "Double Mortgage" Trap
Criminality usually enters the frame when a mortgagor takes advantage of the unregistered status of a mortgage to benefit from the property a second time.
| Action | Civil Consequence | Criminal Consequence |
|---|---|---|
| Failure to register | Mortgage is valid only between parties. | None (Purely Civil). |
| Mortgaging an already mortgaged property | The first mortgagee has a better right if they register first. | Possible charge under Art. 316 (Deceit). |
| Selling property while concealing a mortgage | Sale may be rescinded. | Estafa (Article 316, par. 2). |
4. Key Defenses and Limitations
- Good Faith: If the failure to register was due to negligence, lack of funds for taxes, or a mutual agreement with the lender, there is no "criminal intent" (mens rea).
- Knowledge of the Creditor: If the lender knew the mortgage was unregistered and accepted the risk, it is difficult to prove the "deceit" required for criminal charges.
- Payment: While paying the debt may settle the civil obligation, in the Philippines, it does not automatically extinguish criminal liability for Estafa once the case is filed, though it often leads to a desistance by the complainant.
Summary
A mortgagor does not face criminal charges simply because a Real Estate Mortgage is unregistered. The criminal risk arises only if the mortgagor exploits that lack of registration to defraud the current mortgagee or a subsequent buyer.
As long as the mortgagor acts in good faith and does not attempt to sell or re-encumber the property by concealing the existing (though unregistered) mortgage, the matter remains strictly within the realm of civil law.
Would you like me to draft a demand letter template for a mortgagee seeking to compel a mortgagor to register a deed?