Introduction

In the Philippines, real estate transactions involving mortgaged properties are governed by a complex interplay of civil law principles, property registration rules, and banking regulations. A common scenario arises when a property owner wishes to sell only a portion of a mortgaged land or building, rather than the entire asset. This raises critical questions: Is it legally permissible? What role does the mortgagee (typically a bank) play? And how do title issues, such as subdivision and annotation, come into effect? This article explores these matters comprehensively, drawing from relevant provisions of the Civil Code of the Philippines (Republic Act No. 386), the Property Registration Decree (Presidential Decree No. 1529), the Real Estate Mortgage Law (Act No. 3135, as amended), and related jurisprudence from the Supreme Court.

The ability to sell a portion of mortgaged property is not outright prohibited but is subject to stringent conditions to protect the interests of the mortgagee. The overarching principle is that a mortgage creates a real right over the property, securing the debt, and any disposition affecting the collateral requires careful adherence to legal safeguards to avoid invalidating the mortgage or exposing parties to liability.

Legal Basis for Mortgages and Partial Sales

Under Article 2085 of the Civil Code, a mortgage is a contract whereby the debtor secures the fulfillment of a principal obligation by subjecting real property to the creditor's claim without transferring possession. The mortgage extends to the entire property unless otherwise stipulated. Article 2126 emphasizes that the mortgage directly and immediately subjects the property to the fulfillment of the obligation, making it indivisible in principle (Article 2089), meaning the mortgage covers the whole property even if the debt is divisible.

However, indivisibility does not absolutely bar the sale of a portion. The Civil Code allows for partial release of mortgage under certain conditions, as implied in Article 2117, which deals with extinguishment of mortgages. Jurisprudence, such as in Philippine National Bank v. Court of Appeals (G.R. No. 108630, 1995), recognizes that a mortgagor may alienate portions of the property with the mortgagee's consent, provided the remaining portion sufficiently secures the debt.

The Property Registration Decree (PD 1529) further regulates this through Sections 57 and 58, which require that any subdivision or partial conveyance of registered land must be approved by the Register of Deeds, with annotations on the title reflecting the mortgage and any partial releases.

Requirement for Bank Consent

Bank consent is indispensable for selling a portion of mortgaged property. Without it, the sale may be considered void or unenforceable against the mortgagee, potentially leading to foreclosure on the entire property.

Why Consent is Necessary

Protection of Security Interest: The bank, as mortgagee, has a vested interest in the integrity of the collateral. Selling a portion could diminish the value of the remaining property, impairing the security. Under Section 4 of Act No. 3135, the mortgagee must agree to any alteration that affects the mortgaged property.
Contractual Stipulations: Most mortgage contracts include clauses prohibiting partial sales without prior written consent. Violating these could trigger acceleration clauses, making the entire loan due immediately.
Jurisprudence: In Development Bank of the Philippines v. Court of Appeals (G.R. No. 125838, 2000), the Supreme Court held that any conveyance of mortgaged property without the mortgagee's consent does not bind the mortgagee, and the buyer takes the property subject to the mortgage.

Process for Obtaining Consent

To secure bank consent:

Application for Partial Release: The mortgagor submits a formal request to the bank, including a subdivision plan approved by the Department of Environment and Natural Resources (DENR) or the local government unit (LGU) for land surveys.
Valuation Assessment: The bank typically conducts an appraisal to ensure the remaining portion's value covers the outstanding debt, often requiring at least 120-150% loan-to-value ratio post-release.
Payment of Partial Debt: In many cases, the bank requires partial payment of the loan proportional to the value of the portion being sold. For instance, if the portion represents 30% of the property's appraised value, the mortgagor may need to pay down 30% of the principal.
Execution of Partial Release Deed: Upon approval, the bank executes a Deed of Partial Release of Mortgage, which must be notarized and registered with the Register of Deeds.

Failure to obtain consent can result in the bank refusing to release the mortgage lien on the sold portion, leaving the buyer with a clouded title.

Title Issues in Partial Sales

Title concerns are paramount, as the Torrens system under PD 1529 aims to provide indefeasible titles. Selling a portion of mortgaged property involves subdivision, which introduces potential complications.

Subdivision and Registration Process

Survey and Approval: The property must be subdivided through a licensed geodetic engineer, with the plan approved by the Land Management Bureau (LMB) or DENR. For titled lands, this requires compliance with Section 44 of PD 1529.
Issuance of New Titles: Upon subdivision, the original certificate of title (OCT or TCT) is canceled, and new titles are issued for each portion. The mortgage annotation must be carried over to the new titles unless partially released.
Annotation of Mortgage: The partial release must be annotated on the new titles. Section 60 of PD 1529 mandates that all encumbrances, including mortgages, be entered on the title to bind third parties.
Buyer's Due Diligence: The buyer must verify the title through a title search at the Register of Deeds. If the mortgage is not released, the buyer acquires the portion subject to the mortgage, risking foreclosure if the seller defaults.

Common Title Issues

Clouded Title: If consent is not obtained, the new title for the sold portion may still bear the full mortgage annotation, deterring lenders or future buyers.
Lis Pendens: Ongoing disputes, such as foreclosure proceedings, could be annotated, affecting marketability.
Adverse Claims: Third parties might file adverse claims if the subdivision is contested, leading to litigation.
Fraudulent Conveyances: Under Article 1381 of the Civil Code, if the sale is deemed fraudulent to defraud creditors, it can be rescinded.
Tax Implications: Capital gains tax (6% under the Tax Code) and documentary stamp tax apply to the sale, with potential BIR clearance required for title transfer.

Jurisprudence highlights risks: In Bank of the Philippine Islands v. Spouses Lee (G.R. No. 190964, 2013), the Court ruled that unregistered partial releases do not bind innocent purchasers, emphasizing the need for proper registration.

Procedures for a Valid Partial Sale

To execute a valid sale:

Secure Bank Consent and Partial Release: As outlined above.
Execute Deed of Sale: A notarized Absolute Deed of Sale for the portion, referencing the subdivision plan.
Pay Taxes and Fees: Settle real property taxes, capital gains tax, and transfer fees.
Register the Transaction: Submit documents to the Register of Deeds for annotation and issuance of new titles.
Update Loan Terms: The remaining mortgage may need restructuring, with adjusted amortization schedules.

For condominiums or buildings, additional rules under the Condominium Act (Republic Act No. 4726) apply, requiring consent from the condominium corporation if common areas are affected.

Potential Risks and Remedies

Risks for the Seller (Mortgagor)

Default Acceleration: Unauthorized sale could lead to immediate loan call.
Civil Liability: Buyer may sue for breach if title issues arise.
Criminal Liability: Fraudulent intent could invoke estafa under the Revised Penal Code.

Risks for the Buyer

Foreclosure Exposure: If unreleased, the portion remains collateral.
Title Defects: Leading to eviction or loss of investment.

Remedies

Specific Performance: Court action to compel bank release if consent was improperly withheld.
Damages: Against the seller for misrepresentation.
Annulment: If the sale violates mortgage terms.

Special Considerations in Philippine Context

Agricultural Lands: Under the Comprehensive Agrarian Reform Law (Republic Act No. 6657), mortgaged agricultural lands have additional restrictions on subdivision and sale to prevent circumvention of land reform.
Foreclosed Properties: If the property is under extrajudicial foreclosure (Act No. 3135), partial sales are generally barred during the redemption period.
Corporate Mortgagors: For corporations, board resolutions are required for consent and sale.
Impact of COVID-19 and Recent Laws: Post-pandemic regulations, such as Bayanihan Acts, temporarily affected mortgage enforcements, but as of 2026, standard rules apply unless extended.
Alternative Financing: Some banks offer "partial release facilities" or refinancing to facilitate such transactions.

Conclusion

Selling a portion of mortgaged property in the Philippines is feasible but demands meticulous compliance with legal requirements, primarily securing bank consent to avoid title encumbrances and potential litigation. The process safeguards the mortgagee's security while allowing property owners flexibility in asset management. Parties should consult legal professionals to navigate these complexities, ensuring all steps align with statutory and contractual obligations.