In Philippine property law, a mortgage is a contract whereby a debtor secures a principal obligation by subjecting real property or rights to a lien. While the Civil Code and the Property Registration Decree (P.D. 1529) lay down the rules for perfection and registration, a common misconception exists that the mere failure to register a mortgage is a "crime."
In reality, the lack of registration affects the enforceability against third parties, but the underlying actions surrounding the mortgage—especially those involving deceit or subsequent disposal—are where criminal liability truly takes root.
1. The Validity of an Unregistered Mortgage
Under Article 2125 of the Civil Code, it is essential that the mortgage be recorded in the Registry of Property to bind third persons. However, the law explicitly states:
"If the instrument is not recorded, the mortgage is nevertheless binding between the parties."
Thus, as between the mortgagor (owner) and the mortgagee (lender), the contract is valid. The lack of registration does not absolve the debtor of the obligation, nor does it automatically trigger criminal prosecution.
2. Primary Grounds for Criminal Liability
Criminal liability involving mortgages usually falls under the Revised Penal Code (RPC) or special laws. The most relevant provisions include:
A. Other Forms of Swindling (Article 316, RPC)
This is the most common criminal charge involving unregistered or misrepresented mortgages. A person may be held liable if they:
- Paragraph 1: Pretend to be the owner of any real property and convey, sell, encumber, or mortgage the same.
- Paragraph 2: Knowingly dispose of real property as free from lien or encumbrance, when they know such property is encumbered (even if that encumbrance is an unregistered mortgage).
The "Double Deal" Scenario: If a homeowner mortgages their property to Lender A (unregistered) and then sells or mortgages the same property to Lender B claiming it is "clean," the homeowner commits Estafa under Article 316, Paragraph 2. The fact that Lender A's mortgage wasn't registered doesn't protect the homeowner from the crime of deceiving Lender B.
B. Estafa (Article 315, RPC)
If a person obtains money through a mortgage by using a fake title or by falsely claiming they have the authority to mortgage a property, they can be prosecuted for Estafa through False Pretenses. Here, the crime isn't the "unregistered mortgage" itself, but the fraudulent means used to secure the loan.
3. The Role of the Property Registration Decree (P.D. 1529)
Registration is an operative act that conveys or affects registered land. While P.D. 1529 is primarily a civil/administrative statute, Section 117 allows for the prosecution of parties who provide false statements in any application or instrument related to land registration.
If a mortgagor executes an "Affidavit of Loss" for a title to get a new one (in order to bypass an unregistered mortgagee who holds the physical title), they may be liable for Perjury or Falsification of Public Documents.
4. Key Differences: Civil vs. Criminal Liability
| Aspect | Civil Liability | Criminal Liability |
|---|---|---|
| Cause | Breach of contract / Failure to pay. | Deceit, fraud, or misrepresentation. |
| Registration | Unregistered is valid between parties. | Misrepresenting the status of the lien is a crime. |
| Remedy | Foreclosure or Collection Suit. | Imprisonment and Fines. |
| Proof | Preponderance of Evidence. | Proof Beyond Reasonable Doubt. |
5. Common Defenses and Pitfalls
- Good Faith: In criminal law, "intent" is paramount. If the mortgagor can prove they genuinely believed the first mortgage was cancelled or that they disclosed the lien to the second party, the element of deceit (fraud) may be absent.
- The "Pactum Commissorium" Proscription: A mortgagee cannot automatically become the owner of the property if the debtor fails to pay. Any clause in an unregistered mortgage that allows for this is void under Article 2088. Attempting to forcibly take the property based on an unregistered deed could lead to crimes like Grave Coercion.
Summary
An unregistered mortgage is a valid contract between the borrower and the lender, but it lacks the "shield" of registration against the rest of the world. Criminal liability does not arise from the simple failure to register, but rather from the dishonesty that often follows—such as mortgaging the same property twice or falsely swearing that a property is unencumbered to secure a new loan.
Would you like me to draft a sample "Demand Letter" for a mortgagee seeking to enforce their rights under an unregistered mortgage?