DAR-Awarded Land as Loan Collateral in the Philippines (CLOAs, EPs and other agrarian-reform titles)

1. What is “DAR-awarded land”?

Agrarian-reform titles come in two main forms: the Certificate of Land Ownership Award (CLOA) issued under the Comprehensive Agrarian Reform Program (CARP) and the older Emancipation Patent (EP) issued under Presidential Decree 27 for rice and corn lands. Both are registered Torrens titles but they carry statutory conditions printed on the face of the title (e.g., “This land shall not be sold, transferred or conveyed except…”) that limit how the land may be encumbered or disposed. The governing constitutional text is Article XIII, section 4 of the 1987 Constitution, which commands the State to undertake agrarian reform.

2. Core statutory framework

Provision	Key content for collateralisation	Source
§ 26, R.A. 6657 (as amended)	Gives Land Bank of the Philippines (LBP) an automatic lien by way of mortgage on every CARP-awarded parcel to secure amortisation; LBP may foreclose after three missed yearly payments.
§ 27, R.A. 6657 (as amended by R.A. 9700)	Imposes the 10-year holding‐period during which the land “shall not be sold, transferred or conveyed” except to the Government, LBP or another qualified beneficiary; spouse or children may repurchase within two years if the Government or LBP acquires the land.
Executive Order 26 s.1998	Authorises government agencies to design credit programmes that allow ARBs to use their awarded land as collateral “regardless of whether the 10-year period has lapsed,” subject to DAR-issued guidelines. (Lawphil)
DAR Administrative Order 08-1995	Lays down the clearance procedure before any mortgage, lease or transfer is registered; the Register of Deeds must refuse any deed that lacks a DAR Clearance.
R.A. 11901 (2022)	Replaces the old Agri-Agra credit quota: banks may now count loans secured by agrarian-reform titles toward their mandatory 25 % agriculture & fisheries portfolio, explicitly to improve access to credit. (Senate of the Philippines)
R.A. 11953 (New Agrarian Emancipation Act, 2023)	Condoned ₱57.56 billion in unpaid land amortisation, extinguishing LBP’s mortgage on more than 600 000 ARBs and thereby freeing titles for fresh borrowing. (Lawphil)

3. “Mortgage” versus “sale/transfer”

Whether a mortgage is caught by the § 27 prohibition was unclear for decades. In Lazaro v. Lim, G.R. No. 248650 (15 March 2023) the Supreme Court drew a bright line:

A real-estate mortgage executed within the 10-year period is not a “sale, transfer or conveyance,” so long as it is merely a security arrangement;
A deed of absolute sale, even disguised as another contract, is void if executed within the restricted period.

Hence, mortgaging a CLOA/EP is legally possible, but only if all regulatory clearances are observed and no ownership is transferred until foreclosure.

4. Regulatory clearances and steps for borrowers

Secure DAR Clearance (A.O. 08-1995). File the request at the DAR Municipal Office with proof of amortisation status, sworn land-ceiling statements, tax clearances, etc.
Loan evaluation by Land Bank or a private bank. LBP remains the most frequent lender; private banks grew more willing after E.O. 26 and R.A. 11901.
Register the mortgage with the Register of Deeds. The annotation must quote the statutory restriction so that any bidder at foreclosure is on notice.
Post-mortgage reporting to DAR and LBP. Lenders submit copies to DARPO and to the Barangay Agrarian Reform Committee for monitoring.

5. When will a bank actually accept the title?

Scenario	Acceptable as collateral?	Typical lender safeguards
Within 10-year hold & amortisation on-going	Usually only LBP or a government facility (e.g., Sikat-Saka, ACPC credit windows).	Assign crop/production proceeds; require DAR clearance.
After 10-year hold but amortisation unpaid	Possible, but lender sub-rogates to LBP’s first-rank statutory mortgage.	Debt-service–to-income tests; guarantee from Agricultural Guarantee Fund Pool.
After 10-year hold and fully paid (or condoned under R.A. 11953)	Treated much like an ordinary agricultural title, though banks still discount value because of continuing DAR oversight and 5-hectare ceiling.	Independent appraisal; insurance; crop assignment.

6. Recent policy moves that widen credit access

House Bill 3434 (CLOA-as-Collateral Bill). Endorsed by DAR in 2021; it lifts the statutory wording that deters private banks from accepting agrarian titles. (Manila Standard)
Project SPLIT (World Bank-funded). Parcelises collective CLOAs and issues individual electronic titles, making each parcel identifiable for mortgage purposes. (Philippine News Agency)

7. Key risks & compliance traps

Void transactions. Any sale, pacto-de-retro or consolidation of ownership without DAR clearance is void and exposes the lender to reconveyance suits.
Foreclosure limits. After foreclosure the buyer must still be a qualified beneficiary or the land reverts to the Government (§ 27, last paragraph).
Ownership ceiling. No person—including the foreclosing bank—may end up with more than 5 ha of agricultural land; banks usually auction within one year to an eligible farmer-bidder.
Conversion ban. Mortgage does not authorise a change in land use; irrigated or prime agricultural land remains non-negotiable for conversion (A.O. 20-1992, reiterated in A.O. 08-1995).

8. Practical drafting tips for lenders’ counsel

Recitals. Acknowledge the § 27 restriction and cite E.O. 26 and DAR A.O. 08-1995 as enabling authority.
Special conditions precedent. “DAR Clearance dated ___” and “Certification of Aggregate Landholdings of mortgagor within the 5-ha ceiling.”
Events of default. Include “revocation or cancellation of CLOA/EP” as an automatic default.
Governing law & venue. Agree on the DAR Adjudication Board (DARAB) or the proper RTC-SAC for any foreclosure contest, consistent with Lazaro v. Lim.

9. Forward outlook

With the condonation of legacy debts under R.A. 11953 and the incentives built into R.A. 11901, policy is clearly moving toward treating agrarian-reform titles as fully bankable assets—without abandoning social-justice safeguards. The remaining bottlenecks are (a) slow parcelisation of collective titles, (b) limited rural appraisal capacity, and (c) the 5-hectare ceiling that forces banks to rely on cash-flow lending rather than land value alone. Pending bills such as HB 3434 aim to resolve the first two issues; technology (e-titles and remote sensing) may resolve the third.

10. Take-away

Yes, a DAR-awarded parcel can secure a loan. The borrower must (1) obtain DAR clearance, (2) respect the 10-year holding-period rules, and (3) deal with a lender—often Land Bank—that is willing to live with the nuanced foreclosure process. Done properly, using CLOA/EP land as collateral can unlock capital for on-farm productivity while still honouring the constitutional mandate that the land “shall remain with the tiller.”