It is a homeowner’s worst nightmare: after years of diligent monthly payments, you finally settle the full balance of your property, only to discover that the developer cannot hand over the Transfer Certificate of Title (TCT). The reason? The developer took out a loan from a bank to fund the project and mortgaged your property as collateral, and now they haven't paid back that loan.
Under Philippine law, this is a serious violation, but more importantly, you are protected. Here is a comprehensive guide to your legal rights and remedies.
1. The Legal Foundation: PD 957
The primary law governing this situation is Presidential Decree No. 957 (The Subdivision and Condominium Buyers' Protective Decree).
Section 18 of PD 957 explicitly states that no mortgage on any unit or lot shall be made by the owner or developer without prior written approval from the Department of Human Settlements and Urban Development (DHSUD)—formerly the HLURB.
Key Protections under Section 18:
- Consent is Mandatory: The developer must get permission before mortgaging the property.
- Release of Title: Even if a mortgage exists, the bank (mortgagee) is legally bound to release the title of a specific lot or unit once the buyer has paid the full purchase price to the developer.
- Direct Payment: If the developer is defaulting on their bank loan, the buyer has the right to pay their remaining installments directly to the bank to ensure the title is cleared.
2. Your Legal Remedies
If you have fully paid but the title is withheld due to an existing mortgage, you can take the following steps:
A. File a Complaint for "Specific Performance"
You should file a formal complaint with the DHSUD. You are asking the government to compel the developer to:
- Pay off the mortgage corresponding to your unit.
- Deliver the clean Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT).
B. Cease Payment (If not yet fully paid)
Under Section 23 of PD 957, if the developer fails to develop the project or deliver the title according to the contract, the buyer may desist from further payment after due notice to the developer. However, since your query assumes the property is fully paid, this remedy shifts toward a demand for the title or a full refund.
C. Demand a Full Refund
If the developer absolutely cannot produce the title (e.g., the bank has already foreclosed on the entire project), you have the right to a 100% refund of the total amount paid, including amortization interests, plus legal interest, without any deductions.
3. The "Mortgagee-in-Bad-Faith" Doctrine
The Philippine Supreme Court has consistently ruled (e.g., Luzon Development Bank vs. Enriquez) that banks cannot claim they were unaware of the property's status as a subdivision lot.
- Banks are expected to exercise greater diligence.
- If a bank accepts a mortgage on a subdivision lot without checking if the developer has DHSUD's "License to Sell" or "Permission to Mortgage," the bank is considered in bad faith.
- The mortgage is generally not binding on the buyer, and the bank cannot foreclose on your specific unit if you have paid in full.
4. Criminal Liability
Developers who mortgage a property without DHSUD approval can be held criminally liable under Section 39 of PD 957. This may result in:
- Fines.
- Imprisonment of the responsible officers (President, Manager, or Administrator).
- Revocation of the developer's License to Sell.
5. Summary Table of Action Plan
| Step | Action | Purpose |
|---|---|---|
| 1. Demand Letter | Send a formal letter to the developer and the bank. | To formally put them in "delay" and document the demand. |
| 2. DHSUD Verification | Check if the mortgage had "Prior Written Approval." | To prove the mortgage was illegal from the start. |
| 3. DHSUD Complaint | File a verified complaint for Specific Performance. | To get a government order for the title's release. |
| 4. Annotation | Request an Adverse Claim or Notice of Lis Pendens. | To prevent the bank from selling your unit to someone else. |
Critical Reminder
The contract between the Bank and the Developer is subordinate to the contract between the Developer and the Buyer. As long as you have fulfilled your obligation to pay, the law prioritizes your right to ownership over the bank’s right to the mortgage.
Note: Justice is not self-executing. You must take the first step by filing the complaint with the DHSUD, as they have the specialized jurisdiction over real estate developers.
Would you like me to draft a formal Demand Letter that you can send to the developer to initiate this process?