Legal Risks of Purchasing Property in Informal Settlement Areas in the Philippines

Introduction

In the Philippines, informal settlements—commonly referred to as "squatters' areas"—are widespread, particularly in urban centers like Metro Manila, Cebu, and Davao. These areas consist of makeshift or semi-permanent structures built on land without formal ownership or legal permission. The allure of affordable housing in such locations often tempts buyers, especially low-income families or investors seeking quick deals. However, acquiring a house or lot in these areas carries significant legal risks that can lead to financial loss, eviction, or protracted litigation.

This article examines the legal framework governing informal settlements under Philippine law, outlines the primary risks associated with buying property in such areas, and discusses potential mitigation strategies. It draws from key statutes, including the Civil Code of the Philippines (Republic Act No. 386), the Urban Development and Housing Act of 1992 (Republic Act No. 7279 or UDHA), the Property Registration Decree (Presidential Decree No. 1529), and relevant jurisprudence from the Supreme Court. While informal settlements provide shelter for millions, they operate in a legal gray zone that prioritizes formal land ownership and government planning.

Understanding Informal Settlements in the Philippine Legal Context

Informal settlers, or "squatters," are defined under Section 3(m) of RA 7279 as individuals or groups who occupy land without the express consent of the owner and without legal title. These settlements often arise on public lands (e.g., government-owned or controlled properties), private lands, or areas designated for other uses like rights-of-way or protected zones.

Philippine law recognizes certain rights for long-term informal settlers under the principle of social justice, but these are limited and do not equate to full ownership. For instance:

Adverse Possession (Usucapion): Under Articles 1117–1138 of the Civil Code, a person may acquire ownership through extraordinary prescription after 30 years of continuous, public, peaceful, and adverse possession in the concept of owner. However, this rarely applies to squatters' areas because possession is often not "adverse" (i.e., against a known owner) and public lands are generally imprescriptible (Article 1123, Civil Code; Heirs of Malabanan v. Republic, G.R. No. 179987, 2009).
Government Protections: RA 7279 mandates humane eviction procedures, including notice, consultation, and relocation for underprivileged settlers. It prohibits summary demolitions without due process (Section 28) and requires alternative housing for qualified beneficiaries. However, these protections benefit occupants, not necessarily buyers who enter the scene later.

Buyers must distinguish between "buying a house" (a structure) and "buying land" (the underlying property). In squatters' areas, transactions often involve only informal "rights" to occupy, not transferable titles.

Primary Legal Risks

Purchasing property in a squatters' area exposes buyers to multifaceted risks, stemming from ownership disputes, regulatory non-compliance, and enforcement actions. Below is a comprehensive breakdown:

1. Uncertain or Defective Title

Absence of Registered Title: Most properties in informal settlements lack a Torrens title under PD 1529, which provides indefeasible ownership once registered. "Sales" are typically informal agreements (e.g., deeds of assignment or extrajudicial settlements) without Land Registration Authority (LRA) approval. Buyers risk acquiring nothing more than a possessory interest, which can be challenged.
Risk of Prior Claims: The land may belong to a private owner, the government, or indigenous communities (under the Indigenous Peoples' Rights Act, RA 8371). If the true owner surfaces, they can file an accion publiciana (recovery of possession) or accion reivindicatoria (recovery of ownership) under the Civil Code (Articles 427–440). Supreme Court cases like Republic v. Court of Appeals (G.R. No. 108998, 1994) affirm that squatters cannot claim ownership against the state.
Consequence: Buyers may face eviction without compensation, as seen in cases where courts order demolition (e.g., MMDA v. Concerned Residents of Manila Bay, G.R. No. 171947, 2008).

2. Eviction and Demolition Vulnerabilities

Government-Led Clearings: Under RA 7279, demolitions are allowed for infrastructure projects (e.g., roads, flood control) or if the area is declared dangerous (e.g., under the National Building Code, PD 1096). The Department of Human Settlements and Urban Development (DHSUD) or local government units (LGUs) can enforce this with minimal notice if public safety is at stake.
Non-Compliance with Eviction Protocols: While RA 7279 requires 30-day notice and relocation for qualified settlers (those earning below the poverty threshold and residing for at least 10 years), new buyers often do not qualify as "professional squatters" or syndicates are excluded (Section 3(o)). Buyers inheriting structures from evicted settlers inherit the risk.
Jurisprudence: In Calimutan v. People (G.R. No. 152133, 2009), the Court upheld criminal liability for resisting lawful demolitions, highlighting buyers' exposure to fines or imprisonment.

3. Fraud, Scams, and Invalid Transactions

Informal Sales and Double-Selling: Transactions often involve "squatter syndicates" selling the same "rights" multiple times. Without notarized deeds or LRA registration, these are unenforceable under Article 1358 of the Civil Code.
Estafa Risks: Sellers may commit estafa (swindling) under Article 315 of the Revised Penal Code if they misrepresent ownership. Buyers have recourse via criminal complaints, but recovery is rare due to sellers' insolvency.
Money Laundering Ties: Some settlements are linked to illegal activities; buying could inadvertently involve buyers in investigations under the Anti-Money Laundering Act (RA 9160, as amended).

4. Zoning, Environmental, and Building Code Violations

Non-Conforming Structures: Houses in squatters' areas rarely comply with the National Building Code (PD 1096) or local zoning ordinances. Buyers risk orders for alteration or demolition from LGUs or the Department of Environment and Natural Resources (DENR) if the area is a protected watershed or easement (PD 1067, Water Code).
Environmental Liabilities: Under the Philippine Environmental Impact Statement System (PD 1586), unauthorized occupation can lead to fines. If the area is flood-prone or near fault lines, buyers face personal safety risks compounded by legal non-liability of the government for disasters.
Utility Issues: Informal connections to water/electricity (e.g., via "jumpers") violate RA 7832 (Anti-Electricity Pilferage Law), exposing buyers to disconnection or penalties.

5. Financing and Economic Risks

Ineligibility for Loans: Banks and Pag-IBIG Fund require clean titles for mortgages. Buyers relying on informal financing face usurious interest rates, violating the Lending Company Regulation Act (RA 9474).
Tax and Assessment Problems: Properties without titles evade real property taxes (Local Government Code, RA 7160), but buyers may later face back taxes or penalties upon regularization attempts.
Resale Difficulties: Transferring "ownership" is challenging without formal title, limiting liquidity and exposing sellers (now buyers) to the same risks.

6. Social and Inheritance Complications

Community Disputes: Buyers may inherit conflicts with neighbors or barangay officials, leading to barangay-level disputes or court cases under the Katarungang Pambarangay Law (PD 1508).
Succession Issues: Under Articles 774–1105 of the Civil Code, informal properties are hard to include in estates, potentially leading to intestate disputes among heirs.
Human Rights Angles: While the Constitution (Article XIII, Section 9) promotes urban land reform, it does not guarantee rights for buyers who knowingly enter risky areas.

7. Criminal and Civil Liabilities

Trespass and Usurpation: Buyers could be charged with usurpation of real rights (Article 312, Revised Penal Code) if they occupy without consent.
Civil Damages: True owners can sue for damages, including lost rentals (Article 2199, Civil Code).
Public Order Concerns: In areas declared as "danger zones" under RA 10121 (Disaster Risk Reduction Law), occupation is illegal, with penalties up to PHP 500,000.

Mitigation Strategies and Legal Remedies

To minimize risks:

Due Diligence: Verify land status via the DENR, LRA, or LGU. Obtain a Certificate of No Informal Settlers if possible.
Formalization Programs: Participate in government initiatives like the Community Mortgage Program (CMP) under RA 7279, which allows collective titling for organized settler groups.
Legal Consultation: Engage a lawyer for title searches and contracts. Consider quieting of title actions (Rule 64, Rules of Court) if possession is long-term.
Alternatives: Opt for socialized housing projects under the Balanced Housing Development Program (Section 18, RA 7279).
Remedies if Issues Arise: File for annulment of sale (Article 1390, Civil Code) or damages. Qualified settlers can seek relocation assistance from the National Housing Authority (NHA).

Conclusion

Buying a house in a squatters' area in the Philippines is fraught with legal perils that often outweigh the benefits of low cost. The Philippine legal system emphasizes formal ownership and social equity but provides limited protections for speculative buyers. Prospective purchasers should prioritize verified properties to avoid the cycle of displacement and loss. Ultimately, addressing informal settlements requires systemic reforms, but individual buyers must navigate the current framework cautiously to safeguard their interests. For personalized advice, consult a licensed attorney familiar with real property law.