Reacquiring Property After Voluntary Surrender

I. Nature and Forms of Voluntary Surrender

Voluntary surrender of mortgaged property occurs when a defaulting debtor, instead of waiting for compulsory foreclosure or repossession, voluntarily delivers the property to the creditor with the intention of applying it to the debt.

It takes three principal forms in Philippine practice:

1. Pure voluntary surrender of possession (common in chattel mortgages on vehicles) – the debtor turns over the unit for the bank to sell, but no immediate transfer of ownership occurs.
2. Voluntary surrender with execution of Deed of Dacion en Pago – the debtor conveys full ownership to the creditor in payment of the debt (most common in real estate mortgages when the bank agrees to accept the property in full or partial satisfaction).
3. Voluntary surrender in lieu of foreclosure – the debtor surrenders possession and the bank proceeds with extrajudicial or judicial foreclosure instead of accepting dacion.

The legal consequences and possibility of reacquisition differ radically depending on which form actually took place.

II. Dación en Pago: The Most Common and Most Final Form

Under Article 1245 of the Civil Code:

“Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales.”

Jurisprudence is unanimous and consistent:

• Dacion en pago extinguishes the obligation (completely or pro tanto) and transfers ownership absolutely.
• There is no equity of redemption and no statutory right of redemption because it is not a foreclosure sale but a voluntary sale (Development Bank of the Philippines v. CA, G.R. No. 118342, 5 August 1998; China Banking Corp. v. Lopena, G.R. No. 147212, 18 November 2005; Fil-Estate Properties v. Spouses Go, G.R. No. 165164, 14 July 2008; Bank of the Philippine Islands v. Spouses Royeca, G.R. No. 176664, 21 July 2008; Asian Cathay Finance v. Spouses Gravador, G.R. No. 186590, 23 July 2014).

Once the Deed of Dacion en Pago is notarized and the property is registered in the creditor’s name (for real property) or the CR/OR is endorsed (for vehicles), the former debtor becomes a complete stranger to the title.

Consequences for reacquisition:

• No legal right to redeem or repurchase exists unless the deed itself contains an express option or right of repurchase (pacto de retro).
• Reacquisition is possible only through ordinary negotiation: the former owner may buy the property back from the bank (before it is sold to a third party) or from the third-party buyer (after resale) at whatever price the current owner demands.
• If the dacion expressly reserves a repurchase option, the period cannot exceed ten (10) years (Article 1606, Civil Code) and must be exercised strictly within the stipulated time.

III. When Voluntary Surrender Does NOT Result in Dacion en Pago

A. Chattel Mortgage on Vehicles (R.A. 1508)

Even if the surrender is “voluntary,” ownership does not pass until the public sale is consummated.

Rights of the debtor:

1. Right to redeem/reinstate before the auction sale by paying the full obligation plus repossession expenses, auction fees, etc. (this is standard bank policy and is implied from the nature of chattel mortgage).
2. Right to receive any surplus if the auction price exceeds the obligation.
3. Right to bid at the public auction (there is no prohibition against the former owner bidding and repurchasing the unit, often at a much lower price than the original loan).

After the auction sale is consummated and a new certificate of registration is issued to the buyer, the former owner has no further right and must repurchase from the new owner like any stranger.

B. Real Estate Mortgage – Extrajudicial Foreclosure (Act 3135 as amended by R.A. 8791)

If the bank, despite surrender, still proceeds with extrajudicial foreclosure instead of accepting dacion:

• The one-year redemption period under Section 47 of the General Banking Law (for banks) or Act 3135 runs from the registration of the certificate of sale.
• The mortgagor (and successors-in-interest) may redeem within one year by paying the foreclosure bid price + 1% per month interest + taxes paid, if any.
• Voluntary surrender of possession does not waive the right of redemption (Remedios Antonio v. CA, G.R. No. 131165, 18 July 2000).

C. Judicial Foreclosure

Equity of redemption exists until the judicial sale is confirmed by the court. Voluntary surrender has no effect on this right.

IV. Recharacterization of Apparent Dacion as Equitable Mortgage

The Supreme Court has repeatedly declared supposed “dacion en pago” deeds as mere equitable mortgages (and therefore subject to redemption) when the true intention was only to secure the loan, not to transfer ownership outright.

Grounds for recharacterization (Article 1602, Civil Code, as applied in hundreds of cases):

1. Gross inadequacy of price (property worth ₱15M applied to ₱5M loan).
2. Debtor remains in possession and continues paying realty taxes or association dues.
3. The “dacion” was executed under financial distress and the bank dictated the terms.
4. No new consideration was given.
5. The creditor immediately tries to eject the debtor after the deed.

Landmark rulings:

• Lao v. CA, G.R. No. 170585, 26 October 2009
• A. Francisco Realty v. CA, G.R. No. 125055, 30 October 1998
• Spouses Reyes v. BPI Family Savings Bank, G.R. No. 149840, 31 March 2004
• Active Realty & Development Corp. v. Daroya, G.R. No. 141205, 7 April 2005
• Bongalon v. Continental Leaf Tobacco, G.R. No. 211053, 18 June 2020 (reiterating the presumption in Article 1602)

If the court reclassifies the transaction as an equitable mortgage, the debtor regains the full right of redemption applicable to mortgages.

Action must be filed within ten (10) years from execution of the deed (prescription for reformation).

V. Annulment of the Dacion en Pago

Even without recharacterization, the deed may be annulled on ordinary grounds:

• Vitiated consent (mistake, violence, intimidation, undue influence, fraud) – 4 years from discovery (Article 1391)
• Lack of consideration or gross inadequacy + lesion (Article 1381)
• Simulation of contract

Successful annulment restores the parties to status quo ante and revives the mortgage, thereby restoring redemption rights.

VI. Practical Ways Former Owners Actually Reacquire Surrendered Property in the Philippines

1. Negotiate buy-back with the bank before it resells the property (very common for repossessed cars; banks often sell at 70–80% of appraised value).
2. Bid at the bank’s public auction (for vehicles) or foreclosure auction (for real property when foreclosure was pursued).
3. File a case for reformation/annulment and win recharacterization as equitable mortgage.
4. Exercise a repurchase option if one was wisely inserted in the dacion deed.
5. Wait for the bank to resell to a third party and then buy from that third party (common when the property is a house the family still occupies).

VII. Conclusion and Practical Advice

The single most important determinant of whether you can still legally force reacquisition is whether a Deed of Dacion en Pago was executed and registered.

• If yes → you have no redemption right unless the deed itself grants it or a court later recharacterizes the transaction.
• If no (mere surrender of possession) → redemption rights remain intact under the applicable mortgage/foreclosure rules.

Debtors facing default should never sign a Deed of Dacion en Pago without legal counsel. Insist on language that either (a) preserves a repurchase option or (b) explicitly states that the bank will proceed only via foreclosure, thereby preserving the statutory redemption period. In practice, thousands of Filipinos have successfully reacquired their surrendered properties through auction bidding or post-dacion negotiation, but the strongest legal protection remains avoiding absolute dacion in the first place.