1) The typical problem

You bought (or are buying) a piece of real property in the Philippines—house and lot, condominium unit, or a subdivision lot. The seller promised to deliver a clean Transfer Certificate of Title (TCT) (or Condominium Certificate of Title (CCT)) in your name after payment. Later you discover that:

the property is mortgaged to a bank or another lender, and/or
the title has an annotation (mortgage, levy, lis pendens, adverse claim, etc.), and
the seller cannot transfer title to you as promised, because the mortgage remains unpaid, the lender will not release it, or the owner’s duplicate title is in the lender’s possession.

This is common in:

“pasalo” / assume-balance deals,
sales where the seller used the property as collateral,
developer sales where the mother title or project is mortgaged, and
situations where the seller has cash-flow problems and cannot redeem.

Your remedies depend heavily on (a) what your contract says, (b) whether you are buying from a developer or a private individual, (c) whether you paid in lump sum or installments, and (d) what exactly is annotated on the title.

2) Key legal ideas you need to know

A. A mortgaged property can be sold—but that doesn’t automatically “erase” the mortgage

In Philippine law, a sale of real property is generally valid even if the property is mortgaged. The mortgage is a real right that typically follows the property and is enforceable against subsequent buyers if it is properly annotated on the title. Practically, that means:

If the mortgage was annotated before you bought, you are considered on notice.
The lender can still foreclose if the loan is unpaid, unless the mortgage is released or otherwise legally dealt with.

So the legal fight is usually not “the sale is void,” but rather “the seller breached the promise to deliver a clean, transferable title.”

B. “Delivery” in a sale includes more than handing keys

In sales of real property, “delivery” can be by execution of a public instrument (a notarized deed) and other acts showing transfer. But buyers usually bargain for transfer of ownership plus the ability to register the deed and obtain a new title free of unacceptable liens.

If the contract (or the circumstances) shows the seller undertook to deliver a transferable title, failure to clear the mortgage can be a breach that triggers civil remedies.

C. Two different universes: private sellers vs. developers

Private seller (individual/corporation not acting as a project developer): remedies are mainly under the Civil Code and contract law, plus possible criminal complaints depending on fraud.
Developer sale (subdivision/condo project): you may have additional protections under special housing laws and administrative regulation, and administrative complaints can be powerful.

D. Installment buyers get extra protections

If you are paying by installments and the transaction is covered by RA 6552 (Maceda Law), you may have statutory rights to grace periods and cash surrender value/refund if the sale is canceled—rights you cannot simply waive away in many cases.

3) What you should verify first (this determines the right remedy)

Obtain a fresh Certified True Copy of the title from the Registry of Deeds (RD).
- Check: registered owner, technical description, and encumbrances (mortgage, liens, adverse claim, lis pendens, levy, etc.).
Identify the mortgage details:
- Who is the mortgagee (bank/lender)?
- When was it annotated?
- Is it a real estate mortgage (REM) or another lien?
- Is the owner’s duplicate title held by the bank?
Review your documents:
- Contract to Sell vs. Deed of Absolute Sale vs. “pasalo” agreement
- Proof of payments, receipts, bank transfers
- Any promise that title will be delivered “free from liens and encumbrances”
- Any timelines and conditions (e.g., deliver title within 30/60/90 days from full payment)
Determine seller type:
- Developer (subdivision/condo project) vs. private seller
Determine your payment structure:
- Full payment already made?
- Installments (and how long you have paid)?

4) Core civil-law remedies against the seller

These are the standard remedies when the seller cannot deliver the title as promised due to an existing mortgage.

Remedy 1: Specific performance (compel the seller to do what was promised)

You demand that the seller:

fully pay/redeem the mortgage,
obtain the lender’s release of mortgage (and related documents),
produce the owner’s duplicate title, and
execute and register the documents needed to transfer title to you.

When this is best:

You still want the property.
You believe the seller can still clear the mortgage (e.g., you can structure payoff through escrow).

Practical tools to make this workable:

Escrow / conditional payment: you pay the balance only upon mortgage release and availability of the title for transfer.
Direct settlement to the bank: part of your payment goes straight to the mortgagee, with written coordination and payoff computation.
Authority to pay: if structured carefully, you can pay the mortgage directly and require the seller to execute instruments recognizing the arrangement (be careful: doing this casually can create disputes).

Risks:

If seller is insolvent or uncooperative, litigation may still end in difficulty collecting damages even if you win.

Remedy 2: Rescission / cancellation of the sale (undo the deal)

If the seller’s failure is substantial (and inability/refusal to clear the mortgage prevents transfer), you can seek rescission—return of what you paid plus damages where justified.

When this is best:

You no longer want to proceed.
The seller cannot realistically redeem the mortgage.
There are signs of fraud, multiple claimants, or impending foreclosure.

What rescission typically aims to achieve:

Return of payments (often with interest if warranted)
Return of possession (if applicable), and
Damages (actual, sometimes moral/exemplary if bad faith is proven)

Important nuance:

Many real estate deals are structured as a Contract to Sell (seller retains title until full payment). In those setups, the seller’s remedy is usually “cancellation,” and your remedy may be framed as breach of contract and/or refund rights, especially under Maceda Law if applicable. Even if the document is labeled one way, courts look at the substance.

Remedy 3: Damages (money compensation for breach, delay, bad faith)

If the seller fails to deliver title as promised, you may claim damages under general obligations and contracts principles. Depending on proof, this can include:

Actual damages: e.g., rental expenses due to inability to move in, interest costs, penalties you paid because you relied on the transfer timeline, documented repair costs wasted, etc.
Moral damages: possible when bad faith, fraud, or oppressive conduct is shown (not automatic).
Exemplary damages: in addition to moral/temperate damages if conduct is wanton or in bad faith.
Attorney’s fees and costs: possible if contractual or justified by bad faith.

Remedy 4: Suspension of your own payment (if you still owe money)

If the seller has not performed a reciprocal obligation—especially delivering transferable title—buyers often have a strong basis to withhold further payment until the seller cures the breach, provided you do so in good faith and consistently with the contract.

Best practice:

Put your position in writing: you are ready to pay upon mortgage release and deliverables.
Offer a secure mechanism (escrow, direct bank payoff, simultaneous exchange).

Warning:

Do not simply stop paying without notice if your contract has strict default clauses—document your reason and propose a lawful path to completion.

Remedy 5: Consignation / tender and consignation (rare but sometimes strategic)

If you are ready to pay but the seller’s breach blocks a proper closing, you can explore tendering payment and consigning the amount in court to show good faith and prevent being tagged in default—this is technical and fact-specific, typically used when you want to enforce specific performance while protecting yourself.

5) Warranty-based remedies: eviction and hidden burdens

A. Warranty against eviction (risk of losing the property due to a superior right)

If the mortgage leads to foreclosure and you lose the property (or part of it) because the mortgagee’s right is superior, you may invoke warranty against eviction, depending on circumstances and contractual waivers.

Key point: If you knowingly bought subject to an annotated mortgage and agreed to assume it, your warranty position changes. But if the seller promised a clean title and you relied on that, warranty principles can strengthen your case—especially if you suffer actual loss.

B. Non-disclosed encumbrances

If the seller did not disclose a burden and it materially affects the property, you may have additional grounds to rescind or claim damages—again, heavily dependent on what was annotated, what was disclosed, and what you agreed to.

6) Special protections for installment buyers (RA 6552 / Maceda Law)

If you are buying residential real estate on installment (common for house-and-lot, condo, subdivision lots), RA 6552 may apply and can provide:

Grace periods to pay overdue installments without immediate cancellation (rules vary with length of payment history), and
If you have paid at least a threshold period, a right to a cash surrender value (refund) if the sale is canceled, computed as a percentage of total payments with possible increases the longer you’ve paid.

Why this matters in a “mortgaged title” problem: Even if the seller tries to cancel on you (or you decide to walk away), Maceda Law can prevent you from being wiped out by harsh forfeiture clauses, and can strengthen settlement leverage for refunds.

Limits: Coverage and exact computation depend on property type and transaction structure. It is not a one-size-fits-all shield, but it is often crucial in practice.

7) If the seller is a developer (subdivision/condo): administrative and regulatory remedies

If you bought from a developer, you may have remedies beyond court:

A. Administrative complaints with the housing regulator

Buyers can file complaints to compel compliance with obligations, including delivery of titles and observance of buyer protections. Administrative forums can:

order specific compliance,
facilitate settlements,
impose penalties/sanctions for violations.

This route is often faster and more practical than purely civil litigation, especially where the issue is systemic (project mortgage, delayed titles, failure to deliver documents).

B. Project-level mortgage issues

In many projects, developers mortgage the land or project financing is secured by the property. Buyers typically expect that upon payment, the developer will deliver the title and secure release mechanisms. If a developer fails to do so, regulatory law and licensing conditions can become leverage points.

Because developer obligations can be technical and depend on the project’s approvals and documentation, your complaint strategy should be tightly aligned with the paperwork: contract, official receipts, license to sell details (if any), and title/encumbrance status.

8) Criminal angles (when it becomes more than breach of contract)

Not every failed title transfer is a crime—many are “civil” breaches. But criminal exposure can arise when there is fraud or deceit at the outset or misrepresentations that induced you to pay, such as:

selling a property while falsely claiming it is unencumbered,
taking full payment while knowing the mortgage cannot be redeemed,
multiple sales to different buyers,
falsified documents or deliberate concealment of encumbrances.

Potential criminal theories can include estafa (fraud) in appropriate cases. These are fact-sensitive and require proof of deceit and damage; they are not automatic. Sometimes criminal filing is used as pressure, but it must be grounded—abuse can backfire.

9) Tactical roadmap: how these disputes are typically won (or settled)

Step 1: Document the breach and your demand

Send a formal demand letter (ideally with counsel) stating:

the obligation (deliver clean title / release mortgage / execute deed),
the specific breach (mortgage remains; title cannot be transferred),
your chosen remedy (specific performance OR rescission/refund),
a firm deadline,
your proposal for a safe closing (escrow/direct bank payoff), and
notice of legal actions if ignored.

Step 2: Secure your position on the property

Depending on facts, your lawyer may consider:

annotating a lis pendens once a case is filed,
an adverse claim in some circumstances,
or other protective measures to deter resale to a third party.

(Each has legal requirements and risks; use carefully.)

Step 3: Choose your forum wisely

Court (RTC) for specific performance/rescission/damages involving real property (jurisdiction depends on assessed value and nature of action).
Administrative housing regulator if developer-related issues.
Criminal complaint only if there is clear fraud/deceit.

Step 4: Settlement structure that actually works

Successful settlements usually include:

payoff computation from mortgagee,
direct payment to mortgagee with official acknowledgment,
simultaneous execution of deed + release of mortgage + transfer documents,
escrow agent or bank-facilitated release,
timelines and penalties for delay.

10) Common fact patterns and the most fitting remedy

Scenario A: You already fully paid; seller promised clean title; mortgage still unpaid

Best initial posture: demand specific performance with a strict timeline, while preparing rescission/refund as fallback. If seller is insolvent or foreclosure is imminent, shift quickly to rescission + damages, and consider protective annotations and urgent relief.

Scenario B: You still owe a balance; seller wants you to keep paying despite mortgage not being cleared

Best posture: propose escrow/direct bank payoff and withhold further payment until the seller can perform simultaneous closing deliverables.

Scenario C: “Pasalo” where you assumed the mortgage informally

These are high risk. If the loan remains in the seller’s name, you may be paying without being legally recognized by the bank. Remedies: enforce the seller’s undertakings (if written), restructure with the bank (if possible), or unwind via rescission/refund if misrepresented.

Scenario D: Developer delays titles due to project-level mortgage or documentation

Best posture: administrative complaint + documentation pressure, while preserving court remedies if needed.

11) Preventive clauses for future contracts (practical drafting)

If you can still renegotiate or are planning a similar deal, push for:

Representation/Warranty: property is free from liens except those disclosed; seller shall deliver title free of encumbrances.
Condition precedent: buyer’s final payment released only upon release of mortgage and availability of owner’s duplicate title.
Escrow mechanism: define escrow holder, release conditions, documents required.
Direct payoff authority: buyer may pay mortgage directly and deduct from price, with seller’s irrevocable authority.
Liquidated damages / penalties: for failure to deliver registrable documents/title by a deadline.
Refund clause: clear timetable and consequences if seller cannot deliver clean title.

12) Practical reality check

If the mortgage is annotated and the seller cannot redeem, your strongest “clean” outcome is usually either:
1. structured payoff (bank gets paid; mortgage released; title transferred), or
2. rescission with refund (plus damages if provable).
Litigation can establish rights, but collection is only as good as the seller’s assets—so early, well-structured settlement pressure is often the best path.
Developer cases often benefit from administrative action because it targets compliance and can apply regulatory leverage.

13) Quick checklist of documents to gather

Certified True Copy of TCT/CCT (recent)
Deed/Contract (Contract to Sell/Deed of Sale/Pasalo agreement)
Proof of payments (official receipts, bank records)
IDs and signatures used; SPA if any
Correspondence (texts/emails/chats) about title delivery
Bank/lender details of mortgage (if known)
Proof of possession/occupancy and expenses (for damages)

14) When to seek urgent help

Treat it as urgent if:

foreclosure is threatened or scheduled,
the seller is trying to resell to someone else,
you paid a large amount with no clear transfer path,
the seller is unresponsive or evasive,
the “title” shown to you doesn’t match RD records.

If you tell me which of these matches your situation (private seller vs. developer; fully paid vs. installments; what the contract says about liens; and what’s annotated on the title), I can lay out the most effective remedy sequence and a demand letter outline tailored to that fact pattern. ]