In Philippine inheritance law, the Extrajudicial Settlement of Estate is a popular shortcut. It allows heirs to divide a decedent’s property among themselves via a public instrument (a notarized deed) without stepping foot in a courtroom. However, this convenience comes with a "sword of Damocles": the two-year lien prescribed under Section 4, Rule 74 of the Rules of Court.
This provision exists to protect creditors, heirs, or other persons who may have been excluded from the settlement. But for buyers of inherited land or the heirs themselves, the critical question is: When exactly does this two-year countdown begin?
The Nature of the Two-Year Lien
When heirs settle an estate extrajudicially, the law assumes there might be "missing" parties—an unknown creditor or a long-lost compulsory heir. To protect them, Section 4 imposes a legal encumbrance on the distributed properties for a period of two years.
During this window, any person deprived of their lawful participation in the estate may:
- Compel the settlement of the estate in court.
- Claim their rightful share of the property.
- Demand the payment of debts owed by the deceased.
The Trigger: When the Countdown Starts
There has historically been confusion regarding whether the two-year period starts from the death of the decedent, the date of the notarized deed, or the date of registration.
The Supreme Court has clarified that the two-year period begins from the date of the registration of the extrajudicial settlement with the Register of Deeds.
Why Registration?
Under Philippine law, registration serves as constructive notice to the whole world. While the heirs might sign the deed today, the public (and potential claimants) cannot be presumed to know about it until it is entered into the public records.
Key Rule: The prescriptive period does not run from the date the document was signed, but from the date it was inscribed on the title or filed with the Register of Deeds.
The "Total Bar" vs. The Reality of Excluded Heirs
A common misconception is that once the two years have passed, the title becomes "absolute" and can never be challenged. This is not entirely accurate.
- For Creditors: The two-year period is generally a strict bar. If a creditor fails to come forward within two years of registration, they lose their right to go after the distributed property.
- For Excluded Heirs: If an heir was excluded from the settlement in bad faith (i.e., the other heirs knew of their existence but ignored them), the Supreme Court has ruled that the extrajudicial settlement is not binding on the excluded heir. In such cases, the excluded heir may still file an Action for Reconveyance based on implied trust, which typically carries a prescriptive period of 10 years from the issuance of the new title.
Impact on Real Estate Transactions
If you are buying a property that was acquired through an Extrajudicial Settlement, you will notice a Section 4, Rule 74 Annotation on the back of the Transfer Certificate of Title (TCT).
- Within the 2 Years: The property is considered "at risk." If a claimant emerges, the buyer could lose the property, as the lien follows the land regardless of who owns it.
- After the 2 Years: The heirs (or the new owner) can file a Petition to Cancel the Encumbrance. This is a simple administrative process at the Register of Deeds to "clean" the title, provided no claim was filed during the two-year window.
Summary Table
| Event | Legal Significance |
|---|---|
| Execution of Deed | The heirs agree on the division; binding only between them. |
| Publication | A requirement for validity, but does not start the 2-year clock. |
| Registration | The Start Date. Constructive notice to the world begins. |
| Lapse of 2 Years | Creditors are generally barred; title can be cleared of the lien. |
Conclusion
The two-year period under Rule 74 is a balancing act between the finality of property transfers and the rights of unpaid creditors. For heirs and investors alike, the "clock" only matters once the papers are filed with the government. Until registration occurs, the window for claims remains wide open.
Would you like me to draft a sample Petition for the Cancellation of the Rule 74 Encumbrance?