TL;DR

The Supreme Court ruled that a condominium unit’s mortgage and subsequent foreclosure were invalid because the developer mortgaged the property without the buyer’s knowledge or the required government approval. Gregorio de Vera Jr., the buyer, was entitled to a clean title upon full payment, and the court ordered the mortgage and foreclosure sale annulled. This decision emphasizes the protection afforded to condominium buyers under Presidential Decree No. 957, ensuring developers cannot mortgage units without proper consent and approval, thus safeguarding buyers’ rights to their properties free from undisclosed encumbrances.

Mortgaged Dreams: Can a Condo Buyer Overcome Undisclosed Liens?

This case revolves around Gregorio de Vera Jr.’s purchase of a condominium unit from Q. P. San Diego Construction, Inc. (QPSDCI) in the Lourdes I Condominium. QPSDCI secured a loan from several banks, including Asiatrust Development Bank, using the condominium project as collateral. De Vera was unaware of this mortgage when he entered into a purchase agreement. The core legal question is whether the mortgage and subsequent foreclosure by the banks, due to QPSDCI’s default, could affect De Vera’s right to acquire a clean title to his unit after fulfilling his payment obligations.

The facts reveal that De Vera diligently paid a substantial portion of the purchase price and even secured a Pag-IBIG loan. However, due to complications with the loan’s approval and QPSDCI’s failure to remit De Vera’s payments to Asiatrust, the loan wasn’t fully implemented. QPSDCI eventually defaulted on its loan obligations, leading Asiatrust to foreclose on the condominium units, including De Vera’s. This prompted De Vera to file a complaint seeking damages, injunction, and the annulment of the mortgage, arguing that it was fraudulently obtained.

The trial court initially ruled in favor of De Vera, ordering QPSDCI and Asiatrust to pay for the redemption of the unit. The Court of Appeals affirmed the decision but deleted the award for actual and exemplary damages. The appellate court noted that the mortgage in favor of Asiatrust, which formed the basis for its title, did not bind petitioner inasmuch as the same was not registered with the National Housing Authority (NHA), contrary to the mandate of Sec. 18 of PD 957, or “The Subdivision and Condominium Buyers’ Protective Decree.” This law is critical in protecting condominium buyers from unscrupulous developers.

The Supreme Court, in its analysis, highlighted the protective intent of Presidential Decree No. 957, also known as the Subdivision and Condominium Buyers’ Protective Decree. The Court cited Section 25 of PD 957, which states:

Sec. 25. Issuance of Title. – The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith.

Building on this statutory foundation, the Court emphasized that QPSDCI had a duty to deliver a clean title to De Vera upon full payment, even if a mortgage existed. The Court also referenced its previous ruling in Union Bank of the Philippines v. HLURB, reinforcing the principle that a developer’s act of mortgaging a condominium project without the buyer’s knowledge and consent, and without the required approval, is a violation of the buyer’s rights, giving rise to a cause of action for the mortgage’s annulment.

The Supreme Court ultimately ruled that the mortgage and subsequent foreclosure sale of De Vera’s unit were null and void. The Court directed the cancellation of the certificate of sale in favor of Asiatrust and ordered QPSDCI and Asiatrust to credit all of De Vera’s payments to his outstanding balance. Upon full payment of the purchase price, De Vera was entitled to receive a clean certificate of title, free from all liens and charges, except those accruing after the finality of the decision. This ruling reinforces the protection afforded to condominium buyers and underscores the importance of complying with PD 957.

The decision provides crucial clarity on the rights of condominium buyers when faced with undisclosed mortgages and wrongful foreclosures. It serves as a reminder to developers and financial institutions to adhere strictly to the provisions of PD 957 and to ensure that buyers are fully informed and protected throughout the purchase process. The Supreme Court’s modification of the Court of Appeals’ decision ensures that De Vera receives the full relief he is entitled to, safeguarding his investment and securing his right to a clean title.

FAQs

This case illustrates the importance of adhering to legal safeguards designed to protect condominium buyers. The Supreme Court’s decision underscores the principle that developers cannot mortgage properties without the knowledge and consent of the buyers and the necessary government approvals. This ruling ensures that buyers’ rights are protected and that they receive clear titles upon fulfilling their payment obligations, preventing potential exploitation and injustice.

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Gregorio De Vera, Jr. vs. Court of Appeals, G.R. No. 132869, October 18, 2001