Dear Atty. Gab,

Good day po, Atty. Gab. My name is Maria Hizon. I hope you can shed some light on my very stressful situation. Back in 2018, I excitedly purchased a pre-selling condominium unit in Tagaytay from Vista Land Development Inc. at their project called “Solara Residences”. I diligently paid my monthly amortizations and have now paid close to PHP 4.5 million out of the total price of PHP 5 million. I was looking forward to finally having the title transferred to my name soon.

However, I recently discovered through the grapevine (and later confirmed by checking records) that Vista Land Development Inc. had actually mortgaged the entire Solara Residences project, including the land where my unit stands, to Metro Credit Bank way back in 2017, even before they started selling the units! What’s worse, it seems they never got the required approval or clearance from the Housing and Land Use Regulatory Board (HLURB) for this mortgage.

Now, I heard that Vista Land is having financial problems and might default on their loan with Metro Credit Bank. I am extremely worried that the bank might foreclose on the mortgage, and I could lose my unit and all the money I’ve painstakingly paid over the years. Was it legal for them to mortgage the property without HLURB approval after getting a license to sell? Does the mortgage affect my rights as a buyer who has paid almost in full? What can I do to protect my investment? I feel lost and anxious about this. Any guidance would be greatly appreciated po.

Salamat po,
Maria Hizon

Dear Maria,

Thank you for reaching out. I understand how distressing and concerning this situation must be for you, especially after diligently paying for your condominium unit for several years. It’s natural to feel anxious about the security of your investment when issues like undisclosed mortgages arise.

The core issue here revolves around Presidential Decree No. 957, also known as “The Subdivision and Condominium Buyers’ Protective Decree.” This law was specifically enacted to protect buyers like you from unscrupulous practices by developers. A key protection involves mortgages obtained by developers. The law requires developers to secure prior written approval from the HLURB before mortgaging any part of a condominium project for which a license to sell has been issued. Failure to comply with this requirement has significant legal consequences, particularly concerning the validity of that mortgage against innocent buyers.

Navigating Developer Mortgages: Your Rights as a Condo Buyer

The situation you described, where a developer mortgages a condominium project without the necessary HLURB clearance, directly contravenes the safeguards established under P.D. 957. The primary purpose of this law is to shield buyers from potential fraud and ensure that they acquire clean title to the properties they purchase upon full payment.

Section 18 of P.D. 957 is explicit about the requirement for prior HLURB approval. It states:

“No mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the Authority [HLURB]. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project and effective measures have been provided to ensure such utilization.” (Section 18, P.D. No. 957)

This provision is not merely suggestive; it is a mandatory requirement. The law intends to ensure that any loan proceeds are used for the project’s development and that buyers’ interests are protected. When a developer bypasses this requirement, they engage in what the HLURB considers an unsound real estate business practice.

What happens when a developer violates this provision? Philippine law generally holds that acts executed against the provisions of mandatory or prohibitory laws are void. In the context of P.D. 957, jurisprudence clarifies that a mortgage constituted by a developer without HLURB approval is void and unenforceable as against the buyer of a unit within that project. This means that while the mortgage contract might still hold some validity between the developer (Vista Land) and the lender (Metro Credit Bank), it cannot prejudice your rights as a buyer who entered into a contract to purchase a specific unit.

The HLURB has the specific authority to hear complaints related to such violations. Its jurisdiction is quite broad when it comes to protecting buyers and regulating the real estate industry.

“The jurisdiction of the HLURB to regulate the real estate trade is broad enough to include jurisdiction over complaints for annulment of the mortgage with damages…”

This means you have the right to file a complaint directly with the HLURB seeking to declare the mortgage unenforceable specifically against your Unit 48C. It’s important to note, however, that your standing is generally limited to protecting your specific interest in your unit. While the HLURB can declare the mortgage void as it affects you and your property, it typically cannot invalidate the entire mortgage covering the whole project based solely on your individual complaint, as you only have a direct legal interest in the unit you purchased.

“The HLURB, however, went overboard in its disposition… which pertained not only to the lot but to the entire parcel of land mortgaged. Such ruling was improper. The subject of this litigation is limited only to the lot that respondent is buying… He has no personality or standing to bring suit on the whole property…”

Even with the mortgage issue, P.D. 957 provides mechanisms for buyers. Section 18 itself allows buyers the option to pay installments directly to the mortgagee (the bank) to be applied to the loan portion corresponding to their specific unit, eventually allowing them to obtain a clean title. While the primary argument is the mortgage’s voidness against you due to lack of HLURB approval, understanding this alternative protection under the law is also useful. In situations where the specifics aren’t clearly laid out, fairness dictates the path forward.

“Since there is no law stating the specifics of what should be done under the circumstances, that which is in accord with equity should be ordered. The remedy granted by the HLURB… insofar as it referred to respondent’s lot is in accord with equity.”

Furthermore, banks are expected to exercise a higher degree of diligence compared to ordinary individuals when dealing with real estate mortgages, especially those involving condominium or subdivision projects governed by P.D. 957. Their failure to verify HLURB approval for the mortgage could weaken any claim they might have to being an innocent mortgagee in good faith, especially concerning the rights of buyers like yourself.

Practical Advice for Your Situation

• File a Complaint with HLURB: Your primary recourse is to file a verified complaint against Vista Land Development Inc. and Metro Credit Bank with the HLURB. Seek the declaration that the mortgage is null and void or unenforceable as against your specific condominium unit due to the lack of prior HLURB approval.
• Gather All Documentation: Collect all relevant documents, including your Contract to Sell, proofs of payment (receipts, bank statements), the Condominium Certificate of Title (if available, showing the mortgage annotation), and any evidence confirming the lack of HLURB mortgage clearance.
• Seek Specific Relief from HLURB: Request the HLURB to order the cancellation of the mortgage annotation on the title corresponding to your unit, or issue an order preventing the bank from foreclosing on your specific unit.
• Address Remaining Balance Carefully: Since you have already paid a significant portion, consult with a lawyer or the HLURB on the best approach for the remaining balance (approx. PHP 500,000). Options might include depositing it in escrow or seeking HLURB guidance on potential direct payment to the bank (only for the portion attributable to your unit) upon favorable ruling.
• Demand Delivery of Title: Upon demonstrating full payment (or readiness to pay the balance under protected terms), request the HLURB to compel the developer and/or bank to deliver the title to your unit, free from the illegal mortgage lien.
• Coordinate with Other Buyers: If possible, connect with other buyers in Solara Residences who might be facing the same issue. Collective action can sometimes strengthen your position and share legal costs.
• Consult a Lawyer: While this information provides guidance, navigating the HLURB process and dealing with the developer and bank can be complex. It is highly advisable to consult with a lawyer specializing in real estate law to represent your specific interests effectively.

Your situation is precisely why P.D. 957 exists. The law provides strong protections for buyers against developers who mortgage projects without proper authorization. By taking proactive steps through the HLURB, you stand a very good chance of securing your rights to your condominium unit despite the developer’s non-compliance.

Hope this helps!

Sincerely,
Atty. Gabriel Ablola

For more specific legal assistance related to your situation, please contact me through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.