In Gregorio De Vera, Jr. v. Court of Appeals, the Supreme Court addressed the rights of a condominium unit buyer against a prior mortgage foreclosure. The Court ruled that a mortgage on a condominium unit, not properly disclosed and approved by the Housing and Land Use Regulatory Board (HLURB), does not bind the buyer, especially when the developer fails to remit the buyer’s payments to the mortgagee. This decision underscores the importance of protecting buyers from hidden encumbrances and ensuring transparency in real estate transactions, reinforcing the protective measures enshrined in Presidential Decree No. 957, also known as the Subdivision and Condominium Buyers’ Protective Decree.

Unveiling Hidden Mortgages: Can a Condo Buyer Overcome Foreclosure?

The 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. To finance the construction, QPSDCI had entered into a Syndicate Loan Agreement with several banks, including Asiatrust Development Bank (ASIATRUST), using the condominium project as collateral. De Vera entered into a Condominium Reservation Agreement with QPSDCI in 1983, making substantial payments towards the purchase price. Despite the approval of De Vera’s Pag-IBIG loan application and subsequent turnover of the unit, ASIATRUST later sought to enforce the mortgage due to QPSDCI’s failure to meet its loan obligations, leading to the extrajudicial foreclosure of several units, including De Vera’s.

The core legal question was whether ASIATRUST’s mortgage over De Vera’s unit was valid and enforceable, considering that De Vera was not informed about the mortgage, and the mortgage was not approved by the National Housing Authority (NHA), now HLURB, as required by Presidential Decree No. 957. De Vera filed a complaint seeking damages, injunction, and the annulment of the mortgage based on fraud and specific performance. The trial court initially ruled in favor of De Vera, but the Court of Appeals modified the decision, ultimately deleting the award for actual and exemplary damages.

The Supreme Court, however, took a broader view, emphasizing the protective intent of PD 957. The Court noted that Section 18 of PD 957 mandates prior written approval from the HLURB for any mortgage on a condominium unit or lot by the owner or developer. Moreover, it requires that the proceeds of the mortgage loan be used for the development of the condominium or subdivision project and that effective measures be in place to ensure such utilization. This provision aims to protect buyers from developers who might mortgage properties without ensuring that the loan proceeds benefit the project, potentially jeopardizing the buyers’ investments.

Moreover, Section 25 of PD 957 is pivotal in defining the obligations of the developer concerning the delivery of title:

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 principle, the Court emphasized that upon full payment, the seller has a duty to deliver the title of the unit to the buyer. The Court declared the mortgage over De Vera’s unit and its subsequent foreclosure sale null and void. The Court cited Union Bank of the Philippines v. HLURB, where a similar situation led to the annulment of a mortgage foreclosure sale due to the developer’s failure to obtain the necessary approval from the NHA (now HLURB) and inform the buyer. The Court’s ruling serves as a strong reminder of the protections afforded to condominium buyers under PD 957, ensuring that developers and mortgagees cannot circumvent these safeguards.

The Court highlighted that QPSDCI’s failure to remit De Vera’s payments to ASIATRUST constituted negligence and a violation of its contractual obligations. ASIATRUST’s representations that De Vera’s loan had been approved further contributed to the situation. The Court found that the trial court erred by merely awarding damages instead of annulling the mortgage foreclosure sale. The trial court should have also ordered QPSDCI to credit petitioner’s payments to his outstanding balance and deliver to petitioner a clean CCT upon full payment of the purchase price as mandated by Sec. 25 of PD 957. Despite De Vera’s procedural misstep in filing the complaint with the regular courts instead of the HLURB, the Court invoked its power to waive the general rule and consider matters not assigned to arrive at a just decision.

Therefore, the Supreme Court modified the Court of Appeals’ decision, ordering the cancellation of the mortgage and foreclosure sale. The Court directed QPSDCI and ASIATRUST to credit all payments made by De Vera to his outstanding balance and deliver the certificate of title to him upon full payment of the purchase price, free from all penalties, liens, and charges accruing before the finality of the decision. This ruling underscores the importance of adhering to PD 957’s provisions to protect the rights of condominium buyers. The HLURB’s approval requirement for mortgages ensures that loan proceeds benefit the project and that buyers are not prejudiced by undisclosed encumbrances. Developers and mortgagees must act transparently and diligently to avoid undermining the protections afforded to buyers under the law.

FAQs

What was the key issue in this case?	The key issue was whether the mortgage on Gregorio de Vera’s condominium unit was valid, given the lack of prior approval from the HLURB and the failure to inform De Vera about the mortgage.
What is Presidential Decree No. 957?	Presidential Decree No. 957, also known as the Subdivision and Condominium Buyers’ Protective Decree, aims to protect buyers of subdivision lots and condominium units from unscrupulous developers. It mandates certain regulations and disclosures to safeguard buyers’ investments.
What does Section 18 of PD 957 require?	Section 18 of PD 957 requires developers to obtain prior written approval from the HLURB before mortgaging any unit or lot. This ensures that the mortgage proceeds benefit the development project.
What does Section 25 of PD 957 require?	Section 25 of PD 957 mandates that the developer deliver the title of the unit to the buyer upon full payment. If a mortgage exists, the developer must redeem it within six months to secure the title for the buyer.
Why was the mortgage foreclosure sale declared void in this case?	The mortgage foreclosure sale was declared void because the mortgage was made without the prior approval of the HLURB, violating Section 18 of PD 957. Also, the buyer was not properly informed of the mortgage.
What was the role of ASIATRUST Development Bank in this case?	ASIATRUST was one of the banks that provided a loan to QPSDCI, secured by a mortgage on the condominium project. ASIATRUST initiated the foreclosure proceedings when QPSDCI failed to meet its loan obligations.
What was the outcome of the Supreme Court’s decision?	The Supreme Court modified the Court of Appeals’ decision, declaring the mortgage and foreclosure sale null and void. It ordered QPSDCI and ASIATRUST to credit De Vera’s payments and deliver the certificate of title upon full payment.
What should condominium buyers do to protect their rights?	Condominium buyers should ensure that the developer has complied with all regulatory requirements, including obtaining HLURB approval for any mortgages. They should also verify that their payments are properly remitted and demand the title upon full payment.

The Supreme Court’s decision in De Vera v. Court of Appeals reinforces the legal safeguards for condominium buyers, ensuring transparency and accountability in real estate transactions. By annulling the mortgage foreclosure and directing the delivery of a clean title, the Court underscored the importance of protecting buyers from hidden encumbrances and developer negligence.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.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. v. Court of Appeals, G.R. No. 132869, October 18, 2001