In The Manila Banking Corporation v. Spouses Rabina, the Supreme Court affirmed the Housing and Land Use Regulatory Board’s (HLURB) jurisdiction over disputes involving real estate developers and lot buyers. This case underscores the HLURB’s authority to protect buyers from unsound real estate practices, especially concerning mortgages made without their consent or proper approval. The decision emphasizes the importance of prior HLURB approval for mortgages on subdivision lots and reinforces the principle that such mortgages are invalid against innocent buyers when made in violation of regulations. This ruling provides significant protection to individuals investing in real estate, ensuring their rights are safeguarded against developers’ non-compliant actions.

Unveiling Reymarville: How an Undisclosed Mortgage Sparked a Legal Battle for Homeowners

The case arose from a dispute involving Spouses Alfredo and Celestina Rabina, who purchased a lot in Reymarville Subdivision from Marenir Development Corporation (MDC). Unbeknownst to the spouses, MDC had previously mortgaged the property to The Manila Banking Corporation (TMBC) without securing the necessary HLURB approval. Celestina Rabina, after fully paying for the lot, sought the transfer of the title, but MDC failed to deliver due to the existing mortgage. This prompted the spouses to file a complaint with the HLURB, seeking the annulment of the mortgage and the delivery of the title. The central legal question was whether the HLURB had jurisdiction over the case, particularly concerning the validity of the mortgage and TMBC’s involvement.

TMBC argued that the HLURB lacked jurisdiction due to Section 29 of Republic Act 265, which places the bank under receivership proceedings and protects its assets. However, the HLURB ruled in favor of the Rabina spouses, declaring the mortgage invalid against them and ordering TMBC to release the mortgage on the lot. The HLURB’s decision was grounded in its mandate to regulate real estate trade and protect subdivision lot buyers from unsound practices. The Housing and Land Use Arbiter emphasized that while the mortgage was valid as a contract of indebtedness between TMBC and MDC, it was “invalid and ineffective as against the complainant [Celestina] as a lot buyer thereof and the rest of the world.”

Building on this principle, the HLURB Board of Commissioners affirmed the Arbiter’s decision, and the case was eventually elevated to the Office of the President (OP). The OP dismissed TMBC’s appeal due to the belated payment of the appeal fee and the late filing of the appeal memorandum. TMBC then appealed to the Court of Appeals, which affirmed the OP’s decision, further solidifying the HLURB’s jurisdiction over the matter. The appellate court underscored that payment of docket fees within the prescribed period is mandatory, and TMBC failed to comply with this requirement.

The Supreme Court, in its final ruling, upheld the decisions of the lower bodies, emphasizing the HLURB’s broad jurisdiction to regulate the real estate trade and protect lot buyers. The Court cited Presidential Decree No. 957, also known as the Subdivision and Condominium Buyers’ Protective Decree, which empowers the HLURB to hear and decide cases involving unsound real estate business practices and claims filed by subdivision lot buyers against developers. As noted in Arranza v. BF Homes, Inc., the HLURB has exclusive jurisdiction to hear and decide cases of:

“Unsound real estate business practices; Claims involving refund and any other claims filed by subdivision lot or condominium unit buyer against the project owner, developer, dealer, broker or salesman; and Cases involving specific performance of contractual and statutory obligations filed by buyers of subdivision lot or condominium unit against the owner, developer, broker or salesman.”

The Court further emphasized that the act of MDC in mortgaging the lot without the knowledge and consent of the Rabina spouses and without HLURB approval was not only an unsound real estate business practice but also highly prejudicial to them. This ruling aligns with the protective intent of P.D. 957, which aims to shield innocent lot buyers from fraudulent practices. To further illustrate the HLURB’s power, the Supreme Court has stated in Union Bank v. Housing and Land Use Regulatory Board, that the jurisdiction of the HLURB extends to complaints for annulment of mortgage.

Furthermore, TMBC argued that Section 18 of P.D. 957 does not apply because the loan obligation of MDC was not used for the development of the subdivision project. The Supreme Court rejected this argument, highlighting that Section 18 is a prohibitory law, and acts committed contrary to it are void. Section 18 of P.D. 957 states:

No mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the Authority. 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. The loan value of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness secured by the particular lot or unit being paid for, with a view to enabling said buyer to obtain title over the lot or unit promptly after full payment thereof.

As observed in Far East Bank and Trust Co. v. Marquez, this provision is designed to protect innocent lot buyers from fraud. The Supreme Court underscored that P.D. 957 aims to protect innocent lot buyers, and Section 18 directly addresses the problem of fraud committed against buyers when their lots are mortgaged without their knowledge. This protective intent compels the reading of Section 18 as prohibitory, ensuring that lot buyers do not end up homeless despite having fully paid for their properties.

Moreover, the Court dismissed TMBC’s argument that the Rabina spouses failed to prove that the lot was part of a subdivision project at the time the mortgage was executed. The Court noted that TMBC was aware that MDC was engaged in real estate development and even acknowledged that the mortgaged properties included a parcel of land that was later subdivided into lots. Furthermore, the Court pointed out that Section 17 of P.D. No. 957 places the duty to register contracts to sell and deeds of sale on the seller, not the buyer. Section 17 states:

All contracts to sell, deeds of sale and other similar instruments relative to the sale or conveyance of the subdivision lots and condominium units, whether or not the purchase price is paid in full, shall be registered by the seller in the Office of the Register of Deeds of the province or city where the property is situated…

In summary, this case reinforces several key principles of real estate law in the Philippines. First, it clarifies the broad jurisdiction of the HLURB in regulating real estate trade and protecting subdivision lot buyers. Second, it emphasizes the importance of obtaining prior HLURB approval for mortgages on subdivision lots. Third, it underscores that mortgages made without such approval are invalid against innocent buyers. Finally, it clarifies that the duty to register contracts to sell and deeds of sale falls on the seller, not the buyer. These principles collectively serve to protect the rights and investments of individuals purchasing property in the Philippines.

FAQs

What was the key issue in this case?	The central issue was whether the HLURB had jurisdiction to hear and decide the case involving the annulment of a mortgage and the non-delivery of a title to a subdivision lot buyer.
Why did the Manila Banking Corporation argue that the HLURB lacked jurisdiction?	TMBC argued that Section 29 of Republic Act 265 placed the bank under receivership proceedings, exempting its assets from HLURB’s jurisdiction.
What is Presidential Decree No. 957?	Presidential Decree No. 957, also known as the Subdivision and Condominium Buyers’ Protective Decree, aims to protect subdivision lot buyers from fraudulent real estate practices.
Why is HLURB approval required for mortgages on subdivision lots?	HLURB approval ensures that the proceeds of the mortgage loan are used for the development of the subdivision project and protects the interests of lot buyers.
Who is responsible for registering the Contract to Sell?	According to Section 17 of P.D. No. 957, the seller, not the buyer, is responsible for registering the Contract to Sell with the Register of Deeds.
What happens if a mortgage is made without HLURB approval?	A mortgage made without HLURB approval is considered invalid and ineffective against innocent lot buyers.
What does custodia legis mean in this context?	Custodia legis means that the assets of an institution under receivership or liquidation are under the protection and control of the law, and exempt from garnishment or attachment.
Can a buyer directly pay the mortgagee?	Yes, under Section 18 of P.D. 957, a buyer has the option to pay installments directly to the mortgagee, who must apply the payments to the mortgage indebtedness secured by the lot.

The Manila Banking Corporation v. Spouses Rabina case serves as a crucial reminder of the protective measures afforded to subdivision lot buyers under Philippine law. It reinforces the HLURB’s role as a regulatory body with the authority to safeguard the interests of homeowners and ensure fair practices within the real estate industry. This ruling solidifies the principle that banks and developers must adhere to the stringent requirements of P.D. 957 to protect the rights of lot buyers.

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: The Manila Banking Corporation vs. Spouses Alfredo and Celestina Rabina and Marenir Development Corporation, G.R. No. 145941, December 16, 2008