Due Diligence is Crucial in Property Transactions to Avoid Fraudulent Claims

Spouses Danilo I. Yabut and Nelda Yabut, represented by their Attorney-in-Fact, Manuel C. Yabut v. Michelle C. Nachbaur, G.R. No. 243470, January 12, 2021

Imagine purchasing your dream home, only to find out later that the title you relied on is fake. This nightmare scenario became a reality for the Yabut family, who found themselves entangled in a legal battle over a property they thought they rightfully owned. The case of Spouses Danilo I. Yabut and Nelda Yabut vs. Michelle C. Nachbaur highlights the critical importance of due diligence in property transactions, especially when dealing with mortgages and titles.

In this case, the Yabuts had purchased a property in Manila, but a subsequent mortgage placed on the property by a third party, Michelle Nachbaur, led to a dispute over the rightful ownership. The central legal question was whether Nachbaur, who had mortgaged the property based on a special power of attorney (SPA) and a deed of real estate mortgage (REM), was a mortgagee in good faith. The outcome hinged on the authenticity of the documents and the level of due diligence exercised by Nachbaur.

Legal Context

Property transactions in the Philippines are governed by the Property Registration Decree (Presidential Decree No. 1529), which establishes the Torrens system of land registration. Under this system, a certificate of title is considered conclusive evidence of ownership. However, the law also provides protections for innocent third parties who may rely on the title in good faith.

A key principle in property law is the concept of a “mortgagee in good faith.” This means that a person who mortgages a property can do so without being liable for any defects in the title, provided they had no knowledge of such defects and acted in good faith. Section 55 of the Property Registration Decree states, “The registration of a deed of mortgage is without prejudice to the right of any person having a prior lien or better right.”

The term “good faith” in this context means that the mortgagee must not have been aware of any flaws in the title or the authority of the person executing the mortgage. This is particularly important when dealing with an attorney-in-fact, as the mortgagee must verify the scope of the agent’s authority.

For example, if a buyer purchases a property and later discovers that the title was forged, the buyer can still claim ownership if they can prove they were a buyer in good faith. However, if there were red flags or indications of fraud that the buyer ignored, they may not be protected under the law.

Case Breakdown

The Yabuts bought a property from brothers Jose and Antonio So in 2007, paying P3,300,000.00 and receiving the original title. They entrusted the title to a third party, Fe Manubay, to facilitate the transfer of the title into their names. However, Manubay instead provided them with a fake title.

Meanwhile, Anita Ignacio, allegedly acting under an SPA from the So brothers, mortgaged the same property to Michelle Nachbaur for P800,000.00. Nachbaur claimed she was a mortgagee in good faith, having relied on the title and the SPA.

The Yabuts discovered the mortgage when a group arrived to conduct an ocular inspection of the property, revealing the existence of the REM and SPA. They then filed a case to annul these documents, arguing that they were forged.

The case went through several stages:

• The Regional Trial Court (RTC) dismissed the Yabuts’ complaint, ruling that Nachbaur was a mortgagee in good faith and that the claim of forgery was not proven by clear and convincing evidence.
• The Court of Appeals (CA) affirmed the RTC’s decision, stating that the unregistered sale to the Yabuts did not affect Nachbaur’s rights as a mortgagee in good faith.
• The Supreme Court, however, reversed these decisions, finding that the signatures on the SPA, REM, and promissory note were forged. The Court emphasized that Nachbaur was not a mortgagee in good faith due to her failure to investigate the property and the authority of Anita Ignacio.

The Supreme Court’s reasoning included:

“The judge exercises independent judgment on the issue of authenticity of signatures… When the dissimilarity between the genuine and false specimens of writing is visible to the naked eye and would not ordinarily escape notice or detection from an unpracticed observer, resort to technical rules is no longer necessary and the instrument may be stricken off for being spurious.”

“One who transacts with another who is not the registered owner of the property is expected to examine not only the certificate of title but all factual circumstances necessary for to determine if there are any flaws in the title of the transferor, or in the capacity to transfer the land.”

Practical Implications

This ruling underscores the importance of thorough due diligence in property transactions. For potential mortgagees, it is crucial to verify the authenticity of titles and the authority of agents involved in the transaction. This includes conducting personal inspections of the property and directly verifying the registered owner’s consent.

For property owners, the case serves as a reminder to ensure that all transactions are properly documented and registered to protect their rights. It also highlights the need to be cautious when entrusting documents to third parties.

Key Lessons:

• Always verify the authenticity of titles and the authority of agents before entering into property transactions.
• Conduct personal inspections of properties to identify any potential issues or occupants.
• Ensure all property transactions are properly registered to protect your rights as an owner.

Frequently Asked Questions

What is a mortgagee in good faith?

A mortgagee in good faith is someone who mortgages a property without knowledge of any defects in the title and acts in good faith, relying on the title’s authenticity.

How can I ensure the authenticity of a property title?

To ensure the authenticity of a property title, conduct a thorough investigation, including a personal inspection of the property and verification of the registered owner’s identity and consent.

What should I do if I suspect forgery in a property transaction?

If you suspect forgery, gather evidence such as comparative signatures and affidavits from the alleged signatories, and seek legal advice to file a case for annulment of the forged documents.

Can an unregistered sale affect a subsequent mortgage?

An unregistered sale does not affect a subsequent mortgage if the mortgagee is in good faith and has no knowledge of the prior sale. However, if the mortgagee fails to exercise due diligence, their claim may be invalidated.

What are the steps to annul a forged deed of mortgage?

To annul a forged deed of mortgage, you must file a case in court, presenting evidence of forgery, such as comparative signatures and affidavits denying the authenticity of the signatures on the deed.

ASG Law specializes in property and real estate law. Contact us or email hello@asglawpartners.com to schedule a consultation and ensure your property transactions are secure.