Sale of Mortgaged Property to Creditor Per Se Is Not Prohibited

When dealing with mortgaged properties, many people assume that selling such assets to the creditor is legally prohibited. However, this is not necessarily the case. Under the right legal framework, the sale of a mortgaged property to the creditor is allowed, provided that it does not violate laws on foreclosure, dation in payment, or the prohibition against pactum commissorium.

How Mortgages Can Be Paid

A mortgage is a security interest granted over a property to secure the performance of an obligation, typically the repayment of a loan. The debtor can satisfy the mortgage in several ways:

1. Full Payment of the Loan – The most straightforward way to release the mortgage is by repaying the debt in full. Once the debt is fully paid, the creditor must execute a release of mortgage, which should then be registered with the relevant land registry.

2. Foreclosure Sale – If the debtor fails to pay, the creditor may initiate a foreclosure process to sell the property, either through a judicial or extrajudicial foreclosure proceeding. The proceeds from the sale are then used to settle the outstanding debt.

3. Dation in Payment (Dacion en Pago) – Instead of paying in cash, the debtor may transfer ownership of the mortgaged property to the creditor in satisfaction of the debt. This is a voluntary arrangement between both parties and is valid as long as it does not constitute a disguised pactum commissorium.

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Relationship Between Dation in Payment and Pactum Commissorium

Dation in Payment (Dacion en Pago)

Dation in payment occurs when the debtor transfers ownership of the mortgaged property to the creditor in exchange for the extinguishment of the debt. This is a negotiated and consensual agreement between both parties. The key difference between dation in payment and a foreclosure sale is that in dation, the debtor willingly conveys ownership as an alternative means of settling the obligation.

For the dation to be valid, it must be agreed upon by both parties and must not be forced upon the debtor. It is a lawful and commonly used method of settling obligations when cash payment is not feasible.

Pactum Commissorium: The Prohibited Clause

Pactum commissorium, on the other hand, is an illegal provision in a mortgage or pledge that allows the creditor to automatically appropriate the mortgaged property in case of non-payment. This is prohibited because it is considered oppressive and inequitable to the debtor, as it bypasses the due process of foreclosure or voluntary dation.

For a transaction to be considered a prohibited pactum commissorium, two elements must be present:

1. A security arrangement (such as a mortgage or pledge).

2. An automatic transfer clause in favor of the creditor upon default.

Unlike dation in payment, which is voluntarily agreed upon after default, pactum commissorium is a pre-arranged forfeiture mechanism that is deemed invalid under the law.

Conclusion

The sale of a mortgaged property to the creditor is not inherently prohibited. It can be done through legitimate means, such as dation in payment or foreclosure. However, what is illegal is the automatic appropriation of the property by the creditor without due process, as seen in pactum commissorium. Understanding these legal concepts helps ensure that mortgage transactions remain fair and within the bounds of the law.

Source: Ziggurat Real Estate

The need for property tax reform

As we work to achieve sustainable economic growth, maybe we can rethink the tax structure. Rather than heavily relying on income taxes, perhaps it is timely to consider a strategic shift toward property taxes, and in part, to business, and consumption taxes — especially on goods with negative externalities.

Personal income taxes, though progressive, burdens especially middle-income earners, potentially hindering their spending capacity. By shifting away from personal income taxes and toward property and business taxes, governments can generate more revenues from profitable sectors.

Corporate tax reforms can prove beneficial for revenue generation by minimizing avoidance and fighting evasion. Obviously, to encourage investments, business or corporate income should be taxed at fair and globally competitive rates. But, the government need not bend backwards too much in this regard.

As for shifting more of the tax burden to consumption, this should be skewed specifically towards excise taxes on goods associated with negative externalities, such as sugary beverages; cigarettes, tobacco, and vaping products; beer, liquor, and other alcoholic beverages; and in part, carbon-emitting fuels.

Options include higher excise taxes on jewelry; motor vehicles including motorcycles; and, maybe unhealthy or junk food. The objective is to minimize the consumption of goods that have high social and health costs. It is incidental that taxing them provides a source of revenue. The aim is to discourage harmful consumption behaviors.

By taxing goods that carry social costs, the government can create a two-fold benefit: theoretically it reduces the demand for harmful products, and, at the same time, generate revenue that can be channeled or earmarked for spending on healthcare, environmental protection, and public education.

Mexico introduced a soda tax in 2014 to combat rising diabetes rates, using excise taxes to generate revenue as well as reduce public health costs. Within the first year, sugary drink sales dropped by over 5%, and the tax now provides additional funding for healthcare and public health initiatives. The Philippines has followed suit with its own sugary drinks tax.

As for India, it implemented a carbon tax on coal production to curb emissions and fund renewable energy projects. This excise tax, levied at a specific rate per ton of coal, has raised significant funds for green energy development, highlighting how consumption taxes on polluting industries can drive sustainable development while meeting fiscal goals.

But more government revenues, if feasible, should come from property taxes. And it should be collected and managed at the local level. Property taxes capture wealth accumulated through real estate and ensure that property owners contribute fairly to local infrastructure and service costs.

Property taxes offer a largely untapped revenue stream in many developing countries, where they currently represent only a fraction of what they do in more developed economies. In wealthier countries, property taxes contribute more than 1% of GDP, with some countries reaching nearly 3%. In contrast, emerging regions like Asia and Africa generate only around 0.1% of GDP from property taxes, highlighting a missed opportunity.

By expanding property tax revenues, the Philippines can build a more stable and equitable revenue base, less susceptible to economic fluctuations than income taxes. Shifting the tax burden from personal income to property also allows the government to retain a progressive revenue source without stifling individual earning potential.

In cities like Lagos in Nigeria and Delhi in India, improved property tax collection has reportedly generated more funds for urban development, better waste management, and increased social services — enhancing the quality of life for residents while stabilizing local budgets.

In Lagos, by mapping properties via GIS technology and tightening tax compliance, the city reportedly increased its property tax collection fivefold, generating over $1 billion in a decade. This revenue supports critical urban services and infrastructure improvements, boosting public trust and improving local quality of life.

And in Bogota, Colombia, updated property valuations and tax reforms have reportedly helped municipalities fund local development projects. Linking property taxes directly to urban improvements, Bogota has seen rising public acceptance and compliance, particularly as residents observe the impact on infrastructure and local services.

In Belo Horizonte in Brazil, a clear correlation was reportedly established between property tax revenues and visible local improvements, including road maintenance and waste management. This transparency encouraged higher compliance and provided a stable revenue source for ongoing municipal projects.

To be fair and equitable, property taxes should impose minimal burdens on those without substantial assets. To protect low- and middle-income homeowners from a high tax burden, exemptions and deferred payments can be considered. This way, the government can promote affordable homeownership while ensuring that those who benefit most from urban growth also contribute proportionately.

In raising property taxes, a gradual, phased approach is recommended. Municipal governments should also establish clear policies on exemptions and implement mechanisms for regular public reporting of tax expenditures. By limiting exemptions to a narrow range of beneficiaries, local governments can prevent revenue erosion and ensure funds are available for public services.

For asset-rich but cash-poor households, such as retirees or elderly homeowners, the government can introduce deferral programs that allow taxes to be postponed until the property is sold. Exemptions or rebates can also be given to pensioners and low-income households. This approach ensures that property taxes remain fair and do not impose undue financial hardship on vulnerable groups.

Having localized, visible benefits from higher property taxes can help improve public buy-in, particularly from low- and middle-income groups, and hopefully minimize political resistance to taxation. People should be able to directly observe — see and feel — how their tax contributions translate into public benefits.

Of course, it goes without saying that business or corporate income taxes should continue to play a major role in revenue collection, as they allow governments to capture a share of corporate profits without unduly burdening individual earnings. Fair, but not necessarily low, taxation will allow corporations to contribute to the public good while maintaining the productivity that drives economic growth.

In Colombia, corporate taxes are said to fund local public services and infrastructure projects, showing a direct link between corporate taxation and social development. Such taxes can be earmarked specifically for education, healthcare, and economic development initiatives.

By connecting corporate tax revenue to visible projects, Colombia has built public trust, aligning corporate taxation with social benefits. As a result, corporate tax compliance has reportedly increased, showing how transparency in the use of taxes fosters acceptance and collaboration.

Overhauling property, corporate, and excise taxes on harmful consumption can support a robust and equitable tax base. By shifting away from personal income taxes, governments can create revenue systems that capture wealth more fairly, incentivize healthier behaviors, and fund public services effectively.

Source: Business World

Legal Framework of an Order for the Release of Property in the Philippines

 Introduction

In the Philippines, an Order for the Release of Property is a legal document issued by a court or other competent authority directing the release or return of a property that has been previously seized, attached, or impounded. This typically occurs in the context of civil, criminal, or administrative proceedings, where property may be temporarily held to secure compliance with legal obligations or ensure its availability as evidence in court proceedings. Understanding the legal framework governing such orders is crucial for both individuals and entities involved in disputes over property.

This article examines the legal basis, grounds, and procedures for the issuance of an order for the release of property under Philippine law, as well as the rights and obligations of the parties involved.

 Legal Basis for the Release of Property

The legal framework for the release of property in the Philippines is grounded in several key legal provisions, including:

1. Rules of Court: The Rules of Civil Procedure and Rules of Criminal Procedure under the Rules of Court of the Philippines provide detailed procedures for the seizure and release of property in various legal contexts, including attachment, replevin, and seizure as evidence in criminal cases.

2. Civil Code of the Philippines: The Civil Code governs property rights and includes provisions on ownership, possession, and the restitution of unlawfully seized property.

3. Revised Penal Code: The Revised Penal Code contains provisions relating to the confiscation and return of property involved in criminal acts, particularly in relation to evidence, stolen goods, or contraband.

4. Special Laws: Other laws such as the Comprehensive Dangerous Drugs Act (Republic Act No. 9165), Anti-Graft and Corrupt Practices Act (Republic Act No. 3019), and Customs Modernization and Tariff Act (Republic Act No. 10863) also govern the seizure and release of property in relation to specific types of cases, such as drug-related offenses, graft, and smuggling.

 Common Scenarios for the Issuance of a Release Order for Property

The following are common scenarios where an order for the release of property may be issued:

1. Release of Attached Property (Civil Cases)

In civil litigation, a writ of attachment may be issued to prevent a defendant from disposing of property while the case is ongoing. The attachment serves to secure the satisfaction of a potential judgment. Once the case is resolved or if the attachment is lifted, the court may issue an order for the release of the attached property.

2. Release of Seized Property (Criminal Cases)

In criminal proceedings, property may be seized as evidence or as part of the investigation. After the trial, if the court determines that the property is no longer needed as evidence, or if the accused is acquitted, an order for the release of the property may be issued.

3. Release of Property in Replevin

In replevin actions, a party seeks the return of personal property that has been wrongfully detained by another. If the court rules in favor of the plaintiff, it may issue an order directing the release of the property to its rightful owner.

4. Release of Property Subject to Forfeiture

In cases where property is subject to forfeiture due to its connection with illegal activities (e.g., money laundering, graft, smuggling), a release order may be issued if the court or relevant authority determines that the property should be returned to its owner or custodian, especially if the forfeiture proceedings are resolved in favor of the property owner.

5. Release of Collateral in Foreclosure Proceedings

In some foreclosure cases, the court may issue a release order for property that has been seized or attached as collateral if the foreclosure has been legally resolved, such as through payment of the debt or a legal ruling in favor of the debtor.

 Grounds for the Issuance of a Release Order

An order for the release of property is typically issued based on the following grounds:

1. Resolution of Legal Proceedings: The most common ground for the issuance of a release order is the resolution of the legal case in which the property was seized. For example, if a case involving the attachment or seizure of property has been resolved in favor of the property owner, the court will issue an order to release the property.

2. Improper Seizure or Attachment: A party may also file a motion for the release of property if the seizure or attachment was made improperly or without legal basis. If the court finds that the property was wrongfully seized, it will issue an order for its release.

3. Compliance with Legal Obligations: If the property was held as security for compliance with a legal obligation, such as the payment of a debt, an order for release may be issued upon fulfillment of the obligation.

4. Substitution or Release of Surety: In certain cases, such as when a bond or surety is provided to secure the release of the property, the court may issue an order for the release of the property if it is satisfied that the bond or surety is sufficient.

 Procedures for Securing a Release Order

The process for securing a release order for property varies depending on the type of legal proceeding and the specific circumstances of the case. Below are the general steps involved:

1. Filing a Motion for Release

The party seeking the release of the property must file a motion for release with the court that has jurisdiction over the case. The motion must include relevant facts and legal arguments supporting the release of the property, such as the resolution of the case or the improper attachment.

2. Notice to Opposing Parties

After the motion is filed, the court will issue a notice to the opposing parties, allowing them to respond. If the opposing party objects to the release of the property, they may file an opposition or counter-motion.

3. Hearing

The court may schedule a hearing to hear both sides' arguments regarding the release of the property. During the hearing, the parties can present evidence and legal arguments to support their respective positions.

4. Issuance of the Release Order

If the court finds in favor of the party requesting the release of the property, it will issue an order for the release of property. The order will specify the terms and conditions of the release, including any obligations the party may need to fulfill before the property can be returned (e.g., payment of fees or the posting of a bond).

5. Enforcement of the Release Order

Once the release order is issued, the party in possession of the property must comply with the court’s directive and return or release the property to the rightful owner. Failure to comply with a release order may result in contempt of court or other legal consequences.

 Rights and Obligations of the Parties

The issuance of a release order imposes certain rights and obligations on the parties involved:

1. Rights of the Property Owner: Upon the issuance of a release order, the property owner has the right to have their property returned without delay. They may also claim compensation for damages if the property was wrongfully seized or detained.

2. Obligations of the Party in Possession: The party in possession of the property, such as law enforcement agencies or creditors, must promptly comply with the release order. Any delay or refusal to release the property can result in legal sanctions.

3. Payment of Costs and Fees: Depending on the circumstances, the court may require the party seeking the release to pay certain costs and fees associated with the release process, such as court fees, storage fees, or the cost of posting a bond.

 Legal Challenges to Release Orders

Opposing parties may challenge the issuance of a release order by filing a motion for reconsideration or appealing the court’s decision. Common grounds for challenging a release order include:

1. Pending Appeal or Legal Action: If there is a pending appeal or related legal action that could affect the disposition of the property, the opposing party may argue that the release of the property is premature.

2. Violation of Legal Requirements: If the party seeking the release has not fulfilled certain legal requirements, such as the payment of debts or the posting of a bond, the opposing party may argue that the release order should not be granted.

 Conclusion

An Order for the Release of Property is an important legal tool that ensures the return of property that has been seized, attached, or impounded during legal proceedings. The process of obtaining a release order is governed by specific laws and procedures, which seek to balance the rights of property owners with the interests of justice. Understanding the legal framework surrounding release orders helps parties navigate the legal process effectively, ensuring that property is released or returned in accordance with the law. Legal counsel is often necessary to ensure that all procedural requirements are met and that the property is properly returned to its rightful owner.

Source: Ziggurat Real Estate