June 7, 2002

DAR OPINION NO. 15-02

Atty. Dorylene S. B. Yara
Legal and Personnel Officer
LBC Bank
809 J. P. Rizal St. cor. F. Zobel St.
Makati City

Dear Atty. Yara:

This refers to your letter dated 11 March 2002, requesting clarification regarding the issuance of DAR Clearance on agricultural lands foreclosed by the bank.   TcHDIA

As stated, the Register of Deeds is requiring you to submit DAR Clearance before they can register the transfer of ownership of said lands in the name of your bank. However, the Provincial Agrarian Reform Officer/Municipal Agrarian Reform Officer (PARO/MARO) has denied your application for DAR Clearance.

In the light of the foregoing, you are inquiring if the following are valid grounds for non-issuance of DAR Clearance:

1.         Properties with pending cases in court either for Nullification of the Foreclosure or Annulment of the Mortgage; and

2.         Consolidation of ownership of untenanted agricultural lands of more than five (5) hectares.

As regards the issuance of DAR clearance on properties with pending cases in court, Section 71 of Republic Act No. 6657 (Comprehensive Agrarian Reform Law) provides:

"Sec. 71.       Bank Mortgages. — Banks and other financial institutions allowed by law to hold mortgage rights or security interest in agricultural lands to secure loans and other obligations of borrowers, may acquire title to these mortgaged properties, regardless of area, subject to existing laws on compulsory transfer of foreclosed assets and acquisition as prescribed under Section 16 of this Act.

Based on the foregoing, it appears that the acquisition of title by banks to mortgaged or foreclosed agricultural properties may be allowed upon compliance of existing legal procedures without need of a DAR Clearance. However, considering that there are pending cases in court on the nullification of the foreclosure or annulment of the mortgage, title may not pass to the bank pending resolution thereof. Thus, DAR could not properly issue a DAR Clearance under such circumstances.

Further, it is worthy to note that notwithstanding the issuance perchance of title to a bank, such is still subject to existing laws on compulsory transfer of foreclosed assets pursuant to the aforequoted provision of Section 71 of R.A. No. 6657. The phrase "subject to existing laws on compulsory transfer of foreclosed assets" refers to the provision in Section 25 of R.A. No. 337 (The General Banking Act) that no bank shall hold the possession of any real estate under mortgage or trust deed, or the title and possession of any real estate purchased to secure any debt due to it for a longer period than five (5) years. In other words, acquired assets and mortgaged properties foreclosed by banks shall be disposed of within a period of five years after foreclosure.   DCASIT

Corollarily, although Section 6 of R.A. No. 7881 allows the transfer by banks of such foreclosed assets to third parties, they shall nonetheless be eventually acquired by the government through the DAR, under Section 16 of R.A. No. 6657, for distribution to qualified farmer-beneficiaries.

As regards the issue of consolidation of ownership of untenanted agricultural lands of more than five (5) hectares, said lands may be consolidated even without a DAR clearance pursuant to Section 71 of R.A. No. 6657. However, they are nonetheless eventually subject to existing laws on compulsory transfer of foreclosed assets and acquisition for distribution to qualified agrarian reform beneficiaries as prescribed under the aforementioned provision of Sections 16 and 71 of R.A. No. 6657 and Section 25 of R.A. No. 337.

We hope to have clarified the matters.

Very truly yours,

(SGD.) VIRGILIO R. DE LOS REYES
Undersecretary for Policy, Planning and
Legal Affairs Office