Mortgages, Contracts & Taxes
Learn how PD 957 regulates developer mortgages, requires contract registration, and allocates real estate tax liability between developers and buyers.
Developer Mortgage Restrictions
“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 thereto.”
What This Means
Developers cannot freely mortgage subdivision lots or condominium units. Any mortgage requires prior written approval from DHSUD, and the loan proceeds must be used for developing the project. not for the developer's other businesses. Crucially, buyers must be notified before the loan is released, and they have the right to pay installments directly to the bank (mortgagee) to ensure their payments go toward releasing the mortgage on their specific lot or unit.
- Developer mortgages require prior written approval from DHSUD
- Loan proceeds must be used exclusively for project development
- Buyer must be notified before the loan is released
- Buyer can opt to pay directly to the bank instead of the developer
- Direct payments to bank go toward releasing the mortgage on the buyer's specific unit
Real-World Scenario
Prime Developers mortgaged all 200 lots in their subdivision to Bank XYZ for P100 million without seeking DHSUD approval. They used P60 million to fund a separate commercial project. Buyers are paying monthly amortizations to Prime Developers, unaware that their lots are mortgaged.
What violations has Prime Developers committed?
Mandatory Registration of Contracts
“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.”
What This Means
PD 957 requires that ALL sale-related contracts. whether a Contract to Sell, Deed of Absolute Sale, or any similar instrument. must be registered at the Register of Deeds. This applies regardless of whether the buyer has fully paid or is still paying in installments. The obligation to register falls on the SELLER (developer). Registration protects the buyer by creating a public record of their purchase, preventing double-selling of the same lot to different buyers.
- ALL contracts (to sell, deeds of sale, similar instruments) must be registered
- Registration is required whether or not purchase price is fully paid
- The SELLER is responsible for registering. not the buyer
- Register at the Register of Deeds where the property is located
- Protects against double-selling and fraudulent conveyances
Real-World Scenario
The Cruz family signed a Contract to Sell with Developer Horizon for a condominium unit in 2023. They have been paying monthly for a year. They discover that the developer never registered their contract at the Register of Deeds. Now, they learn that the same unit was recently sold to another buyer with a registered Deed of Sale.
What are the Cruz family's rights?
Real Estate Tax Responsibility
“Real estate tax and assessment on a lot or unit shall be paid by the owner or developer without recourse to the buyer for as long as the title has not passed the buyer: Provided, however, that if the buyer has actually taken possession of and occupied the lot or unit, he shall be liable to the owner or developer for such tax and assessment effective the year following such taking of possession and occupancy.”
What This Means
The general rule is clear: while the title is still in the developer's name, the developer pays the real estate tax. They cannot pass this cost to the buyer. However, there is one exception: if the buyer has already taken physical possession and occupied the lot or unit, the buyer becomes liable for real estate tax starting the year AFTER they took possession. This makes practical sense. if you're already living there, you start paying the property tax.
- Developer pays real estate tax while title is in their name
- Developer cannot charge buyers for tax unless title has transferred
- Exception: buyer who takes possession becomes liable the following year
- Liability starts "the year following" actual possession and occupancy
- "Without recourse to the buyer". developer cannot pass the cost back
Real-World Scenario
A developer sends buyers a billing statement for P12,000 in real property tax for the current year. The title is still under the developer's name (transfer is pending). The buyers moved into their unit 8 months ago.
Are the buyers liable for this real property tax?
Frequently Asked Questions
Can a developer mortgage my lot without telling me?
No. Under Section 18 of PD 957, the developer needs prior written approval from DHSUD for any mortgage, and the buyer must be notified before the loan is released. If you discover an undisclosed mortgage, you have the right to pay directly to the mortgagee bank and file a complaint with DHSUD.
Is the developer required to register my Contract to Sell?
Yes. Section 17 requires the seller to register all contracts to sell, deeds of sale, and similar instruments at the Register of Deeds, whether or not the purchase price is fully paid. This protects you from double-selling and creates a public record of your purchase.
Who pays the real estate tax on a lot where the title hasn't transferred yet?
Under Section 26, the developer pays real estate tax while the title is still in their name, "without recourse to the buyer." The exception is if the buyer has taken possession. then the buyer becomes liable starting the year AFTER taking possession.