December 28, 1995
DAR OPINION NO. 89-95
Mr. Emmanuel C. Lontok
Vice President/Manager
Rural Bank of Lebak, Inc.
Poblacion, Lebak
Sultan Kudarat
Dear Mr. Lontok:
This answers the queries raised in your letter regarding the extension of financial assistance to holders of Certificates of Land Ownership Award (CLOAs), using said titles as collateral for loans, and the remedy available to the bank in case the mortgagors default in their obligations.
As gleaned from your letter, you wish to be clarified on whether it is legally feasible to use CLOAs covering DAR Resettlement areas as collateral for mortgage loans obtained from private banks without violating the provisions of the Comprehensive Agrarian Reform Law.
Anent your query on whether CLOAs can be legally used as collateral for loans, the answer is in the affirmative. While Section 27 of RA 6657 expressly provides that "lands acquired by beneficiaries under said Act may not be sold, transferred or conveyed except through hereditary succession, or to the government, or to the LBP, or to other qualified beneficiaries for a period of ten (10) years", such prohibition applies only to transactions where ownership is parted with. Said provision of law does not apply to the contract of mortgage because ownership still remains with the mortgagor. As held by the Supreme Court in the case entitled "Eleazar and Elena Adlawan vs. Hon. Judge Ramon Torres" (G.R. Nos. 65957-58; July 5, 1994), by mortgaging a piece of property, a debtor merely subjects it to a lien, but ownership is not parted with. Such being the case, a mortgage is not the transaction referred to under the aforequoted provision. Moreover, since one of the exceptions to the aforecited prohibition against transfer is that made to other qualified beneficiaries, the DAR sees no legal impediment in the event the bank (in this case the Rural Bank of Lebak) forecloses on the mortgage, provided the mortgage deed contains a provision that in the event of foreclosure, the lot shall be transferred to qualified agrarian reform beneficiaries.
We hope to have enlightened you on the matter.
Very truly yours,
(SGD.) HECTOR D. SOLIMAN
Assistant Secretary Legal Affairs Office