August 5, 1994

DAR OPINION NO. 54-94

Erlinda A. I. Espiritu

President/Manager

Rural Bank of Calapan, Inc.

Calapan, Oriental Mindoro

Dear Ms. Espiritu:

This answers the queries raised by you in connection with agricultural lands used as collaterals for loans obtained from banks, to wit:

1.         Can DAR issue a Certification that the land used as collateral for a loan obtained from a bank is within the landowner's retention?

2.         If the mortgage, is foreclosed, and the collateral is a retained area of the mortgagor, would it be possible to exempt said land from compulsory acquisition by DAR? Can the bank be allowed to, enter into agreements of Voluntary Land (VLT) to enable said banks to recoup their capital faster provided the sale is made in favor of qualified parties who do not own agricultural land?

3.         Should DAR acquire said retention lands of the bank thru VOS, could you possibly amend your valuation and payments procedure so that purchase price is based on current market values and not 1988, and payments in cash are more substantial?

The answer to your first query is in the affirmative, provided that said land is indeed the retained area of the mortgagor. As defined in DAR Administrative Order No. 1, Series of 1989, retention area refers to that parcel of land selected by the landowner as such to remain under his full ownership and control after his landholding has been acquired by the government or covered by CARP and distributed to the beneficiaries, as evidenced by a Certificate of Retention issued by the Provincial Agrarian Reform Officer (PARO) of the province where the land is situated. Under Sec. 6 of RA 6657 (the Comprehensive Agrarian Reform Law or CARL), said retention should not exceed five (5) hectares.

Anent your second query, if the land is the retained area of the mortgagor, the same falls outside the coverage of CARL. As such, banks may sell or dispose of the same to any person, provided his total landholdings, inclusive of the land to be acquired, shall not exceed the 5-hectare retention limit (Section 70 of RA 6657). In this connection, the DAR Clearance for the registration of the transfer shall be issued only if the following are presented as required under DAR Administrative Order No. 1, Series of 1989: The Affidavit of Retention by the Landowner/Mortgagor; Affidavit of the Buyer or Transferee (that his landholdings, including the new acquisition, do not exceed 5 hectares) and the PARO Certificate of Retention. Please note that if the property is tenanted, the tenant shall continue to enjoy the rights granted to him under the Agrarian Reform Code, including his right to security of tenure, which means that he may not be ejected from his tillage unless authorized by the court for causes provided in said law.

As regards your last query, DAR Administrative Order No. 6, Series of 1992 provides a basic formula for the valuation of lands covered by VOS or compulsory acquisitions taking into account the factors enumerated in Section 17 of CARL. This is without prejudice to the landowner's right to petition the Special Agrarian Court to resolve the issue of valuation.

We hope to have clarified matters for you.

Very truly yours,

(SGD.) HECTOR D. SOLIMAN
Assistant Secretary
Legal Affairs Office

Copy furnished:

OSEC

Doc. No. 94-06-0128

Director Gloria J. Fabia

BLAD