March 25, 1999

DAR OPINION NO. 31-99

ATTY . ERNESTO L. CATEDRAL

Legal Counsel

Rural Bank of Isulan (Sultan Kudarat) Inc.

Isulan, Sultan Kudarat

Dear Atty. Catedral:

This refers to your letter dated 09 November 1998 relative to the refusal of Engr. Marion Y. Abella, Provincial Agrarian Reform Officer (PARO), DAR, Sultan Kudarat to issue clearance for the consolidation of title over Lot No. 5277, Pls-72 covered by OCT No. (V-7155) P-2819 until the issue on compensation is finally settled.

As mentioned in your letter, PARO Marion Y. Abella refuses to issue a clearance for the consolidation of title over subject lot on the alleged ground that the Department of Agrarian Reform (DAR) has placed it under Voluntary Offer to Sell (VOS) and Rural Bank of Isulan has to wait until the Land Bank of the Philippines (LBP) and the DAR have finally settled the issue of compensation; that it is your stand that the bank should not be made to wait indefinitely for the outcome of the negotiation before it could consolidate its title over the property referred to because, under the law, landowner/borrower is given a fixed period within which to redeem said property and failure to do so entitles the bank to consolidate its title thereto; that in order to avail of this right, the bank needs to secure the clearance which it had requested from PARO Abella; that you could not see any legal justification why the Provincial Office in Sultan Kudarat has to make the said bank to wait for some indefinite time before the former will issue a clearance; and that you are now seeking for legal opinion on this matter because you believe that a mere Administrative Order could not prevail over a substantive law.

A reading of the letters of PARO Abella and Atty. Edwin H. Baraquia of DAR-Sultan Kudarat of which you attached in your letter, reveals the following: that subject property is under VOS and that the Land Bank of the Philippines has already issued a Certificate of Deposit dated 06 April 1998; that PARO Abella applied the provisions of Administrative Order No. 2, Series of 1997 with the opinion that the creditor bank (Rural Bank of Isulan) shall be treated as lien-holder; that it is their observation that should their Office grant request for clearance over subject property, the same shall be issued on condition that the property shall be offered for coverage; and that a request to the Register of Deeds of Isulan, Sultan Kudarat was made to hold in abeyance any transaction involving the subject property until the LBP and DAR has finally settled the issue on compensation.

You are right when you state that a mere administrative order could not prevail over a substantive law. However, pertinent to the issue you brought before us are the provisions of Section 25 of Republic Act No. 337 (General Banking Act) which provides that acquired assets and mortgaged properties foreclosed by the mortgagee banks shall be disposed of within a period of five (5) years after foreclosure; and Section 71 of R.A. No. 6657 which provides that "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." The aforecited provisions of laws were only clarified by DAR Administrative Order No. 02, Series of 1997 which provides in its Policy Statement (III B and D) the following, quote:

"The Creditor is considered a lien-holder and/or mortgage if as of the date the land transfer claim was received by the Land Bank of the Philippines (LBP) from the Department of Agrarian Reform (DAR):

1.         The mortgage on the property is still existing; or

2.         The mortgage on the property has been foreclosed and the period of redemption has not yet expired; or

3.         When there is as yet no consolidation of title of the mortgaged property even if the redemption has expired.

xxx                      xxx                      xxx

Nothing in this order shall be construed to delay the distribution of lands to the Agrarian Reform Beneficiaries once the Certificate of Deposit is issued by the LBP. The question as to whether the Creditor shall be considered a landowner or lien holder and/or mortgagee, will only affect who the recipients of the compensation for the land will be." (emphasis supplied)

In view of all the aforegoing and considering that a Certificate of Deposit had already been issued on 06 April 1998, it is this Department's position that as a foreclosing bank, the Rural Bank of Isulan is still considered as a lien-holder and/or mortgagee, thus, the property subject of the mortgage cannot be the subject of a DAR clearance since the property is already covered under CARP.

Thank you for communicating with us and we hope to have clarified the matters with you.

Very truly yours,

(SGD.) DANILO T. LARA

Undersecretary for Legal Affairs, and Policy and Planning

Copy furnished:

Atty. Edwin H. Baraquia

Attorney V

DAR-Region XII

Impao, Isulan, Sultan Kudarat

Engr. Marion Y. Abella

Provincial Agrarian Reform Officer

DAR-Region XII

Impao, Isulan, Sultan Kudarat

Land Bank of the Philippines

Land Valuation Office

Cotabato City