May 28, 1996
DAR OPINION NO. 25-96
MARO Domingo B. Mariano, MSRD
Department of Agrarian Reform
Banaue, Hingyon, Hungduan Circuit Office
Piwong, Hingyon, Ifugao
Dear MARO Mariano:
This refers to your letter requesting DAR top Management to look into the problem raised by our CLOA beneficiaries regarding the non-acceptance by the PNB, rural banks, DBP and others of CLOAs as collateral for loans.
Please be informed that CLOAs can be legally used as collateral for loans. While Section 27 of R.A. 6657 expressly provides that lands acquired by beneficiaries under said Act may not be sold, transferred or conveyed except thru 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 lien, but ownership is not parted with. Such being the case, a mortgage is not one of the transactions referred to in the aforequoted provision. Moreover, since dispositions made in favor of the government and the LBP are excepted from the aforecited prohibition against transfer, the DAR sees no legal impediment in case the LBP or GFI 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. With respect to private banks, foreclosure would be legally feasible provided the transferee is a qualified agrarian reform beneficiary.
Please be guided accordingly and inform our DAR clientele within your area of jurisdiction.
Very truly yours,
(SGD.) LORENZO R. REYES
OIC-Undersecretary
LAFMA
Copy furnished:
Dir. Jose Mari B. Ponce
Project Development Management Service
DAR, Quezon City
The Regional Director
DAR Region XIII
Favis Building, Albano Extension
Cor. Cariño St.
Baguio City
The PARO
DAR, Lamut, Ifugao