A.M. No. RTJ-04-1872 - Office of the Court Administrator vs. Espanol

New San Jose Builders, Inc. (NSJBI) mortgaged three parcels of land comprising 366 lots with low-cost houses, 102 condominium units, and other improvements on Scout Rallos Street, Quezon City to the Government Service Insurance System (GSIS) to secure a loan of P600,000,000.
Among the mortgaged properties was Condominium Unit 312, which later became the subject of controversy.
After NSJBI defaulted in its loan obligation, GSIS foreclosed the mortgage and purchased the properties covered by it on June 17, 2003.
The Certificate of Sale issued to GSIS on June 20, 2003 was duly registered with the Registry of Deeds of Quezon City on September 19, 2003.

Prior to the foreclosure, NSJBI sold Condominium Unit 312 to spouses Marcelino and Alma De los Reyes via a Deed of Absolute Sale dated May 28, 2001.
The spouses later discovered that the condominium unit had been encumbered by a mortgage and was subject to the foreclosure executed by GSIS.
On June 15, 2004, the spouses filed a complaint with the Housing and Land Use Regulatory Board (HLURB) seeking several reliefs, including:

Revocation of the Certificate of Registration and License to Sell of NSJBI.
An order directing NSJBI and its officers to release and deliver the Condominium Certificate of Title No. N-18117 covering Unit 312, free from liens and encumbrances.
An order requiring GSIS to release its mortgage on the title.
Joint and several indemnity by NSJBI and its representatives.

In light of the discovered encumbrance and foreclosure sale, the spouses also sought an urgent writ of preliminary injunction with a temporary restraining order (TRO) to prevent GSIS from consolidating its title to the condominium unit.
GSIS opposed these reliefs, contending that the spouses’ cause of action was flawed because the mortgage was executed prior to the sale of the condominium unit and that, under Presidential Decree (PD) No. 385, a restraining order could not be issued against a government financial institution complying with a mandatory foreclosure.

House and Land Use Arbiter Rowena C. Balasolla granted the spouses’ motion on November 16, 2004, issuing a Cease and Desist Order to restrain GSIS from proceeding with the consolidation of the condominium title.
The HLURB Second Division, in its Decision of June 23, 2005, affirmed the arbiter’s ruling, noting that:

PD No. 385 applied only to on-going foreclosure proceedings.
NSJBI had violated Section 18 of PD No. 957 by failing to secure the mandatory mortgage clearance prior to executing the transaction.

GSIS filed a motion for reconsideration before the HLURB Board En Banc; however, the HLURB Second Division denied this motion by a Resolution dated October 21, 2005.
Following this denial, GSIS elevated the matter by filing a petition for certiorari before the Court of Appeals, challenging HLURB’s jurisdiction and the propriety of the CDO.
The Court of Appeals, in its Decision dated June 28, 2007, dismissed GSIS’s petition, affirming the HLURB ruling and ordering the HLURB Arbiter to proceed with the spouses De los Reyes’ complaint.

Whether the HLURB’s Second Division had the authority to entertain and decide GSIS’s motion for reconsideration given that the rules prescribed a full nine-member Board of Commissioners for appeal decisions under Sections 5 and 6(a) of Executive Order (E.O.) No. 648.

Whether PD No. 385, which mandates the foreclosure process and limits the issuance of restraining orders against government financial institutions, precludes the issuance of a temporary restraining order (or Cease and Desist Order) to prevent GSIS from consolidating title.

Whether the failure to secure a prior written approval for the mortgage, as required under Section 18 of PD No. 957, renders the mortgage and the subsequent foreclosure procedures void, thus justifying HLURB’s intervention.