Loan Collateral Acceptance for Agrarian Reform Beneficiaries

Executive Order No. 26 advances a policy of helping Comprehensive Land Reform Program beneficiaries become independent entrepreneurs of lands conveyed to them.
The order targets poverty and dependence from government subsidies by removing barriers to financing for agrarian reform beneficiaries.
The order identifies a key impediment: financial institutions’ non-acceptability of Certificate of Land Ownership Award (CLOA) lands as collateral for agricultural loans.
The order aims to make CLOA holders more creditworthy so they become productive partners of government and avoid predatory lending.

Lands covered by a CLOA are the lands governed by Section 1.
The CLOA lands are accepted as loan collateral for loans secured by their registered owners under Section 1.
The acceptance applies when the lending is with government financial institutions and with private financial institutions under Section 1.

The registered owner must secure the consent of the farmers cooperative to which the owner is a member for the CLOA land to be used as collateral under Section 1.
The loan proceeds must be used exclusively for the furtherance of the agricultural productivity of the land and related activities under Section 1.
Monitoring is imposed on the concerned financial institution for ensuring the exclusive use of loan proceeds under Section 3.

Section 1 makes CLOA lands acceptable as collateral to secure loans by registered owners, subject to cooperative consent and exclusive agricultural-use condition.
On foreclosure, if the mortgagor fails to redeem within the period allowed by law, redemption is by the farmers cooperative to which the mortgagor is a member under Section 1.
If the farmers cooperative defaults in redemption, redemption may be made by any neighboring cooperatives or by qualified beneficiaries under the Comprehensive Agrarian Reform Program under Section 1.
If the foreclosure occurred after the lapse of the prohibitory period provided for under Section 27 of Republic Act No. 6657, the foreclosed property may be sold to auction to any qualified person, natural or juridical, to own a land under Section 1.

Holders of CLOA who avail themselves of the benefits under Executive Order No. 26 receive the maximum loan value provided for under Republic Act No. 337, as amended under Section 2.

The concerned financial institution must notify the Department of Agrarian Reform for monitoring purposes under Section 3.
The notice is to ensure that the loan proceeds obtained are used solely for the productivity of the land and related activities under Section 3.

A deviation by the mortgagor in the use of loan proceeds triggers a penalty under Section 4.
Upon deviation, the farmers cooperative may take over the cultivation and management of the mortgaged land until the cooperative has recovered:
- the amount of the loan,
- necessary expenses relative thereto, and
- a management fee of five (5%) percent of the produced of the land under Section 4.

The Monetary Board is called upon to exempt CLOA-covered lands from its authority on reducing the maximum loan ratios of CLOA lands used as collateral under Section 5.

Section 6 repeals or modifies any Executive Orders, issuances, rules and regulations, or parts thereof that are inconsistent with Executive Order No. 26.

Executive Order No. 26 takes effect immediately upon issuance under Section 7.