Redemption and Tax Rules on Foreclosed Assets

Section 47 of Republic Act No. 8791 governs foreclosure of real estate mortgages by banks, those engaged in quasi-banking activities, and trust companies.
Section 47 grants the mortgagor/debtor the right to redeem sold property within specified periods after sale.
Section 47 provides that a court petition to enjoin or restrain foreclosure proceedings shall be given due course only upon filing of a bond conditioned on payment of damages the bank may suffer.
Section 47 states that juridical persons whose property is sold under extrajudicial foreclosure may redeem only until, but not after, registration of the certificate of foreclosure sale with the applicable Register of Deeds, in no case more than three (3) months after foreclosure, whichever is earlier.
Section 47 provides that foreclosure sales occurring before the Act’s effectivity preserve redemption rights until expiration.

For individual mortgagors, the one-year redemption period under Section 47 is reckoned from the date of confirmation of the auction sale, which is the date when the certificate of sale is issued.
For juridical persons/mortgagors, the three-month redemption period is likewise reckoned from the date of confirmation of the auction sale (the date the certificate of sale is issued).
The redemption period rule applies to foreclosure of real estate mortgages by those governed by Republic Act No. 8791.

If there is no redemption, the capital gains tax on the foreclosed capital asset becomes due within thirty (30) days following the expiration of the redemption period.
If the property is an ordinary asset of the mortgagor, the creditable expanded withholding tax becomes due and must be paid within ten (10) days following the end of the month in which the redemption period expires.
If the foreclosure situation warrants VAT under Section 106 of the Tax Code, as implemented by Revenue Regulations No. 4-2007, the VAT must be paid by the mortgagor on or before the 20th day or the 25th day, whichever is applicable, of the month following the month when the right of redemption prescribes.
Payment of the documentary stamp tax and filing of the related return must be made within five (5) days from the end of the month when the redemption period expires.
The taxes due on the foreclosure sale must be based on the bid price of the highest bidder pursuant to Revenue Regulations No. 4-99.

The Circular requires classification of the foreclosed asset as either an ordinary asset or a capital asset based on the nature of the asset in the hands of the mortgagor.

In the circumstances covered, mortgagee banks, quasi-banks, and trust companies are treated as statutory sellers in foreclosure sales of the foreclosed real properties.
Statutory sellers are expected to have paid the required foreclosure-related taxes within the period provided once the redemption period expires.
Statutory sellers’ payment is intended to avoid waiting for another or subsequent buyer before paying taxes on the foreclosed property.
Upon proof that the statutory seller’s required taxes were actually paid, the Certificate Authorizing Registration (CAR) must be issued without waiting for the VAT compliance of the mortgagor in all cases where the property is subject to VAT.

As a general rule, the venue for filing returns and paying taxes on foreclosure sales other than VAT is the place where the real property foreclosed is located.
If VAT applies, VAT must be paid by the VAT-registered mortgagor by filing the required return in the Revenue District Office (RDO) where the mortgagor is registered.
Notwithstanding the general venue rule for taxes other than VAT, if the statutory seller is classified as a Large Taxpayer, the venue for paying capital gains tax/creditable withholding tax and documentary stamp tax is the concerned office of the Large Taxpayers Service under Revenue Regulations No. 4-2008.
The BIR Office having jurisdiction over the statutory seller must notify the RDO where the mortgagor is registered to collect trip VAT on the transaction.

All internal revenue officers and others concerned are enjoined to give the Circular wide publicity as possible.
The Circular governs both: (a) the reckoning of the redemption period and (b) the timing and venue for foreclosure-related tax payments and return filings, including interactions with CAR issuance.