Revised Rules on Acquisition of Mortgaged Agricultural Lands

Legal basis and governing predecessor rules

Section 49 of Republic Act No. 6657 authorizes the issuance of rules on agrarian reform acquisition processes involving agricultural lands.
Section 7, Chapter 2, Book IV of Executive Order No. 292 (Revised Administrative Code of 1987) is the administrative authority framework for the DAR issuance.
The order revises existing rules by prescribing revised procedures for acquisition of private agricultural lands subject of mortgage or foreclosure.
The order expressly provides that where its coverage excludes certain situations, DAR Administrative Order No. 2 (1996), as amended governs the acquisition proceedings.
The order incorporates statutory and rule-based concepts, including mortgage, foreclosure, redemption, and equity of redemption, through cross-references.

Policy rationale and underlying statutory framework

The order aligns agrarian reform acquisition with the rule in Section 25 of Republic Act No. 337 (General Banking Act) that acquired assets and foreclosed mortgaged properties by banks shall be disposed of within five (5) years after foreclosure.
The order implements Section 71 of Republic Act No. 6657, allowing banks and other lawful mortgage-right holders to acquire title to mortgaged agricultural properties regardless of area, subject to compulsory transfer of foreclosed assets and acquisition procedures under the agrarian reform law.
The order applies Section 72(b) of Republic Act No. 6657, which assumes mortgages and other registered claims by the government up to the landowner’s compensation value.
The order provides operational rules on when a mortgagee is treated as a landowner or lien-holder for agrarian reform acquisition purposes.

Key definitions and redemption rules

“Banks” include banking institutions and related entities performing banking functions in the Philippines, including branches and agencies of foreign banks (Section 22, Act No. 335).
“Mortgage” is an accessory contract where the debtor (or third person) guarantees performance of the principal obligation by subjecting real property or real rights as security upon non-fulfillment within the agreed period.
“Mortgagor” is one who, having all or some title, by written instrument pledges property as security for a particular purpose such as security for a debt.
“Mortgagee” refers to banks, financial institutions, and other persons holding registered mortgage rights over the lands.
“Foreclosure” is the procedure by which the mortgaged property is sold on default to satisfy the mortgage debt, including the sale itself.
“Redemption” is the transaction by which the mortgagor reacquires or buys back the property or divests the property of the lien created.
“Right of Redemption” is the mortgagor’s right to redeem within the period after the property is sold for satisfaction of the mortgage debt.
“Equity of Redemption” is the right of the mortgagor to redeem after default but before sale confirmation of the mortgaged property; it exists in judicial foreclosure except where the mortgagee is a bank, and it may be exercised within not less than ninety (90) days and not more than one hundred twenty (120) days from entry of judgment of foreclosure, and even thereafter provided redemption is done before foreclosure sale confirmation.

Coverage and mortgagee status

The rules cover all agricultural lands subject of mortgage or foreclosure.
The rules do not apply to cases where the mortgagee is already the registered owner at the start of the acquisition proceedings, and DAR Administrative Order No. 2 (1996), as amended governs those cases.
A mortgagee is deemed the new landowner for coverage under the agrarian reform program before the deposit of just compensation when:
- the mortgagee is the purchaser in the foreclosure sale and the redemption period has already expired where the right of redemption exists; or
- the mortgagee is the purchaser in the foreclosure sale and the foreclosure sale is confirmed by the court where only equity of redemption is provided.
A mortgagee is deemed a lien-holder on the date the land transfer claim is received by the Land Bank of the Philippines (LBP) from the Department of Agrarian Reform (DAR) when:
- the mortgage debt is not yet due and demandable; or
- the mortgage debt is due and demandable but the mortgagee has not foreclosed; or
- the mortgage has been foreclosed but the legal redemption period has not yet expired; or
- the foreclosure sale has not yet been confirmed by the court where only equity of redemption exists.
The order expressly links mortgagee status to the existence and timing of redemption or confirmation outcomes.

Consolidation of title and tax/fee deductions

The mortgagee may proceed with cancellation of the mortgagor’s certificate of title and issuance of a new one in the mortgagee’s name in accordance with Section 63 of PD No. 1529 (“Property Registration Decree”) upon:
- expiration of the redemption period; or
- confirmation by the court of the foreclosure sale, as applicable.
If the mortgagee fails to cause issuance of a certificate of title in its name within thirty (30) days from receipt of the notice of land valuation and acquisition, the procedure for transfer of title in the name of the Republic of the Philippines is followed in accordance with DAR Administrative Order No. 2 (1996).
The Provincial Agrarian Reform Office (PARO) furnishes the Register of Deeds (ROD) all supporting documents to consolidate title in the mortgagee’s name under Section 63 of PD 1529, including:
- where only equity of redemption exists: a certified copy of the final court order confirming the sale; and
- where the right of redemption exists:
  - for judicial foreclosure: the final deed of sale executed by the sheriff in favor of the mortgagee; and
  - for extra-judicial foreclosure: either (i) a final deed of sale executed by the authorized person under the power of attorney in the deed of mortgage, or (ii) an affidavit of the mortgagee attesting to non-redemption; if the mortgagee does not execute the affidavit of non-redemption, an affidavit executed by the PARO attesting to the mortgagee’s failure to execute it suffices.
After submission of the supporting documents and after annotations transferring ownership to the Republic of the Philippines on the mortgagor’s title, the mortgagor’s title is cancelled and a new title is issued in the name of the Republic of the Philippines without need to issue a separate certificate of title in the name of the mortgagee.
All taxes, penalties, fines, registration fees, and other impositions required from the mortgagor and mortgagee before title can be registered in the name of the Republic of the Philippines are deducted from the proceeds of the land transfer claim and paid by the LBP if the mortgagee fails to pay within fifteen (15) days after due notice and demand by the PARO through personal service or registered mail.
If the mortgagee/landowner still fails to pay within the prescribed period, the PARO verifies whether there is an order converting, exempting, or lifting coverage or acquisition for the subject property; if none exists, the PARO directs the LBP to deduct and pay the necessary amounts.

Mortgagee rights and obligations

As new landowner, the bank, financial institution, or concerned person is entitled to receive notices, advices, correspondence, and communications from DAR and/or LBP (including Notice of Coverage, Notice of Land Valuation and Acquisition, and Letter-Requirement for Processing and Payment of Claim).
As new landowner, the mortgagee is entitled to transact with DAR and/or LBP regarding the subject land transfer claim to the exclusion of all other persons.
As new landowner, the mortgagee is entitled to be named as the recipient of cash and bond deposits.
As new landowner, the mortgagee is entitled to receive all proceeds of the land transfer claim less deductions the land may be liable for.
As lien-holder, the bank, financial institution, or concerned person is entitled to receive payment for the mortgagor’s obligation from land transfer proceeds up to an amount equivalent to the landowner’s compensation value.
As lien-holder, the lien-holder is entitled to receive notices, advices, and other communications regarding the landowner-debtor mortgagor’s obligation.
As new landowner, the mortgagee must:
- comply with processing and payment requirements, including surrender of the Owner’s Duplicate Copy of Title; and
- sign all land transfer documents required for processing and payment, including Deed of Assignment, Warranties and Undertaking, Deed of Transfer, Deed of Confirmation of Coverage and Transfer, and others as required.
As lien-holder, the mortgagee must:
- issue a release of mortgage, or execute a deed of redemption, and deliver the Owner’s Duplicate Copy of Title after payment of the value of the lien; and
- sign all other documents necessary to effect cancellation of the mortgage.

Sanctions for non-compliance

The proceeds of the land transfer claim are not released to the landowner until the landowner complies with the obligations under Section 9(a).
The lien-holder is not paid the amount of its claim until the lien-holder complies with the obligations enumerated under Section 9(b).

Operating procedures and timelines

When the mortgagee is considered new landowner, the DARPO proceeds with claim processing in accordance with DAR Administrative Order No. 2 (1996), as amended.
The LBP-LVLCO conducts usual processing and approval of the land transfer claim and sends a Memorandum of Valuation (MOV) with the Claim Folder Profile and Valuation Summary to PARO, directing PARO to send notice to the mortgagee for consolidation.
Within thirty (30) days from receipt, the DARPO sends:
- Notice of Land Valuation and Acquisition (NLVA); and
- Notice to Consolidate Ownership to the mortgagee.
If there is a subsequent transfer or reconveyance after NLVA, the mortgagee must notify DAR within fifteen (15) days from receipt of DAR’s Notice to Consolidate Ownership; otherwise, the mortgagee is deemed owner of the property notwithstanding the subsequent transfer.
If the mortgagee does not respond, PARO consolidates ownership in the mortgagee’s name.
The mortgagee accepts or rejects the land valuation, applying the acceptance/rejection procedures under DAR Administrative Order No. 2 (1996).
The mortgagee executes the affidavit of consolidation, duly annotated/registered or by certified copy of the new title in the mortgagee’s name, and forwards it to DARPO; DAR requests ROD to issue TCT in the name of the Republic of the Philippines as in DAR Administrative Order No. 2 (1996).
The DARPO sends LBP a request to pay deposit the land transfer claim, using CARP Form No. 12 (or CARP Form No. 15.i).
If the mortgagee effected consolidation, the mortgagee forwards to LBP a certified copy of the new title and requests deposit (as applicable); if not, the mortgagee furnishes LBP an affidavit of consolidation executed by PARO with statement of account of expenses incurred (including taxes and impositions) and LBP is directed to deduct expenses from proceeds if no converting/exempting/lifting order exists.
LBP prepares payment and remits it to concerned agencies and issues a Certification of Deposit (COD) to DAR using CARP Form No. 17.
Where the land transfer claim is already approved by LBP and a COD has already been issued in favor of the former registered owner, the DAR invites the new landowner for a conference.
During the conference, the mortgagee as new landowner presents issues and/or concerns for resolution by DAR, LBP-LVO, and other agencies concerned.
If no issues are raised, the mortgagee executes an affidavit of consolidation of ownership.
DAR issues an order directing LBP to inscribe in the COD and other pertinent documents the name of the mortgagee in place of the former owner using CARP Form No. 18.b.
If issues or concerns are raised:
- If the issue involves coverage, DAR resolves it administratively through filing a written protest.
- If the issue involves land valuation, resolution occurs through quasi-judicial proceedings by the Adjudication Board.
If the mortgagee refuses or fails to execute the affidavit of consolidation, the procedure in Section 6(b)(2) of this administrative order applies.
For transfer of title and registration when the mortgagee is new landowner:
- DARPO requests ROD to issue title in the name of the Republic of the Philippines using CARP Form No. 18 or 18.a, CARP Form No. 10.c (Affidavit of Consolidation), and CARP Form No. 17 (LBP Certification of Deposit).
- ROD issues the title in the name of the Republic of the Philippines, and the note requires procedures on generation and registration of CLOA under Joint DAR-LRA Memorandum Circular No. 9 (1996).
When the mortgagee is treated as lien-holder, if redemption has not yet expired or foreclosure sale has not yet been confirmed at the time the relevant steps under DAR Administrative Order No. 2, Series of 1996 are undertaken, the mortgagee is paid the amount of the mortgage debt but not exceeding the equivalent of the landowner’s compensation value, and the guidelines under DAR Administrative Order No. 2, Series of 1996 apply.

Repeal and modification; separability and duration

The order revokes or modifies all other previous orders, circulars, memoranda, and other issuances that are inconsistent with it.
The order contains no separability or sunset clause provision.