In Policarpio v. Active Bank, the Supreme Court ruled that a bank can obtain a writ of possession over a foreclosed property even if a third party claims ownership, especially if the third party’s claim is based on an unregistered sale occurring after the mortgage. The Court emphasized that a buyer is bound by annotations on the property’s title at the time of purchase. This decision underscores the importance of due diligence and registration when acquiring property to protect against prior encumbrances.

Unregistered Sales vs. Foreclosure: Who Gets the Property?

The case revolves around a parcel of land in Ayala Alabang, originally owned by spouses Septem and Grelita Ricaza. They mortgaged the property to Active Bank, but failed to fulfill their obligations, leading to foreclosure. Iluminada Policarpio, the petitioner, claimed ownership based on a Deed of Sale from Septem, executed after the mortgage but before the consolidation of ownership by the bank. When the bank sought a writ of possession, Policarpio opposed, arguing her right as a third-party possessor. The core legal question is whether Policarpio’s claim, based on an unregistered sale, overrides the bank’s right as the foreclosing mortgagee.

The Regional Trial Court (RTC) initially ordered the issuance of a writ of possession in favor of Active Bank, finding the Deed of Sale questionable because only Septem signed it, and there was no proof he was authorized by his wife Grelita to sell the conjugal property. The Court of Appeals (CA) affirmed this decision, noting the sale’s questionable validity and the lack of registration, further noting Policarpio’s delay in pursuing her claim. This delay, according to the CA, suggested laches, given the urgency associated with a writ of possession. Policarpio then elevated the case to the Supreme Court, asserting that Section 33, Rule 39 of the Rules of Court should protect her as a third party in possession.

The Supreme Court, however, disagreed with Policarpio’s interpretation of Section 33, Rule 39. That section typically safeguards third parties with adverse claims, but it does not automatically shield them. The provision states:

SEC. 33. …

Under the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the property as of the time of the levy. The possession of the property shall be given to the purchaser or last redemptioner by the same officer unless a third party is actually holding the property adversely to the judgment obligor.

The Court explained that while a writ of possession is generally issued as a matter of course to the purchaser in a foreclosure sale, the ministerial duty ceases when a third party holds the property adversely. In such cases, a hearing is required to determine the nature of the adverse possession. Here, the trial court did conduct a hearing. Policarpio, as a lawyer, should have understood the implications of failing to appear or present compelling evidence during the hearing. She was ultimately responsible for substantiating her claim effectively.

Moreover, the Court addressed the issue of the unregistered sale. The Court stated that even if both Ricaza spouses had signed the deed, the outcome would likely be the same due to a “fatal defect”: the deed’s lack of registration. Purchasers of registered property are bound by the burdens and claims annotated on the title. Policarpio was negligent in accepting Septem’s assurance of a clean title without verifying the dorsal page showing the bank’s mortgage. The Court cited previous cases, emphasizing that a person dealing with registered property is charged with notice only of such burdens and claims annotated on the title.

To bolster her claim, Policarpio cited a prior case, Philippine National Bank v. Court of Appeals, where the third-party possessor’s claim was upheld. However, the Supreme Court distinguished the cases. In PNB, the third party occupied the property before the mortgage, and the bank knew of this possession before granting the loan. Here, the mortgage predated the sale to Policarpio, and there was no evidence the bank was aware of her occupancy. This established priority for the bank’s claim over Policarpio’s.

The ruling highlights the crucial importance of registering property transactions and conducting thorough due diligence to uncover existing encumbrances or claims. An unregistered sale carries significant risks. Prior claims or encumbrances, like the mortgage in this case, will generally take precedence. Individuals must diligently check the records and act promptly to protect their interests to avoid being legally obligated to respect prior existing property rights.

FAQs

What was the key issue in this case?	The key issue was whether Active Bank could obtain a writ of possession over a foreclosed property despite Iluminada Policarpio’s claim of ownership based on an unregistered sale. The Court had to determine if Policarpio qualified as a third party with a superior right of possession.
Why did the Supreme Court rule against Policarpio?	The Court ruled against Policarpio primarily because her claim was based on an unregistered Deed of Sale that occurred after the mortgage to Active Bank. Her failure to register the sale meant that the bank’s prior claim took precedence.
What is a writ of possession?	A writ of possession is a court order that directs the sheriff to place someone in possession of a property. In foreclosure cases, it allows the purchaser (often the bank) to take control of the foreclosed property.
What does it mean to have a property mortgage foreclosed?	Mortgage foreclosure happens when a borrower fails to make their mortgage payments, allowing the lender to seize the property. The lender can then sell the property to recover the outstanding debt.
What is the significance of registering a property sale?	Registering a property sale provides public notice of the transfer of ownership. It protects the buyer’s rights against subsequent claims or encumbrances that may arise.
What is “laches”?	Laches is the unreasonable delay in asserting a right, which can prevent a party from obtaining relief. In this case, the Court of Appeals suggested laches because Policarpio delayed pursuing her claim.
How does this case relate to Section 33, Rule 39 of the Rules of Court?	Section 33, Rule 39 generally protects third parties who possess property adversely to a judgment debtor. However, the Court found that Policarpio did not qualify for this protection because her claim was based on a later, unregistered sale.
What could Policarpio have done differently to protect her interests?	Policarpio should have conducted due diligence to verify the title’s status before purchasing the property, ensured that the sale was properly registered, and actively participated in the hearing at the trial court level.

The Policarpio v. Active Bank decision serves as a potent reminder of the importance of due diligence and registration in real estate transactions. By ensuring sales are immediately registered, buyers are afforded protection from third party or other adverse claims and avoid potential conflicts arising from prior unregistered liens. As property rights are inherently complex, understanding the legal implications before, during, and after acquisition of properties ensures all bases are covered.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Policarpio v. Active Bank, G.R. No. 157125, September 19, 2008