The Supreme Court ruled that a mortgagee is not considered in good faith, and thus not protected by law, when dealing with an impostor who fraudulently mortgages a property without valid title. This decision reinforces the principle that individuals must exercise due diligence when entering into real estate transactions, ensuring the protection of rightful property owners from deceitful schemes. It underscores the importance of verifying the identity and legitimacy of parties involved in mortgage agreements.

Deed Deception: Can a Forged Mortgage Cloud a Real Title?

This case revolves around a property dispute where Bernardo Dimailig, the registered owner of a parcel of land, found his property mortgaged without his consent. His brother, Jovannie, entrusted the title to a broker, Editha Sanggalang, for a potential sale. Instead, Editha arranged a mortgage with Evelyn Ruiz, using an impostor posing as Bernardo. The central legal question is whether Evelyn, as the mortgagee, can claim protection as a ‘mortgagee in good faith,’ despite the fraudulent nature of the transaction and the fact that the mortgagor was not the real owner.

The factual backdrop involves Bernardo entrusting his property title to his brother Jovannie for a potential sale. Jovannie then gave the title to Editha, a broker. Unexpectedly, a Deed of Real Estate Mortgage (REM) was executed in January 1998, without Bernardo’s knowledge. Crucially, the person who signed the REM as the mortgagor was an impostor pretending to be Bernardo. Evelyn argued she acted in good faith, relying on Jovannie’s representations and the title’s apparent validity. However, Bernardo contested the mortgage’s validity, asserting that his signature on the REM was forged, and he was abroad when it was supposedly signed.

The Regional Trial Court (RTC) initially sided with Evelyn, stating she was a mortgagee in good faith, unaware of the impostor. The RTC emphasized that Evelyn had verified the title and found no liens or encumbrances. The Court of Appeals (CA), however, reversed this decision, declaring the REM void. The CA reasoned that the protection of an innocent purchaser for value applies only when the deed is executed by the registered owner, not through a forged deed. The CA highlighted Evelyn’s failure to verify the real identity of the person claiming to be Bernardo.

The Supreme Court, in its analysis, emphasized the principle that a valid mortgage requires the mortgagor to have a valid title or ownership of the property. While there’s an exception for mortgagees acting in good faith, they must demonstrate that they disregarded no suspicious circumstances regarding the mortgagor’s title. The Court clarified that the doctrine of mortgagee in good faith applies when the mortgagor has already obtained a Torrens title in their name. In this case, the title remained in Bernardo’s name, and the impostor never held the title.

The burden of proving good faith rests on the mortgagee. As the Court noted, a mortgagee cannot ignore red flags and then claim good faith. The Supreme Court found that Evelyn failed to meet this burden. First, the Deed of REM was a forged instrument. Bernardo was abroad and could not have signed it. This was further supported by the fact that the parties stipulated during pre-trial that it was not the real Bernardo who signed as mortgagor in the Deed of REM. Therefore, the forged Deed of REM is a nullity and conveys no title.

Building on this principle, the Supreme Court emphasized that Evelyn could not claim the protection afforded to a mortgagee in good faith because the title to the property was never transferred to the impostor. As the Court stated:

In other words, in order for a mortgagee to invoke the doctrine of mortgagee in good faith, the impostor must have succeeded in obtaining a Torrens title in his name and thereafter in mortgaging the property. Where the mortgagor is an impostor who only pretended to be the registered owner, and acting on such pretense, mortgaged the property to another, the mortgagor evidently did not succeed in having the property titled in his or her name, and the mortgagee cannot rely on such pretense as what appears on the title is not the impostor’s name but that of the registered owner.

Even assuming the impostor had titled the property in his name, Evelyn still wouldn’t be considered a mortgagee in good faith. This is because she failed to take necessary steps to verify the mortgagor’s identity and title. The Court found several lapses in Evelyn’s conduct. She failed to ask for identification from the impostor, relying solely on a community tax certificate and a picture. The “Bernardo” in front of her did not participate in the negotiations leading up to the execution of the deed. Lastly, Evelyn also failed to verify the occupant or neighbors on the property she intended to mortgage.

The Supreme Court, therefore, denied Evelyn’s petition, affirming the CA’s decision. The Court emphasized the importance of due diligence in mortgage transactions and that a forged instrument conveys no title. Because Evelyn failed to exercise the required diligence and the transaction involved an impostor and a forged deed, she could not claim the protection of a mortgagee in good faith.

FAQs

What was the key issue in this case?	The central issue was whether Evelyn Ruiz could be considered a mortgagee in good faith when she entered into a mortgage agreement with an impostor who presented himself as the property owner, Bernardo Dimailig. This hinged on whether she exercised due diligence in verifying the identity of the mortgagor and the validity of the title.
What does ‘mortgagee in good faith’ mean?	A ‘mortgagee in good faith’ refers to someone who, when granting a loan secured by a property, acts without any knowledge or suspicion that the mortgagor’s title is defective or that the transaction involves fraud. They are typically protected by law if the mortgagor’s title later turns out to be invalid.
Why was Evelyn Ruiz not considered a mortgagee in good faith?	Evelyn Ruiz was not considered a mortgagee in good faith because she failed to take reasonable steps to verify the identity of the person claiming to be Bernardo Dimailig and did not adequately investigate the circumstances surrounding the mortgage transaction. The Court found her reliance on the impostor’s representations without further verification to be negligent.
What steps should mortgagees take to ensure they are acting in good faith?	Mortgagees should verify the identity of the mortgagor by requesting and scrutinizing valid identification documents, conduct thorough due diligence to confirm the mortgagor’s ownership and title to the property, and investigate any red flags or inconsistencies in the transaction. They should also inquire about the property’s occupants and their relationship to the mortgagor.
What is the effect of a forged Deed of Real Estate Mortgage?	A forged Deed of Real Estate Mortgage is considered a nullity, meaning it has no legal effect from the beginning. It cannot transfer any rights or interests in the property, and the rightful owner retains full ownership and control.
Can a property owner lose their title due to a forged mortgage?	Generally, a property owner cannot lose their title due to a forged mortgage, especially if they were not involved in or aware of the fraudulent transaction. The law protects the rights of the registered owner in such cases.
What recourse does the mortgagee have if the mortgage is declared void?	If the mortgage is declared void due to fraud or forgery, the mortgagee may have recourse against the party who perpetrated the fraud, seeking damages for the losses incurred. However, they generally cannot recover the property itself from the rightful owner.
What was the Court of Appeal’s ruling on the Deed of Real Estate Mortgage?	The Court of Appeals reversed the Regional Trial Court’s decision, declaring the Deed of Real Estate Mortgage null and void. They ordered Evelyn V. Ruiz to return the owner’s duplicate copy of the title to Bernardo F. Dimailig, the rightful owner.

This case serves as a critical reminder of the importance of due diligence and vigilance in real estate transactions. It underscores the need for mortgagees to thoroughly verify the identity and legitimacy of mortgagors to protect themselves from fraud and ensure the security of their investments. The ruling reinforces the principle that the rights of the registered property owner are paramount when faced with fraudulent claims.

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: Evelyn V. Ruiz v. Bernardo F. Dimailig, G.R. No. 204280, November 09, 2016