What You Need To Know About Real Property Tax Sales

AUTHOR:  ATTY. JOHN PHILIP C. SIAO

Originally published in The Philippine Star (Point of Law column)

Recently, there have been published in the various newspapers notices of “Delinquency of Real Properties”. These notices were caused to be published by the Office of the City Treasurer of local city governments where the real properties advertised for sale are located. The owners of these properties have not been paying the real property taxes on their properties imposed by the local governments concerned and, as a consequence, stand to lose their property in a public auction (tax sale). Most of the properties listed for sale at these tax sales are published for sale at prices that are only a fraction of their market value. The seemingly low prices are sure to cause some excitement and dreams of owning prime real property, in some cases, at very cheap prices. Expectedly, not a few brave souls have participated in these tax sales and have actually been brave enough to bid on the properties for sale. Examples of properties that have been advertised are a 150sq. m. residential condominium unit located in the heart of Ortigas Center and a vacant 800 sq. meter land on a street beside Shaw Blvd., just a stone’s throw away from the EDSA Shangri-La Mall, for a minimum bid of PhP61,000++ and PhP300,000++, respectively. Even parking spaces in office and residential condominium buildings worth about PhP350,000 have been advertised for sale for a minimum bid of PhP12,500++.

The power of local governments to levy and collect real property taxes is derived from Section 232 of Republic Act No. 7160, the Local Government Code of 1991 (LGC). Under the LGC, Real Property Taxes are levied upon land, building, machinery, and other improvements, proceeds of which are to be distributed among the province, city, municipality, and component barangays of the province, city or municipality where the property is located. Owners of real properties who fail to pay the real property taxes levied on their property run the risk of having their properties levied upon and sold to pay for the real property taxes due thereon.

While the local governments concerned are given the right to levy and sell the real property whose real property taxes have not been paid, they must still comply with the mandatory legal requirements of notice and advertisement. There have been disappointed winning bidders who have been forced to spend a considerable amount of time and money for court litigation after they were sued by delinquent taxpayers who sought to recover their property by attempting to annul the tax sale on the ground of some irregularity in the proceedings. There have also been winning bidders who later on discovered that their winning bid does not entitle them to a clean title, as the property they bid for had been previously mortgaged. Accordingly, the knowledge of the legal requirements for the validity of tax sales and other related issues are a must for anyone wanting to participate in a tax sale.

Hence, before participating in any tax sale, potential bidders must verify from the local government concerned that there had been issued a Levy of Real Property (notice of levy) over the property to be auctioned off. In addition, the notice of levy must have been either mailed to or personally served upon the delinquent owner of the real property or person having legal interest therein. In case the owner or person having legal interest in the property is out of the country or cannot be located, the notice of levy must be given to the administrator or occupant of the property. Lack of notice, either by registered mail or through courier, invalidates the sale (Ramon and Rosita Tan v. Bantegui, et al., G.R. No. 154027, 24 October 2005). Moreover, the local government conducting the tax sale must also cause the advertisement of the properties that it plans to auction off by (a) posting a notice at the main entrance of the provincial, city or municipal building, and in a publicly accessible and conspicuous place in the barangay where the real property is located and (b) by causing the publication of a list of delinquent properties and their property owners once a week for two (2) weeks in a newspaper of general circulation in the province, city or municipality where the property is located.

Potential bidders must also verify the title of the real property being auctioned with the Office of the Registrar of Deeds of the city where the property is located to find out what encumbrances, mortgages, restrictions or other entries are annotated at the back of the title. Prior mortgages, encumbrances, restrictions, and other entries are carried over even after consolidation of the title in name of highest bidder (Tiongco, et al. v. Philippine Veteran’s Bank, et al., G.R. No. 82782, 5 August 1992). More importantly, in the event that the auctioned property was previously mortgaged, the highest bidder, should he wish to remove the encumbrance or mortgage, must pay the mortgagee the amount of the mortgage loan. Notably, this is a separate amount from his bid price.

It is also crucial for potential bidders to verify whose name appears on the title covering the property they plan to bid on, as it may happen that the declared owner in the tax declaration may no longer be the registered owner as reflected in the title. This may happen when the previous owner had already sold the property to another who had consolidated title under his name but has not notified the city assessor’s office and changed the ownership in the tax declaration. Under the law, notice of levy must be made to the Taxpayer (i.e. that person whose name appears on the transfer certificate of title). Unfair as it may seem, if the notice of levy was sent to and received by the declared owner in the tax declaration, but not the registered owner as reflected in the title, such notice is a void notice and is a ground to annul the tax sale (Talusan, et al. v. Tayag, et al., G.R. No. 133698, 4 April 2001).

On the other hand, if the but the buyer did not consolidate title in his name, and the property is later auctioned off by the local government to pay for delinquent taxes, the buyer cannot seek to annul the auction sale as he was negligent in consolidating title, not to mention negligent in not paying the real property taxes on the property.

After the tax sale, the delinquent taxpayer is still given the chance to redeem his property by paying the delinquent tax, including the interest, and the expenses of sale from the date of delinquency to the date of sale, and interest of not more than two percent per month on the purchase price from the date of sale to the date of redemption. The delinquent taxpayer is given one year from the date of the sale to redeem his property (LGC, Sec. 261).

Should the delinquent taxpayer fail to redeem his property, the highest bidder at the auction sale may proceed to consolidate the property in his name. The highest bidder must note however that during the one-year redemption period, possession of the property remains, or could remain, with the delinquent taxpayer or person having legal interest therein who shall be entitled to the income and other fruits thereof. The highest bidder must also know that before he can consolidate the title in his name, he must pay for the capital gains tax, documentary stamp taxes, and local transfer taxes.

All in all, while purchasing property in a tax sale may be a cheap way to own real property one must keep in mind the basic principle that a purchaser of property at a tax sale obtains only such title as that held by the delinquent taxpayer. Ergo, the principle of caveat emptor, or buyer beware, applies.Recently, there have been published in the various newspapers notices of “Delinquency of Real Properties”. These notices were caused to be published by the Office of the City Treasurer of local city governments where the real properties advertised for sale are located. The owners of these properties have not been paying the real property taxes on their properties imposed by the local governments concerned and, as a consequence, stand to lose their property in a public auction (tax sale). Most of the properties listed for sale at these tax sales are published for sale at prices that are only a fraction of their market value.

The seemingly low prices are sure to cause some excitement and dreams of owning prime real property, in some cases, at very cheap prices. Expectedly, not a few brave souls have participated in these tax sales and have actually been brave enough to bid on the properties for sale. Examples of properties that have been advertised are a 150sq. m. residential condominium unit located in the heart of Ortigas Center and a vacant 800 sq. meter land on a street beside Shaw Blvd., just a stone’s throw away from the EDSA Shangri-La Mall, for a minimum bid of PhP61,000++ and PhP300,000++, respectively. Even parking spaces in office and residential condominium buildings worth about PhP350,000 have been advertised for sale for a minimum bid of PhP12,500++. The power of local governments to levy and collect real property taxes is derived from Section 232 of Republic Act No. 7160, the Local Government Code of 1991 (LGC). Under the LGC, Real Property Taxes are levied upon land, building, machinery, and other improvements, proceeds of which are to be distributed among the province, city, municipality, and component barangays of the province, city or municipality where the property is located. Owners of real properties who fail to pay the real property taxes levied on their property run the risk of having their properties levied upon and sold to pay for the real property taxes due thereon.

While the local governments concerned are given the right to levy and sell the real property whose real property taxes have not been paid, they must still comply with the mandatory legal requirements of notice and advertisement. There have been disappointed winning bidders who have been forced to spend a considerable amount of time and money for court litigation after they were sued by delinquent taxpayers who sought to recover their property by attempting to annul the tax sale on the ground of some irregularity in the proceedings. There have also been winning bidders who later on discovered that their winning bid does not entitle them to a clean title, as the property they bid for had been previously mortgaged. Accordingly, the knowledge of the legal requirements for the validity of tax sales and other related issues are a must for anyone wanting to participate in a tax sale. Hence, before participating in any tax sale, potential bidders must verify from the local government concerned that there had been issued a Levy of Real Property (notice of levy) over the property to be auctioned off. In addition, the notice of levy must have been either mailed to or personally served upon the delinquent owner of the real property or person having legal interest therein.

In case the owner or person having legal interest in the property is out of the country or cannot be located, the notice of levy must be given to the administrator or occupant of the property. Lack of notice, either by registered mail or through courier, invalidates the sale (Ramon and Rosita Tan v. Bantegui, et al., G.R. No. 154027, 24 October 2005). Moreover, the local government conducting the tax sale must also cause the advertisement of the properties that it plans to auction off by (a) posting a notice at the main entrance of the provincial, city or municipal building, and in a publicly accessible and conspicuous place in the barangay where the real property is located and (b) by causing the publication of a list of delinquent properties and their property owners once a week for two (2) weeks in a newspaper of general circulation in the province, city or municipality where the property is located. Potential bidders must also verify the title of the real property being auctioned with the Office of the Registrar of Deeds of the city where the property is located to find out what encumbrances, mortgages, restrictions or other entries are annotated at the back of the title. Prior mortgages, encumbrances, restrictions, and other entries are carried over even after consolidation of the title in name of highest bidder (Tiongco, et al. v. Philippine Veteran’s Bank, et al., G.R. No. 82782, 5 August 1992).

More importantly, in the event that the auctioned property was previously mortgaged, the highest bidder, should he wish to remove the encumbrance or mortgage, must pay the mortgagee the amount of the mortgage loan. Notably, this is a separate amount from his bid price. It is also crucial for potential bidders to verify whose name appears on the title covering the property they plan to bid on, as it may happen that the declared owner in the tax declaration may no longer be the registered owner as reflected in the title. This may happen when the previous owner had already sold the property to another who had consolidated title under his name but has not notified the city assessor’s office and changed the ownership in the tax declaration.

Under the law, notice of levy must be made to the Taxpayer (i.e. that person whose name appears on the transfer certificate of title). Unfair as it may seem, if the notice of levy was sent to and received by the declared owner in the tax declaration, but not the registered owner as reflected in the title, such notice is a void notice and is a ground to annul the tax sale (Talusan, et al. v. Tayag, et al., G.R. No. 133698, 4 April 2001). On the other hand, if the but the buyer did not consolidate title in his name, and the property is later auctioned off by the local government to pay for delinquent taxes, the buyer cannot seek to annul the auction sale as he was negligent in consolidating title, not to mention negligent in not paying the real property taxes on the property.

After the tax sale, the delinquent taxpayer is still given the chance to redeem his property by paying the delinquent tax, including the interest, and the expenses of sale from the date of delinquency to the date of sale, and interest of not more than two percent per month on the purchase price from the date of sale to the date of redemption. The delinquent taxpayer is given one year from the date of the sale to redeem his property (LGC, Sec. 261). Should the delinquent taxpayer fail to redeem his property, the highest bidder at the auction sale may proceed to consolidate the property in his name. The highest bidder must note however that during the one-year redemption period, possession of the property remains, or could remain, with the delinquent taxpayer or person having legal interest therein who shall be entitled to the income and other fruits thereof. The highest bidder must also know that before he can consolidate the title in his name, he must pay for the capital gains tax, documentary stamp taxes, and local transfer taxes. All in all, while purchasing property in a tax sale may be a cheap way to own real property one must keep in mind the basic principle that a purchaser of property at a tax sale obtains only such title as that held by the delinquent taxpayer. Ergo, the principle of caveat emptor, or buyer beware, applies.