BIR Ruling [DA-287-03]

September 1, 2003 BIR RULING [DA-287-03] Sec. 25, Rule 39; 044-01 Mr. Wilson Cham No. 15 Bituan Street North Araneta Subdivision Quezon City S i r : This refers to your letter dated February 12, 2003 stating that on July 23, 1998, a Real Estate Mortgage (REM), involving four (4) parcels of land together with the improvements thereon covered by TCT Nos. V-48988, V-47596, V-50747 and V-50922, was executed by Leoncio Q. Bautista in favor of Wilson Cham, to secure a mortgage loan which as of December 31, 1999 amounts to P9,443,183.00; that on July 6, 2001, the aforesaid properties were sold at a public auction for P5,000,000.00 to Wilson Cham, as the highest bidder; that Wilson Cham did not pay to the ex-officio sheriff of Regional Trial Court (RTC), Valenzuela City, the sum of P5,000,000.00 but which amount was properly credited to the partial satisfaction of the mortgage debt together with the interest, attorney's fees, sheriff's fees and all other necessary expenses in the enforcement of the aforesaid extra-judicial foreclosure sale; and that the aforesaid properties are still subject to the redemption period of one (1) year from and after the registration of the Certificate of Sale with the Register of Deed. In connection therewith, you now request for a ruling as to whether or not the payment of capital gains tax and documentary stamp tax is required in the registration of a Sheriff`s Certificate of Sale, relative to the extra-judicial foreclosure sale conducted on July 6, 2001, considering that the properties are still subject to redemption within a period of one (1) year reckoned from the date of registration of the certificate of sale with the Office of the Registry of Deeds. In reply thereto, please be informed that Section 25 of Rule 39 of the Rules of Court provides that upon a sale of real property, the officer must give to the purchaser a certificate of sale containing: (a) A particular description of the real property sold; (b) The price paid for each distinct lot or parcel; (c) The whole price paid by him; (d) A statement that the right of redemption expires one (1) year from the date of the registration of the certificate of sale. Such certificate must be registered in the registry of deeds of the place where the property is situated. A careful scrutiny of the above-cited law discloses that the one (1) year period of redemption is reckoned from the time of registration of the sale in the Office of the Register of Deeds. Section 28 of Rule 39 of the Rules of Court allows the judgment obligor, or redemptioner, to redeem the property from the purchaser within one (1) year from the date of the registration of the certificate of sale. If, however, the property is not redeemed within the one (1) year redemption period, the purchaser or redemptioner shall be substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the property at the time of the levy of attachment or execution. (Sec. 33, Rule 39, Rules of Court) Thus, we must not disregard the fact that a certificate of sale given to the purchaser at the time the sale is made is different and distinct from the final deed, which is delivered at the expiration of the period of redemption, since the former is not intended to operate as an absolute transfer of the property, but merely to identify the property, price paid, and the date when the right of redemption expires. In other words, it is but a mere memorial of the fact that a purchase was made by the person named in the certificate as the buyer. (Yap vs. Intermediate Appellate Court, G.R. No. 68464 dated March 22, 1993) Considering that the transfer of ownership is not perfected until the execution and delivery of the sheriff's final deed of sale after the expiry of the one (1) year redemption period, and considering further that registration of the certificate of sale is a mere ministerial act by which an instrument is sought to be inscribed in the records of the Office of the Registry of Deeds and annotated at the back of the certificate of title covering the land subject of the instrument, it is therefore safe to conclude that the mere sale of the property at an extra-judicial foreclosure sale which is similar to an execution sale under Rule 39 of the Rules of Court and the corresponding registration of the certificate of sale in the Office of the Registry of Deeds is not subject to the capital gains tax and documentary stamp tax as respectively prescribed in Sections 24(D)(1) and 196 both of the Tax Code of 1997. SUCH BEING THE CASE, this will therefore serve as an authority for the Registrar of Deeds to register the aforementioned sheriff's certificate of sale and to annotate at the back of the certificates of title coverings the land subject of the extra-judicial foreclosure sale, without the payment of the capital gains tax and the corresponding documentary stamp tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group