BIR Ruling [DA-612-04]

December 1, 2004 BIR RULING [DA-612-04] Sec. 25, Rule 39; 044-01 Moreno Gironella Go & Delos Santos-Quiaoit Law Offices Unit 213 State Condominium IV Ortigas Avenue, Greenhills San Juan, Metro Manila Attention: Atty . Alexander G . Gironella Gentlemen : This refers to your letter dated September 30, 2004 stating that on April 16, 2002, a Promissory Note with Mortgage was executed by Spouses Arsenio and Josephine Portugal (Spouses Portugal) over their house and lot located in Quezon City in favor of Emmanuel P. Javier (Mr. Javier) to secure a loan; that in view of the Spouses Portugal's default in the payment of their obligation, the Office of the Clerk of Court and Ex-Officio Sheriff of the Regional Trial Court of Quezon City foreclosed extra-judicially the said mortgage; that the property was then sold at a public auction on March 5, 2003, where the mortgagee's bid of P2,238,975.00 was the highest bid which was credited to the satisfaction of the mortgagors' loan obligations; and that the Sheriff's Certificate of Sale was deferred due to the fact that the Register of Deeds of Quezon City would require the payment of the capital gains tax and documentary stamp tax prior to the registration of the said Certificate of Sale. In connection therewith, you now request 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 March 5, 2003, 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 certificate of title covering the land subject of the extra-judicial foreclosure sale, without the payment of the capital gains tax and the corresponding documentary stamp tax. cACEaI 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