BIR Ruling [DA-741-06]

December 28, 2006 BIR RULING [DA-741-06] R.A. 720; 010-2005 Rural Bank of Apalit Apalit, Pampanga Attention: Mr. Thomas P. Rueda President Gentlemen : This refers to your letter dated November 29, 2006 stating that the Rural Bank of Apalit has filed several foreclosure proceedings against its past-due loan borrowers with collaterals covered by a homestead or free patent. A few of these foreclosed properties were bid in favor of the Bank and are now within the redemption period. It is the Bank's position that payment of the capital gains and documentary stamp taxes shall be due only after the lapse of the two (2)-year redemption period under Republic Act (R.A.) No. 720, as amended by R.A. 5939, providing for a two (2)-year redemption period from the date of registration of the certificate of foreclosure sale of homestead or free patent lands. Based on the foregoing, it is requested that a ruling be issued confirming the above position of the Rural Bank of Apalit. In reply, please be informed that under the provision of Section 5 of R.A. No. 720, otherwise known as the Rural Bank Act, as amended by R.A. No. 5939, in case of foreclosure of a mortgage involving a homestead or land acquired under a free patent, the homesteader or free patent holder as well as his heirs shall have the right to redeem the property sold in foreclosure within a period of two (2) years from the date of the auction sale in case of land not covered by a Torrens title or two (2) years from the date of the registration of the foreclosure in case of land covered by a Torrens title. ISDCHA Section 5 of R.A. No. 720, as amended, liberalizes the duration of an existing right of redemption in extrajudicial foreclosure sales by extending the period of one (1) year fixed in Act No. 3135, as amended by Act No. 4113, to two (2) years insofar as lands acquired under free patent and homestead statutes are concerned. Thus, if the land is mortgaged to a rural bank under R.A. No. 720, as amended, the mortgagor may redeem the property within two (2) years from the date of foreclosure or from the registration of the sheriff's certificate of sale at such foreclosure if the property is not covered or is covered, respectively, by a Torrens title. However, if the land is mortgaged to parties other than rural banks, the mortgagor may redeem the property within one (1) year from the registration of the certificate of sale pursuant to Act No. 3135. ( Rural Bank of Davao vs. Court of Appeals , G.R. No. 83992, January 27, 1993). In view of the foregoing and since the mortgagee in the instant case is a rural bank covered by the provisions of the Rural Bank Act, as amended, the payment of the capital gains tax in the consolidation of titles of foreclosed properties covered by homesteads and/or free patents shall be made within thirty (30) days from the date the two-year period for redemption expires. The documentary stamp tax, on the other hand, shall be paid on or before the fifth (5th) day of the month following the execution of the Final Deed of Sale made by the Sheriff. (BIR Ruling No. 010-2005 dated August 2, 2005) 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 as null and void. cEAaIS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service