Taxability of Real Property Purchased by a Bank, Financing and Insurance Company through Mortgage Foreclosure

January 9, 1992 BIR RULING NO. 006-92 21 (e) 202-88 006-92 Boston Bank of the Philippines Boston Bank Center, 6764 Ayala Ave. Makati, Metro Manila Attention: Atty . John O . Tan, Jr . Gentlemen : This refers to your letter dated February 9, 1990 requesting confirmation of your opinion that real property purchased by a bank, financing and insurance company through mortgage foreclosure before September 3, 1986 is not subject to prepayment of the corresponding capital gains tax. It is represented that on January 22, 1982, the Spouses Edgardo E. Bernardo and Carmelita M. Bernardo mortgaged to Commercial Bank of Manila (now Boston Bank of the Philippines) 72 parcels of land located in Tanauan, Batangas covered by TCT Nos. 24196 to 24267, inclusive to secure their loan obligation in the principal amount of P1,750,000.00; that when the Spouses Bernardo defaulted in the payment of their said loan obligations, the mortgaged properties were foreclosed and acquired by the Bank for P2,197,000.02 as highest bidder in a public auction sale held on May 17, 1985; and that on January 12, 1990, the Bank filed with the Office of the Revenue District Officer, Lipa City, a written request for issuance of a Certification Authorizing Transfer/Consolidation of Ownership of the said foreclosed properties in the name of the Bank without the pre-payment of the corresponding capital gains tax which was denied by the said Office per Memorandum dated January 17, 1990 signed by Mr. Sergio C. Oate, Revenue Enforcement Officer, and approved by Mr. Roman T. Acosta, Revenue District Officer. iatdc In reply, please be informed that in foreclosure sales of mortgaged real properties, the creditor-bank is the statutory seller, representing the owner-mortgagor of the real property, so that said bank becomes liable to pay the capital gains tax due on such foreclosure sale based on the bid price in the auction sale. The bank, however, could get reimbursement or recovery of the capital gains tax payment, if the right of redemption is exercised by the debtor-mortgagor or when the property is sold to any party whatsoever [BIR Ruling Nos. 101-89 and 118-91; RMO 041-91 par. 2 (3)]. BIR clearance is required before said properties are transferred in the name of your bank, pursuant to Section 50(a)(4) of the Tax Code, as amended by Executive Order No. 37 reading as follows: "No registration of any document transferring real property shall be affected by the Register of Deeds unless the Commissioner of Internal Revenue or his duly authorized representative has certified that such transfer has been reported and the tax herein imposed, if any, has been paid." (BIR Ruling No. 010-87 dated January 14, 1987) Moreover, the Sheriff's Deed of Sale is subject to documentary stamp tax based on the consideration or value received or paid for the land i.e., the bid price as stated on said Deed pursuant to Section 209 of the Tax Code, as amended. (BIR Ruling No. 313-87) Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue