Correct Basis of Computing the Amount of Documentary Stamp Tax to Be Paid by a Bank in a Foreclosure Sale

January 31, 1986 BIR RULING NO. 010-86 245 174-85 010-86 S i r : This refers to your 2nd Indorsement dated September 6, 1985 forwarding to this Office the query of the Revenue District Officer, Revenue District No. 30, Quezon City, requesting information as to the correct basis of computing the amount of the documentary stamp tax to be paid by the Commercial Bank of Manila in a foreclosure sale, i.e., whether such tax will be imposed on the consideration of P427,000.00 paid for by the mortgagee bank on the mortgaged property in the public auction sale or on the amount of the mortgaged loan of P2,100,000.00. It is represented that the spouse Jose B. Castro and Alice de Castro obtained a loan of P2,100,000.00 from the Commercial Bank of Manila and at the same time executed a deed of mortgage on a parcel of land in favor of the creditor as a guarantee for the payment of the loan; that the mortgagor defaulted in the payment of the loan resulting in the foreclosure of the mortgaged property wherein the mortgagee bank was the highest bidder in the public auction in the amount of P427,000.00, and this amount was credited as partial payment to the above-mentioned loan. In reply, please be informed that under Section 171 of Regulations No. 26 or the Documentary Stamp Tax Regulations reading: "Sec. 171. Tax on deed executed by sheriff, referee, or commissioner, how computed . The stamp tax on a deed of real property executed by a sheriff, referee, or commissioner to a mortgagee who bids in the property at foreclosure sale to satisfy a mortgage loan should be computed upon the amount bid for the property plus costs, if paid by the purchaser." the consideration of value received or paid for the land shall be the basis in determining the value of the documentary stamp tax to be paid on the document of foreclosure. Since the bid price constituted as the consideration for the conveyance of the property from the debtor-mortgagor to the creditor-mortgagee, then such bid price should be the amount that should be taken into account in determining the value of the documentary stamp tax to be paid on the document of foreclosure. If cost of foreclosure was paid by purchaser in said sales then this amount should also be taken into account in the computation of the documentary stamp tax due. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner