Tax Consequence of the Failure of the Mortgagor to Redeem the Property on Due Date

February 23, 1987 BIR RULING NO. 057-87 21 (a) 000-00 057-87 S i r : This refers to your letter dated November 4, 1986, requesting a ruling on the tax case of your client, Irene L. Escosa, which involves a parcel of land mortgaged by its former owner, Cenon P. Lapuz, that for failure of the mortgagor to redeem the property on due date, the mortgage was foreclosed judicially and a certificate of sale was issued by the Sheriff of Manila on April 6, 1982, that the Sheriff's sale was confirmed by the court on April 10, 1986; that the loan secured by the mortgage amounts to P30,000.00 while the highest bid at which the property was sold amounts to P55,639.75. In reply, please be informed as follows: 1. Upon expiration of the period to redeem the property subject of mortgage, the Sheriff shall execute a final Deed of Sale to effect the transfer of title from the mortgagor to the purchaser. 2. The net capital gain derived by a mortgagor-seller has not been exempted from the capital gains tax even if the mortgaged property was purchased by a bank or finance or insurance company thru a mortgage foreclosure sale. Under Revenue Memorandum Order No. 33-81, as amended by Revenue Memorandum Order No. 18-82, this Office only allowed issuance of a certification authorizing transfer of title to real property even before payment of the capital gains tax. Such being the case, there can be no exemption from capital gains tax with respect to properties foreclosed by private individuals. At any rate, said RMO No. 33-81, as amended by RMO No. 18-82, has been revoked by RMO No. 29-86 dated September 3, 1986 which states that no certificate authorizing transfer of title to real property classified as capital asset sold by an individual thru foreclosure sale shall be issued without prepayment of the capital gains tax, including the documentary stamp tax. 3. The final deed of sale executed by the Sheriff in favor of your client shall be subject to the documentary stamp tax and shall be based on the selling price appearing in the mortgage foreclosure sale or fair market value of the real property whichever is higher at the rate of P10.00 for each P1,000.00 or fractional part thereof, pursuant to Section 209 of the Tax Code. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner