Tax Consequence of the Assignment of a Right to Redeem a Foreclosed Real Property

June 9, 1989 BIR RULING NO. 123-89 21 (e) 000-00 123-89 S i r : This refers to your letter dated May 4, 1989 requesting in effect a ruling as to whether or not you would be required to pay any tax if you were to assign your right to redeem your foreclosed real property situated at Davao City covered by TCT No. T-2290 to a third party, a corporation duly authorized and registered by and under the laws of the Philippines, which also would like to know what tax liability would be imposed upon it should its assigned right be exercised. cdtech It is represented that the said corporation assignee is confident of being able to produce the necessary funds needed to redeem your said real property; that however, in the event that it will not be able to raise said funds it is willing to revert back the right to redeem to you; that you are interposing this request because the Office of the Registry of Deeds of Davao City is requiring you to furnish them some sort of a tax clearance from this Office before they would effect the necessary registration of the Deed of Assignment of the Right to Redeem; and that you are of the opinion that inasmuch as there is really no transfer of property by said Deed of Assignment, you feel that no tax should be imposed on the said transaction. In reply, please be informed that if you were to assign your right to redeem your foreclosed real property situated at Davao City covered by TCT No. T-2290 to a third party, a corporation duly authorized and registered by and under the laws of the Philippines, the same is not subject to the capital gains tax imposed under Section 21(e) of the Tax Code, as amended, since in this case, the assignee corporation merely steps in to your shoes as the one having the right to exercise your right to redeem your aforesaid foreclosed property under Act No. 3135 as amended by Act No. 4118 aside from the fact that there is no transfer of title to real property involved in this case. However, should the assignee corporation exercise its assigned right, you, as the assignor of said right shall be subject to the capital gains tax imposed under Section 21(e) of the Tax Code, as amended, since in such event the property redeemed shall be considered as property of the assignee and can no longer be subject to execution under a judgment exclusively affecting your personal liability as the debtor mortgagor. (LRC Consulta No. 38, Register of Deeds of Iloilo, pet., April 12, 1955) On the other hand, in exercising its assigned right, the assignee corporation is not subject to income tax. Moreover, the Deed of Assignment of the Right to Redeem is not subject to documentary stamp tax since under Section 196 of the Tax Code as amended, the transaction which is subject to the documentary stamp tax is the conveyance of real property to the purchaser. This is not so in assignment of right to redeem which involves the assumption by the assignee of the right granted to the assignor-mortgagor to redeem the property from the purchaser. However, said Deed is subject to the P3.00 documentary stamp tax imposed by Section 188 of the Tax Code. Finally, as a rule, a Deed of Redemption is not subject to documentary stamp tax imposed under Section 196 of the Tax Code, as amended, since the transaction merely involves a restoration of the property from the purchaser to the mortgagor-debtor. (BIR Ruling No. 530-88) However, the said Deed would be subject to the said documentary stamp tax imposed under Section 196 of the Tax Code in case the assignee corporation exercise its assigned right, since in such event a conveyance of real property from the assignor as seller to the assignee as purchaser is deemed to have taken place. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner