Title to Foreclosed Properties Can be Consolidated in Favor of the Mortgagee Without the Prepayment of Capital Gains Tax

June 26, 1987 BIR RULING NO. 178-87 21 (e) 020-87 178-87 Gentlemen : This refers to your letter dated June 16, 1987 requesting certification to the effect that you are exempt from the capital gains tax under Section 21(e) of the Tax Code, as amended by Executive Order No. 37 in order that title to certain foreclosed properties can be consolidated in your favor. It is represented that you are the mortgagee of nine (9) parcels of land which you foreclosed extrajudicially on July 6, 1984 upon failure of the mortgagors, spouses Domingo M. Barbin and Lutgarda L. Barbin to pay their loan in the amount of P800,000.00; that the said parcels of land, including the improvements thereon were sold at public auction in your favor as the highest bidder for P1,600,000.00; that on the same date, the certificate of sale was registered with the Register of Deeds of Albay; that the mortgagors failed to exercise their right of redemption within a period of one year from July 6, 1984; that the transfer of title in your name was not then effected because of a pending controversy between you and Asia Trust Bank; and that it is only now that you are consolidating title to the nine (9) parcels of land in your favor. In reply thereto, I have the honor to inform you that RMO No. 33-81 as amended by RMO No. 18-82 allowed the issuance of a certification authorizing the transfer of title to real property classified as capital asset even before payment of the capital gains tax if purchased by a bank, finance or insurance company thru a foreclosure sale. However, RMO No. 29-86 dated September 3, 1986 which revoked RMO No. 33-81 as amended by RMO No. 18-82 provides 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. Considering, however, that RMO No. 29-86 applies to real property purchased by a bank, finance and insurance company thru mortgage foreclosure sale on or after September 3, 1986 , and since the mortgage foreclosure sale in this case was held on July 6, 1984 or prior to September 3, 1986, a certification authorizing the transfer of title to the aforesaid property may be issued to you before payment of the capital gains tax. Such being the case, title to the aforesaid foreclosed properties can be consolidated in your favor without the prepayment of the capital gains tax prescribed by Section 21(e) of the Tax Code, as amended by Executive Order No. 37. Moreover, under Section 165 of Regulations No. 26 of the Documentary Stamp Tax Regulations in relation to the General Land Registration Office Circular No. 262 dated September 3, 1941, the deed of final sale that is subject to the documentary stamp tax to be executed by the sheriff after the period of one year legal redemption had expired was replaced by mere affidavit of the highest bidder for purposes of consolidation of ownership or the issuance of the corresponding new transfer certificate of title. And the consideration ordered received or paid for the land as stated in the affidavit of consolidation of ownership shall be the basis in determining the documentary stamp tax due. (Sec 171, Regulations No. 26 otherwise known as the Documentary Stamp Tax Regulations) Accordingly, the amount that should be taken into account in determining the value of the documentary stamp tax to be paid by INTERBANK who is the highest bidder on the tax and sale in question is the bid price of P1,600,000.00 since it constituted as the consideration of the conveyance of the property from the delinquent taxpayer-mortgagor to the purchaser-mortgagee INTERBANK. Considering that in the instant case, the affidavit of consolidation of ownership was executed by INTERBANK on April 30, 1987, the computation of the documentary stamp tax shall be under Sections 209 and 282 of the Tax Code, as amended by P.D. 1959 which took effect on October 15, 1984. Such being the case, you are liable to pay the amount of P20,000.00 as documentary stamp tax inclusive of the 25% surcharge for late payment on the said affidavit of consolidation. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner