Title to the Foreclosed Property Can be Consolidated in favor of the Mortgagee Without the Prepayment of the Capital Gains Tax

July 17, 1987 BIR RULING NO. 213-87 21 (e) 020-87 213-87 Gentlemen : This refers to your letter dated March 17, 1987 stating that you are the mortgagee of a parcel of land which you foreclosed extrajudicially on February 19, 1986 upon failure of the mortgagor to pay his loan in its entirety; that the said parcel of land including the improvements thereof was sold at public auction in your favor for P1,139,532.67 which certificate of sale was annotated in the Certificate of Title of the property on February 20, 1986; that the mortgagor did not exercise his right of redemption within a period of one year from February 20, 1986; and that you are now consolidating title to the property foreclosed in your favor. In connection therewith, you are requesting a clearance to the effect that you are not subject to the capital gains tax under Section 21(e) of the Tax Code, as amended by Executive Order No. 37 in order that title to the foreclosed property can be consolidated 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 mortgage 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. Hence, considering that RMO No. 29-86 applies to real property purchased by a bank, finance and insurance company thru mortgaged foreclosure sale on or after September 3, 1986, and since the mortgage foreclosure sale in this case occurred on February 19, 1986 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 foreclosed property 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. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner