Application of RMO No. 16-88

August 18, 1988 BIR RULING NO. 398-88 21 (a) 137-87 398-88 S i r : This refers to your letter dated August 16, 1988 stating as follows: "Land Bank of the Philippines, mortgagee filed a petition with the RTC, First Judicial Region, Baguio City to foreclose extra-judicially the real estate mortgage executed on 17 October 1985 by Spouses Rosalinda P. Leuterio and Ricardo J. Leuterio for the latter's failure to pay their loan which amounted to P181,503.04 as of 31 March 1987." "In a public auction held on 1 June 1987, the property subject of the mortgage was sold to the mortgagee as the sole and highest bidder for P181,603.04. The corresponding Sheriff Certificate of Sale was executed on 2 June 1987." It is represented that the local representative of the Land Bank of the Philippines is of the opinion that RMO No. 15-88, amending RMO No. 29-86 which states that in extrajudicial foreclosure sale, the capital gains tax shall become due only upon the consolidation of title in the name of the financial institution, should govern the aforementioned foreclosure sale. In reply, please be informed that said RMO No. 16-88 dated April 18, 1988 applies to real property classified as capital asset purchased by a bank, finance and insurance company thru mortgage foreclosure sale on or after April 18, 1988. In other words, RMO No. 16-88 is applied prospectively. Accordingly, and since the mortgage foreclosure sale in this case was held on June 2, 1987 or prior to April 18, 1988, RMO No. 29-86 prior to its amendment by RMO No. 16-88 shall therefore, govern the same. Consequently, the 5% capital gains tax which is based on the selling price shown in the mortgage foreclosure sale (Sheriff's Certificate of Sale) should be paid by the Land Bank of the Philippines as mortgagee-transferee after said foreclosure sale but before the registration of the certificate of sale issued by the auctioneer conducting the foreclosure sale (BIR Ruling No. 138-87). Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner