Condominium Foreclosure: When Does a Corporation Have Authority to Foreclose?

The Supreme Court recently clarified an important question for condominium corporations and unit owners alike: when may a condominium corporation extra-judicially foreclose on a unit for unpaid association dues? In Welbilt Construction Corp. v. Heirs of Cresenciano C. De Castro (G.R. No. 210286, July 23, 2018), the Court ruled that a corporation's authority to foreclose may come not only from a special power of attorney but also from its Master Deed and By-Laws, which bind all unit owners.

The Facts of the Case

The late Cresenciano De Castro owned Unit 802 of the Wack Wack Apartments Building in Mandaluyong City. He failed to pay assessment dues amounting to P79,905.41 as of July 31, 1986. After demand went unheeded, the petitioners—the developer, the condominium corporation, and the building owners—annotated a lien for unpaid assessments on De Castro's Condominium Certificate of Title on August 14, 1986, pursuant to the Master Deed.

When the dues remained unsettled, the petitioners filed a petition for extra-judicial foreclosure with the Office of the Ex-Officio Sheriff. The required publication and posting were complied with, and De Castro received a copy of the notice on January 29, 1987. The petitioners emerged as the highest bidder at the public auction on February 10, 1987, and a certificate of sale was issued in their favor. De Castro failed to redeem the property.

The Issue

The central question was whether the petitioners had sufficient authority to extra-judicially foreclose on De Castro's condominium unit for unpaid assessments.

The Court's Ruling

The Supreme Court reversed the Court of Appeals and upheld the validity of the foreclosure. The Court distinguished this case from its earlier ruling in First Marbella Condominium Association, Inc. v. Gatmaytan (579 Phil. 432 [2008]).

In First Marbella, the Court held that a petition for extra-judicial foreclosure must be supported by evidence that the petitioner holds a special power or authority to foreclose, pursuant to Circular No. 7-2002 and Supreme Court Administrative Matter No. 99-10-05-0. However, the Court in Welbilt noted that in First Marbella, the only basis for the foreclosure was a mere notice of assessment annotated on the title—there was no other source of authority.

In the present case, the foreclosure was based not only on the notice of assessment but also on the Master Deed and the condominium corporation's By-Laws. Section 5 of Article V of the By-Laws expressly authorized the Board of Directors to enforce collection of unpaid assessments through any of the remedies provided by the Condominium Act (Republic Act No. 4726), including foreclosure.

The Court also noted that the Master Deed and By-Laws constitute a contract between the unit owner and the condominium corporation. As a unit owner, De Castro was bound by these documents. Significantly, the Court found that a 1984 Board Resolution—signed by De Castro himself as a member of the Board of Directors—expressly authorized the corporation's president to effect foreclosure of condominium units with delinquent accounts.

Key Legal Principles

Section 20 of the Condominium Act provides that assessments made in accordance with a duly registered declaration of restrictions constitute a lien upon the condominium unit. The provision states that such liens may be enforced in the same manner provided for by law for the judicial or extra-judicial foreclosure of mortgage of real property. The exact wording of this provision is not available in the ASG law library, but the Supreme Court in this case quoted and applied it.

Act No. 3135, which governs extra-judicial foreclosure of real estate mortgages, requires that a sale be made under a special power inserted in or attached to the mortgage. The Court clarified that this requirement is satisfied when the authority to foreclose is found in the Master Deed and By-Laws that bind the unit owner, not merely in a separate special power of attorney.

Practical Takeaways

• Check the governing documents. A condominium corporation's authority to foreclose may be found in its Master Deed and By-Laws, which bind all unit owners as a contract.
• Document the authority. Corporations should ensure their By-Laws and Board Resolutions clearly authorize foreclosure for unpaid assessments, and that these documents are properly registered and annotated.
• Follow the procedure. Even with authority, the corporation must strictly comply with the requirements of Act No. 3135, including proper publication, posting, and notice to the unit owner.
• For unit owners. A unit owner cannot deny being bound by the Master Deed and By-Laws, especially if they participated in Board decisions authorizing foreclosure.
• Distinguish First Marbella. A mere notice of assessment without any other source of authority is insufficient; but authority may come from the Master Deed and By-Laws themselves.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.