Mortgage Without HLURB Approval: Buyer Protection in Condominium Sales

The Supreme Court's 2013 decision in Philippine National Bank v. Lim clarifies an important question for condominium buyers: what happens when a developer mortgages a project without the required approval of the Housing and Land Use Regulatory Board (HLURB)? The case balances the rights of buyers against the interests of banks and developers, and the result offers meaningful protection for unit purchasers while respecting settled legal rulings.

The Facts of the Case

Puerto Azul Land, Inc. (PALI) owned and developed Vista de Loro Condominium in Ternate, Cavite. In 1993, the HLURB issued PALI a License to Sell under Presidential Decree No. 957, the Subdivision and Condominium Buyers' Protective Decree.

The following year, PALI obtained a P150 million loan from Philippine National Bank (PNB), secured by a real estate mortgage over the eight parcels of land comprising the project. PNB extended additional loans in 1995 and 1996 under the same mortgage. Crucially, PALI never secured the HLURB's written approval for the mortgage, as required by Section 18 of P.D. 957.

In September 1997, Rina Parayno Lim entered into a Contract to Sell with PALI for Unit 48C of the condominium. She paid over P5.7 million toward the purchase price. When PALI defaulted on its loans, PNB moved to foreclose on the entire property. Lim filed a complaint with the HLURB seeking to nullify the mortgage.

The Legal Issue

The central question was whether a mortgage executed without HLURB approval is void, and whether the HLURB had jurisdiction to annul it. A related issue was whether a prior court ruling on the mortgage's validity barred Lim's complaint.

The Ruling

The Supreme Court partially granted PNB's petition, modifying the Court of Appeals' decision. The Court held that the mortgage between PALI and PNB remained valid, citing a prior final and executory Resolution that had settled that issue between those parties. The Court noted that a final and executory judgment, no matter how erroneous, cannot be changed even by the Supreme Court.

However, the Court emphasized that this ruling was without prejudice to the rights of Lim and those similarly situated under the buyer-protection provisions of P.D. 957. In other words, while the mortgage stands between the bank and developer, it cannot be enforced against the unit buyer.

The Court also clarified the HLURB's jurisdiction. Citing Far East Bank & Trust Co. v. Marquez (465 Phil. 276 [2004]), the Court held that acts executed against mandatory or prohibitory laws are void. A mortgage lacking HLURB approval is therefore null and void insofar as the unit buyer is concerned. However, the HLURB exceeded its authority when it nullified the mortgage over the entire parcel of land—Lim had standing only over Unit 48C, not the whole project.

Redemption as a Remedy

The Court pointed to the remedy of redemption available to buyers under P.D. 957. Under this provision, when a mortgage covers a unit being purchased, the developer must redeem that portion of the mortgage within six months from the issuance of the buyer's title. The developer must then deliver the title free from all liens and encumbrances. The exact text of this provision is not reproduced here, but the remedy is recognized in the decision.

This remedy presupposes the mortgage is valid but protects the buyer's interest in obtaining clean title to the unit.

Practical Takeaways

• A mortgage on a condominium project or subdivision without HLURB approval is not automatically void in all respects. It remains valid between the developer and the lending bank.
• Against a unit buyer, however, such a mortgage is unenforceable. Buyers are protected from losing their units due to a developer's failure to secure HLURB approval.
• A buyer's remedy is redemption under P.D. 957: the developer must redeem the portion of the mortgage covering the buyer's unit within six months from issuance of the buyer's title.
• The HLURB has jurisdiction over complaints involving unsound real estate practices, including annulment of mortgages, but only to the extent of the specific unit or lot being purchased.
• A final and executory judgment binds the parties to that case, even if issued by minute resolution. Buyers who were not parties to prior litigation are not bound by such rulings.

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