Advanced Due Diligence – Investigating Untitled Properties in the Philippines

Introduction to Due Diligence in Philippine Real Estate

When buying real property in the Philippines, it is important to conduct due diligence. It is wise to hire someone to do the due diligence for you. For one, it is not easy to hop from one government office to another to gather the necessary documents. Secondly, there are documents that are not straightforward and will need a lawyer for their interpretation.

Still, this article will tell you how due diligence is done. The information contained in this article will help you monitor the work of whoever is doing the due diligence for you. Or, should you decide to do the due diligence yourself, it will help you carry it out as far as possible on your own. The article will point out the areas where a lawyer’s assistance is absolutely necessary.

Structure of the Article Series

This article is divided into four parts. Part One discusses the importance of due diligence. Part Two will discuss how to do due diligence of titled properties. Part Three will guide you through due diligence of untitled properties. And Part Four will discuss Relocation Survey and the Costs attending land transactions.

Focus of this Article (Part Three)

This article contains Part Three. Kindly search our site for Parts One, Two and Four.

Part Three

This article will now answer the question: how will you do due diligence if the property you are buying is untitled property?

Due Diligence of Untitled Lands: An Overview

[Note to Reader: If you have not read Part Two of this article, I highly recommend you go back and read it before proceeding. It will help you understand when a land is considered untitled, and why.]

Risks Associated with Untitled Lands

You will know the land is untitled because the seller will not be able to give you a physical Torrens title. Instead, he will offer a tax declaration. Tax declarations are not proofs of title or ownership They are only, at best, proofs of possession. The difference? Possession is limited to the right to possess the land, i.e., live in it, till it, build structures on it. Title or ownership would give you a lot more, including the most important: the right to transfer title to another person.

Buying land based on tax declaration is therefore risky because you do not know if the person selling it is the person who has title to it. If he is merely a possessor of the land, he cannot transfer title to you, which means the land can never be yours.

Possibility of Ownership Despite Lack of Title

However, just because the only document covering the land is a tax declaration does not mean the seller has no title to the land. Since possession is an attribute of ownership, the possessor can also be the owner. It means that the person whose name appears on the tax declaration can also be the owner, but you need to do a few things in order to verify if this is the case.

Steps for Due Diligence of Untitled Lands

Here are the things that you need to do:

a. Determine if a Torrens Title Exists

1. Initial Inquiry at the Assessor’s Office: Role out i retire to one the a dean are le is sings Office if the land is covered by a Torrens title. The Assessor’s Office should know, but if they are unsure, bring the tax declaration to the Register of Deeds where the land is situated.
2. Where to Go: Which assessor’s office or ROD should you go to? Here is your guide:
   • Assessor’s Office If the land is situated in a city, go to the assessor’s office of the city where the land is situated. If the land is situated in the province, go to the assessor’s office of the province to which the municipality belongs.
   • Register of Deeds (ROD) If the land is situated in the city, go to the ROD of the city where the land is situated. If the land is in the province, go the ROD of the province where the land is situated. There are no RODs in municipalities.
3. Purpose of this Step: The objective for this exercise is to ensure that no Torrens title has yet been issued on the property that you are intending to buy.
4. Possible Scenarios and Actions:
   • Scenario 1: Torrens Title Exists in Seller’s Name If it happens that a Torrens title already exists over the property, and it is in the name of the person selling the property to you, you are in luck. Your job just got easier. Go back to the earlier discussion on how to do due diligence over a titled land.
   • Scenario 2: Torrens Title Exists in Another Person’s Name But if it happens that a Torrens title exists over the land, but in the name of another person, walk away from your current seller. If you really want to buy the land, look for the person whose name appears on the title. You should buy the land from the person whose name appears on the Torrens title, not from the one whose name appears on the tax declaration, because between the Torrens title and the tax declaration, the Torrens titlegranting valid – will always win.

b. Verify the Tax Declaration’s Validity

1. Obtain a Certified True Copy: Tax Dec Verification. Once you have ruled out the existence of a Torrens title, verify if the tax declaration you have in your possession is the current one. You can do this by asking for a certified true copy of the tax declaration in your possession.
2. Reason for Verification: Why are we doing this? It is possible that the person trying to sell the property to you has a tax declaration in his name, but that the same has been cancelled and a new one issued in the name of another person. It does not mean that your current seller is not the owner of the property. It just means that another person has a claim over it.
3. Action if a More Recent Tax Declaration Exists: If this happens, seek out the person whose name appears in the most recent tax declaration. Find out what his interest is. Make sure that, whoever your buy the property from, whether your current seller, or the person whose name appears in the most recent tax declaration, their claim is clear and uncontested, otherwise you might get caught in the crossfire of a court case. If possible, bring the two claimants together before a lawyer and resolve their conflict. Have the lawyer draft documents that each can sign, ceding whatever claim they have in your favor. Only if you can do this step should you buy the property.
4. Importance of Legal Counsel: In any case, in case of two conflicting claims over a property, seek the advice of a trusted lawyer. Have the lawyer evaluate the conflicting claims, and have him calculate the risks of a court case. Do not make a decision without this step unless you are ready to get involved in the court case.

c. Trace Back the History of the Tax Declaration

1. Importance of Tracing: C. Trace Back. Suppose that the tax declaration in your possession is the latest, or that the latest tax declaration in the assessor’s office is in the name of the same person trying to el the is fit to you, their tea to or e are it is ery important. cannot
2. Requesting a Tracer: To do this, ask the assessor’s office for a tracer of the tax declaration in your possession. Some assessor’s offices call it by a different name, so to make sure you get the one I mean, you need to understand what it looks like.
3. What is a Tracer? A tracer traces the origins of the tax declaration down to the very first one issued over the property. It will show you the tax declaration number of each tax declaration ever issued, and the names of each person to whom each tax declaration was issued.
4. Relevance to Subdivided Lots: If the land you are seeking to buy is a part of a bigger land that was subdivided, the tracer should show the tax declaration of the mother lot before it was subdivided. l, as well as the point where the tax declarations for the smaller lots were issued. You should be able to trace your seller’s tax declaration back to this split, and the tax declaration should show the correct portion of the lot you are intending to buy. This is preliminary, however. You will also need a relocation survey, as discussed in the next section.
5. Further Actions After Obtaining a Tracer: Once you have a tracer, there are two things you need to do. You can also request this at the same time you request for the tracer:
   • Obtain Certified True Copies of All Tax Declarations: Ask for a certified true copy of ALL tax declarations appearing in the tracer. You need this because each tax declaration will have their own annotations, which can give you clues into their issuance. If red flags exist, you could see them in the tax declarations. You will need real estate lawyer, or a seasoned real estate broker, to go over and evaluate the tax declarations. Do not attempt to make the evaluation on your own, inless you are a lawyer or a broker.
   • Obtain Certified True Copies of All Corresponding Deeds: Ask for a certified true copy of ALL deeds on which each tax declaration was based. a new tax declaration is issued in the same name as the last one, no deed is usually needed, but if the name of the new tax declaration is different from that indicated in the last one, a deed should exist justifying the change. For example: Tax Dec. No. 123 Juan dela Cruz Tax Dec No. 234 Juan dela Cruz Tax Dec No. 345 Heirs of Juan dela Cruz Tax Dec No. 456 Maria Makiling You will not need a deed for the issuance of Tax Dec no. 234, but you will need a deed for the issuance of 345 and 456. Since Tax Dec No. 345 is in the name of Juan’s heirs, the deed or document should either be an extra-judicial settlement (EJS) or a court order. As for Tax Dec No. 456, it can be a lot of things, depending on what Maria’s right to the property is. If it was sold or given to her, it can be a deed of sale, assignment, or donation. But if all she was given is possession and use, it can be a deed of usufruct, or something with the same effect.
6. Red Flags and Legal Consultation: If any of these documents are missing, it can be a red flag. See a lawyer if you are still interested in the property. He should be able to guide you on what to do next. If all of the documents are available, bring them all, together with the tracer and the tax declarations, to a trusted lawyer. Ask the lawyer to evaluate the validity of the documents. Not all grounds for invalidity may be apparent to your lawyer, but he can at least make a cursory check. He can also advise you if deeper investigation is necessary.
7. Emphasizing the Importance of a Lawyer: Do not skip this step, unless you are a lawyer.

d. Visit the Bureau of Lands (BL) – Now Part of the DENR

1. Verify Ownership Records: d. Visit the Bureau of Lands (BL). Your tax declaration bears the lot number of the property that you wish to buy. Go to the BL and who owns the lot according to their records. The name indicated in the tax declaration could well be different from the name appearing in the records of the BL. If this is the case, you will need to verify who this person is, what his relationship is to the property, and if he executed any document that allowed the issuance of the tax declaration in another person’s name.
2. Legal Implications of Discrepancies: Note that if the name appearing in the records of the BL is different from the name on the tax declaration, you will need to see a lawyer. While this does not mean that the person trying to sell the property to you has no right to do so, it can mean a potential litigation. You will need to know the degree of the risk, and how strong your defenses are going to e if it happens. The lawver can do the evaluation for you. find out if in their records, the name appearing as owner of the lot is the same as the name indicated in the tax declaration. Any discrepancy is not necessarily a deal breaker, but is a red flag that should send you running to a lawyer. What the lawyer needs to look into on this matter will be the subject of another post.
3. Additional Inquiries at the DENR: Other than the above, there are two other important things you need to ask the DENR about:
   • Request an A&D Certificate: Ask for an A&D Certificate. An A&D Certificate will guarantee you that the property is “alienable and disposable”. Title to properties that do not have this certificate cannot be transferred. Here is why: All properties in the country are owned by the State. Again, the State does not necessarily mean the government, but that will have to be explained in another post. If lands today are owned by private individuals, it is only because the State gave it to them. This is the essence of “free patents”, which then became the basis of OCs. When the private individual transferred the property to another private individual, the OCTs became TCTs. A lot of properties have been disposed by the State, but a lot more have remained owned by it. This is not a problem, however, because the State continues to give property away to this day. However, there are properties which, by law, the State can never give away. These are what we call inalienable lands. Hence, when buying untitled land, you need to find out if the property you are interested in is something that State can alienate. The A&D Certificate will indicate this. If the property is alienable, you can, after you have acquired the property, apply for a Torrens title. If it is inalienable, however, you can never apply for title until the State decides to reclassify the property into something that will qualify for alienation. It is not necessarily a bad thing for a land to be inalienable, as long as you know what you are buying. If you think that you can very well do with just the possession, then by all means proceed. But if title is important to you, you may need to think twice.
   • Inquire About Pending Title Applications: Ask if there are any pending applications for title. Titles can now be issued administratively by the DENR, so ask them if there are any applications pending. If an application is pending in the name of the person trying to sell the property to you, you can substitute him as applicant. When the petition is granted, the patent will be issued in your name instead of his. This is a good thing. If, however, an application is pending and it is in the name of a person different from the person trying to sell the property to you, you need to investigate. What is the relationship between the applicant and the person trying to sell the property to you? You will need to look for the applicant and talk to him at length. This is, of course, a red flag that signifies the need to approach a lawyer. Since this situation implies potential legal issues, having a broker is not enough. A lawyer will have to be involved.

e. Visit the Courts

1. Check for Court Cases: Visit the Courts. Titles may be applied for either by application with the DENR, or by petition with the courts. Visit the Office of the Clerk of Court (OCC) of the Regional Trial Court (RTC) and the Municipal Trial Court having jurisdiction over the property you are interested in. That means the courts of the place where your property is located.
2. Reviewing Court Records: If the inquiry reveals that a case is pending, get the title and the case number of the case, and the court branch where the case is pending. Go to the court branch indicated, and ask the staff if you can read the records of the case. The staff will usually allow you to read the records inside the courtroom, but you may not be allowed to have photocopies made of any of the documents. Unless you can understand the court documents, therefore, you may not be able to make anything out of the court records. This means, again, that you need to approach a lawyer to go over the records for you.
3. Lawyer’s Role in Court Case Review: What does the lawyer need to find out? He will need to find out who the applicant is, what the basis is for the petition, if there are oppositors and why they are opposing the petition, and what the status of the petition is. Your lawyer will also need to connect your seller to the person filing the application, and should evaluate how strong the petition is.
4. Implications of a Pending Case: Essentially, a petition filed in court by any person other than your potential seller is a red flag. It indicates that another person is laying claim on the property that someone else is trying to sell to you. You should unravel the conflicting claims before you decide.

Concluding Remarks

We just discussed the process for conducting due diligence of untitled lands. If the land you intend to buy is one that is covered by a Torrens title, kindly read Part Two of this article if you have not already. That is the part of the article that discusses due diligence of titled land. The next part, Part Four, will discuss relocation survey and why it is a necessary part of the due diligence process.

Kindly search our site for Parts One, Two and Four.