Buyer Beware

Caveat emptor or “let the buyer beware” is a warning most apt for any buyer of land in the Philippines, whether a first-time home buyer, seasoned land buyer, sophisticated real estate investor, real estate company, real estate developer, or real estate speculator, including any institutional mortgagee of land such as a bank, cooperative, or investment and financing institution. 

Philippine Land Title Issues and Problems

Why? A reasonably prudent mind would ask. The answer is that the Philippine real estate sector continues to be plagued by issues involving the absence of a central property registry and national land use policy, double titling or double land registration or overlapping of titles, encroachment, proliferation of fictitious titles and fraudulently issued reconstituted titles for sale, double sale of the same land, sale of unregistered subdivision projects by unscrupulous developers, unrecorded legal easements, unrecorded legal setbacks and land use restrictions, unrecorded legal disputes on possession and ownership of land, and undisclosed geohazards, among others.

Moreover, a complex system of laws, rules and regulations govern land ownership, land transactions, and land use in the country. 

Compounding such legal complexity is the current sad state of affairs where there is no centralized government office that would instantly provide the needed data and records on registered and unregistered land, land transactions and registered owners, and one is instead constrained to personally search and visit various offices of separate government agencies and local government units in custody of the pertinent data and records located in disparate sites in the country, to simply verify and secure the relevant data and records.

For instance, one has to go to the following government offices to verify and secure certain data and records on a certain land, subject to compliance with such office’s bureaucratic procedures: (1) the local Registry of Deeds, to verify and secure a copy of the current title, as well as the liens and encumbrances registered on such title, if any; (2) the local Assessor’s Office, to verify and secure copies of the current tax declaration covering the land, as well as the tax map thereof; and (3) the Land Registration Authority (“LRA”), or the Land Management Bureau (“LMB”), or the pertinent regional office of the Department of Environment and Natural Resources (“DENR”), to verify and secure a copy of the approved survey plan covering the land, among others.

 Lastly, it is a notorious fact that land disputes persistently clog the court dockets and take the longest to resolve by the courts with finality due to the complexity thereof and the inclination of litigants to appeal the decisions of the trial courts to the appellate courts up to the highest court.    

Necessity of Title Search or Due Diligence

Notably, conducting a land acquisition due diligence or title search/investigation in the Philippines is a complex, arduous and time-consuming process, which can drive any buyer out of his/her wits. To say that it is stressful, is an understatement. 

Such due diligence or title search, however, is a necessary and crucial preliminary step in the acquisition process to avoid exchanging one’s life-savings with a white elephant, and to ensure that the acquired property is free from liens, encumbrances, adverse possessors, claims, disputes, title flaws, adverse land use restrictions, tax liabilities, and geohazards, among others. 

In short, such pre-acquisition process ensures that the prudent buyer can sleep well at night and rest easy upon parting with his/her life-savings. 

As attested by countless buyers who neglected to conduct the pre-acquisition title search on the land they acquired in their haste and eagerness to hold title to an attractively priced property, buyer’s remorse, distress and loss immediately bedevil them post-acquisition when they subsequently discover the undisclosed flaws in their titles or material adverse issues affecting their property, particularly when they cannot possess the same, or get sued in court over the same, or are deprived of possession and ownership thereof, or cannot use the same for their intended purposes, among others. 

While there are various laws, and a century-old system known as the Torrens system established to provide land title security and land ownership stability to landowners and land buyers, the exceptions to the fundamental principles of the Torrens system carved out by judicial authorities, as well as the prevalence of the issues and problems plaguing the real estate sector mentioned earlier, render it necessary, as a matter of caution and prudence, to conduct the requisite title search to avoid a preventable financially catastrophic mistake of a lifetime. 

Title Search

Typically, the scope of a standard title search may be either limited or comprehensive, depending on the need, as well as the sophistication, of the buyer. For sophisticated buyers such as real estate developers, real estate companies, and real estate investors, as well as banks and other investment and financing institutions, a comprehensive title search or thorough due diligence is standard practice, as they are required by law and jurisprudence to exercise a higher degree of care and diligence in acquiring or collateralizing real estate. For the ordinary citizen buyer, however, a limited title search may suffice, as only ordinary diligence is imposed upon him by law.

A limited title search is usually an examination of public records to determine a titled land’s legal ownership, as well as the validity and current status of the title, the technical description establishing the exact location and area of the land, the registered owner or co-owners and their saleable and marketable interest in the land, and recorded liens and encumbrances on the title. In short, a limited title search merely seeks to ascertain whether the seller has a clean title to the land, meaning, the title is valid and free of defects, liens and encumbrances on the face thereof, and the registered owner can transfer a good, legal and valid title to the land in favor of the buyer. 

On the other hand, a comprehensive title search or due diligence usually includes, in addition to the foregoing scope of a limited title search, the verification of the following matters: (i) the legal classification and actual use of the land; (ii) the actual possessors of the land; (iii) any improvements on the land; (iv) any claim of ownership, possession and other real rights over the land, including pending claims, complaints, cases or proceedings involving the land; (v) tax liabilities on the land and improvements;  (vi) the exact location, boundaries and area of the land and any encroachments thereon or diminution thereof by man-made or natural disruptions; (vii) overlap with other titled lands; (viii) title traceback up to the first issued original certificate of title covering the land and corresponding decree or patent; (ix) survey plan traceback up to the first approved original survey plan of the land; (x) legal easements, setbacks and restrictions on the use of the land; (xi) authorized uses of the land, per zoning classification and other government and private regulations; (xii) geohazards affecting the land; (xiii) direct access to a public road; (xiv) coverage under agrarian reform program and irrigated land verification, if agricultural land; (xv) overlap with ancestral domain or mining tenement; and (xvi) any proposed or commenced expropriation or public auction of the land, or government projects directly affecting the land, among others.   

Theoretically, the conduct of a limited title search is deemed more than sufficient protection for ordinary buyers due to the established fundamental principles of the Torrens system, such as the principle of indefeasibility, the curtain principle, and the mirror principle, which are discussed further below. In reality, however, there are many exceptions thereto carved out by judicial authorities in a number of litigated cases that effectively render such limited title search as an inadequate means of protection or defensive shield against any future claims over the titled land. 

The Torrens System and its Primary Purpose

The Torrens system was established in the country more than a century ago through Act No. 496, also known as the Land Registration Act, which was approved on 6 November 1902 and took effect on 1 February 1903. 

It brought the land titles of the Philippines under one comprehensive and harmonious system, the cardinal features of which are indefeasibility of title and the intervention of the State as a prerequisite to the creation and transfer of titles and interests, with the resultant increase in the use of land as a business asset by reason of the greater certainty and security of title. Its real purpose is to quiet title to land; to put a stop forever to any question of the legality of the title, except claims which were noted at the time of registration in the certificate, or which may arise subsequent thereto; hence, once the title was registered, the owner may rest secure, without the necessity of waiting in the portals of the court, or sitting in the “mirador de su casa,” to avoid the possibility of losing his land.  

The Principle of Indefeasibility of Title 

One of the fundamental principles underlying the Torrens system is the principle of indefeasibility which states that the certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears therein. Such indefeasibility commences after the lapse of one year from the date of entry of the decree of registration and the original certificate of title corresponding thereto when all persons are considered to have a constructive notice of the title to the property; hence, after the lapse of one year, title to the property can no longer be contested.

The Curtain Principle and Mirror Principle

Another fundamental principle underlying the Torrens system is the curtain principle, which provides that one does not need to go behind the certificate of title because it contains all the information about the title of its holder. Its inseparable twin, the mirror principle, states that every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property, except when the buyer has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry.  Accordingly, when a certificate of title is clean and free from any encumbrance, purchasers have every right to rely on such certificate, and such purchasers are often referred to as “innocent purchasers for value” and “in good faith”.

In support of the twin curtain and mirror principles, the Philippine Supreme Court (the “Court”) has reiterated the doctrine that a purchaser of land covered by a Torrens title is presumed to be an innocent purchaser for value and in good faith entitled to protection under the law if the certificate of title he relied upon in buying the land is clean, or free from any liens and encumbrances, as he is only charged by law with notice of the burdens, liens and encumbrances noted on the face of the certificate of title.

Hence, the twin curtain and mirror principles, supported by the foregoing legal presumption, provides the legal justification for the mere conduct of a limited title search by ordinary buyers of titled land as an effective means of protection or defensive shield against any future claims over their property.

To ensure that a buyer will be entitled to the protection of an innocent purchaser for value and in good faith, however, the Court has advised that prospective buyers of titled land must exercise the diligence of a reasonably prudent person by undertaking the following measures: (1) verify the origin, history, authenticity, and validity of the title with the Office of the Register of Deeds and the LRA; (2) engage the services of a competent and reliable geodetic engineer to verify the boundary, metes, and bounds of the lot subject of said title based on the technical description in the said title and the approved survey plan in the LRA, LMB and/or DENR-Regional Office; (3) conduct an actual ocular inspection of the lot; (4) inquire from the owners and possessors of adjoining lots with respect to the true and legal ownership of the lot in question; (5) put up signs that said lot is being purchased, leased, or encumbered; and (6) undertake such other measures to make the general public aware that said lot will be subject to alienation, lease, or encumbrance by the parties. 

In short, the Court is effectively advising all types of buyers (sophisticated or otherwise) to conduct a comprehensive title search or due diligence prior to the purchase of any titled land. This underscores, and acknowledges, the fact that fraudulent real estate schemes and practices are prevalent in the country. 

Other Judicially Established Doctrines Supporting the Integrity of the Torrens System

In its role as protector of the efficacy and integrity of the Torrens system, the Court has established additional rules and doctrines supporting the indefeasibility principle, curtain principle and mirror principle, such as the following well-settled rules: (i) in case of double titling or double land registration, the earlier certificate prevails over the later certificate (the “Earlier Title Rule”); and  (ii) in case of an erroneous or defective original survey plan or subsequent survey plan, a correction of the title to conform to the corrected plan and not nullification thereof, is the proper remedy (the “Survey Plan Correction Rule”). 

The Earlier Title Rule 

In a long line of cases, the Court consistently and uniformly affirmed and reaffirmed the doctrine that in case of double registration of land under the Torrens system, where two separate Original Certificates of Title (“OCTs”) are issued to different persons covering the same land in whole or in part, the earlier in date must prevail as between original parties and in case of successive registrations where more than one certificate is issued over the land, the person holding under the prior OCT is entitled to the land as against the person who rely on the second or later OCT.  The Court added that the purchaser from the owner of the later OCT and his successors, should resort to his seller for redress, rather than molest the holder of the first OCT and his successors, who should be permitted to rest secure in their title.

The Survey Plan Correction Rule 

In a number of cases, the Court consistently ruled that defects or errors in original survey plans do not nullify the decrees of registration and their corresponding OCTs issued pursuant to a judicial registration proceeding, because it is the land and not the plan which is registered. The proper remedy is for the registered owner of the title with a defective or erroneous survey plan to cause the correction thereof through a relocation survey plan, provided the boundaries laid down in the description as enclosing the land and indicating its limits are not changed, and to petition the court to approve the new relocation survey plan and issue a new corrected title based thereon, pursuant to Section 112 of Act No. 496 (now Section 108 of Presidential Decree No. 1529) which authorizes a petition to amend the certificate of title.  

Notably, the Court has taken judicial notice of the fact that the surveys under the old system are not correct and differ from the result obtained by the modern and more scientific way of surveying, and that there are many certificates of titles that are based on such old and highly defective surveys. It has likewise categorically declared that prior to the enactment of Act No. 1875, practically all plans for land registration were defective especially in regard to errors of closures and areas, but such errors have not been permitted to affect the validity of the decrees of registration issued over the covered land. It has further added that if the boundaries of the land registered can be determined, the technical description in the certificate of title may be corrected without cancelling the decree, because to nullify and cancel final decrees merely by reason of faulty technical descriptions would lead to chaos.