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Property rules

Housing loans deconstructed

Put together your shapes and sticks, and you have drawn a house. Save money you could have spent for your coffee, and you may actually own one.

For instance, in an article entitled, “Pinoy Millennials Turn into Homebuyers” dated July 27, 2016, the Philippine Daily Inquirer (PDI) reported on 8890 Holdings Inc., a mass housing developer which
offers condominium units and houses priced between P450,000 and P1. 4 million.

“It’s like a brand new home for the price of a good secondhand car, or a monthly amortization equivalent to two cups of coffee everyday at Starbucks,” said 8890 Holdings, Inc. president Januario Jesus Atencio III.

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The PDI further reported that young adults may now avail themselves of a housing loan to purchase their own units for as low as P5,000 to P6,000 a month.

With housing made accessible, it is not surprising that banks have deepened their exposure to the property sector.

Business World Online reported that in a study conducted by the Bangko Sentral ng Pilipinas (BSP), local banks recorded P1.812 trillion in total real estate exposure for 2016, which was a substantial increase from the P1.516 trillion in 2015. The increase can be attributed to the jump in property loans handed out by universal, commercial, and thrift banks.

But before you apply for a loan and jump in the housing bandwagon, here are the things you must know:

In entering into a contract of loan, the lender delivers money or other consumable thing to you which, however, you must pay in the same amount, kind, and quality.

You pay your loan only in the currency stipulated in the contract. If it were impossible to deliver such currency, then you may pay your loan in Philippine Pesos, or the currency which is legal tender in the Philippines.

Your delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall mean your payment of the loan only when they have been cashed, or when through the lender’s fault, they have been impaired.

In case an extraordinary inflation or deflation of the currency stipulated should supervene the value of the currency at the time you entered into the contract shall be the basis of your payment, unless there is a contrary agreement.

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You are not obliged to pay interest on the loan, unless it has been expressly stipulated in writing.

Escalation clauses in a contract of loan, or stipulations allowing an increase in the interest rate agreed upon by the contracting parties, are valid.

In this regard, the Supreme Court held that there is nothing inherently wrong with escalation clauses, which maintain fiscal stability and retain the value of money in long-term contracts.

But, an escalation clause which grants the lender an unbridled right to adjust the interest independently and upwardly, completely depriving the borrower of the right to assent to an important modification in the agreement, is void.

Interest due in a contract of loan shall not earn interest, without prejudice to Article 2212 of the Civil Code, which states that interest due and unpaid shall earn legal interest from the time it is judicially demanded. But, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest.

Housing loans are secured by real estate mortgage, which is usually the house or unit you have bought.

For real estate mortgage over your house or unit to be validly instituted, it must: (a) be constituted to secure the fulfillment of a principal obligation which, in this case, is the payment of your housing loan; (b) be instituted on property which you absolutely own; (c) be property which you have free disposal thereof or otherwise legally authorized to constitute the mortgage; and (d) appear in a public instrument duly recorded in the Registry of Deeds.

Nevertheless, the mortgage remains binding between the parties, even if said instrument were not recorded.

The lender in whose favor the mortgage is instituted has no other right than to demand the execution and the recording of the document in which the mortgage is finalized.

The mortgage extends to the natural accessions, improvements, growing fruits, rents or income not yet received when the obligation to pay the loan becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use.

Relatedly, the mortgage remains valid and binding, whether the property remains in the mortgagor’s possession, or it passes into the hands of a third person.

The lender may claim from the third person possessing the mortgaged property, the payment of the part of the credit secured by said property, in terms and with the formalities which the law establishes.

A stipulation forbidding the owner from alienating the immovable mortgage shall be void. In this regard, the Supreme Court held that a stipulation requiring the mortgagor’s prior written consent before the mortgagee may sell his property, violates this prohibition.

Sara Mae D. Mawis is an Associate at Esguerra & Blanco Law and a Lecturer at the College of Law Adamson University

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