BANKING.docx

The mortgage agreement is null and void as against

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The Mortgage Agreement is null and void as against Rapanot, and thus cannot be enforced against him. The Bank avers that contrary to the CA's conclusion in the questioned Decision, it exercised due diligence before it entered into the Mortgage Agreement with Golden Dragon and accepted Unit 2308-B2, among other properties, as collateral. 55 The Bank stressed that prior to the approval of Golden Dragon's loan, it deployed representatives to ascertain that the properties being offered as collateral were in order. Moreover, it confirmed that the titles corresponding to the properties offered as collateral were free from existing liens, mortgages and other encumbrances. 56 Proceeding from this, the Bank claims that the CA overlooked these facts when it failed to recognize the Bank as a mortgagee in good faith. The Court finds the Bank's assertions indefensible. First of all, under Presidential Decree No. 957 (PD 957), no mortgage on any condominium unit may be constituted by a developer without prior written approval of the National Housing Authority, now HLURB. 57 PD 957 further requires developers to notify buyers of the loan value of their corresponding mortgaged properties before the proceeds of the secured loan are released. The relevant provision states: chanRoblesvirtualLawlibrary Section 18. Mortgages . - No mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the Authority. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project and effective measures have been provided to ensure such utilization. The loan value of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness secured by the particular lot or unit being paid for, with a view to enabling said buyer to obtain title over the lot or unit promptly after full payment thereof. ChanRoblesVirtualawlibrary In Far East Bank & Trust Co. v. Marquez , 58 the Court clarified the legal effect of a mortgage constituted in violation of the foregoing provision, thus: chanRoblesvirtualLawlibrary The lot was mortgaged in violation of Section 18 of PD 957. Respondent, who was the buyer of the property, was not notified of the mortgage before the release of the loan proceeds by petitioner. Acts executed against the provisions of mandatory or prohibitory laws shall be void. Hence, the mortgage over the lot is null and void insofar as private respondent is concerned . 59 ( Emphasis supplied ) ChanRoblesVirtualawlibrary The Court reiterated the foregoing pronouncement in the recent case of Philippine National Bank v. Lim 60 and again in United Overseas Bank of the Philippines, Inc. v. Board of Commissioners-HLURB . 61
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