Dear Attorney,

I am reaching out to seek your legal guidance on a concern involving the recent sale of our townhouse. The buyers, one of whom applied for a loan in her name, have now encountered an issue with the bank, which requires the name of her brother—who is also listed as a co-borrower/mortgagor in their loan agreement—to be included on the title.

To clarify, the title to the property has already been transferred solely to the buyer. However, the bank insists that both the buyer and her brother, as co-borrowers, be reflected on the title. We are now trying to determine the proper legal steps to include the name of the co-borrower, her brother, in the title without causing complications.

Could you kindly advise us on the legal procedures or any necessary steps to correct the situation, ensuring compliance with the bank's requirements while protecting the legal integrity of the property transfer? We would appreciate your insights on how to approach this matter, including the possibility of amending the title or executing a new document to include the brother's name.

Thank you for your assistance.

Sincerely,
Concerned Seller

Legal Insights on Adding a Co-Borrower’s Name to the Title of Property: Philippine Law Perspective

In the Philippines, property transactions involving real estate, particularly when financed through a loan, require strict adherence to laws and procedures. When a bank issues a loan to a borrower, particularly when co-borrowers are involved, the bank typically holds a lien over the property as security for the loan, generally by way of a mortgage. The title must reflect the borrowers who are mortgaging the property, as this serves to protect the bank’s interest in the property.

In this case, the central issue revolves around the bank’s requirement that both borrowers (the buyer and her brother) be reflected in the title, while the title has already been transferred solely to the buyer. Below, we outline the necessary legal steps and considerations to address this issue and comply with both the law and the bank’s requirements.

1. Understanding the Role of the Bank in Property Title Transfers

When a property is mortgaged to a bank, the bank has an interest in ensuring that all mortgagors are duly reflected on the title of the property. This is a protective measure for the bank, ensuring that in the event of a default, the bank can rely on the names of all borrowers/mortgagors on the title to pursue recovery or foreclosure.

In this particular case, the fact that the buyer’s brother is listed as a co-borrower means that the bank would want his name on the title, as both the buyer and her brother are jointly liable for the loan. This is a common scenario in joint borrowing arrangements, where the bank’s rights as a mortgagee would extend to all borrowers, whether primary or co-borrowers.

2. Legal Steps to Add the Co-Borrower’s Name to the Title

Since the title has already been transferred solely to the buyer, it is crucial to understand that the process of adding the brother’s name to the title will likely require executing another legal document. Below are the potential legal mechanisms for this:

a. Execution of a Deed of Sale with Assumption of Mortgage

One option is for the parties to execute a Deed of Sale with Assumption of Mortgage, which would indicate that the buyer is now sharing ownership of the property with her brother, in line with their joint liability to the bank. Under Philippine law, this deed serves to formally document the assumption of the mortgage by a new party (the brother, in this case). The buyer would essentially be conveying part ownership of the property to her brother, and the bank must consent to this arrangement since it would involve the mortgage loan.

Once this deed is executed, it must be registered with the appropriate Registry of Deeds, which will amend the title to reflect both the buyer and her brother as co-owners of the property.

b. Execution of a Deed of Donation

Alternatively, the buyer could execute a Deed of Donation in favor of her brother, donating a share of the property to him. Under the Civil Code of the Philippines, a donation of real property must be made in a public instrument to be valid, and the donor must be of sound mind and have the capacity to donate. In this case, the buyer (donor) would be donating an undivided portion of the property to her brother (donee), thus ensuring that his name will also appear on the title.

It is important to note that donations of real property are subject to donor’s tax under Philippine tax law. However, if the donation is made between siblings, the tax implications may be more favorable, provided the proper tax exemptions and deductions are claimed.

c. Co-Ownership Agreement

A Co-Ownership Agreement can also be executed, which would outline the proportionate shares of ownership between the buyer and her brother. This agreement must be notarized and registered with the Registry of Deeds. However, it is important to note that a co-ownership agreement alone will not suffice to update the title; a new Transfer Certificate of Title (TCT) must be issued reflecting both names.

Once any of the above documents is prepared and executed, the parties must present the necessary documents to the Registry of Deeds for annotation on the property title.

3. Steps to Amending the Title

Amending the title to include the brother’s name is a procedural process that involves several key steps:

a. Registration with the Registry of Deeds

The executed document—whether it be a Deed of Sale with Assumption of Mortgage, Deed of Donation, or Co-Ownership Agreement—must be presented to the Registry of Deeds for registration. The Registry will then annotate the title to reflect the co-borrower’s name as a co-owner of the property. The transfer of ownership will be recorded, and a new Transfer Certificate of Title will be issued.

b. Documentary Requirements

The following documents must typically be presented to the Registry of Deeds for the amendment of the title:

The original Transfer Certificate of Title (TCT)
A certified true copy of the Deed of Sale, Deed of Donation, or Co-Ownership Agreement
Proof of payment of the necessary taxes (such as the Capital Gains Tax, Documentary Stamp Tax, or Donor’s Tax, if applicable)
A tax clearance from the Bureau of Internal Revenue (BIR)
Certification from the bank, if the property is under mortgage, indicating their approval of the transaction

The bank’s involvement is essential throughout the process, as they must consent to any transfer of ownership when the property is mortgaged.

c. Bureau of Internal Revenue (BIR) Compliance

Before the transfer can be registered, the parties must secure clearance from the Bureau of Internal Revenue (BIR). This will involve the payment of any applicable taxes, such as the Capital Gains Tax (if a sale is involved) or Donor’s Tax (if a donation is involved). The BIR will issue a Certificate Authorizing Registration (CAR), which must be presented to the Registry of Deeds.

4. Complications and Legal Considerations

Several potential complications may arise during the process of adding the brother’s name to the title:

Bank Consent: Since the property is mortgaged, the bank must approve any change in ownership, as the property serves as collateral for the loan. The bank’s interest must be protected, which is why they are requiring both borrowers to be reflected on the title.
Tax Implications: Depending on the mechanism used to add the brother’s name to the title, there may be tax liabilities involved. For instance, donations are subject to Donor’s Tax, while sales may incur Capital Gains Tax and Documentary Stamp Tax. Proper compliance with BIR regulations is crucial to avoid penalties.
Ownership Proportions: The co-ownership agreement, if executed, must clearly define the ownership proportions between the buyer and her brother. This is important, as disputes could arise in the future regarding their respective rights over the property.

5. Conclusion

In conclusion, addressing the issue of adding the buyer’s brother to the title of the property requires a methodical approach that involves executing the appropriate legal documents, securing bank approval, and complying with registration requirements. Whether through a Deed of Sale with Assumption of Mortgage, a Deed of Donation, or a Co-Ownership Agreement, the parties must follow the proper legal steps to ensure that the brother’s name is reflected on the title, thus fulfilling the bank’s requirement and securing the property rights of both co-borrowers.

In any case, the assistance of legal counsel is invaluable in navigating the complexities of property law and ensuring full compliance with legal and regulatory requirements.