DUE DILIGENCE

Due diligence refers to the process by which

one examines all the critical aspects of the
property which is subject to the transaction.

Every individual should adapt reasonable

measures before executing an agreement in
relation to an immovable property.

By conducting due diligence, you assess the

risks associated with the property you are
planning to purchase. You review the
documents and ensure that there are no
legal encumbrances on the property. It
basically means to do your homework before
actually making the purchase.

Due Diligence thus has various purposes.

1. It enables the purchaser to evaluate the

current state of the property.
2. It also helps them determine whether or
not the subject of the transaction is
compliant with relevant laws and are not
affected by any regulatory restrictions.
3. It helps in terms of finding out any
undisclosed information that could
threaten the transaction.
4. It helps in the evaluation of the legal and
financial risks relative to the transaction.
5. Without a doubt, due diligence helps
buyers in reducing, if not eliminating, the
risks associated with the transactions.
 “CAVEAT EMPTOR!”

“CAVEAT EMPTOR!” or in English it means

“Let the buyers beware”. It is suggested
that it is the prospective buyers’ obligation
to do everything in his power to check and
protect himself from troublesome deals.
Negligence to do this can produce
disastrous results!

In the case of Spouses Mathay vs.CA

Although it is a recognized principle that a

person dealing on a registered land need
not go beyond its certificate of title, it is
also a firmly settled rule that where there
are circumstances which would put a
party on guard and prompt him to
investigate or inspect the property being
sold to him, such as the presence of
occupants/tenants thereon, it is, of
course, expected from the purchaser of a
valued piece of land to:

Inquire into the status or nature of

possession of the occupants, i.e., whether
or not the occupants possess the land en
concepto de dueño in concept of owner.
As is the common practice in the real
estate industry, an ocular inspection of the
premises involved is a safeguard a
cautious and prudent purchaser usually
takes.

Should he find out that the land he intends

to buy is occupied by anybody else other
than the seller who, as in this case, is not in
actual possession, it would then be
incumbent upon the purchaser to verify
the extent of the occupant’s possessory
rights.

The failure of a prospective buyer to take

such precautionary steps would mean
negligence on his part and would thereby
preclude him from claiming or invoking the
rights of a “purchaser in good faith.”

This rule equally applies to mortgagees of

real property.

Hence it is always important to

verify and check everything before
you buy.
 HOW TO CONDUCT DUE DILIGENCE
WHEN BUYING A LAND?

Domingo Realty vs. CA

G.R. No. 126236

“One final note. While the Court can

commiserate with respondent Acero in
his sad plight, nonetheless we have no
power to make or alter contracts in
order to save him from the adverse
stipulations in the Compromise
Agreement. Hopefully this case will
serve as a precaution to prospective
parties to a contract involving titled
lands for them to exercise the diligence
of a reasonably prudent person by
undertaking measures to ensure the
legality of the title and the accurate
metes and bounds of the lot embraced
in the title. “

What to check? TITLE AND TAX

DECLARATION
Step

1
Verify the origin, history,
authenticity, and validity of the
title with the Office of the
Register of Deeds and the Land
Registration Authority;

Secure the Certified True Copy and verify from

the Register of Deeds if the title is authentic.
There are two original copies, one from the
owner of the Property/ owner’s duplicate copy
and the other one stays with the RD/ RD’s copy.

Check the CTC against the one provided by the

seller to ensure it is a clean copy with no
annotations or foreclosures.
 Aside from the title, you may also look at the tax
declaration to see if it matches the title. (owners'
names, area size, location, and boundaries)

If at all possible, request the CTC by yourself or

from someone you trust and not the seller.

What government agencies do you need to go?

Register of Deeds

DENR
If you want to know about the lot plans/previous
owners of a subdivided lot and get a subdivision
plan

CENRO

ASSESOR’S OFFICE
If the property is unregistered or is only covered
by a Tax Declaration, go to the assessor's office
and track it back so that you will be aware of the
prior transactions (Inquire about previous tax
declarations)

Step

Engage the services of a competent 2

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 Land
Management Bureau

In some cases, the technical

description in the title differs from the
actual survey result, necessitating the
services of a competent and reliable
geodetic engineer.

When there is any encroachment on

the land, it is also a good idea to hire a
skilled geodetic engineer.
 Step

3 Conduct an actual ocular

inspection of the lot

Step

Inquire from the owners and 4

possessors of adjoining lots with
respect to the true and legal
ownership of the lot in question

Don't limit yourself to documents alone.

This is an additional means of

protection, allowing you to gather more
information, data, or knowledge about
the property and to check the seller's
claims.

Step

5 Put up signs that said lot is

being purchased, leased, or
encumbered

Undertake such other measures Step

to make the general public
aware that said lot will be
6
subject to alienation, lease, or
encumbrance by the parties.

ADDITIONAL KEY TAKEAWAYS

You can also check with the

municipal/city planning about the
government plans and developments in
the location of the property. Check if
the government has plans to take-over
the subject-property for public use,
such as road expansion, community
development, etc

You can also check if your purpose for the

property you plan to buy complies with
municipality/city Zoning ordinances. For
example if you’re planning to purchase a
land to build a poultry to raise pigs as
livestock farm, better check if the Zoning
ordinance allow such livestock farm in the
area. Otherwise, you might encounter
problems in the future

If the property is an inheritance, therefore

it must be accompanied by either a Judicial
Order of liquidation of Assets, or an Extra-
Judicial Settlement of Property, and Special
Power of Attorney authorizing the
representative of all the heirs to the
property.

If you are buying subdivision project or

condominium from the developer, then the
first thing you need to do is verify if that
project has an HLURB (Housing and Land
Use Regulatory Board) License to Sell.

Foreigners are prohibited from owning land

in the Philippines, but can legally own a
residence.

The Philippine Condominium Act allows

foreigners to own condo units, as long as
60% of the building is owned by Filipinos.

If you want to buy a house, consider a long-

term lease agreement with a Filipino
landowner.

You can also purchase a property through a

corporation, provided its ownership is 60%
or more by Filipino citizen
 FREQUENTLY ASKED
QUESTIONS

What do you get from a due

diligence investigation?

A due diligence investigation enables you to

access accurate information about the parties
you’re dealing with in a business transaction.
That includes potential gains and risks,
cost/benefits ratio, and even information about
the people in the company’s upper levels of
management. In addition to helping you make
informed decisions about the deal, due diligence
also helps you understand the scope of the deal,
as well as determining whether it’s a good move
for you or your company.

Which one is better? An unregistered

property or registered property?

A registered property since it is protected

by the Torrens Certificate of Title.

What to do if the Name of title is

different from the actual seller or
there is an SPA
Check if the seller is authorized or
communicate with the real owner

An inheritance lot is still under the

name of deceased person, and now he
wants to sell, can he sell it?

> check the identity of the seller

> check if he is the only heir
>check the extrajudicial settlement

Can due diligence investigations

unearth shady dealings?

Yes. A due diligence investigation

comprehensively done can identify a person or
a company’s run-ins with the law. That includes
the history of litigation and any signs of illegal
activities. All such information gleam from
reliable resources, such as corporate filings
and government records.

If you’re about to enter a deal with a company

that’s got something to hide, a due diligence
investigation can save you from a potentially
disastrous transaction.

What can happen if I don’t exercise

due diligence?

If you choose to forego a due diligence

investigation before entering a business
transaction, you risk opening your doors to a
number of issues. Problems you might
encounter include fraud, financial ruin for you
or your company, and even the loss of your
reputation.