Does dividing co-owned land among the co-owners wipe out a mortgage a bank already had over it?

Partition is an arrangement among owners only

What a partition does is convert each co-owner's undivided share into a definite portion. It settles who owns which part as between the co-owners; it is not a transaction with anyone else and cannot bind anyone who was not part of it. A creditor holding a real right over the property took that right against the thing, not against a share in an abstraction, and the co-owners cannot improve their position against him by agreeing among themselves on new boundaries. The article states the obvious consequence, but it is one people are regularly surprised by.

What this means in practice for the mortgage

The security does not shrink to the portion allotted to the co-owner who granted it, and a co-owner who receives a clean-looking lot does not receive it clean. Nor does the encumbrance vanish because a new title issues on partition — annotations carry across, and a mortgage that was properly registered stays enforceable against the property it originally covered. The point matters most where a mortgage was constituted by one co-owner over the whole thing: partition does not retroactively confine it to his share, and the other co-owners' remedy lies against him, not against the bank.

The rule is not confined to mortgages

The article covers any other real rights and then adds personal rights separately. So a right of way, a right to draw water, a usufruct, a registered lease and a creditor's ordinary claim against the co-ownership all survive the division. A co-owner allotted the portion the servitude runs across takes it subject to the burden even if the partition papers say nothing about it, which is why the encumbrances existing over the whole property are worth listing before, not after, the shares are drawn up.

Deal with the encumbrance in the partition itself

Since it will survive whatever you agree, the sensible course is to price it in. Pull a current certified copy of the title and read every annotation on it, together with the instrument each annotation refers to. Where one co-owner created the burden, the partition can allot that portion to him or provide for how the others are made whole if the creditor comes against their land. And where the creditor's cooperation would actually release part of the property, that is a conversation to have with him before the division is signed.

Cases citing this provision

These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.

• Heirs of Panfilo F. Abalos vs. Aurora A. Bucal, et al, G.R. No. 156224, February 19, 2008 — read the decision on LawPhil →

Related provisions

• Civil Code, Article 499 — Partition and Third Persons