Republic of the Philippines
House of Representatives
Quezon City
THIRTEENTH CONGRESS,

First Regular Session

House BillNo__247

Introduced by HONORABLE RODRIGUEZ D. DADIVAS

EXPLANATORY NOTE

This bill seeks to provide measures to enhance the acceptability of
agricuttural lands as security for loans obtained from banks and other financial
institutions. In the event that the acceptability of agricultural lands as collateral in
loan applications is enhanced, access to rural credit will be upheid and
encouraged.

The salient provisions of this measure and other points that are connected
to other existing agrarian reform laws are projected to work toward the benefit of
the poor and marginalized farming populace in our rural communities.
Strengthening and empowering the capacity of the agrarian sector is a significant
action to sustain and promote the welfare and interests of the farmers and other
agrarian reform beneficiaries, thereby supporting and developing the nation’s
agriculture.

The value of farm lands as collateral is a foremost factor in loan and credit
applications that are directed for use exclusively for agricultural activities such as
land development, agricultural production, irrigation, post-harvest facilities,
marketing and distribution and other livelihood or related activities. In enhancing
the value of farm lands as collateral through the specific terms laid by this
measure, the agrarian reform beneficiaries and other rural and agricultural sectors
of the economy shall be given the optimal prospect and opportunity to develop.
Credit, in this manner, is directed to the farming sector and other agrarian reform
beneficiaries. In effect, the welfare of the agriculture and rural population is
promoted and protected by increasing their income, productivity and efficiency is
maximized and modernization of the rural and agricultural sectors of the country is
encouraged.


This measure is subsequent to the version which was filed during the
Twelfth Congress and is adapted from the Second Reading version of the
consolidated measures in the House of Representatives. The consolidated version
of this bill was already approved by the House of Representatives and was Passed
to the Senate for sponsorship. It was approved at the Senate and was already in
the status of bicameral conference committee hearings but the insufficiency of
time impeded its approval and passage into law.

The immediate approval of this bill is therefore reco



Republic of the Philippines
House of Representatives
Quezon City

THIRTEENTH CONGRESS
First Regular Session

247

House Bill No.

Introduced by HONORABLE RODRIGUEZ D. DADIVAS

AN ACT PROVIDING MEASURES TO ENHANCE THE ACCEPTABILITY OF
AGRICULTURAL LANDS AS SECURITY FOR LOANS OBTAINED FROM
LENDERS, BANKS AND OTHER FINANCIAL INSTITUTIONS THEREBY
PROMOTING ACCESS TO RURAL CREDIT, PROVIDING MECHANISMS
THEREFOR AND FOR OTHER PURPOSES

Be it enacted by the Senate and the House of Representatives in Congress
assembled:

SECTION 1. Short Title. - This Act shall be known as the “Enhanced
Collateral Value of Farm Lands Act of 2004.”

SECTION 2. Declaration of Policy. - It is hereby declared policy of the
State to promote a more equitable distribution of opportunities, income and wealth;
a sustained increase in the amount of goods and services produced by the nation
for the benefit of the people; and an expanding productivity as the key to raising
the quality of life for all, especially the underprivileged. Towards this end, the State
shall ensure that the agrarian reform beneficiaries and other rural and agricuttural
sectors of the economy shall be given optimum opportunity to develop in order to
promote the welfare of the agriculture and rural population by increasing their
income. To maximize productivity, promote efficiency and equity, provide
infrastructure network and accelerate sectors of the country, credit shall be
directed to the said directors.

SECTION 3. Coverage. - This Act shall apply to the following categories of
Agricultural Lands devoted to agricultural activity as defined in Republic Act NO.
6657 (Comprehensive Agrarian Reform Law of 1988) as amended:

(3.1) Lands not yet covered by any Agrarian Reform Program;


(3.2) Lands with agricultural lessees, whether or not it has been the
subject of the landowner's prior exercise of Retention Rights granted
by law, without prejudice to the rights of the agricultural lessee;

(3.3) Lands covered and fully paid under Presidential Decree No. 27, or
Republic Act No. 6557 and beyond the 10-year prohibition period:

(3.4) Lands covered by homestead grants and free patents:

(5) Lands covered by Republic Act No. 6657 but not yet fully paid
neither within or beyond the 10-year prohibition period;

(38) Lands covered and fully paid under Republic Act No. 6657 but still
within the 10-year prohibition period.

SECTION 4. Acceptability as Loan Collateral. ~ All agricultural lands
enumerated under Section 3 of this Act shall be accepted as collateral by any
lender, bank and other financial institution to secure loans of the registered owners
as appearing in the Emancipation Patent, Homestead Patent, Free Patent,
Certificate of Land Ownership Award, Original certificate of Title or Transfer
Certificate Title. The proceeds of the loan obtained herein shall be used
exclusively for agricultural activity such as agricultural production, land
development, post-harvest facilities, and shallow-tube well and pump irrigation,
distribution and marketing, livelihood or related activities. When the feasibility or
investment studies are required by the lender, bank or financial institution, the
Department of Agrarian Reform (DAR) and Department of Agriculture (DA) shall
Provide technical assistance in the preparation of such documents.

SECTION 5, Land Bank Authorization of the Loan; Additional
Requirements. - For partially paid and unpaid lands, all loans that are to be
granted by lending institutions are deemed to be with authorization and consent of
the Land Bank of the Philippines (LBP) and the DAR subordinated to any or all
Prior encumbrance existing in favor of the LBP.

The consent of the co-owners, in the case of co-owned lands, and the
ratification of the majority of the members, in the case of cooperative-owned lands,
shall likewise be obtained without prejudice to the submission of standard
documentary requirements of banks and other lending institutions for the
Processing of loans as provided by pertinent banking laws, rules and regulations.

SECTION 6. Valuation. - For those lands covered under Section 3, DAR
and LBP shall undertake measures to disseminate the valuation formula and
provide technical assistance to all other lending institutions, based on applicable
laws, rules and regulations.

SECTION 7. Access to Guarantee. — Farmer-Beneficiaries and owners of
encumbered or non-transferable lands classified under sub-sections 3.4, 3.5 and
3.6 shall be provided with credit guarantee by the Quedancor: Provided, That the
guarantee cover shall not exceed the principal amount of the loan: Provided,
further, That the principal amount shall not exceed the amount determined by



Quedancor and DA based on the agricuttural activity and locality in which such is
Proposed: Provided, finally, That credit guarantees shall be subject to prior
approval by Quedancor.

SECTION 8. Event of Default and Foreclosure of Mortgage. — In the
event of default by the borrower under this Act, the lender, bank or financial
institution may proceed against the security for the loan in accordance with
existing laws and subject to the provisions of this Act: Provided, That in the case of
encumbered or non-transferable lands offered as security classified under Sub-
sections 3.4, 3.5 and 3.6, the lender, bank or financial institution shail be paid the
guarantee only after assigning the mortgage credit to LBP: Provided, further, That
if the farmer-beneficiary has not yet fully paid the amortization of the land awarded
to him or her under the Agrarian Reform Program, the agricultural productivity loan
shall be added to the total loans owed to the government: Provided, finally, That in
case the farmer-beneficiary has fully paid for the land awarded, the agricultural
productivity loan shall be secured by the awarded land.

Foreclosure of mortgages constituted over unencumbered and transferable
lands categorized under Sub-sections 3.1, 3.2, 3.3 and 3.4 shall be governed by
existing laws subject to Sections 71, 72(b) and 13-A of Republic Act No. 6657 as
amended by Republic Act No. 7881.

LBP foreclosure of mortgages constituted over encumbered or non-
transferable lands categorized under Sub-sections 3.4, 3.5 and 3.6 shall be in
accordance to Paragraph Two (2) of Section 26 and Paragraph Four (4) of section
27 of Republic Act No. 6657 with the terms and conditions to be determined by
LBP and DAR.

SECTION 9. Bidders in Auction Sale of Agricuitural Land. — In all cases
Of foreclosure of mortgages constituted over lands described in Section 3 of this
Act, whether by the LBP, bank, financial institution or any other lender, no person
shall be allowed to bid in the auction sale nor shall be allowed to bin in the auction
sale nor shall the agricultural tand be sold to any person not qualified to own
agricultural land as determined by DAR in accordance with Sections 6 and 70 of
Republic Act No. 6657.

SECTION 10. Exercise of Redemptions Right. - In case the landholding
is sold to a third person through public auction for failure of the borrower to pay the
oan, the owner or agrarian reform beneficiary shall have the right to redeem the
same at a reasonable price and consideration including interest thereon: Provided,
That the entire landholding must be redeemed: Provided, further, That if there are
more than one redemptionist owner or agrarian reform beneficiary, each shall be
entitled to the said right of redemption only to the extent of the area actually
cultivated by him or can afford to pay but not exceeding the 3 hectares award limit.
The right of redemption under this Section may be exercised within two (2) years


Quedancor and DA based on the agricuttural activity and locality in which such is
Proposed: Provided, finally, That credit guarantees shall be subject to prior
approval by Quedancor.

SECTION 8. Event of Default and Foreclosure of Mortgage. — In the
event of default by the borrower under this Act, the lender, bank or financial
institution may proceed against the security for the loan in accordance with
existing laws and subject to the provisions of this Act: Provided, That in the case of
encumbered or non-transferable lands offered as security classified under Sub-
sections 3.4, 3.5 and 3.6, the lender, bank or financial institution shail be paid the
guarantee only after assigning the mortgage credit to LBP: Provided, further, That
if the farmer-beneficiary has not yet fully paid the amortization of the land awarded
to him or her under the Agrarian Reform Program, the agricultural productivity loan
shall be added to the total loans owed to the government: Provided, finally, That in
case the farmer-beneficiary has fully paid for the land awarded, the agricultural
productivity loan shall be secured by the awarded land.

Foreclosure of mortgages constituted over unencumbered and transferable
lands categorized under Sub-sections 3.1, 3.2, 3.3 and 3.4 shall be governed by
existing laws subject to Sections 71, 72(b) and 13-A of Republic Act No. 6657 as
amended by Republic Act No. 7881.

LBP foreclosure of mortgages constituted over encumbered or non-
transferable lands categorized under Sub-sections 3.4, 3.5 and 3.6 shall be in
accordance to Paragraph Two (2) of Section 26 and Paragraph Four (4) of section
27 of Republic Act No. 6657 with the terms and conditions to be determined by
LBP and DAR.

SECTION 9. Bidders in Auction Sale of Agricuitural Land. — In all cases
Of foreclosure of mortgages constituted over lands described in Section 3 of this
Act, whether by the LBP, bank, financial institution or any other lender, no person
shall be allowed to bid in the auction sale nor shall be allowed to bin in the auction
sale nor shall the agricultural tand be sold to any person not qualified to own
agricultural land as determined by DAR in accordance with Sections 6 and 70 of
Republic Act No. 6657.

SECTION 10. Exercise of Redemptions Right. - In case the landholding
is sold to a third person through public auction for failure of the borrower to pay the
oan, the owner or agrarian reform beneficiary shall have the right to redeem the
same at a reasonable price and consideration including interest thereon: Provided,
That the entire landholding must be redeemed: Provided, further, That if there are
more than one redemptionist owner or agrarian reform beneficiary, each shall be
entitled to the said right of redemption only to the extent of the area actually
cultivated by him or can afford to pay but not exceeding the 3 hectares award limit.
The right of redemption under this Section may be exercised within two (2) years


from the date of registration of the sale, and shail have priority over any other right
of legal redemption.

SECTION 11. Monitoring of Loan and Bond Proceeds. - The DAR shall
be responsible for the monitoring of the utilization of the loan proceeds of
borrowers under this Act: Provided, That banks and financial institution shall
provide semi-annual reports to the Bangko Sentral ng Pilipinas (BSP), furnishing
Copies to DAR, DA-Agricultural Credit Policy Council (ACPC) and Quedancor, on
the status of the loan as well as issues affecting the implementation of ‘the
agricultural activity project for the latter government entities to submit policy
corrective actions and/or recommendations: Provided, further, That Quedancor
shall provide quarterly reports on the status of the utilization of bond proceeds to
the Department of Finance (DOF) and BSP furnishing copies to DAR and DA-
ACPC.

SECTION 12. Guarantee Fund. — There is hereby created a Guarantee
Fund for agricultural and agrarian borrowers with the amount of at least Five billion
Pesos (P 5,000,000,000.00). The Fund which shall be managed and administered
by the Quedan and Rural Credit Guarantee Corporation (QUEDANCOR) shal! be
funded from the proceeds of the Agri-Agra Reform Bonds to be issued by the DOF
and guaranteed by the Republic of the Philippines: Provided, That the DOF in
coordination with the DAR may increase or decrease the amount of Guaranteed
Fund in accordance with the total level of utility and demand for credit: Provided,
further, That one percent (1%) of the total loanable funds of all public and private
banking institutions under the ten percent (10%) agrarian reform credit in Section 3
of Presidential Decree No. 717 (Agri-Agra Law) shall be invested exclusively,
without any alternative mode of compliance, for the purchase of the Agri-Agra
Reform Bonds: Provided, furthermore, That the DOF shall determine and fix the
features of the Agr-Agra Reform Bonds competitive with existing bonds and
securities in domestic market circulation: Provided, finally, That the Bangko
Sentral ng Pilipinas (BSP) shall draft the incentive program to encourage all public
and private banking institutions to purchase such bonds.

SECTION 13. Assistance for Capacity Building and Feasibility Studies.
~ The DAR and DA shall provide technical assistance in capacity and preparation
of feasibility or investment studies as may be required by the lender, bank or
financial institution. For this purpose, the Executive Department shall increase the
appropriations for Capacity Building and Feasibility Studies under the Program
Beneficiaries Development Component of the Comprehensive Agrarian Reform
Program (CARP) to support the farmers in this Act, the additional funding of which
shall included in the General Appropriations Act of the year following its enactment
into law and thereafter.

SECTION 14, Compliance with the Agri-Agra Law (Presidential Decree
No. 717) and Other Incentives. - The purchase of Quedancor Agri-Agra Reform


Bonds and loans granted under this Cat shall form part of compliance with the
Agri-Agra Law (Presidential Decree No. 717) by the lending institution.

Any transaction of sale, transfer or conveyance of lands under this Act shall
exempt from the payment of capital gains tax, registration fees, and alll other taxes
and fees for the conveyance and transfer thereof as provided under Sections 66
and 67 of Republic Act No. 6657.

SECTION 15. Penalties. — For lands which have already been covered
under Republic Act No, 6657, Presidential decree No. 27 or related agrarian law,
violations and other prohibited acts contrary to the exclusivity of loan purpose as
defined under Section 4 hereof, such as misuse or diversion of financial and
Support services extended to agrarian reform beneficiaries or a deviation by the
mortgagor in the use of loan proceeds, shall result in the cancellation of
Emancipation Patents/ Certification of Land Ownership Awards (EPs/ CLOAs) or
Perpetual disqualification to be agrarian reform beneficiaries, or both: Provided,
That if the offender is a public official or employee found to be in collusion to
defraud the farmer, lender, bank and other financial institution or the government,
the penalty shall be imprisonment or prison mayor with absolute disqualification as
accessory penalty and a fine of not more than double the amount of fraud but less
than One hundred thousand pesos (P100,000.00): Provided, further, That if the
offender is a juridical person, the penalty shall be imposed on the responsible
officers thereof.

Loans secured by lands that are not yet covered under Republic Act No.
6657, Presidential Decree No. 27 or related agrarian reform law, or those lands
which have been retained pursuant to agrarian law, shall be governed by existing
administrative and penal sanctions under the pertinent banking laws and rules and
regulations of the Bangko Sentral ng Pilipinas (BSP).

SECTION 16. Transitory Provision. — An independent review of the ten
(10) year period of prohibition on the sale, transfer or conveyance of lands
acquired by the beneficiaries under the agrarian reform program shall immediately
be undertaken by the Presidential Agrarian Reform Council (PARC) upon the
effectivity of this Act to determine and recommend changes and other measures to
induce the participation of the private sector in lending to beneficiaries of the
agrarian reform program.

The recommendations of the review shall be given to the appropriate
congressional committees within one (1) year from the date of effectivity of this Act
for possible legislative actions and to the executive branch for policy and program
changes immediately after submission.

SECTION 17. Implementing Rules and Regulations. — The DAR, DA,
LBP, DOF, QUEDANCOR and Cooperative Development authority (CDA) in
consultation with concerned government agencies, farmers, cooperatives and


banking and financial institution sectors, shall formulate the implementing rules
and regulation of this Act within ninety (90) days after its approval, Such rules and
regulations shall take effect fifteen (15) days after the publication in a newspaper
of general circulation in the Philippines.

SECTION 17. Separability of Clause. — In the event that any of the
Provision of this Act is declared unconstitutional, the validity of the other provisions
shall not be affected by said declaration.

SECTION 18. Repealing Clause. ~ All existing laws, executive orders,
issuance, rules and regulations, or parts thereof inconsistent with the provisions of
this act re herby repealed or modified accordingly. Nothing in this Cat shall be
construed to amend existing policies, rules and regulations on collateral-free loans
to small farmers and other marginalized sectors by the government financial
institutions and other institutions engaged in micro-finance activities.

SECTION 19. Effectivity. - This Act shall take effect immediate after
publication either in the Official Gazette or in at least two (2) national papers of
general circulation.

Approved,