Let’s say you wanted to buy a motor vehicle, but don’t have the full amount upfront. Purchasing personal property, such as vehicles or equipment, is kind of overwhelming because of its high cost. Fortunately, there are options available that many buyers opt for financing arrangements instead of paying in full upfront.
These two (2) legal ways that help facilitate these transactions in the Philippines are the Conditional Sales Agreement and the Chattel Mortgage. But did you know that these two agreements can be integrated into a single transaction?
This integration benefits both buyers and lenders, ensuring that obligations are met while allowing the buyer to use or possess the property. In this article, we’ll explore how Conditional Sales Agreements are integrated into Chattel Mortgages, their benefits, and how FileDocsPhil can help with documentation and processing.
What is a Conditional Sales Agreement?
A Conditional Sales Agreement (CSA) is a contract where the buyer takes possession of the asset but does not gain full ownership until all conditions, typically full payment, are met. The seller retains the Certificate of Ownership as a security measure, ensuring the buyer completes the payment before acquiring full ownership rights.
If the buyer defaults, the seller can repossess the asset. This is commonly used for installment-based transactions like vehicles, appliances, and machinery.
What is a Chattel Mortgage?
A Chattel Mortgage is a legal agreement where a buyer takes out a loan to purchase a movable asset and uses that asset as collateral. The lender (mortgagee) has a security interest over the asset until the loan is fully repaid.
If the buyer defaults on the loan, the lender can foreclose and sell the asset. This agreement must be registered with the Registry of Deeds.
How a Conditional Sales Agreement and Chattel Work?
A Conditional Sales Agreement can be embedded within a Chattel Mortgage to strengthen the lender’s security interest. Here’s how it works:
Initial Transaction Setup
The buyer and seller enter into a Conditional Sales Agreement, where the seller agrees to transfer ownership only after full payment. The buyer takes possession of the asset but does not own it yet.Loan Financing & Chattel Mortgage Execution
The buyer seeks a loan from a financial institution (e.g., a bank). The lender pays the seller for the asset and takes over the buyer’s installment obligation. The lender requires the buyer to sign a Chattel Mortgage, using the asset as collateral.Ownership Structure
While the buyer possesses the asset, legal ownership remains with the lender or seller until the loan is fully paid. The lender registers the Chattel Mortgage with the Register of Deeds for legal protection.Final Ownership Transfer
Once the loan is fully repaid, the lender releases the Chattel Mortgage. The seller executes a Deed of Sale, transferring full ownership to the buyer.
Example Scenario of Buying a Motor Vehicle through Chattel Mortgage with Conditional Sales Agreement
You bought a motor vehicle amounting to Php 450,000.00 under a Conditional Sales Agreement from a dealership. You went to a bank and applied for a loan, which pays the dealership. The bank executes a Chattel Mortgage, using the motor vehicle as collateral.
You have repaid the bank in 36 monthly payments. Once the loan is fully paid, the bank will issue a Release of Chattel Mortgage, then, you must remove the Chattel Mortgage annotation from the LTO and Registry of Deeds to receive the full enjoyment or ownership of the motor vehicle.
Sounds Overwhelming? It doesn’t have to be!
The process of removing a Chattel Mortgage can be time-consuming and requires multiple visits to banks, LTO offices, and the Register of Deeds. FileDocsPhil simplifies this process by handling everything on your behalf, ensuring a smooth and hassle-free experience. We assist in securing and processing the Release of Chattel Mortgage (RCM), notarized affidavits, and other necessary documents to officially clear the mortgage from your LTO records and property title.
Our team takes care of filing, follow-ups, and document retrieval, eliminating the stress of long lines and complicated procedures. With our expertise, we guarantee that your asset is completely under your name without any legal encumbrances. Whether you need assistance with vehicles, equipment, or other chattel properties, FileDocsPhil ensures a fast, efficient, and affordable service, allowing you to focus on more important matters.
Let FileDocsPhil Do the Work!
Need further information and assistance in Title Transfer through Self-Adjudication?
