When real property is sold due to delinquent real property taxes, should you always deposit the amount for which it was sold before you can assail its validity?

Section 267 of the Local Government Code clearly states that before one can assail the validity of a tax sale of real property, the petitioner must first deposit the amount for which the property was sold (i.e., purchase price), together with interest of two percent (2%) per month from the date of sale to the time of the institution of the action, thus -

"Section 267.Action Assailing Validity of Tax Sale. — No court shall entertain any action assailing the validity or any sale at public auction of real property or rights therein under this Title until the taxpayer shall have deposited with the court the amount for which the real property was sold, together with interest of two percent (2%) per month from the date of sale to the time of the institution of the action. The amount so deposited shall be paid to the purchaser at the auction sale if the deed is declared invalid but it shall be returned to the depositor if the action fails.

Neither shall any court declare a sale at public auction invalid by reason or irregularities or informalities in the proceedings unless the substantive rights of the delinquent owner of the real property or the person having legal interest therein have been impaired."

In Spouses Plaza vs. Lustiva, et al., G.R. No. 172909, 5 March 2014, the Supreme Court explained that this deposit is a jurisdictional requirement, the non-payment of which warrants the dismissal of the action.

Hence, given the characterization above, it is clear that the failure to make this deposit will render an action annulling a tax/auction sale futile.

However, is a deposit necessary at all times?

The answer is No.

In the same case of Spouses Plaza, the Supreme Court explained that the deposit is only required in initiatory actions assailing the validity of tax sales. This is clear from the use of the terms "entertain" and "institute" which undoubtedly refer to the filing of the complaint or petition, as the case may be, in the first instance. The title of Section 267, in fact, is clear on the scope or applicability of this provision.

In Spouses Plaza, the respondents therein raised the defense that the tax sale (from which the petitioners allegedly derived their title) is a void sale. The petitioners argued that this defense cannot be entertained because the respondents failed to deposit the amount of the purchase price, together with interest, with the court in accordance with Section 267. Hence, the defense of nullity of the auction sale should be ignored.

The Supreme Court, in resolving the petition, dismissed the petitioners' argument and explained that the Section 267 is inapplicable because the main case was for injunction and damages, with the issue of nullity of the auction sale raised by the respondents only as a defense, and in no way converted the action to an action for annulment of a tax sale.

Note, however, that although the respondents did not institute an action to annul the tax sale, the effect of their victory in the RTC (which dismissed the main case while the Petition for Review was pending with the SC) is the same - the Petitioners were found not entitled to the land in question because there had been no valid auction sale.

So, it appears that the invalidity of an auction sale, if raised as a defense, will not result in the application of Section 267 (hence, making it cheaper for the part of the defendant to resist the takeover of his or her land). While an owner who desires to be more proactive in the protection of his rights will be penalized more by requiring him/her to first deposit the purchase price plus interest before the court can even take cognizance of his action.