Step-by-step guide on Annotation and Cancellation of Mortgage in the Philippines

In our previous story on Chattel Mortgage, we discussed this particular type of auto loan in detail - from its basic understanding, pros & cons, and regulations, to how it is different from a regular mortgage. However, when an individual opts for the chattel mortgage, he/she needs to follow a given set of guidelines to acquire full ownership of the vehicle after clearing all loan-related dues.

Yes, that is right. Your job doesn’t just end with paying the principal and interest to the lender but two essential steps need to be taken care of including -

• Cancellation of mortgage
• Official removal of the encumbered annotation from the LTO Certificate of Registration (CR)

In this article, we’ll discuss these two steps in detail, making sure your car ownership process is smooth and trouble-free.

Secured vs. unsecured loans

If you are new to the world of mortgage then, it is important to know that there are two types of loans - secured and unsecured. The table below gives a basic overview of the two loans.

Definition/Characteristics	Secured loan	Unsecured loan
Meaning	A form of borrowing backed by collateral. Here you pledge an asset as security to the lender for the loan. This minimizes the lender’s risk and allows for more favorable loan terms.	This type of borrowing does not require collateral. Lenders rely on the borrower’s creditworthiness and income to approve the loan. They are more accessible to borrowers and often come with high interest rates.
Example	Most common for home and auto loans.	Personal loans and credit cards.
Pros	Low interest rate Big loan amount Longer repayment terms	Zero risk of losing personal assets Faster approval process
Cons	Risk of losing collateral  Longer approval process	Lower loan amount Shorter repayment terms
When to opt?	If you want to make long-term investments & have valuable collateral at your disposal.	If immediate finance is required and you don’t want to risk your assets.

Basic understanding of Annotation and Cancellation of Mortgage

In short, between secured and unsecured loans, the former requires the borrower to pledge collateral to the lender, a process that is more intricate and time-consuming.

As for Chattel Mortgage, it is a secured loan, meaning that at the time of purchase, the buyers don’t get the ownership title, it remains with the lender until the loan is fully repaid. In the case of an automobile, the LTO doesn’t issue a Certificate of Registration (CR), but a Certificate of Registration Encumbered (CRE). To get the ownership of an encumbered vehicle to your name (making you the official owner of the motor vehicle), you need to use LTO services like annotation and cancellation of mortgagor for the motor vehicle.

Certificate of Registration Encumbered (CRE)

You must have heard about LTO CR (Certificate of Registration), but do you know what a Certificate of Registration Encumbered (CRE) is and how it differs from a regular Certificate of Registration?

Whenever a vehicle is purchased, the owner is required to get the MV registered at the LTO which results in him/her getting an OR/CR (Original Receipt and Certificate of Registration). However, vehicles that are purchased through a lending company or bank, do not get a regular CR, but a CRE.

What is a CRE? A Certificate of Registration Encumbered (CRE) is a motor vehicle registration document wherein the lender is put up as the owner of the vehicle instead of the buyer. It will remain that way until the buyer completely repays the auto loan.

 

Key points about CRE -

• It indicates that the MV is subject to Chattel Mortgage or a secured loan.
• The lender holds an ownership interest in the MV.
• Once the loan is fully repaid, the buyer's name will be placed on the CR as the vehicle’s owner.
• Until the loan is paid, the vehicle is registered in the Chattel Mortgage Register as security for the lender’s obligation.

Annotation and Cancellation of Mortgage - Filing, requirements, & fees

Filing -

Filing for annotation and cancellation of Chattel Mortgage is taken care of by the LTO. But, wait, you can’t go to any LTO office; you must visit the originating LTO branch office or the one stated on the Certificate of Registration (CR).

For instance, if the CR mentions LTO Manila, the filing of annotation and Cancellation of Mortgage will be done at LTO Manila and nowhere else. If you still dare to visit any other branch, it would simply result in a waste of time, effort, and money.

Requirements -

Before heading out to the LTO branch mentioned on the Certificate of Registration, the car owner needs to collect certain documents. Remember it is smarter to go prepared than to go back & forth to secure the documents.

Documents required for annotation and cancellation of mortgage - Loan Contract (original & one photocopy) Chattel Mortgage form  Taxpayer’s Identification Number (TIN) Any two valid government-issued photo IDs (car owner)  Passport Driver’s license Professional Regulation Commission (PRD) ID SSS ID TIN ID GSIS ID BIR ID Voter’s ID

In addition to the above-mentioned requirements, a car owner needs to obtain the following documents from the bank or the lending company -

• Original Certificate of Registration (CR)
• Latest Official Receipt of payment for the vehicle (original & photocopy)
• Chattel Mortgage Contract - Duly annotated or stamped by the Registry of Deeds
• Registered Promissory Note (original) with Chattel Mortgage
• Official Receipt of payment of annotation with Registry of Deeds
• Release of Chattel Mortgage (two copies)
• Motor Vehicle Inspection Report (MVIR)
• Confirmation of CR/OR, if issued by another LTO Agency

Fees -

The removal of the encumbered annotation in the Certificate of Registration isn’t free of charge. The entire process fee ranges from PHP 280 to PHP 350. As for the Cancellation of Chattel Mortgage, the fee depends on the value of the mortgage. Other expenses include notarial service payments that range from PHP 300 to PHP 400.

Annotation and Cancellation of Mortgage for motor vehicles Step-by-step process

Follow the below-mentioned steps and you’ll be able to file for annotation and cancellation of Chattel Mortgage after paying off your auto loan.

Step 1: Up-to-date registration & no pending penalties

The first step is to make sure that the vehicle’s registration is up to date and that there are no penalties and violations attached.

• Check for any discrepancies in the documents.
• If needed, get the bank and lending company to rectify the documents.
• If not checked, it would result in problems and hefty penalties.

Step 2: Prepare the required documents

Make sure to check the list of documents required for the process and make enough duplicate copies for record-keeping and submission. Some documents need to be notarized, so make sure to carry enough funds.

Step 3: Check the Registry of Deeds (RD) office

Once everything is in place, head to the Registry of Deeds office where the mortgage is registered. You can trace the office by looking at the stamp on the original Registered Promissory Note with Chattel Mortgage. Or check out the original CR under the Registry of Deeds space.

Step 4: Fill necessary forms & submit the required documents at RD

At the RD office, you’ll be required to fill out a form, once completed, submit it along with the following documents -

• Two valid government IDs (one copy each)
• Release of Chattel Mortgage
• Registered Promissory Note with Chattel Mortgage (original)

Step 5: Pay the required fees

Before processing your application further, you’ll be required to pay some fees at the cashier. How much? The amount varies with the amount of the mortgage.

Step 6: Wait

After the submission of the form along with the required documents and fees, you have to wait, as the processing time for the cancellation of the chattel mortgage varies from branch to branch and so depends on the availability of the signing authority.

The processing time for the cancellation of the chattel mortgage at the RD could range from a few hours to three days.

Step 7: Head to the designated LTO branch

After you are handed over the cancellation of the chattel mortgage, it is time to proceed to the designated LTO branch to get ‘encumbered’ removed from the Certificate of Registration.

Step 8: Initiate cancellation of the encumbrance process

At the designated LTO branch, look for the right personnel and ask him/her to commence the process of cancellation of encumbrance.

Step 9: Document evaluation and computation of fees

Proceed to the transaction counter and submit the required documents (Release of Chattel Mortgage - sample by the RD and Official Receipt for cancellation). The official personnel will evaluate the paperwork and compute the fees.

Step 10: Motor vehicle inspection

Next, it’s time to proceed to the actual inspection of the motor vehicle with duly accomplished MVIR.

Step 11. Pay the fee & get OR

It is time to proceed to the cashier, when your name is called, for payment of necessary fees and get an Official Receipt.

Step 12. Surrender CRE

Before you can receive the new CR, you must surrender the original LTO Certificate of Registration with ‘Encumbered’ on it.

Step 13. Obtain the CR

Head over to the Releasing Counter to obtain the following - Certificate of Registration, stickers, plates, and other requested documents.

Bottom line

If you have acquired your vehicle via a secured loan, annotation, and cancellation of Chattel Mortgage is a crucial step you can’t afford to miss. This process ensures the vehicle’s ownership is transferred to the rightful owner’s name after the repayment of the loan. Further, it ensures the removal of the motor vehicle from the Chattel Mortgage Register, confirming it no longer serves as collateral for the auto loan. Last but not least, it will get the car owner the much-needed LTO CR.

Also Read: Car Loan Restructure: Everything a Filipino needs to know before applying