Mortgage Discussion for Dummies

8/13/2019 Mortgage Discussion for Dummies

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MORTGAGE, FORECLOSURE AND

REDEMPTION

MORTGAGE, FORECLOSURE AND REDEMPTIONLarry P. Ignacio

REAL ESTATE MORTGAGE A real estate mortgage is a contract in

which the debtor guarantees to the creditor the fulfillment of a principal

obligation, subjecting for the faithful compliance therewith a real property in

case of non-fulfillment of said obligation at the time stipulated (Manresa). It

is a lien on specific or identified immovable property. It directly and

immediately subjects the property upon which it is imposed, whoever the

possessor may be, to the fulfillment of the obligation for whose security it

was constituted. It creates a real right enforceable against the whole world

(DBP v. NLRC, 183 SCRA 328 [1990]). Foreclosure of mortgage

Foreclosure of mortgage is the process by which a property covered

may be subjected to sale to pay demand for which mortgages stand as

security (Pacific Commercial Co. v. Alvarez, 38 OG 758). Foreclosure is the

necessary consequence of non-payment of mortgage indebtedness. The

mortgage can be foreclosed only when the debt remains unpaid at the time

it is due (Producers Bank v. CA, GR No. 111584, 17 Sept. 2001; Govt of the PI v.

Espejo, 57 Phil 496) or in case of default in the payment of obligation (PNB v.

CA, GR No. 126908, 16 Jan. 2003; Chinabank v. CA, 265 SCRA 327 [1996])

Demand is essential for default. Demand, however, is necessary for default

to exist and which gives the right to collect debt and foreclose the mortgage.

The maturity dates in the promissory notes or the acceleration clause ([i]n

case of non-payment of this note or any portion of it on demand, when due, on

account of this note, the entire obligation shall become due and demandable . .

.)therein stated only indicate when payment can be demanded. It is the

refusal to pay after demand that gives the creditor a cause of action against

the debtor (DBP v. Licuanan, GR No. 150097, 26 February 2007). Default

commences upon judicial or extrajudicial demand (UCPB vs. Beluso, G.R. No.

159912, August 17, 2007).Demand, however, is not necessary where the
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law or the obligations expressly declare it unnecessary (Premiere Devt. Bank

v. Central Surety & Insurance Company, Inc., 579 SCRA 359, 13 February 2009).

Mora solvendi or debtors default is defined as a delay in the fulfillment

of an obligation, by reason of a cause imputable to the debtor. There arethree requisites necessary for a finding of default. First, the obligation is

demandable and liquidated; second, the debtor delays performance; third,

the creditor judicially or extrajudicially requires the debtors performance

(Selegna Management & Devt. Corp. v. UCPB, GR No. 165662, 03 May 2006).

Prohibition against Pactum Commissorium.

A stipulation in a deed of mortgage which states that upon failure of

the mortgagor to pay the debt within the agreed period, the land covered by

the mortgage shall become property of the mortgagee or the transaction

shall become a sale and the consideration shall be considered as payment of

the price of the land ispactum commissoriumand is null and void (Reyes v.

Nebreja, 98 Phil 639 [1956]). Such stipulation is void since it enables the

mortgagee to acquire ownership of the mortgaged property without need of

foreclosure (Olea v. CA, 247 SCRA 274 [1995]); it is a nullity being contrary to

the provisions of Article 2088 of the Civil Code (Lumayag v. Heirs of Jacinto

Nemeno, 526 SCRA 315 [2007]).

Two modes of foreclosure of real estate mortgage.

Foreclosure of real estate mortgage is either done extra-judicially or

judicially. The provisions of Rule 68 of the 1997 Rules of Civil Procedure

govern judicial foreclosure. The extra-judicial foreclosure of real estate

mortgage, on the other hand, is carried out in the procedure governed by

the provisions of Act 3135, as amended, otherwise known as An Act to

Regulate the Sale of Property Under Special Powers Inserted in or Annexed

to Real Estate Mortgages.


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EXTRA-JUDICIAL FORECLOSURE OF REAL ESTATEMORTGAGE UNDER ACT 3135, AS AMENDED &

REDEMPTION

Essential requirements under Act 3135Under Act 3135, as amended and settled jurisprudence, the following

essential requirements must be met:

1. There must be a special power of attorney inserted in or attached to

the real estate mortgage authorizing the sale pursuant to the provisions of

Act, 3135, as amended (Section 1; Paguyo v. Gatbunton, 523 SCRA 156

[2007]). 2. The sale must be made within the province where the

property or any part thereof is located, unless otherwise stipulated (Section

2;Supena v. de la Rosa, 267 SCRA 1). 3. There must be a notice of sale

to be posted in three public places of the municipality or city where the

property is situated. If the property is worth more than P400.00, the notice

shall also be published once a week for three consecutive weeks in a

newspaper of general circulation in the city or municipality (Section

3).4. The sale shall be made at public auction between the hours of

nine in the morning and four in the afternoon, and shall be under the

direction of the sheriff of the province, the justice or auxiliary justice of the

peace (now municipal judge) of the municipality in which such sale shall be

made, or a notary public of said municipality (Section 4). Procedure of

extrajudicial foreclosure under Act 3135

In Administrative Matter No. 99-10-05-0 (as further amended on 07

August 2001), the Supreme Court prescribed the following procedures in the

extra-judicial foreclosure of mortgage:

1. All applications for extra-judicial foreclosure of mortgage whether under

the direction of the sheriff or a notary public, pursuant to Act 3135, as

amended, shall be filed with the Executive Judge, through the Clerk of Court

who is also the Ex-Officio Sheriff. 2. Upon receipt of an application for extra-

judicial foreclosure of mortgage, it shall be the duty of the Clerk of Court

to: a) receive and docket said application and to stamp thereon the

corresponding file number, date and time of filing; b) collect the filing fees


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therefore pursuant to Rule 141, Section 7(c) as amended by A.M. No. 00-2-

01-SC, and issue the corresponding official receipt; c) examine, in case of

real estate mortgage foreclosure, whether the applicant has complied with

all the requirements before the public auction is conducted under the

direction of the sheriff or a notary public, pursuant to Sec. 4 of Act 3135, as

amended; d) sign and issue the certificate of sale, subject to the approval of

the Executive Judge, or in his absence, the Vice-Executive Judge. No

certificate of sale shall be issued in favor of the highest bidder until all fees

provided in the aforementioned sections and in Rule 141, Section 9(1) as

amended by A.M. 00-2-01-SC, shall have been paid; Provided, that in no

case shall the amount payable under Rule 141, Section 9(1), as amended,

exceed P100,000.00; e) after the certificate of sale has been issued to the

highest bidder, keep the complete records, while awaiting any redemption

within a period of one (1) year from date of registration of the certificate of

sale with the Register of Deed concerned, after which, the records shall be

archived. Notwithstanding the foregoing provision, juridical persons whose

property is sold pursuant to an extrajudicial foreclosure, shall have the right

to redeem the property until, but not after, the registration of the certificate

of foreclosure sale which in no case shall be more than three (3) months

after foreclosure, whichever is earlier, as provided in Section 47 of Republic

Act No. 8791 (as amended, Res. of August 7, 2001) Where the application

concerns the extrajudicial foreclosure of mortgages of real estates and/or

chattels in different locations covering one indebtedness, only one filing fee

corresponding to such indebtedness shall be collected. The collecting Clerk

of Court shall, apart from the official receipt of the fees, issue a certificate of

payment indicating the amount of indebtedness, the filing fees collected, the

mortgages sought to be foreclosed, the real estates and/or chattelsmortgaged and their respective locations, which certificate shall serve the

purpose of having the application docketed with the Clerks of Court of the

places where the other properties are located and of allowing the

extrajudicial foreclosures to proceed thereat. 3. The notices of auction sale

in extrajudicial foreclosure for publication by the sheriff or by a notary public


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shall be published in a newspaper of general circulation pursuant to Section

1, Presidential Decree No. 1079, dated January 2, 1977, and non-compliance

therewith shall constitute a violation of Section 6 thereof. 4. The Executive

Judge shall, with the assistance of the Clerk of Court, raffle applications for

extrajudicial foreclosure of mortgage under the direction of the sheriff

among all sheriffs, including those assigned to the Office of the Clerk of

Court and Sheriffs IV assigned in the branches. 5. The name/s of the

bidder/s shall be reported by the sheriff or notary public who conducted the

sale to the Clerk of Court before the issuance of the certificate of sale. Time

when to conduct auction sale. Issue: Whether a sale a public auction,

to be valid, must be conducted the whole dayfrom 9:00 a.m. until 4:00

p.m. of the scheduled auction day. Section 4 of Act 3135 provides that the

sale must take placebetween the hours of nine in the morning and four

in the afternoon. The word between ordinarily means in time

interval that separates. Thus, between the hours of nine in the morning

and four in the afternoon merely provides a time frame within which an

auction sale may be conducted. Therefore, a sale at public auction held

within the intervening period provided by law (i.e.,at any time from 9:00

a.m. until 4:00 p.m.) is valid, without regard to the duration or length of

time it took the auctioneer to conduct the proceedings (PNB v. Cabatingan,

557 SCRA 426 [2008]). Act 3135 regulates the extrajudicial sale of mortgaged

real properties by prescribing a procedure which effectively safeguards the

rights of both debtor and creditor (ibid.). Notice and publication

requirements.

1. Notice and publication under PD 1079 and Act 3135, as amended.

Section 1 of PD 1079, as amended provides:

All notices of auction sales in extra-judicial foreclosure of real estate

mortgage under Act 3135, as amended x x x required by law to be published in a

newspaper of general circulation in particular provinces and/or cities shall be

published in newspapers or publications published, edited and circulated in the

same city and/or province where the requirement of general circulation


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applies: Provided,That the province or city where the publications principal office is

located shall be considered the place where it is edited and published x x x.

Section 3 of Act 3135, as amended, reads:

Notice shall be given by posting notices of the sale for not less than twenty

days in at least three public places of the municipality or city where the property is

situated, and if such property is worth more than four hundred pesos, such notice

shall also be published once a week for three consecutive weeks in a newspaper of

general circulation in the municipality or city.

A reading of the above provisions gives us the impression that the

publication of extra-judicial sales under Act, 3135, if the property is worth

more than four hundred pesos, shall be in a newspaper of general circulation

in the city or municipality where the property lies. Hence, if the property in

question is located in Quezon City, it logically follows that the auction sale of

said property should be published in a newspaper of general circulation that

is edited and published in Quezon City.

However, such application and/or interpretation are too narrow and

very limited that it virtually defeats the purpose and intention of the law. If

this is the case, the leading dailies, like the Philippine Daily Inquirer (PDI)

(with head office in Makati City) and Manila Bulletin (with head office in

Manila), which enjoys a wide circulation nationwide, cannot publish notice of

extra-judicial sales of properties located in Quezon City simply because it is

outside their place of publication. What is important is that the

newspaper is of general circulation in the place where the property/ies to be

foreclosed is/are located. In a line of cases, the Highest Court declared

that publication of the extra-judicial sale in a newspaper of general

circulation is more than sufficient compliance with the notice-posting

requirement of the law (Fortune Motors v. Metrobank, 265 SCRA 72; Cristobal v.CA, 328 SCRA 256; Concepcion v. CA, 274 SCRA 614; Bohanan v. CA, 256 SCRA

355; Olizon v. CA, 236 SCRA 148; Gravina v. CA 220 SCRA 178). PD 1079 and

Act 3135 do not require that the newspaper which publishes judicial notices

should be a daily newspaper (Fortune Motors, 265 SCRA 72).

In Olizon at 156, it was ruled that:


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x x x the publication of the notice of sale in the newspaper of general

circulation alone is more than sufficient compliance with the notice-posting

requirement of the law. By such publication, a reasonably wide publicity had been

effected such that those interested might attend the public sale, and the purpose of

the law had thereby subserved. The object of a notice of sale is to inform the

public of the nature and condition of the property to be sold, and inform of

the time, place and terms of the sale. Notices are given for the purpose of

securing bidders and to prevent a sacrifice of the property. If these objects are

attained, immaterial errors and mistakes will not affect the sufficiency of the notice;

x x x (emphases supplied)

An extra-judicial foreclosure sale is an action in remand thus requires

only notice by publication and posting to bind the parties in the foreclosed

property. No personal notice is necessary (Langkaan Realty Devt., supra;

Bohanan v. CA, supra; Fortune Motors, 265 SCRA 72).

A certificate of posting is not required, much less considered

indispensable, for the validity of a foreclosure sale under Act 3135 it is

significant only in the matter of providing compliance with the required

posting of notice (Bohanan v. CA, 256 SCRA 355; Olizon v. CA, 256 SCRA 355;

Cristobal v. CA, 328 SCRA 256 [2000]; DBP v. CA, GR No. 125838, 10 June

2003). The failure to post a notice is not per se a ground for invalidating the

sale provided that the notice thereof is duly published in a newspaper of

general circulation (DBP v. Aguirre, GR No. 144877, 07 September 2001).

However, the failure to publish the notice of auction sale as required

by the statute constitutes a jurisdictional defect which invalidates the sale

(DBP v. Aguirre, GR No. 144877, 07 Sept. 2001).

The affidavit of publication executed by the publisher,

business/advertising manager that a newspaper is a newspaper of general

circulation constitutes prima facie evidence of compliance with the requisite


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publication (Bonnevie v. CA, 125 SCRA 122 [1983]; Sadang v. GSIS, 18 SCRA

491).

A single act of posting the notice of auction sale satisfies the

requirements of law. The burden of proving that the posting requirement

was not complied with is shifted to the one who alleges non-compliance

(Bonnevie v. CA, 125 SCRA 122 [1983]).

2. The purpose of notice and publication.

The object of a notice of sale is to inform the public of the nature and

condition of the property to be sold, and inform of the time, place and terms

of the sale. Notices are given for the purpose of securing bidders and to

prevent a sacrifice of the property (Olizon v. CA, 236 SCRA 148). Publication,

therefore, is required to give the foreclosure sale a reasonably wide publicity

such that those interested might attend the public sale (Ouano v. CA, 129279,

04 March 2003).

3. The notice and publication requirement are mandatory and failure to

comply is a jurisdictional defect that vitiates the foreclosure auction sale.

Non-compliance with the notice and publication requirement in Act 3135, as

amended is a jurisdictional defect that vitiates the auction sale (Tambunting

v. CA, 167 SCRA 16).

The rule is that statutory provisions governing publication of notice of

mortgage foreclosure sales must be strictly complied with, and that even slight

deviation therefrom will invalidate the notice and render the sale at least voidable.

x x x It has been held that failure to advertise a mortgage foreclosure sale incompliance with statutory requirements constitute a jurisdictional defect

invalidating the sale and that a substantial error or omission in a notice of sale will

render the notice insufficient and vitiate the sale. (Tambunting v. CA, 167 SCRA

16).


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Statutory provisions governing publication of notice of mortgage

foreclosure sales must be strictly complied with and slight deviations

therefrom will invalidate the notice and render the sale at the very least

voidable (PNB v. Nepomuceno Productions, Inc., GR No. 139479, 27 December

2002; Ouano v. CA, GR No. 129279, 04 March 2003; Lucena v. CA, 313 SCRA47,

[1999]).

The failure to publish the notice of auction sale as required by the

statute constitutes a jurisdictional defect which invalidates the sale (DBP v.

Aguirre, GR No. 144877, 07 September 2001).

The right of a bank to foreclose a mortgage upon the mortgagors

failure to pay his obligation must be exercised according to its clear mandate

and every requirement of the law must be complied with, lest the valid

exercise of the right end. The valid exercise of the right ends when the right

disappears, and it disappears when it is abused especially to the prejudice of

others (PNB v. Nepomuceno, supra.).

4. The parties have no right to waive the notice and publication

requirements. There is no estoppel in case of an agreement to dispense with

the notice and publication requirements.

The parties have absolutely no right to waive the posting and

publication requirements (PNB v. Nepomuceno Productions, Inc., GR No. 139479,

27 December 2002; Ouano v. CA, GR No. 129279, 04 March 2003). Foreclosure

auction sale is imbued with public policy considerations and any waiver on

the notice and publication requirements would be inconsistent with theintent and letter of Act 3135, as amended (PNB v. Nepomuceno, supra.).

To request postponement of the sale is one thing; to request it without

need of compliance with the statutory requirements is another. Therefore, a


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party is not estopped from questioning the validity of the foreclosure sale for

non-compliance with Act 3135 (PNB v. Nepomuceno, supra.).

Publication, therefore, is required to give the foreclosure sale a

reasonably wide publicity such that those interested might attend the public

sale. To allow the parties to waive this jurisdictional requirement would

result in converting into a private sale what ought to be a public auction

(Ouano v. CA, GR No. 129279, 04 March 2003).

In the case of DPB v. CA, GR No. 125838, 10 June 2003, the Supreme

Court clarified that:

The form of the notice of extrajudicial sale is now prescribed in Circular No.

7-2002 issued by the Office of the Court Administrator on 22 January

2002. Section 4(a) of Circular No. 7-2002 provides that: x x x The last paragraph

of the prescribed notice of sale allows the holding of a rescheduled auction sale

without reposting or republication of the notice. However, the rescheduled auction

sale will only be valid if the rescheduled date of auction is clearly specified in the

prior notice of sale. The absence of this information in the prior notice of sale will

render the rescheduled auction sale void for lack of reposting or republication. If

the notice of auction sale contains this particular information, whether or not the

parties agreed to such rescheduled date, there is no more need for the reposting or

republication of the notice of the rescheduled auction sale.

5. Personal notice to the mortgagor is REQUIRED if it is stipulated.

There being no contractual stipulation therefore, personal notice is not

necessary and what governs is the general rule in Section 3 of Act 3135, as

amended, which directs the posting of notices of the sale in at least three(3) public places of the municipality where the property is situated, and the

publication therefore in a newspaper of general circulation in said

municipality (PNB v. International Corporate Bank, 199 SCRA 508).


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Act 3135 only requires (1) the posting of notices of sale in three public

places, and (2) the publication of the same in a newspaper of general

circulation. Personal notice to the mortgagor is not

necessary. Nevertheless, the parties to the mortgage contract are not

precluded from exacting additional requirement (Metrobank v. Wong, GR No.

120859, 26 June 2001; Concepcion v. CA, 274 SCRA 614). Thus, while

publication of the foreclosure proceedings in the newspaper of general

circulation was complied with, personal notice is still required when the same

was mutually agreed upon by the parties as additional condition of the

mortgage contract. Failure to comply with such stipulation is fatal

(Community Savings & Loan Association, Inc. v. CA, 153 SCRA 564; Grand Farms

Inc. v. CA, 193 SCRA 748; Concepcion v. CA, GR No. 122079, 27 June 1997).

The rule is that statutory provisions governing publication of

mortgage foreclosure sales must be strictly complied with, and

thateven slight deviation therefrom will invalidate the notice and

render the sale at least voidable. x x x Where required by the statute or

by the terms of the foreclosure decree, public notice of the place and time of

the mortgage foreclosure sale must be given, a statute requiring it being

held applicable to subsequent sales as well as to the first advertised

sale of the property. It has been held that failure to advertise a mortgage

foreclosure sale in compliance with statutory requirements constitutes a

jurisdictional defect invalidating the sale and that a substantial error or

omission in a notice of sale will render the notice insufficient and vitiates the

sale (Tambunting v. CA, 167 SCRA 16, 23 [1988] citing Jalandoni v. Ledesma, 64

Phil 1058 & 59 CJS 1314, emphases supplied).

The failure to publish the notice of auction sale as required by the

statute constitutes a jurisdictional defect which invalidates the sale (DBP v.

Aguirre, GR No. 144877, 07 September 2001).


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The Act only requires (1) the posting of notices of sale in three public

places, and (2) the publication of the same in a newspaper of general

circulation. Personal notice to the mortgagor is not necessary. Nevertheless,

the parties to the mortgage contract are not precluded from exacting

additional requirements. In this case, petitioner and respondent in entering

into a contract of real estate mortgage, agree inter alia:

all correspondence relative to this mortgage, including demand letters, summonses,

subpoenas, or notifications of any judicial or extrajudicial action shall be sent to the

MORTGAGOR at 40-42 Aldeguer St., Iloilo City, or at the address that may hereafter be

given in writing by the MORTGAGOR to the MORTGAGEE.

Precisely, the purpose of the foregoing stipulation is to apprise

respondent of any action which petitioner might take on the subject

property, thus according him the opportunity to safeguard his rights. When

petitioner failed to send the notice of foreclosure sale to respondent, he

committed a contractual breach sufficient to render the foreclosure sale on

November 23, 1981 null and void. (Metrobank v. Wong, 359 SCRA 608 [2001])

The OLIZON CASE is an exception:

Obviously, as correctly pointed out by respondent, what prompted the Court to

dispense with the posting requirement is the unusual nature of the attendant facts

and the peculiarity of the confluent circumstances involved in Olizon. It bears

stressing that in the said case, the extrajudicial-judicial foreclosure sale sought to

be annulled was conducted more than 15 years ago, thus, even on the equitable

ground of laches, the Olizons action for annulment of foreclosure proceedings and

certificate of sale was bound to fail. An extrajudicial foreclosure sale is an action

in remand thus requires only notice of publication and posting to bind the parties in

the foreclosed property. (Langkaan Realty Devt. v. UCPB, GR No. 139437, 08December 2000; Olizon v. CA, 2236 SCRA 148; Bohanan v. CA, 256 SCRA 355). No

personal notice is necessary to the mortgagor (Bonnevie v. CA, 125 SCRA 122;

Fortune Motors v. Metrobank, 265 SCRA 72) unless stipulated upon by the parties

(PNB v. International Corporate Bank, 199 SCRA 508; Community and Savings

Loan Association, Inc. v. CA, 153 SCRA 564; Grand Farms Inc. v. CA, 193 SCRA


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748). Publication of the extrajudicial sale in a newspaper of general circulation is

more than sufficient compliance with the notice-posting requirement of the law

(Cristobal v. CA, 328 SCRA 256; Gravina v. CA, 220 SCRA 178; Concepcion v. CA,

274 SCRA 614; Olizon v. CA, 236 SCRA 148). The notice and publication

requirement are mandatory and failure to comply is a jurisdictional defect that

vitiates the foreclosure auction sale (Tambunting v. CA, 167 SCRA 16). The parties

have absolutely no right to waive the posting and publication

requirements. Foreclosure auction sale is imbued with public policy considerations

and any waiver on the notice and publication requirements would be inconsistent

with the intent and letter of Act 3135, as amended (PNB v. Nepomuceno, GR No.

1139479, 27 December 2002). Publication is therefore required to give the

foreclosure sale a reasonably wide publicity such that those interested might attend

the public sale. To allow the parties to waive this jurisdictional requirement would

result in converting into a private sale what ought to be public auction (Ouano v.

CA, GR No. 129279, 04 March 2003). Notices are given for the purpose of securing

bidders and to prevent a sacrifice of the property (Olizon v. CA, 236 SCRA

148). REDEMPTIONRedemption period After the issuance of the certificate of

sale to the highest bidder, this shall be registered with the Register of Deeds

where the property is located. At this point, the remaining right of the

mortgagor/debtor is to redeem the property. The period to redeem property

sold extrajudicially following the foreclosure of mortgage is one (1) year

from the registration of the sheriffs certificate of foreclosure sale(Bernardez

v. Reyes, 201 SCRA 648; Section 6, Act 3135, as amended). In case the

mortgagor is a juridical personSection 47, RA 8791, the General Banking

Law of 2000provides:Notwithstanding Act 3135, juridical persons x x x

shall have the right to redeem the property in accordance with this

provision until, but not after, the registration of the certificate of foreclosuresale with the applicable Register of Deeds which in no case shall be more

than three (3) months after the foreclosure, whichever is

earlier. Redemption period not suspended by TRO or a separate civil

case. The period to redeem was not suspended by the institution of a

separate civil case for annulment of mortgage, foreclosure, etc. (Sumerariz v.


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DBP, 21 SCRA 1374;Unionbank v. CA, GR No. 134068, 25 June 2001) and

NEITHER is it suspended by the issuance of a TRO by the courts (Peoples

Financing Corp. v. CA, 192 SCRA 34). Redemption price

In case of redemption, a written notice of redemption must be served

on the officer who made the sale and a duplicate filed with the applicable

Register of Deeds (Rosales v. Yboa, 120 SCRA 869; Section 28[par. 3], Rule 39,

Rules of Court). The redemption price shall be: the purchase price with one

percent (1%) per month interest; assessment or taxes paid with 1% per

month interest (Section 28, Rule 39). When the mortgagee is a bank or a

banking or credit institution, the redemption price is that which is stipulated

in the mortgage document or the outstanding obligation of the mortgage

plus interest and expenses (Unionbank v. CA, GR No. 134068, 25 June 2001;

Ponce de Leon v. RFC, 36 SCRA 289; Sy v. CA, 172 SCRA 125). The redemption

amount includes the assessment of taxes paid by the purchaser and the

interest on the auction price that should be computed from the date of the

registration of the certificate of sale (Sps. Estanislao, Jr. v. CA, GR No. 143687,

31 July 2001).

Effect of failure to redeem.

If no redemption is made within the prescribed period, the buyer at

foreclosure sale becomes the absolute owner of the property purchased

(Joven v. CA, 212 SCRA 700; PNB v. Adil, 118 SCRA 110). The purchaser then

has the absolute right to a writ of possession that is the final process to

carry out or consummate the extrajudicial foreclosure. Henceforth, the

mortgagor/debtor loses his right over the property (Bernardez v. Reyes, 201

SCRA 648; Section 6, Act 3135, as amended). Consolidation of title likewise

becomes a matter of right on the part of the auction buyer, and the issuance

of a certificate of title in favor of the purchaser becomes ministerial upon theRegister of Deeds (Unionbank v. CA, GR No. 133366, 05 August 1999).

Redemption vs. repurchase The right to redeem (a foreclosed property)

becomes functus oficioon the date of its expiry, and its exercise after the

period is not really one of redemption but of repurchase. Distinction must be

made because redemption is by force of law; the purchaser at public auction


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is bound to accept redemption. Repurchase however of a foreclosed

property, after redemption period, imposes no such obligation. After expiry,

the purchaser may or may not resell the property but no law will compel him

to do so. And, he is not bound by the bid price; it is entirely within his

discretion to set a higher price, for after all, the property already belongs to

him as owner(Prudencio v. CA, 431 SCRA 566).

JUDICIAL FORECLOSURE OF REAL ESTATEMORTGAGE UNDER RULE 68, RULES OF COURT

Judicial foreclosure of real estate mortgage is governed by the

provisions of Rule 68 of the Rules of Court. It is like any ordinary civil action

filed in court that shall be proven by preponderance of evidence.

Procedure

1. Preparation and filing of complaint which shall set forth the followingallegations (Sec. 1, Rule 68):

a) Date and due execution of the mortgage and its assignments, if

any;

b) Names and residences of the mortgagor and mortgagee;

c) Description of the mortgaged property/ies;

d) Documentary evidence/s of the obligation/s secured by the

mortgage and the unpaid obligation;

e) Names and residences of all persons having or claiming an interest

in the mortgaged property/ies.

1. The trial court shall render a judgment based on the facts proven andshall ascertain the amount due based on the mortgage debt or obligation,


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including interests, charges and costs. The court shall then direct the

defendant to pay said amount within a period of not less than ninety (90)

days nor more than one-hundred twenty (120) days (Sec. 2, Rule 68).

1. In the event of failure to pay as directed within 90 to 120 days, themortgage realty/ies shall be sold at an auction sale, the proceeds of

which shall be applied to the mortgage debt, pursuant to Rule 39 of the

Rules of Court (Sec. 3, Rule 68).

3.1. Before the sale of the real property/ies, notice must be given:

a) By posting for 20-days in three (3) public places. If the assessed

value is more than P50,000.00, by publishing a copy of the notice

once a week for two (2) consecutive weeks in one newspaper

selected by raffle (Sec. 15c, Rule 39).

b) Written notice to the judgment obligor at least three (3) days

before the sale (Sec. 15d, Rule 39).

3.2. The highest bidder shall be issued a certificate of sale (Sec. 25,

Rule 39).

1. Upon motion and after notice and hearing, the trial court will issue anorder of confirmation of the sale (Rural Bank of Oroquieta v. CA, 101

SCRA 5 [1980]).

4.1. The final order of confirmation shall be registered with the

Registry of Deeds (Sec. 7, Rule 68).

a) If no right of redemption exists, the certificate of title in the

name of the mortgagor shall be cancelled and a new one issued in

the name of the purchaser.


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b) Where a right of redemption exists, the certificate of title of the

mortgagor shall not be cancelled. Instead, the certificate of sale

and order of confirmation shall be registered with a memorandum

of the right redemption. If the property is not redeemed a final

deed of sale shall be executed by the sheriff in favor of the

purchaser which shall be registered in the Register of Deeds,

whereupon the title of the mortgagor shall be cancelled and a new

one issued in the name of the purchaser.

1. If the proceeds of the auction sale of the property are not sufficient, thetrial court, upon motion, shall render a deficiency judgment against the

defendant (Sec. 6, Rule 68).

Equity of Redemption

Equity of redemption is the right of the mortgagor to redeem the

mortgaged property after his default in the performance of the conditions of

the mortgage but before the sale of the property or the confirmation of the

sale after judicial foreclosure thereof (International Services, Inc. v. IAC, 142

SCRA 467 [1986]). This is the right of the defendant mortgagor to extinguish

the mortgage and retain ownership of the property by paying the secured

debt within a 90-day period after the judgment becomes final or after the

foreclosure sale but prior to its confirmation (GSIS v. CFI, 175 SCRA 19

[1989]).

No right of redemption in judicial foreclosure.

There is no right of redemption from a judicial foreclosure of mortgage,

except foreclosure of mortgage by banks or banking institutions (GSIS v. CFI,

175 SCRA 19 [1989]; Huerta Alba Resort, Inc. v. CA, 339 SCRA 534 [2000]).

Equity of redemption vs. right of redemption.

The Supreme Court already ruled on the distinction between the equity

of redemption and the right of redemption as follows:

Theequity of redemptionis, to be sure, different from and should not be confused

with the right of redemption. The right of redemptionin relation to a mortgage


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understood in the sense of a prerogative to re-acquire mortgaged property after

registration of the foreclosure sale exists only in the case of

the extrajudicialforeclosure of the mortgage. No such right is recognized in

ajudicialforeclosure except only where the mortgagee is the Philippine National

Bank or a bank or banking institution. Where a mortgage is foreclosed

extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one

(1) year from the registration of the sheriffs certificate of foreclosure sale.Where

the foreclosure is judicially effected, however, no equivalent right of redemption

exists. The law declares that ajudicial foreclosure sale, when confirmed by an

order of the court, x x shall operate to divest the rights of all the parties to the

action and to vest their rights in the purchaser, subject to such rights of redemption

a may be allowed by law. Such rights exceptionally allowed by law (i.e. even after

confirmation by an order of the court) are those granted by the charter of the

Philippine National Bank (Acts No. 2747 and 2938), and the General Banking Act

(R.A. 337). These laws confer on the mortgagor, his successors in interest or any

judgment creditor of the mortgagor, the right to redeem the property sold on

foreclosure after confirmation by the court of the foreclosure salewhich may be

exercised within a period of one (1) year, counted from the date of registration of

the certificate of sale in the Registry Property.But, to repeat, no such right of

redemption exists in case ofjudicial foreclosure of a mortgage if the mortgagee is

not the PNB or a bank or banking institution. In such a case, the foreclosure sale,

when confirmed by an order of the court. x x shall operate to divest the rights of all

the parties to the action and to vest their rights in the purchaser. There then exists

only what is known as the equity of redemption. This is simply the right of the

defendant mortgagor to extinguish the mortgage and retain ownership of the

property by paying the secured debt within the 90-day period after the judgment

becomes final, in accordance with Rule 68, or even after judgment becomes final, inaccordance with Rule 68, or even after the foreclosure sale but prior to its

confirmation.Section 2, Rule 68 provides that xx If upon the trial xx the court

shall find the facts set forth in the complaint to be true, it shall ascertain the

amount due to the plaintiff upon the mortgage debt or obligation, including interest

and costs, and shall render judgment for the sum so found due and order the same


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to be paid into court within a period of not less than ninety (90) days from the date

of the service of such order, and that in default of such payment the property be

sold to realize the mortgage debt and costs.This is the mortgagorsequity (not

right) of redemptionwhich, as above stated, may be exercised by him even beyond

the 90-day period from the date of service of the order, and even after the

foreclosure sale itself, provided it be before the order of confirmation of the sale.

After such order of confirmation, no redemption can be effected any longer. (Italics

supplied, Huerta Alba Resort, Inc. v. CA, 339 SCRA 534 [2000] citing Limpin v. IAC,

166 SCRA 87) Deficiency judgment It refers to judgment for any

unpaid balance of the obligation, which remains after foreclosure of

mortgage, judicial or extrajudicial, which a creditor may secure from the

court (Phil. Bank of Commerce v. de Vera, 6 SCRA 1026 [1962]). In extrajudicial

foreclosure of mortgage, where the proceeds of the sale are insufficient to

pay the debt, the mortgagee has the right to recover the deficiency from the

debtor (Prudential Bank v. Martinez, 189 SCRA 612 [1990]. In a foreclosure, the

deficiency is determined by simple arithmetical computation immediately

after foreclosure (United Planters Sugar Milling Co., Inc. (UPSUMCO) v. CA, 527

SCRA 336 [2007]). Extrajudicial foreclosure (EJF) vs. judicial foreclosure (JF)

1. On the governing law. EJF is governed by the provisions of Act 3135, asamended, while JF is by the provisions of Rule 68 of the Rules of Court.

1. On the publication requirement. In EJF, the auction sale shall bepublished once a week for three (3) consecutive weeks in a newspaper of

general circulation. In JF, the publication shall only be for two (2)

consecutive weeks.

1.On the notice requirement. Personal notice to the mortgagor is notrequired in EJF as a rule, UNLESS stipulated upon. In JF, written notice to

the judgment obligor at least three (3) days before the auction sale is

required.


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1. On redemption. There is a right of redemption in EJF, which is one yearfrom registration of the certificate of sale. If the mortgagor is a juridical

person the redemption period is until, but not after, the registration of

the certificate of foreclosure sale with the applicable Register of Deed

which in no case shall be more than three (3) months after the

foreclosure, whichever is earlier. In JF, there is no right of redemption

but only equity of redemption, unless the mortgagee is a bank or banking

institution. In the latter instance, the redemption period shall be one (1)

year from the date of registration of the certificate of sale.

CHATTEL MORTGAGE

Chattel mortgage is a security for the performance of obligation

effected by the recording of the personal property mortgaged in the chattel

mortgage register (Art. 2140, Civil Code; Northern Motors, Inc. v. Coquia, 66

SCRA 415 [1975]). Only personal property may be the object of a chattel

mortgage (Sec. 2, Act No. 1508). While the subject of a chattel mortgage is

personal property, the parties thereto may by agreement treat as personal

property that which by nature would be real property, such as a building, as

the subject of a chattel mortgage, and the owner thereof may be estopped

from subsequently claiming otherwise (Tumalad v. Vicencio, 41 SCRA 143[1971]). Such agreement, however, is valid only as between the contracting

parties (Evangelista v. Alto Surety, 103 Phil 401).

Affidavit of good faith.

Section 5 of Act No. 1508 requires the following form of an affidavit of

good faith to be appended to the chattel mortgage:

We severally swear that the foregoing mortgage is made for the purpose of

securing the obligation specified in the conditions thereof, and for no other

purpose, and that the same is a just and valid obligation, and one not

entered into for the purpose of fraud


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The absence of such affidavit vitiates a mortgage as against creditors

and subsequent encumbrances (Phil. Refining Co. v. Jarque, 61 Phil 229;

Giberson v. Jureideni Bros., 44 Phil 216; Benedicto de Tarrosa v. Yap Tico & Co., 46

Phil 753) but may, however, be valid as between the parties (Lilius & Lilius v.Manila Railroad Co., 62 Phil 56).

Foreclosure of chattel mortgage.

It appears that a chattel mortgage may only be foreclosed

extrajudicially pursuant to Section 14 of Act No. 1508 with the deletion of

Section 8, Rule 68 of the former rule on judicial foreclosure of chattel

mortgage.

In Section 14 of Act No. 1508, it is a condition precedent before

foreclosure that the conditions of the chattel mortgage be broken and at

least 30-days already elapsed.

Procedure

Section 14 of Act No. 1508, provides the following procedure in the

extrajudicial foreclosure of chattel mortgage

1. Posting of the notice of auction sale at least 10 days before auction,indicating time, place and purpose of sale, at two or more public places in

the municipality where the mortgagor resides, or where the property is

situated.

1. Notification of the mortgagor or his assigns, of the time and place of sale,at least 10-days previous to the sale, either in writing if a resident of the

municipality, or by registered mail if a resident outside of the

municipality.


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1. Auction sale of the mortgaged property by a public officer at a publicplace in the municipality where the mortgagor resides, or where the

property is situated.

1. The officer making the sale shall, within 30-days thereafter, make inwriting a return of his doings and file the same in the office of the

register of deeds where the mortgage is recorded, and the register of

deeds shall record the same. The return shall particularly describe the

articles sold, and state the amount received for each article, and shall

operate as a discharge of the lien thereon created by the mortgage.

1. The proceeds of the sale shall be applied in the following order:

a) Costs and expenses of keeping the sale;

b) Payment of the demand or obligation secured by such mortgage;

c) Residue shall be paid to persons holding subsequent mortgages

in their order;

d) Balance, if any, shall be paid to the mortgagor or persons

holding him on demand.

Deficiency judgment in chattel mortgage.

If in an extrajudicial foreclosure of chattel mortgage a deficiency

exists, an independent civil action may be instituted for recovery of said

deficiency, the chattel mortgage being given only as security and not as

payment for debt in case of failure of payment (Bicol Savings & Loan Assn. v.

Guinhawa, 188 SCRA 642 [1990]; Superlines v. ICC, GR No. 150673, 28 Feb.

2003).

Note however, that in a contract of sale of personal property where the

price is payable in installments and in the event of foreclosure of the chattel

mortgage should the vendee fail to pay two or more installments, the vendor

shall have no further action against the purchaser to recover any unpaid


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balance of the price. Any agreement to the contrary shall be void (Art. 1484,

Civil Code; Recto Law). Please note that this is applicable in cases of sale of

personal property on installment.

Distinction: real estate mortgage (REM) vs. chattel mortgage (CM)1. Properties covered: REM is constituted on immovables/real properties.

Only movables/personal properties may be the object of a chattel

mortgage

1. Modes of foreclosure: There are two modes of foreclosure in a REM extrajudicial under Act No. 3135, as amended or judicial under Rule 68 of

the Rules of Court. In a CM, only extrajudicial foreclosure under Sec. 14

of Act No. 1508 is now available.

1. On redemption: There is NO right of redemption in CM. In REM, there isright of redemption in case of extrajudicial foreclosure, and when the

mortgagee is a bank or banking institution in case of judicial foreclosure.

In CM, the purchaser at an auction sale becomes the owner of the

property.

Documents

Mortgage Discussion for Dummies