A mortgage, as defined in Black's Law Dictionary (7th ed.), is a conveyance of title to porperty that is given as a security for the payment of a debt or the performance of a duty and that will become void upon payment or performance acording to the stupulated terms. Othewise provided, it is also defined as a lien against property that is granted to secure an obligation (such as a debt) and that is extinguished upon payment or performance according to stipulated terms. Foreclosure, on the other hand, is the a legal proceeding to terminate a mortgagor’s interest in property, instituted by the lender (the mortgageee) either to gain title or toforce a sale in order ro satisfy the unpaid debt secured by the property. The essence of a mortgage contract hinges on the fact that property has been identified and separated from a mass of the property of the mortgagor to secure the payment of a principal obligation, and once the proceeds have been applied to the payment of the principal obligation, the debtor cannot anymore be asked to pay unless there is deficiency. It must be expecially noted that in all cases of foreclosure, demand is essential before foreclosure may be effected. In State Investment House, Inc. v. Court of Appeals, G.R. No. 99308, November 13, 1992, as cited in Banking Laws and Jurisprudence (Dizon, 2009), if demand was made and duly received by the mortgagor and the latter still did not pay, then they were already in default and foreclosure was proper. Howevr, if demand was not made, then the loans had not yet become due and demandable. This meant that the mortgagor had not defaulted in their payments and the foreclosure by the mortgagee was premature. Foreclosure is valid only when the debtor is in default in the payment of his obligation. Foreclosure may either be judicial or extrajudicial. Judicial foreclosure of real property Extrajudicial foreclosure is the method by which the mortgaged real property is sold through a court proceeding requiring many standard legal steps such as the filing of a complaint, service of process, notice, and a hearing. Republic Act 133 (?), titled “An Act to Authorize the Mortgage of Private Real Property in Favor of Any Individual, Corporation, or Association Subject to Certain Conditions”, provides that: “ x x x Section 1. Any provision of law to the contrary notwithstanding, private real property may be mortgaged in favor of any individual, corporation, or association, but the mortgagee or his successor in interest, if disqualified to acquire or hold lands of the public domain in the Philippines, shall not take possession of the mortgaged property during the existence of the mortgage and shall not take possession of the mortgaged property except after default and for the sole purpose of foreclosure, receivership, enforcement or other proceedings and in no case for a period of more than 5 years from actual possession and shall not bid or take part in any sale of such real property in case of
foreclosure: Provided, that said mortgagee may take possession of said property after with the prescribed judicial procedures receivership and in no case exceeding possession. x x x”
or successor in interest default in accordance for foreclosure and 5 years from actual
The general implications under this law therefore are as follows: 1. A Filipino resident can mortgage to a foreigner, because it is sanctioned by R.A. 133 . It must be noted, however, that ownership is not equivalent to mortgage. Nonetheless, said party can only institute judicial proceedings but not extrajudicially foreclose the mortgage. Furthermore, he cannot bid or take part in the sale of the real property. 2. The foreigner may not take possession of the property during the mortgage. He can only possess the same as a lessee. 3. The foreigner may only take possession of the mortgaged property after default, and for the sole purpose of foreclosure, enforcement or other proceedings. This, furthermore, should not exceed the period of 5 years from actual possession. Under the Rule 68 of the Rules of Court, the following steps are to be undertaken during judicial foreclosure of mortgage: First. The mortgagee should file a petition for judicial foreclosure in the court which has jurisdiction over the area where the property is situated; Second. The court will thereafter conduct a trial. If, after trial, the court finds merit in the petition, it will render judgment ordering the mortgagor/debtor to pay the obligation within a period of neither less than 90 nor more than 120 days from the finality of judgment. Third. Within this required period, the mortgagor is given the opportunity to pay the obligation to prevent his property from being sold. This is called the “Equity of Redemption period”, which is a period that, notwithstanding the limits aforementioned, may be extended based on agreement of the parties. It must be additionally noted that right of redemption is different from equity of redemption. The Supreme Court in the case of Huerta Alba REsort Inc. v. Court of Appeals, G.R. No. 128567, September 1, 2000, citing therein the ruling in Limpin v. Intermediate Apellate Court, held that: “x x x The equity of redemption is, to be sure, different from and should not be confused with the right of redemption. The right of redemption in relation to a mortgage - 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 extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosure except only when the mortgagee is the
Philipine National Bank or a bank or banking institution. Where a mortgage is foreclosed extrajudicially, Act 313 grants to the mortgagor the right of redemption within one (1) year from the registration of the sheriff’s certificate of foreclosure sale. Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial foreclosure sale 'when confirmed by an order of the court....shall operate to divest the right of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law.’ Such rights exceptionally ‘allowed by law’ (i.e. even after confirmation by an order of teh court) are those granted by the charter of the Philippine National Bank (Acts No. 2747 and 2938), and the General Banking Act (R.A. No. 337). These laws confer on teh 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 sale - which right may be exercised within a period of one (1) year, counted from the date of registration of the certificate of sale in the Registry of Property. x x x” Fourth. If mortgagor fails to pay within the 90-120 days given to him by the court, the property shall be sold to the highest bidder at public auction to satisfy the judgment. Fifth. There will thereafter be instituted a judicial confirmation of the sale. After the confirmation of the sale, the purchaser shall be entitled to the possession of the property, and all the rights of the mortgagor with respect to the property are severed or terminated. In this regard, the equity of redemption period actually extends until the sale is confirmed. Even after the lapse of the 90 to 120 day period, the mortgagor can still redeem the property, provided that there has been no confirmation of the sale yet. As such, the equity of redemption can be considered as the right of the mortgagor to redeem the property before the confirmation of the sale. After the confirmation of the sale, the mortgagor does not have a right to redeem the property anymore. This is the general rule in judicial foreclosures – there is no right of redemption after the sale is confirmed. Lastly, the proceeds of the sale of the property will be disposed as follows: a. First, the costs of the sale will be deducted from the price at which the property was sold b. Then the amount of the principal obligation and interest will be deducted c. The junior encumbrances will be satisfied d. And if there is still an excess, the excess will go back to the mortgagor. In mortgage, the mortgagee does not get the excess (unlike in pledge). If there is a deficiency, the mortgagee can ask for a Deficiency Judgment which can be imposed on other property of the mortgagor. In comparison, the rule in extrajudicial foreclosure is different. The mortgagee must go to court and file
another action for the collection of the deficiency. The prevailing tendency is to shy away from this judical foreclosure proceedings in view of the following reasons: 1. Judicial foreclosure is costly and generally time-cosuming, since the parties would necessarily employ the services of lawyers and go through the entire process of proceedings attendant thereto. It mut, however, also be noted that this is notwithstanding the fact that the present rules provide that court fees are needed to be paid as well in the case of extrajudicial proceedings. 2. The parties overall have very little leeway or control over the sale because there is court intervention. 3. This method is generally more susceptible to stalling/dilatory tactics by the mortgagor, since the said party can file all sorts of motions in court to prevent the sale. 4. It would be comparatvely more efficient to undergo extrajudicial proceedings since beause in judicial proceedings, there is a minimum lapse of time of 6 years. Extrajudicial Foreclosure Blackâ€™s Law Dictionary (7th ed.) defines extrajudicial foreclosure as the process by which, according to the mortgage instrument and applicable statute, the mortgage property is sold at a nonjudicial public sale by a public official, the mortgagee, or a trustee, without the stringent notice requirements, burdens or delays of a judicial foreclosure. Under Act No. 3135 and 4118 and Supreme Court Administrative Circular, one of the primary conditions in extrajudicial foreclosure is that the sale cannot be made legally outside the city or province wherein the property sold is situated. However, in case the place has been stipulated, it shall be made in the municipal building of the said place. The processes attendant to this method, including some important notes to remember, is outlined below: 1. Notice of Sale Posting of the notices of the sale must at least be for 20 days, in at least 3 public places of the municipality or city where the property is situated. If the property is once a week circulation in the longer necessary
worth more than P400.00, such notice shall also be published for at least 3 consecutive weeks in a newspaper of general municipality or city where the subject property is located. It is no to count 6 days between publications.
It is additionally important to note that existing jurisprudence holds that for purposes of judicial foreclosures, there is sufficient notice when there is
publication. 2. Public Auction/Sale It has been specified that the public auction or sale shall be effected between 9:00 a.m. and 4:00 p.m., and shall be made under the direction of the sheriff of the province, the justice or auxiliary justice of the peace of the municipality, or of the notary public of the municipality, who shall be compensated with P5 for each day of actual work or performance in addition to his expenses. Any person may bid at the sale, unless there are stipulations in the agreement. 3. Possession Upon foreclosure, if the mortgagor is in possession of the property, he will retain possession during the redemption periodâ€”1 year from the date of sale. However, if the winning bidder wants possession during the redemption period, he may execute a bond in the amount equivalent to the use of the property for 12 months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of the Act. Upon approval, a writ of possession will be issued in his favor. If the winning bidder is able to secure possession, the mortgagor may petition that the sale is set aside and the writ of possession be cancelled on the ground that he wasn't in default or that the sale wasn't made in accordance with Act 3135. This must be filed within 30 days from issuance of the writ of possession. 3. Right of Redemption The debtor, his successors-in-interest, or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one (1) year and after the date of teh sale and such will be governed by the Rules of Court. When the property is redeemed after the purchaser has been given possession, the redeemer is entitled to deduct from the price of redemption any rentals that said purchaser may have collected in case the property or any part thereof was rented. If the property was used as his own dwelling, it being town property, or used it gainfully, it being rural property, the redeemer may deduct from the price the interest of 1% per month provided in the Rules of Court. Pertinent provisions governing extrajudicial foreclosure are noted below: Rules of Court, Rule 39, Sections 29 - 31, and 35: Sec. 29. Effect of redemption by judgment obligor, and a certificate to be delivered and recorded thereupon; to whom payments on redemption made. If the judgment obligor redeems, he must make the same payments as are
required to effect a redemption by a redemptioner, whereupon, no further redemption shall be allowed and he is restored to his estate. The person to whom the redemption payment is made must execute and deliver to him a certificate of redemption acknowledged before a notary public or other officer authorized to take acknowledgments of conveyances of real property. Such certificate must be filed and recorded in the registry of deeds of the place in which the property is situated, and the registrar of deeds must note the record thereof on the margin of the record of the certificate of sale. The payments mentioned in this and the last preceding sections may be made to the purchaser r redemptioner, or for him to the officer who made the sale. Sec. 30. Proof required of redemptioner. A redemptioner must produce to the officer, or person from whom he seeks to redeem, and serve with his notice to the officer a copy of the judgment or final order under which he claims the right to redeem, certified by the clerk of the court wherein the judgment or final order is entered; or, if he redeems upon a mortgage or other lien, a memorandum of the record thereof, certified by the registrar of deeds; or an original or certified copy of any assignment necessary to establish his claim; and an affidavit executed by him or his agent, showing the amount then actually due on the lien. Sec. 31. Manner of using premises pending redemption; waste restrained. Until the expiration of the time allowed for redemption, the court may, as in other proper cases, restrain the commission of waste on the property by injunction, on the application of the purchaser or the judgment obligee, with or without notice; but it is not waste for a person in possession of the property at the time of the sale, or entitled to possession afterwards, during the period allowed for redemption, to continue to use it in the same manner in which it was previously used; or to use it in the ordinary course of husbandry; or to make the necessary repairs to buildings thereon while he occupies the property. Sec. 35. Right to contribution or reimbursement. When property liable to an execution against several persons is sold thereon, and more than a due proportion of the judgment is satisfied out of the proceeds of the sale of the property of one of them, or one of them pays, without a sale, more than his proportion, he may compel a contribution from the others; and when a judgment is upon an obligation of one of them, as security for another, and the surety pays the amount, or any part thereof, either by sale of his property or before sale, he may compel repayment from the principal. General Banking Law of 2000, Section 47 Sec. 47. Foreclosure of Real Estate Mortgage. - In the event of foreclosure, whether judicially or extra-judicially, of any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody
of said property less the income derived therefrom. However, the purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding. Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their expiration. Some final observations and comments regarding judicial foreclosure of real estate mortgage: 1. In judicial foreclosure, the redemption period is within one year whereas for extrajudicial foreclosure, it is ninety (90) days from the date of sale or registration. 2. The purpose is to give concession to the banks. Banks cannot get real estate properties mortgaged by those in financial distress. 3. The redemption price is computed based on the mortgaged obligation plus the interest as stipulated in the original obligation. In comparison, in judicial foreclosure the basis of the redemption price is the original price. In this case, payment is greater when redeeming from a bank. 4. There is immediate possession. 5. Generally a motion to enjoin would not be entertained unless secured by a bond. 6. The court will fix the amount of the bond. Normally, this would be the liability of the bank plus costs. This remedied the apparent loopholes in Act 3135, and amde to protect the bank during foreclosures. This actually makes it hard to secure injunctions and it shortens the redemption period.
A mortgage, as characterised in Black's regulation Dictionary (7th ed.), is a conveyance of titleto porperty that is granted as a security f...