REAL ESTATE MORTGAGE Real Estate Mortgage An accessory contract whereby the debtor guarantees the performance of the

principal obligation by subjecting real property or real rights as security in case of nonperformance of such obligation within the period agreed upon. (Civil Law Reviewer, Jurado, 2009ed) Characteristics of Mortgage 1. 2. 3. 4. 5. 6. 7. 8. 9. Real contract Accessory contract It is indivisible It is inseparable It is real property It is a limitation on ownership It can secure all kinds of obligation The property cannot be appropriated The mortgage is a lien Creditor has no right to the fruits of the property during the pendency of mortgage Failure of the debtor to pay his debt the creditor cannot appropriate the property mortgage nor dispose of it

conditional Vendee a retro is entitled to the fruits even during the period of redemption After consolidation of title in the vendee a retro he may dispose of it as absolute owner

Real Estate Mortgage and Pledge Distinguished Real Estate Mortgage Consensual contract Real property Possession of the thing mortgage remains with the debtor Mortgagee does not possess such right Foreclosure of thing mortgage may either be extrajudicial or judicial Pledge Real contract Personal property Possession of the thing pledge is vested with the creditor Pledgee has the right to receive fruits from the thing pledge Sale at public auction of the thing pledge is always extra-judicial

Kinds or Mortgage 1. Voluntary agreed to between the parties or constituted by the will of the owner of the property on which it is created. Legal required by law to be executed in favour of certain persons. Equitable lacks the proper formalities or other requisites of a mortgage required by law but reveals the intention of the parties to burden real property as a security for a debt and contains nothing impossible or contrary to law.

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Extent of Mortgage 1. 2. New plantings Fruits, except those collected before the obligation falls due and those removed and stored when it falls due Accrued and unpaid rents as well as those which should have to be paid while the credit remains wholly unsatisfied (Hijos de I. de la Rama vs. Betia,54 Phil 991; National Bank vs. Alejano, 55 Phil 811) Building, machinery and accessories belonging to the mortgage debtor installed on a mortgage sugar central. (Cu Unjieng & Hijos vs. Mabalacat Sugar Co., 58 Phil 439) All objects permanently attached to a mortgaged land or building, although they may have been placed there after the execution of the mortgage are also included. (Bischoff vs. Pomar, 12 Phil 690; Manahan vs. Cruz, 61 SCRA 137; Cea vs. Villanueva, 18 Phil 538) Building erected in place of the mortgage building which was torn down by the debtor (Phil Sugar Estates Dev. Co. vs. Campos, 36 Phil 85) If the mortgaged estate passes into the hands of a 3rd person, the mortgage does not extend to any machinery, object, chattel or construction which he may have brought or placed there and which

Essential Requisites of Mortgage 1. 2. 3. It must be constituted to secure the fulfilment of the principal obligation. The mortgagor is the absolute owner of the thing mortgage. The mortgagor has the free disposal of the property, and in the absence thereof, that he be legally authorized for the purpose. When the principal obligation becomes due, the property mortgage may be alienated for the payment of such obligation. The subject matter of the contract must be immovable property or alienable real rights upon immovable. 3.

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Real Estate Mortgage and Contract of Sale with Right of Repurchase Distinguished Real Estate Mortgage Accessory contract No transfer of title and possession of property Contract of Sale with Right of Repurchase Principal and independent contract There is transfer of property and possession, although

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such 3rd person may remove whenever it is convenient for him to do so. (Art. 112, Spanish Mortgage Law) After acquired properties Stipulation including after acquired properties in a Mortgage Contract is valid. When a mortgage is made to include new or future improvements on registered land, said lien attaches and vest not at the time the said improvements are constructed but on the date of the recording and registration of the deed or mortgage. (Luzon Lumber & Hardware Co., Inc. vs. Quiambao, 94 Phil 663)

deviation will invalidate the sale or render it voidable. Kinds of Foreclosure Judicial and Extrajudicial Foreclosure Distinguished Judicial Court intervene Decisions are appealable Cuts off all the right of the parties impleaded Equity of redemption, except banks which provide rights of redemption Redemption period, from finality of judgment until order of confirmation No need for SPA in the contract of mortgage. Governed by Rule 68 of the ROC Extrajudicial No court intervention Not appealable, immediately executor Does not cut off rights of all the parties involved Right of redemption

General Rule: A mortgage liability is usually limited to the amount mentioned in the contract. Exception: Blanket Mortgage Clause or Dragnet Clause The amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. It operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera. (Cuyco vs. Cuyco, GR No. 168736, April 19, 2006)

Redemption period, date of registration of the certificate of sale SPA is needed by the mortgagee in the contract. Governed by Act 3135

Judicial Foreclosure is an ordinary foreclosure or mortgage under Rule 68 of the Rules of Court. Procedure: 1. Judicial Action for Foreclosure of REM A proper action for foreclosure must be brought in the proper court which has jurisdiction over the area wherein the real property involved or a portion thereof is situated. Order to mortgagor to pay the mortgage debt If court finds the complaint to be well founded, it shall order the mortgagor to pay the amount due upon the mortgage debt or obligation with interest and other charges within a period of not less than 90 days nor more than 120 days from the entry of judgement. Sale to the highest bidder at public auction Confirmation of sale Divest the rights of all parties to the action and to vest their rights in the purchaser subject to such right of redemption as may be allowed by law. Execution of judgment Application of proceeds of sale Costs of the sale Amount due the mortgagee

Foreclosure of Real Estate Mortgage Remedy available to the mortgagee by whom he subjects the mortgaged property to the satisfaction of the obligation to secure which the mortgage was given. It denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself. (DBP vs. Zaragoza, 84 SCRA 668) Validity and Effect of Foreclosure 1. If the principal obligation is not paid when due, the mortgagee has the right to foreclose the mortgage and to seized and sold the property and to apply the proceeds as payment of principal obligation. The power to foreclose is vested upon the mortgagee. If there is deficiency, the debtor is obliged to pay it even after the foreclosure. Public notice of foreclosure is mandatory and it must be strictly complied with and slight 3. 4.

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Claims of junior encumbrancers or persons holding subsequent mortgagees in the order of their priority Balance if any, be paid to the mortgagor or his duly authorized agent or to the person entitled to it. Execution of sheriffs certificate Sheriffs report on the auction sale is clothed with presumption of regularity especially where no objection has been raised against it. (Sayson vs. Luna, 433 SCRA 502)

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Extrajudicial Foreclosure this is governed by Act 3135. Prescribes a procedure which effectively safeguards the rights of both debtor and creditor. Covers only real estate mortgage Regulate the extrajudicial sale of property mortgaged if and when the mortgagee is given a special power or express authority to do so in the deed itself or in a document annexed thereto. (Luna vs. Encarnacion, 91 Phil 531; Ponce de Leon vs. Rehabilitation Finance Corp., 36 SCRA 289) The authority to sell is not extinguished by the death of the mortgagor or mortgagee as it is essential and inseparable part of a bilateral agreement. (Perez vs. PNB, 17 SCRA 833)

Only one filing fee shall be collected in case of foreclosure in different locations covering one indebtedness. The clerk of court shall is a certificate of payment containing the amount of indebtedness, filing fees collected, mortgages sought to be foreclosed, description of property and their respective locations. Notice of sale shall be published in a newspaper of general circulation pursuant to Section 1, PD No.1079. Application shall be raffled among the sheriffs. The clerk of court shall archive the records after the redemption period has expired. The names of the bidders shall be reported to the Sheriff by the Notary Public, who conducted the sale to the Clerk of Court before the issuance of the certificate of sale and an auction sale may be had with just one participating bidder. (As amended by the January 30, 2001 Resolution, par 5 of AM No. 99-10-05-0; Sps. Certeza and Villamayor and Villamayor vs. Phil. Savings Bank, GR No. 190078, March 5, 2010)

Redemption It is a transaction by which the mortgagor reacquires or buys back the property which may have passed under the mortgage or divests the property of the lien which the mortgagor may have created. (Comments and Cases on Credit Transactions, De Leon, 2010ed) Allows the owner to repurchase or buy back, within a certain period and for a certain amount, a property that has been sold due to debt, tax or encumbrance. (Illegan Bay Manufacturing Corp. vs. Dy, 524 SCRA 55) Requisites for Valid Redemption 1. The redemption must be made within 1 year from the date of registration of the certificate of sale. Payment of redemption price. If mortgagee is not a bank (Act 3135, in relation to Sec 28, Rule 39 of the ROC) o Purchase price o 1% interest per month on the purchase price o Taxes and amount of purchasers prior lien, if any, with the same rate of interest computed from the date of registration of sale until the time of redemption. If mortgagee is a bank o Amount due in the mortgage deed o Interest o Cost and expenses

Procedure: 1. 2. Filing of the application before the Executive Judge through the Clerk of Court. The clerk of court will examine the application if it complied with requirements of the law and whether the notice of sale has been posted for not less than 20 days in at least 3 public places in the municipality or city where the property is situated. If the same is worth more than P400, such notice must be published once a week for at least 3 consecutive weeks in the newspaper of general circulation in the municipality or city. Posting and publication is mandatory for the benefit of the public and third persons. Failure to comply with the statutory requirements of publication constitutes a jurisdictional defect which invalidates the sale. Lack of republication of notice of foreclosure sale made subsequently after the original date renders such sale void. (PNB vs. Nepomuceno Productions, Inc. GR No. 139479, December 27, 2002) Executive Judge must approve the certificate of sale.

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Written notice of the redemption must be served on the officer who made the sale and a duplicate filed with the proper Register of Deeds. (Rosales vs. Yboa, 120 SCRA 869) The redemption must be made before the confirmation of sale. Tender for payment must be for the full amount because if installments shall be permitted it would allow the indefinite extension of the redemption period. (Estanislao, Jr. vs. CA, GR No. 143687; Comments and Cases on Credit Transactions, De Leon, 2006ed)

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Kinds of Redemption 1. Equity of Redemption The right of the mortgagor in case of judicial foreclosure to redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the confirmation of the sale of the mortgaged property. (Top Rate International Services, Inc. vs. IAC, 142 SCRA 467) Redemption period is not less than 90 nor more than 120 days from entry of judgment or even after foreclosure of sale but prior to confirmation. A second mortgagee acquires only the equity of redemption vested in the mortgagor, and his rights are strictly subordinate to the superior lien of the first mortgagee. (Sun Life Assurance, Co. of Canada vs. Gonzales Diaz, 52 Phil 271; Piano vs. Cayanong, 7 SCRA 397) Right of Redemption Right of the mortgagor in case of extrajudicial foreclosure to redeem the mortgaged property within a certain period from and after it was sold for the satisfaction of the mortgage debt. (Nalino vs. IAC, 197 SCRA 323; Vda. De Urbano vs. GSIS, 367 SCRA 672) Redemption period is within one year from the date of the registration of the certificate of sale with the appropriate Registry of Deeds. o In case of banks, 3 months after foreclosure or before registration of the certificate of foreclosure whichever is earlier. (Sec 47, General Banking Law)

One whom the debtor has transferred his right of redemption. One whom the debtor has conveyed his interest in the property for the purpose of redemption. One who succeeds to the interest of the debtor by operation of law. One or more joint debtors who were joint owners of the property sold. One with joint interest in the property, or his spouse, or heirs. the Rules of Court Judgment debtor or his successor-ininterest in the whole or any part of the property. Creditor having a lien by attachment, judgment or mortgage on the property sold or some part thereof, subsequent to the judgment under which the property was sold. Such redeeming creditor is termed as redemptioner. (Sec 29, Rule 39, ROC)

Purchasers Right of Possession under Act No. 3135 1. During the redemption period Purchaser must file an ex parte application and a bond in the amount equivalent to the use of property for a period of 12 months to be allowed to take possession of the foreclosed property.(Sec. 7) The court shall order the issuance of a writ of possession upon the approval of the bond. If the debtor is in the possession and no 3rd party has intervened, a writ of possession may be issued in an extrajudicial foreclosure of real estate mortgage. (PNB vs. CA, GR No. 97995, January 21, 1993). A buyer can obtain a writ of possession against a tenant whose lease has not yet expired except when he has actual knowledge of the lease was annotated on the title. In such case lease shall be respected. The bond is for the protection of the mortgagor, it is an indemnity in case the foreclosure sale was not justified. After the lapse of redemption period The vendees right of possession becomes final and the mortgagor is divested of his rights to the mortgaged property and consolidation of title becomes a matter of right on the part of the purchaser and the issuance of certificate of title becomes Ministerial upon the Registry of Deeds. The purchaser may either ask for a writ of possession or bring an independent

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Persons entitled to exercise right of redemption 1. 2. Mortgagor or one in mortgagor. Successor-in-interest privity of title with

action such as a suit for ejectment to obtain possession of the property. (Javelosa vs. CA, GR No. L-124292, December 10, 1996)