FORECLOSURE

Foreclosure is a remedy available to the mortgagee by which he subjects

the mortgaged property to the satisfaction of the obligation to secure
which the mortgage was given.

Denotes a procedure adopted by the mortgagee to terminate the rights

of the mortgagor on the property and includes the sale itself.

Rules Governing Foreclosure:

•Rule 68 of the 1997 Revised Rules of Civil Procedure

•Act No. 3135 (An Act to Regulate the Sale of Property under Special
Powers Inserted in or Annexed to Real Estate Mortgages.)
•Act 4118 (An Act To Amend Act Numbered 3135)
•A.M. No. 99-10-05-0 (Procedure for extrajudicial foreclosure of both real
estate mortgage under Act No. 3135 and chattel mortgage under Act No.
1508- (An Act Providing For The Mortgaging Of Personal Property And For
The Registration Of The Mortgages So Executed))
 FORECLOSURE
There are two kinds of foreclosure:

1. Judicial Foreclosure
A judicial foreclosure is done by filing a complaint in the Regional Trial Court of the
place where the property is located. The judge renders judgment, ordering the
mortgagor to pay the debt within a period of 90–120 days. If the debt is not paid
within the said period, a foreclosure sale satisfies the judgment.

2. Extrajudicial Foreclosure (A.M. No. 99-10-05-0)

In an extrajudicial foreclosure, the mortgagee need not initiate an action in court
but may simply file an application before the Clerk of Court to secure attendance
of the Sheriff who conducts the public sale. This is done pursuant to a power of sale.

*Note that these two modes specifically apply to real estate mortgages. Foreclosure
of chattel mortgages (mortgage of movable property) are governed by Sec. 14 of
Act No. 1506, which gives the mortgagee the right to sell the chattel at a public
sale. It has also been held that as regards chattel mortgages, the law does not
prohibit that the foreclosure sale be done privately if it is agreed upon by the
parties.
 FORECLOSURE
There are two kinds of foreclosure:

1. Judicial – ordinary action for foreclosure under Rule 68 of the Rules of Court

2. Extrajudicial – when mortgagee is given a special power of attorney to sell

the mortgaged property by public auction, under Act No. 3135

*Note that these two modes specifically apply to real estate mortgages. Foreclosure
of chattel mortgages (mortgage of movable property) are governed by Sec. 14 of
Act No. 1506, which gives the mortgagee the right to sell the chattel at a public
sale. It has also been held that as regards chattel mortgages, the law does not
prohibit that the foreclosure sale be done privately if it is agreed upon by the
parties.
 Rule 68: JUDICIAL FORECLOSURE
MORTGAGOR DEFAULTED ON
PAYMENTS • The court will conduct a trial.
• Within this 90 to 120
If, after trial, the court finds
day period, the
• The mortgagee should merit in the petition, it will
mortgagor has the
file a petition for judicial render judgment ordering the
chance to pay the
foreclosure in the court mortgagor/debtor to pay the
obligation to prevent his
which has jurisdiction over obligation within a period not
property from being
the area where the less than 90 nor more than
sold. This is called the
property is situated. (Sec.1) 120 days from the finality of
EQUITY OF REDEMPTION
judgment. (Sec. 2)
PERIOD. (Sec. 2)
•Sale of Mortgaged Property. There will be a judicial
confirmation of the sale. After the confirmation of the
sale, the purchaser shall be entitled to the possession of
•If mortgagor fails to pay
the property, and all the rights of the mortgagor with
within the 90-120 days
respect to the property are severed or terminated. The
given to him by the court,
equity of redemption period actually extends until the
the property shall be sold
sale is confirmed. Even after the lapse of the 90 to 120
to the highest bidder at
day period, the mortgagor can still redeem the property,
public auction to satisfy the
so long as there has been no confirmation of the sale
judgment. (Sec 3)
yet. Therefore, the Equity Of Redemption can be
considered as the right of the mortgagor to redeem the
property BEFORE the confirmation of the sale. (Sec.3)
 Rule 68: JUDICIAL FORECLOSURE

Disposition of the proceeds of sale: (Sec. 4)

a. The costs of the sale will be deducted from the price at which the property was sold.
b. The amount of the principal obligation and interest will be deducted.
c. The junior encumbrances will be satisfied.
d. 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).
i. If there is a deficiency, the mortgagee can ask for a DEFICIENCY JUDGMENT which can
be imposed on other property of the mortgagor. (In extrajudicial foreclosure , the
mortgagee must go to court and file another action for the collection of the
deficiency) (Sec. 6)
 Rule 68: JUDICIAL FORECLOSURE

Registration - after confirmation, the sale shall be registered in the registry of deeds. (Sec.
7)
• No right of redemption exists, a new certificate of title shall be issued in the name
of the purchaser.
•A right of redemption exists, the name of the mortgagor shall NOT be cancelled,
but the certificate and the order confirming the sale shall be registered with a memo
by the ROD upon the certificate of title.

If property is redeemed, the deed of redemption shall be registered with the
ROD, with a brief memorandum shall be made by the ROD on said certificate
of title.

If the property is not redeemed, the final deed of sale executed by the sheriff
in favor of the purchaser at the foreclosure sale shall be registered with the
ROD; the name of the mortgagor shall be cancelled from the certificate of title
and a new one issued in the name of the purchaser.
• Right Of Redemption is 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).

General Rule: In a Judicial Foreclosure, there is no right of redemption after

the sale is confirmed.
Exception: If mortgagee is the PNB or any banking institutions.
Judicial vs Extra-judicial Foreclosure
JUDICIAL FORECLOSURE
There is court intervention
Decisions are appealable
Order of the court cuts off all
rights of the parties impleaded
There is equity of redemption
except on banks which provides
for a right of redemption
Period of redemption starts from
the finality of the judgment until
order of confirmation
No need for a special power of
attorney in the contract of
mortgage
EXTRA-JUDICIAL FORECLOSURE
No court intervention
Not appealable because it is
immediately executory
Foreclosure does not cut off right
of all parties involved
There is right of redemption
Period of redemption start from
the date of registration of
certificate of sale
Special power of attorney in
favor of mortgagee is needed in
the contract
 Notes:
1. A foreclosure sale retroacts to the date of registration of the
mortgage and that a person who takes a mortgage in good
faith and for valuable consideration, the record showing clear
title to the mortgagor, will be protected against equitable
claims on the title in favor of third persons, of which he had no
actual or constructive notice (St. Dominic Corporation vs. IAC
151 SCRA 577).

2. Where there is a right to redeem, inadequacy of price is not

material because the judgment debtor may reacquire the
property or else sell his right to redeem and thus recover any loss
he claims to have suffered by reason of the price obtained at
the auction sale and consequently not sufficient to set aside the
sale. Mere inadequacy of the price obtained at the sheriff’s
sale will not be sufficient to set aside the sale unless “the price is
so inadequate as to shock the conscience of the court” taking
into consideration the peculiar circumstances attendant
thereto. (Sulit vs. CA, 268 SCRA 441)
 Notes:
3. Should there remain a balance due to the mortgagee after
applying the proceeds of the sale, the mortgagee is entitled
to recover the deficiency. This rule applies both to judicial
and extra-judicial foreclosure real mortgage.

4. The action to recover a deficiency after foreclosure

prescribes after 10 years from the time the right of action
accrues (Arts 1142 & 1144).
 Stipulation of Upset Price or “TIPO”

• It is a stipulation in a mortgage of real property

of minimum price at which the property shall be
sold, to become operative in the event of a
foreclosure sale at public auction.

• It is null and void for the property must be sold

to the highest bidder. Parties cannot, by
agreement, contravene the law and interfere with
the lawful procedure of the courts (BPI vs Yulo, 31
Phil 476)
 Extrajudicial foreclosure real
property (Act No. 3135)
• The law covers only real estate
mortgages. It is intended merely to
regulate the extrajudicial sale of the
property mortgaged if and when the
mortgagee is given a special power of
express authority to do so in the deed
itself or in a document annexed
thereto.
• The authority to sell is not extinguished by the
death of the mortgagor (or mortgagee) as it is an
essential and inseparable part of a bilateral
agreement (Perez vs PNB, 17 SCRA 833).

• No sale can be legally made outside the

province in which the property sold is situated;
and in case the place within said province in
which the sale is to be made is the subject of
stipulation, such sale shall be made in the said
place in the municipal building of the municipality
in which the property or part thereof is situated.
 Procedure for extrajudicial
foreclosure of both real estate
mortgage under Act No. 3135
and chattel mortgage under Act
No. 1508

(A.M. No. 99-10-05-0, January

15, 2000)
1. Filing of application before the
Executive Judge through the Clerk of
Court
2. Clerk of Court will examine whether the
requirement of the law have been
complied with, that is, whether the
notice of sale has been posted for not
less than 20 days in at least three (3)
public places of the municipality or city
where the property is situated, and if the
same is worth more than P400.00, that
such notice has been published once a
week for at least three (3) consecutive
weeks in a newspaper of general
circulation in the city of municipality
3. The certificate of sale must be
approved by the Executive Judge

4. Where the application concerns

extrajudicial foreclosure of real
mortgages in different locations
covering one indebtedness, only one
filing fee corresponding to such debt
shall be collected
5. The Clerk of Court shall issue
certificate of payment indicating the
amount of indebtedness, the filing
fees collected, the mortgages sought
to be foreclosed, the description of
the real estates and their respective
locations

6. The notice of sale shall be published

in a newspaper of general circulation
pursuant to Section 1, PD No. 1079
7. The application of shall be raffled
among all sheriffs

8. After the redemption period has

expired, the Clerk of Court shall
archive the records.
9. No auction sale shall be held unless
there are at least two (2) participating
bidders, otherwise the sale shall be
postponed to another date. If on the
new date set forth for the sale there
shall not be at least two bidders, the
sale shall then proceed. The names of
the bidders shall be reported to the
Sheriff of the Notary Public, who
conducted the sale to the Clerk of
Court before the issuance of the
certificate of sale.
 NOTES:
• A sale by the mortgagor to a third party of
the mortgaged property during the period for
redemption transfers only the right to redeem
the property and the right to possess, use and
enjoy the same during said period.

• Where sale with assumption of mortgage not

registered and made without the consent of
the mortgagee, the buyer, thereof, was not
validly substituted as debtor and, hence, had
no right to redeem (Bonnevie vs. CA, 125
SCRA 122).
 Kinds
1. Equity of Redemption – right of mortgagor to
redeem the mortgaged property after his
default in the performance of the conditions
of the mortgage within the 90-day period
from the date of the service of the order of
foreclosure or even thereafter but before the
confirmation of the sale. Applies to judicial
foreclosure of real mortgage and chattel
mortgage foreclosure.

– NOTE: Redemption of the banking institutions is

allowed within one year from confirmation of
sale.
2. Right of Redemption – right of
mortgagor to redeem the mortgaged
property within one year from the date
of registration of the certificate of sale.
• Applies only to extrajudicial foreclosure of real
mortgage.

• NOTE: The right of redemption, as long as within

the period prescribed, may be exercised
irrespective of whether or not the mortgagee has
subsequently conveyed the property to some
other party (Sta. Ignacia Rural Bank, Inc. vs. CA,
230 SCRA 513)
 Period of Redemption
1. Extra-judicial (Act #3135)
• a. natural person – one year from registration
of the certificate of sale with Registry of Deeds

• b. juridical person – same rule as natural

person

• c. juridical person (mortgagee is bank) - three

months after foreclosure or before registration
of certificate of foreclosure which ever is
earlier (sec. 47, of General Banking Law)
 Period of Redemption
• 2. Judicial – before confirmation of the
sale by the court
 NOTE:
• Allowing a redemption after the lapse of the
statutory period, when the buyer at the
foreclosure sale does not object but even
consents to the redemption, will uphold the
policy of the law which is to aid rather than
defeat the right of redemption.

• There is nothing in the law which prevents a

waiver of the statutory period for redemption
(Ramirez vs CA, 219 SCRA 598).
Amount of the redemption price:
1. Mortgagee is not a bank (Act No.
3135, in relation to Sec. 28, Rule 39 of
Rules of Court)

• a. purchase price of the property

• b. 1% interest per month on the purchase
price
• c. taxes paid and amount of purchaser’s prior
lien, if any, with the same rate of interest
computed from the date of registration of
sale, up to the time of redemption
Amount of the redemption price:
2. Mortgagee is a bank (GBL 2000)
a. amount due under the mortgage deed
b. interest
c. cost and expenses