CREDIT

TRANSACTIONS
REAL ESTATE
MORTGAGE
(ARTICLES 2124-2131)
Definition

 A contract whereby the debtor secures to the

creditor the fulfillment of a principal
obligation, specially subjecting to such
security immovable property or real rights
over immovable property in case the principal
obligation is not complied with at the time
stipulated.
Characteristics of the
contract:
1. Real
2. Accessory
3. Subsidiary
4. Unilateral – it creates only an obligation on
the part of the creditor who must free the
property from the encumbrance once the
obligation is fulfilled.
NOTES:

1. As an accessory contract, its consideration is

that of the principal contract from which it
receives life.
2. A mortgage does not involve a transfer,
cession or conveyance of property but only
constitutes a lien thereon. Until discharged,
it follows the property wherever it goes and
subsists notwithstanding changes of
ownership
NOTES:

3. A mortgage gives the mortgagee no right or claim

to the possession of the property, and therefore, a
mere mortgagee has no right to eject an occupant
of the property mortgaged unless the mortgage
should contain some provision to that effect. The
only right of a mortgagee in case of non-payment
of a debt secured by mortgage would be to
foreclose the mortgage and have the encumbered
property sold to satisfy the outstanding
indebtedness. If the possession is transferred to the
mortgagee, it must not expressly be for purpose of
applying the fruits to the interest then to the
principal of the credit, for then it would be an
antichresis.
NOTES:

4. It is not an essential requisite that the

principal of the mortgage credit bears
interest, or that the interest as
compensation for the use of the principal
and enjoyment of its fruits be in the form of
a certain percent thereof.
Special Requisites (in addition to
the common essential requisites):
 It can cover only immovable property and
alienable real rights imposed upon immovables
(Art 2124);
 It must appear in a public instrument (Art. 2125);
and
 Registration in the registry of property is
necessary to bind third persons, but not for the
validity of the contract (Art 2125).
 An order for foreclosure cannot be refused on
the ground that the mortgage had not been
registered provided no innocent third parties are
involved.
NOTE:

 Where a mortgage is not valid or false, the

principal obligation which it guarantees is not
rendered null and void. What is lost only is the
right to foreclose the mortgage as a special
remedy for satisfying or settling the
indebtedness which is the principal obligation
but the mortgage deed remains as evidence
or proof of a personal obligation of the debtor
and the amount due to the creditor may be
enforced in an ordinary personal action.
Kinds:
1. Voluntary – agreed to by the parties or constituted by the
will of the owner of the property on which it is created

2. Legal – one required by law to be executed in favour of

certain persons The persons in whose favour the law
establishes a mortgage have no other right than to
demand the execution and the recording of the document
in which the mortgage is formalized (Art 2125 par 2)

3. Equitable – one which, although lacking the formalities of

a mortgage, shows the intention of the parties to make
the property a security for a debt
Bar 2013
 III. Amador obtained a loan of P300,000 from Basilio payable on
March25, 2012. As security for the payment of his loan, Amador
constituted a mortgage on his residential house and lot in Basilio's favor.
Cacho, a good friend of Amador, guaranteed and obligated himself to
pay Basilio, in case Amador fails to pay his loan at maturity.

 III. (1) If Amador fails to pay Basilio his loan on March 25, 2012, can
Basilio compel Cacho to pay? (1%)
 (A) No, Basilio cannot compel Cacho to pay because as guarantor, Cacho can invoke
the principle of excussion, i.e., all the assets of Basilio must first be exhausted.
 (B) No, Basilio cannot compel Cacho to pay because Basilio has not exhausted the
available remedies against Amador.
 (C) Yes, Basilio can compel Cacho to pay because the nature of Cacho's undertaking
indicates that he has bound himself solidarily with Amador.
 (D) Yes, Basilio can compel Cacho who bound himself to unconditionally pay in case
Amador fails to pay; thus the benefit of excussion will not apply.
Bar 2013
 III. (2) If Amador sells his residential house and lot to Diego,
can Basilio foreclose the real estate mortgage? (1%)

 (A) Yes, Basilio can foreclose the real estate mortgage because real
estate mortgage creates a real right that attaches to the property.

 (B) Yes, Basilio can foreclose the real estate mortgage. It is binding
upon Diego as the mortgage is embodied in a public instrument.

 (C) No, Basilio cannot foreclose the real estate mortgage. The sale
confers ownership on the buyer, Diego, who must therefore
consent.

 (D) No, Basilio cannot foreclose the real estate mortgage. To

deprive the new owner of ownership and possession is unjustand
inequitable.
Bar 2011

 (86) The right of a mortgagor in a judicial

foreclosure to redeem the mortgaged property
after his default in the performance of the
conditions of the mortgage but before the sale
of the mortgaged property or confirmation of
the sale by the court, is known as
 (A) accion publiciana.
 (B) equity of redemption.
 (C) pacto de retro.
 (D) right of redemption.
Extent of Mortgage:

 Absent express stipulation to the contrary,

the mortgage includes the accessions,
improvements, growing fruits and income of
the property not yet received when the
obligation becomes due and to the amount of
the indemnity granted or owing to the
proprietor from the insurers of the property
mortgaged, or in virtue of expropriation for
public use (Art 2127)
Object of Mortgage:

 Future property cannot be an object of a

contract of mortgage (Art 2085[2]) However,
a stipulation subjecting to the mortgage lien,
properties (improvements) which the
mortgagor may subsequently acquire install,
or use in connection with real property
already mortgaged belonging to the
mortgagor is valid (People’s Bank and Trust
Co. vs. Dahican Lumber Co., 20 SCRA 84)
Special Rights of:

1. Mortgagor - To alienate the mortgaged

property but the mortgage shall remain
attached to the property.

 NOTE: A stipulation forbidding the owner from

alienating the immovable mortgage shall be void
(Art 2130) being contrary to public policy inasmuch
as the transmission of property should not be
unduly impeded.
Special Rights of:

2. Mortgagee - To claim from a 3rd person in

possession of the mortgaged property the
payment of the part of the credit secured by
the which said third person possesses (Art
2129)

 NOTE: It is necessary that prior demand for

payment must have been made on the debtor
and the latter failed to pay (BPI vs Concepcion &
Hijos, Inc., 53 Phil 906)
Foreclosure

 The remedy available to the mortgagee by which he

subjects the mortgaged property to the satisfaction
of the obligation to secure that for 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)

 Foreclosure is valid where the debtor is in default in

the payment of his obligation (Gobonseng, Jr. vs CA,
246 SCRA 472)
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
 Judicial foreclosure Extrajudicial foreclosure
1.There is court intervention 1. No court intervention

2.Decisions are appealable 2. Not appealable because it is

immediately executory

3. Order of court cuts off all rights of the 3. Foreclosure does not cut off right of all
parties impleaded parties involved

4. There is equity of redemption except on 4. There is right of redemption

banks which provides for a right of
redemption

5. Period of redemption starts from the 5. Period to redeem start from date of
finality of the judgment until order of registration of certificate of sale
confirmatio

6. No need for a special power of attorney 6. Special power of attorney in favor of

in the contract of mortgage mortgagee is needed in the contract
 Judicial foreclosure Extrajudicial foreclosure
1.There is court intervention 1. No court intervention
 Judicial foreclosure Extrajudicial foreclosure
2.Decisions are appealable 2. Not appealable because it is
immediately executory
 Judicial foreclosure Extrajudicial foreclosure
3. Order of court cuts off all rights of the 3. Foreclosure does not cut off right of all
parties impleaded parties involved
 Judicial foreclosure Extrajudicial foreclosure
4. There is equity of redemption except on 4. There is right of redemption
banks which provides for a right of
redemption
 Judicial foreclosure Extrajudicial foreclosure
5. Period of redemption starts from the 5. Period to redeem start from date of
finality of the judgment until order of registration of certificate of sale
confirmatio
 Judicial foreclosure Extrajudicial foreclosure
6. No need for a special power of attorney 6. Special power of attorney in favor of
in the contract of mortgage 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).
NOTES:

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
 END
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