REAL ESTATE MORTGAGE A. General Concepts Requisites: 1. Constituted to secure the fulfillment of a principal obligation. 2.

mortgagor absolute owner of immovables or alienable rights. 3. Persons constituting the mortgage have free disposal/legally authorized. 4. essence: when principal obligation becomes due, the things in which the mortgage consists may be alienated for payment to the creditor. 5. Must be recorded in Registry of Property B. Form of REM - Document must be registered with the Registry of Property. - Not recorded mortgage binding between parties. Person in whose favor the law establishes a mortgage have no other right than to demand execution and recording of the document. - Governed by Mortgage Law, Land Reg. Law, Civil Code C. Obligations Secured - GR: REM is limited to principal obligations mentioned in the contract of REM. - Description must be correct and full enough from its four corners to direct attention to sources of correct info and not mislead or deceive. - Terms must be sufficiently clear. - A REM may exceptionally secure contracts for future advancements/after-incurred obligations/future debts so long as these debts that are yet to be contracted are also accurately described. - Most REM contain a stipulation known as a dragnet clause/blanket mortgage clause, which is specifically phrased to subsume all debts, whether past or future. continuing security - Continuing Security Not discharged by the amount named in the REM until the full amount of the principal obligation is paid. - Dragnet clause is valid. Will be strictly construed. - The amounts stated as consideration in the REM do not limit the amounts for which the REM may stand as security of from the 4 corners of the whole instrument, the intent to secure future and other indebtedness may be gathered. D. Object of the REM 1. Immovables 2. Alienable Real Rights in accordance with the laws, imposed upon immovables. Notes: - Rights/titles & Interest in a contract of lease of an immovable, such as a building, as well as the rights, title, and interest acquired in the land on which the building was constructed are alienable real rights. - Assignment by way of guaranty of such rights is a REM inasmuch as it is executed to guarantee and

principal obligation purpose is to guarantee a principal obligation and is not an absolute conveyance of title that confer ownerships on the assignee. I. After-Acquired Properties - A stipulation in a registered/recorded REM that all property taken in exchange or replacement by the mortgagor (after-acquired properties) shall become subject to the mortgage is BINDING REM need not be registered a second time in order to bind the afteracquired properties and affect 3rd persons. II. Effect and Extent - Art. 2126: Mortgage directly and immediately subjects the property to which it is imposed, whoever the possessor, to the fulfillment of the obligation for whose security it was constituted. REM = right in rem, a lien or legal right/interest that a creditor has in anothers property. Though mortgagor retains the right to dispose of the collateral as owner thereof, its sale or transfer doesnt affect mortgage. Purchaser of collateral necessarily bound to acknowledge and respect encumbrance. REM subsists notwithstanding changes of ownership. All subsequent purchasers must respect REM whether the transfer to them has the consent of the mortgagee or not. - Art. 2127: M extends to natural accessions, improvements, growing fruits, rents, income not yet received when the obligation becomes due whether the estate remains in the hands of mortgagor or it passes into the hands of a third person. - Art. 2129: Creditor may claim from a third person in possession of the mortgaged property, the payment of the part of the credit secured by the property which said 3rd person possesses. E. Right to Alienate Mortgage Credit - Right of the mortgagee - 2128: May be alienated/assigned in whole/in part. - 1625: Assignment of credit shall produce no effect as against third persons unless it appears in a public instrument or it is recorded in the Registry of Property in case the assignment involves real property. - 1627: Assignment of credit includes all accessory rights including guaranty, mortgage, pledge or preference. F. Right to Alienate Collateral - Mortgagor remains to be the owner of the collateral and retains the right to dispose as an attribute of ownership. - Art. 2130: A stipulation forbidding the owner from alienating the immovable mortgaged shall be void. pactum de non alienando
1

1. Stipulation forbidding the mortgagor from selling the collateral. 2. Stipulations forbidding the mortgagor from selling the collateral without the consent of the mortgagee. (results in same effect as 1; mortgagee essentially given sole prerogative to prevent any sale of collateral to 3rd person) - Mortgagor can enter into second/subsequent mortgages. - Right of first refusal (grant to mortgagee to match the offered purchase price) = valid G. Foreclosure of REM - If principal obligation becomes due and the debtor defaults, the creditor, as mortgagee, may elect to foreclose the collateral, by causing its alienation in accordance with the procedures allowed by law. - Judicial or extra-judicial I. Complaint for Foreclosure (RoC Rule 68) 1. Complaint for Foreclosure Date and due execution of mortgage Assignments if any Names and residences of the mortgagor and the mortgagee Description of mortgaged property Statement of the note/other documentary evidence of the obligation secured by the mortgage. Amount claimed to be unpaid Names and residences of all persons having/claiming an interest in the property subordinate in right to that of the holder of the mortgage, all of whom shall be made defendants in the action. 2. Judgment on Foreclosure Trial Courts find facts set forth to be true Ascertain amount due to plaintiff upon mortgage debt or obligation, including interest and other charges as approved by the court and costs Render judgment for sum Same be paid to the court or to the judgment obligee within a period of not less than 90, not more than 120 In default property shall be sold ay public auction to satisfy judgment 3. Equity of Redemption 1. Judgment for the amount of mortgage debt including interest and other charges, amount to be paid within period of grace granted by Rule 68. 2. Default collateral sold at auction 3. Period of grace/equity of redemption => right of mortgagor to extinguish the mortgage and retain ownership of the collateral after default but before foreclosure sale. 90-120 days. Equity of redemption conferred by law to mortgagors successors in interest or on third persons acquiring rights over the collateral from the mortgagor subsequent and therefore, subordinate to the mortgagees lien.

All persons having/claiming interest subordinate to right of holder of mortgagee made defendants in action Right is subordinate to superior lien of first mortgagee. 4. Foreclosure Sale Fails to pay within grace period the amount of judgment Upon motion, court shall order property to be sold under rules governing real estate under execution If second mortgagee brings action, it shall not affect rights of persons holding prior encumbrances upon the property or part thereof. Upon motion, confirmed by court Will divest right of parties in action and vest it on purchaser subject to right of redemption. GR: Upon finality of order of confirmation OR upon expiration of right of redemption, the purchaser at the auction sale or last redemptioner, shall be entitled to possession of the property. Foreclosure not complete without confirmation Hearing necessary Mortgagor should be notified of hearing. Lack of notice vitiates the confirmation of the sale. E: Unless third party is actually holding the same adversely to the judgment obligor. Upon motion, purchaser/last redemptioner may secure a writ of possession from court which ordered the foreclosure. Dispositions of Proceeds: 1. Cost of sale 2. Paid to person foreclosing mortgage 3. Junior encumbrancers in order of priority ascertained by the court 4. mortgagor Id debt not all due: - sufficient portion of the property has been sold to pay the total amount and the costs due, the sale shall terminate. - As more become due court on motion may order more to be sold - Not divisible Whole will be sold, entire debt and costs paid, rebate when proper Registration - Certified copy of final order of the court confirming the sale shall be registered in the registry of deeds. - No right of redemption cert. of title in the name of the mortgagor shall be cancelled, and a new one issued in the name of the purchaser. - Right of redemption exists cert. of title in the name of mortgagor shall not be cancelled but cert. of sale and order confirming the sale shall be recorded and a brief memo thereof made by the registrar of deeds upon cert. redeemed: deed of redemption registered with registry of deeds and brief memo thereof shall be made by the registrar of deeds on said cert. of title.
2

not redeemed: final deed of sale in favor of purchaser executed by sheriff shall be registered. Mortgagors name cancelled and a new one issued in the name of the purchaser. Manner of Using Premises Pending Redemption: upon expiration of the time allowed for redemption, the court may restrain commission of waste on the property by injunction, on the application of the purchaser or the judgment obligee, with or without notice. Not waste: continue to use it in the same manner it was previously used, ot to use it in the ordinary course of husbandry, make necessary repairs. Rents, earnings, and income of property pending redemption Purchaser/redemptioner shall not be entitled to receive the rents, earnings, and income of the property sold on execution, or the value of the use and occupation thereof when such property is in the possession of a tenant. All rents etc. derived from property pending redemption judgment obligor until expiration of period of redemption Recovery of price if sale not effective - purchaser may recover upon motion price paid with interest (irregularities, judgment reversed/set aside/property sold exempt, 3rd person vindicated claim)

E. Right of Redemption - There must be a specific law granting it. - General Banking Law of 2000 judicial foreclosure by a bank, quasi-bank, or trust entity, mortgagor has 1 year after sale to redeem by paying amount due under the mortgage deed, with interest thereon at the 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. F. Right to Surplus or Deficiency - Rule 68, Sec. 4: If there are not junior encumberances or there is a balance or residue after payment to them, [said amount] will go to the mortgagor or his duly authorized agent or to the person entitled to it. - Sec. 6: Deficiency judgment o If after the sale there is a balance due to the plaintiff, the court upon motion, shall render judgment against the defendant for any such balance he may be personally liable to the plaintiff, upon which: execution may issue immediately if the balance is all due at the time of the rendition of the judgment if not all due plaintiff entitled to execution at such time remaining balance becomes due

under the terms of the original contract which will be stated in the judgment. Rule 86, Sec. 7 Mortgage debt due from estate o Creditor holds a claim against the deceased secured by a mortgage/other collateral. o REMEDIES ARE DISTINCT, INDEPENDENT, MUTUALLY EXCLUSIVE THAT CAN BE ALTERNATIVELY PURSUED. o He may 1. WAIVE MORTGAGE, CLAIM PRINCIPAL OBLIGATION abandon the security and prosecute his claim provided in Rule 86 of the RoC and share in the general distribution of the assets of the estate OR 2. FORECLOSE MORTGAGE AND PROVE ANY DEFICIENCY AS AN ORDINARY CLAIM. he may foreclose his mortgage/realize upon his security by action in court making the executor/administrator a party defendant. - if there is a judgment for deficiency after the sale of the mortgaged property, he may claim his deficiency in the manner provided in the previous section. 3. RELY ON MORTGAGE EXCLUSIVELY; EXTRAJUDICIALLY FORECLOSE ANYTIME BEFORE IT PRESCRIBED WITHOUT RIGHT TO FILE A CLAIM FOR DEFICIENCY: He may rely upon his mortgage/other security alone, and foreclosure the same at any time within the period of the statute of limitations he is not admitted as creditor and shall receive no share in the distribution of other assets of estate. o ON REDEMPTION: executor/administrator can redeem the property mortgaged or pledged, by paying the debt for which it is held as security, under the direction of the court, if it is adjudged it is to be for the best interest of the estate that such redemption shall be made. SURPLUS mortgagor entitled DEFICIENCY JUDGMENT mortgagee entitled; in same proceedings as the judicial foreclosure RIGHT TO RECOVER DEFICIENCY extends to the judicial foreclosure of mortgage arising out of a settlement of estate.

II. Extrajudicial Foreclosure a. Special Powers - Act. 3135, Sec. 1: When a sale is made under a special power inserted in or attached to any REM made as security for the payment of
3

money/fulfillment of any other obligation, the following provisions shall govern as to the manner in which the sale and redemption shall be effected, whether or not provision for the same is made in the power. o Special power inserted in REM o Provisions will govern even if provisions are not reproduced in the REM. Mortgagee can foreclose but such right may only be exercised according to its clear mandate and requirements of the law must be complied with.

b. Foreclosure Sale - Sec. 2: Sale cannot be made legally outside the province in which the property is situated. o If place WITHIN the province is to be made is subject to stipulation, such sale shall be made in said place or in the municipal building of the municipality where property is wholely/partly situated. - Sec. 3: Notice shall be given by: 1. posting notices of the sale 2. for not less than 20 days in at least 3 public places where the property is situated 3. and if such property is worth more than P400 such notice shall also be published once a week for at least 3 consecutive weeks in a newspaper of general circulation. - A.M. 99-10-05-0, Sec. 1: All applications for extrajudicial foreclosure whether under Sheriff/notary public shall be filed with the Executive Judge, through the Clerk of Court, who is also the exOfficio Sheriff. - Sec. 2: Upon receipt of the application, the Clerk of Court shall: 1. Examine the same to ensure that the SPA authorizing the extra-judicial foreclosure is either inserted/attached to the REM. 2. Give file number to the application, endorse date ad time of filing, and then docket it (separate docket books for foreclosures by Sheriffs and notaries) 3. For the conduct of extrajudicial foreclosure under the sheriff collect appropriate filing fees and issue official receipt. - Cooperatives, thrift banks, and rural banks are not exempt from the payment of filing fees and other fees. 4. If application is for foreclosure of mortgages in different locations covering one indebtedness he shall also issue, aside from the official receipt, a certificate of payment indicating amount of indebtedness, filing fees collected, mortgages sought to be foreclosed, their locations to have the application docketed with the Clerks of Court in the places where the other properties are located and of allowing foreclosure to proceed thereat. - Raffled to a Sheriff under supervision of Executive Judge assisted by CoC

The sheriff to whom the application was raffled shall 1. Prepare a notice of extra-judicial sale using ff. form (see book) - Name/address of mortgagors - Amount of debt (excluding penalties, charges, atty fees, expenses of foreclosure) - Date of sale - Place of sale - Description of property - Alternate dates 2. Cause publication of notice - Executive judge shall designate a regular working day and definite time each week during which the notice will be distributed personally by sheriff for publication to qualified newspapers. - Unless stipulated, debtor mortgagor need not be personally served a copy of the notice of the extra-judicial foreclosure. 3. For REM covering loans not exceeding 100k, exclusive of interests, granted by rural banks publication shall be dispensed with, it being sufficient that the notices of foreclosure are posted for a period of 60 days immediately preceding the public auction the most conspicuous areas of the mun. building, public market, brgy market where property is located. 4. Prepare proof of publication to be attached to the records of the case. NOTICE: object is to inform public nature and condition of collateral to be sold and of the time, place and terms of the sale, secure bidders. GR: provision re. posting of notices must be strictly complied with. Slight deviations would render sale at least voidable o Tambunting v. CA: If sheriff sells collateral without notice at the inducement of mortgagee and purchaser is mortgagee sale is absolutely void and no title passes. o If notices contain mistakes/omissions calculated to deter/mislead bidders, to depreciate value of property or to prevent it from bringing a fair price mistakes/notices fatal to validity of the notice and the consequent foreclosure sale. Exception: If the objectives of a notice of sale are attained, immaterial errors and mistakes may not affect sufficiency of the notice. - e.g. posting of notice is lacking, not publication of newspaper, judicial notice has been taken that newspapers have a more far-reaching effect. has been held to be more than sufficient compliance (there should be no showing that the collateral was sold for a price far
4

below its value/no bad faith/no collusion bet. Sheriff and mortgagee) 2. Conduct of the Sale - Sec. 4: 1. made at public auction 2. between 9 am and 4 pm 3. under direction of sheriff of the province, justice of the peace, notary public entitled to P5 fee per day of actual work + expenses - Sec. 5: 1. GR: creditor, trustee, other person authorized to act for the creditor may participate in the bidding and purchase under the same conditions as any other bidders 2. Exception: unless contrary has been provided under mortgage deed/trust deed. - AM 99-10-05-0, Sec. 5: How conducted 1. sealed bids submitted to sheriff 2. awarded to highest bidder 3. tie open bidding bet. Highest bidders 4. payment either in cash/managers check (phil currency) 5 days from notice. - Sec. 6: after sale, CoCs shall collect appropriate fees. Amount paid not refundable even if property is redeemed. - Sec. 8: Sheriff/notary shall report names of bidders to CoC - Sec. 9: upon presentation of appropriate receipts, CoC shall issue and sign cert. of sale subject to Executive Judges approval. c. Right of Redemption - Act. 3135, Sec. 6: 1. After Extrajud sale is made 2. debtor, successors in interest or judicial creditor/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 3. at any time within the term of one year from and after the date of the sale. 4. After cert. of sale has been issued CoC shall keeps records for a period of 1 year from the date of registration