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 non-
performance of such obligation within the period agreed upon. (Civil Law Reviewer,
Jurado, 2009ed)
Characteristics of Mortgage
1. Real contract
2. Accessory contract
3. It is indivisible
4. It is inseparable
5. It is real property
6. It is a limitation on ownership
7. It can secure all kinds of obligation
8. The property cannot be appropriated
9. The mortgage is a lien
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.
2. Legal required by law to be executed in favour of certain persons.
3. 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.
Essential Requisites of Mortgage
1. It must be constituted to secure the fulfilment of the principal obligation.
2. The mortgagor is the absolute owner of the thing mortgage.
3. The mortgagor has the free disposal of the property, and in the absence thereof,
that he be legally authorized for the purpose.
4. When the principal obligation becomes due, the property mortgage may be
alienated for the payment of such obligation.
5. The subject matter of the contract must be immovable property or alienable real
rights upon immovable.

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Real Estate Mortgage and Contract of Sale with Right of Repurchase
Distinguished

Contract of Sale with Right of

Real Estate Mortgage
Repurchase
Accessory contract Principal and independent contract
No transfer of title and possession There is transfer of property and
of property possession, although conditional
Creditor has no right to the fruits of Vendee a retro is entitled to the fruits
the property during the pendency of even during the period of redemption
mortgage
Failure of the debtor to pay his debt After consolidation of title in the
the creditor cannot appropriate the vendee a retro he may dispose of it as
property mortgage nor dispose of it absolute owner

Real Estate Mortgage and Pledge Distinguished

Real Estate Mortgage Pledge

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

Extent of Mortgage
1. New plantings
2. Fruits, except those collected before the obligation falls due and those removed
and stored when it falls due
3. 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)
4. 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)
5. 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)
6. 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)

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 If the mortgaged estate passes into the hands of a 3 rd person, the
mortgage does not extend to any machinery, object, chattel or construction
which he may have brought or placed there and which such 3 rd 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)
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)
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.
2. The power to foreclose is vested upon the mortgagee.
3. If there is deficiency, the debtor is obliged to pay it even after the foreclosure.
4. Public notice of foreclosure is mandatory and it must be strictly complied with and
slight deviation will invalidate the sale or render it voidable.

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Kinds of Foreclosure
Judicial and Extrajudicial Foreclosure Distinguished

Judicial Extrajudicial
Court intervene No court intervention
Decisions are appealable Not appealable, immediately executor
Cuts off all the right of the parties Does not cut off rights of all the parties
impleaded involved
Equity of redemption, except Right of redemption
banks which provide rights of
redemption
Redemption period, from finality of Redemption period, date of registration of
judgment until order of the certificate of sale
confirmation
No need for SPA in the contract of SPA is needed by the mortgagee in the
mortgage. contract.
Governed by Rule 68 of the ROC 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.
2. 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.
3. Sale to the highest bidder at public auction
4. 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.
5. Execution of judgment
6. Application of proceeds of sale
Costs of the sale

Amount due the mortgagee

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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.
7. 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)

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)
Procedure:
1. Filing of the application before the Executive Judge through the Clerk of Court.
2. 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)
3. Executive Judge must approve the certificate of sale.
4. Only one filing fee shall be collected in case of foreclosure in different locations
covering one indebtedness.

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 5. 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.
6. Notice of sale shall be published in a newspaper of general circulation pursuant
to Section 1, PD No.1079.
7. Application shall be raffled among the sheriffs.
8. The clerk of court shall archive the records after the redemption period has
expired.
9. 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.
2. 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

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 3. 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)
4. The redemption must be made before the confirmation of sale.
5. 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)
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)
2. 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)
Persons entitled to exercise right of redemption
1. Mortgagor or one in privity of title with mortgagor.
2. Successor-in-interest
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.

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 3. Under the Rules of Court
Judgment debtor or his successor-in-interest 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 3 rd 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.
2. 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 action such as a suit for ejectment to obtain possession of
the property. (Javelosa vs. CA, GR No. L-124292, December 10, 1996)