MORTGAGE

Art. 2124. Only the following property may be the object of a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws, imposed upon immovables.
Nevertheless, movables may be the object of a chattel mortgage. (1874a)

MORTGAGE
> Contract whereby the debtor secures to the creditor the fulfillment of a principal obligation,
specially substituting to such security immovable property or real rights over immovable property
which obligation shall be satisfied with the proceeds of sale of said property or rights in case the said
obligation is not complied with at the time stipulated
> Real, accessory, unilateral and subsidiary contract

POSSESSION OF PROPERTY
MORTGAGED
> As a general rule, it is retained by the mortgagor
> The mortgaged property is only subjected to a lien by the mortgagee but ownership is retained by
the mortgagor

PAYMENT OF INTEREST ON
MORTGAGE CREDIT
> With regard to fruits or interest, the mortgagee shall be subject to the obligation of an
antichresis creditor

SUBJECT MATTER OF MORTGAGE

> Immovables and alienable real rights over immovables

FUTURE PROPERTY CANNOT BE

OBJECT OF MORTGAGE
> Future property cannot be the object of a contract of mortgage
> A stipulation however subjecting the mortgage lien, properties which the mortgagor may
subsequently acquire, install, or use in connection with real property already mortgaged
belonging to the mortgagor is valid
Art. 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order
that a mortgage may be validly constituted, that the document in which it appears be
recorded in the Registry of Property. If the instrument is not recorded, the mortgage is
nevertheless binding
between the parties.
The persons in whose favor 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. (1875a)

ESSENTIAL REQUISITES OF A
MORTGAGE
1. To secure the fulfillment of a principal obligation
2. The mortgagor should be the absolute owner of thing mortgaged
3. The mortgagor should have free disposal of the thing
4. When the principal obligation becomes due, the thing mortgaged may be alienated to secure
payment

5. For a mortgage to be validly constituted and to prejudice third persons, the mortgage should
be recorded with the Registry of Property
NO VALIDLY CONSTITUTED MORTGAGE IF THE DEED OF MORTGAGE IS A MERE
PRIVATE DOCUMENT

MORTGAGE IS NEVERTHELESS
BINDING BETWEEN THE PARTIES
EVEN IF UNREGISTERED
> Actual knowledge on the part of the buyer
> Actual knowledge=registration

PROCEDURE: WHAT HAPPENS

WHEN YOU ENTER INTO A
CONTRACT OF MORTGAGE?
1. Execute the document of mortgage
2. Go to a notary public, who will notarize the document.
3. Pay the documentary stamp tax within the first five days of the succeeding month. The doc
stamp tax is a percentage of the value of the property mortgaged.
4. Go to the Office of the Register of Deeds and pay the registration fees. Before you pay
the registration fees, the government will require you to update payment of realty taxes on the
property. After payment of the registration fees, the mortgage will be annotated on the title.

EFFECT OF INVALIDITY OF
MORTGAGE ON PRINCIPAL
OBLIGATION
1. The principal obligation remains valid
2. Mortgage deed remains as evidence of principal obligation
Art. 2126. The mortgage directly and immediately subjects the property upon which it
is imposed, whoever the possessor may be, to the fulfillment of the obligation for
whose security it was constituted. (1876)

EFFECTS OF MORTGAGE
1. Creates a real right
a. If the mortgagor sells the encumbered property, the property remains subject to the
fulfillment of the principal obligation secured by it
b. The mortgagee has a right to rely in good faith on what appears on the certificate of title of
the
mortgagor of the property given as security and in the absence of anything to excite suspicion,
he is
under no obligation to look beyond the certificate
c. Until the action for expropriation has been completed, ownership over the property
remains
with the registered owner
d. Banking institution must exercise due diligence before entering contract of mortgage
e. If a person is the first mortgagee over a property which was sold in an auction by the
second
mortgagee, the only right left to him is to collect his mortgage credit from the purchaser
thereof
during the sale conducted
f.

In a suit to nullify a certificate of title, the mortgagee is an indispensable party

2. Creates merely an encumbrance

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing

fruits, and the rents or income 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, with the
declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third
person. (1877)

EXTENT OF MORTGAGE
> A REM constituted on an immovable property is not limited to the property itself but also extends to
all its accessions, improvements, growing fruits, and rents
> To exclude them, it is necessary that there be an express stipulation to that effect
Art. 2128. The mortgage credit may be alienated or assigned to a third person, in
whole or in part, with the formalities required by law. (1878)
Art. 2129. The 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 third
person possesses, in the terms and with the formalities which the law establishes.
(1879)

RIGHT OF CREDITOR
AGAINST TRANSFEREE
MORTGAGED PROPERTY

OF

> The fact that the mortgagor has transferred the mortgaged property to a third person doesn't
relieve him from his obligation to pay the debt to the mortgage creditor in the absence of Novation
> A recorded REM is merely an accessory contract
> The creditor may only demand from any possessor the payment only of the part of the
credit secured by said property
> Necessary that there be prior demand for payment be made on the debtor and the latter failed
to pay
> Does not really apply to all third persons in possession of the property

> It only applies to those in possession of the mortgaged property in the concept of owner. If
the possession by a third person is only as lessee, the creditor may not collect the credit from that
third person.
Art. 2130. A stipulation forbidding the owner from alienating the immovable
mortgaged shall be void. (n)

STIPULATION FORBIDDING
ALIENATION OF MORTGAGED
PROPERTY
> Such stipulation would be contrary to public good inasmuch as the transmission of
property should not be unduly impeded

CAN MORTGAGEE PROHIBIT

ENCUMBERANCES WITHOUT
PRIOR CONSENT?
> Yes, regulation is not the same as prohibition
> The mortgagee may even add a standard. This is for good measure on the part of the mortgagee
which is allowed by law.

IN THE FIRST PLACE, WHY

WOULD YOU BE CONCERNED

WITH THE DISPOSITION OF THE

PROPERTY IF YOU ARE THE
MORTGAGEE?
> You don't want the property to be in the hands of someone who is litigious
> As a means of monitoring the financial condition of the mortgagor
Art. 2131. The form, extent and consequences of a mortgage, both as to its
constitution, modification and extinguishment, and as to other matters not included in this
Chapter, shall be governed by the provisions of the Mortgage Law and of the Land
Registration Law. (1880a)

FORECLOSURE
> 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

VALIDITY AND EFFECT OF

FORECLOSURE
> The right to foreclose the mortgage and to have the property seized and sold with a view
to applying the proceeds to the payment of the principal obligation
> A mortgage contract may contain an acceleration clauseon occasion of the mortgagors
default, the whole sum remaining unpaid automatically becomes due and payable
> Essence of mortgage contractproperty has been identified and separated from a
mass of the property of the mortgagor to secure the payment of a principal obligation
> Once the proceeds have been applied to the payment of the principal obligation, the
debtor cannot anymore be asked to pay unless there is deficiency

KINDS OF FORECLOSURE
1. Judicial
2. Extrajudicial
AN ACT TO AUTHORIZE THE MORTGAGE OF PRIVATE REAL PROPERTY IN FAVOR OF
ANY INDIVIDUAL, CORPORATION, OR ASSOCIATION SUBJECT TO CERTAIN CONDITIONS
Section 1. Any provision of law to the contrary notwithstanding, private real property
may be mortgaged in favor of any individual, corporation, or association, but the mortgagee or his
successor in interest, if disqualified to acquire or hold lands of the public domain in the
Philippines, shall not take possession of the mortgaged property during the existence of the
mortgage and shall not
take possession of the mortgaged property except after default and for the sole
purpose of foreclosure, receivership, enforcement or other proceedings and in no case for
a period of more than 5 years from actual possession and shall not bid or take part in any sale
of such real property in case of foreclosure: Provided, that said mortgagee or successor in
interest may take possession of said property after default in accordance with the
prescribed judicial procedures for foreclosure and receivership and in no case
exceeding 5 years from actual
possession.
Section 2. All laws, orders, or regulations, or parts thereof inconsistent with the provisions of this
Act, are repealed or modified accordingly.
Section 3. This Act shall take effect upon its approval.
NOTES ON RA 133:
1. You can mortgage to a foreigner. RA 133 sanctions this. Ownership is not equivalent to
mortgage. Nonetheless, he can only institute judicial proceedings and not extrajudicially
foreclose the mortgage. Furthermore, he cannot bid or take part in the sale of the real property.
2. The foreigner may not take possession of the property during the mortgage. He could only
possess the same as a lessee.
3. The foreigner may only take possession of the mortgaged property after default, and for
the sole purpose of foreclosure, enforcement or other proceedings. This should not
exceed the period of 5 years from actual possession.

JUDICIAL FORECLOSURE UNDER

RULE 68, RULES OF COURT
1. The mortgagee should file a petition for judicial foreclosure in the court which has jurisdiction
over the area where the property is situated
2. The court will conduct a trial. If, after trial, the court finds merit in the petition, it will render
judgment ordering the mortgagor/debtor to pay the obligation within a period not less than 90 nor
more than 120 days from the finality of judgment.
3. Within this 90 to 120 day period, the mortgagor has the chance to pay the obligation to
prevent his property from being sold. This is called the EQUITY OF REDEMPTION PERIOD.
4. If mortgagor fails to pay within the 90-120 days given to him by the court, the property shall be
sold to the highest bidder at public auction to satisfy the judgment.
5. There will be a judicial confirmation of the sale. After the confirmation of the sale, the purchaser
shall be entitled to the possession of the property, and all the rights of the mortgagor with
respect to the property are severed or terminated. The equity of redemption period actually
extends until the sale is confirmed. Even after the lapse of the 90 to 120 day period, the mortgagor
can still redeem the property, so long as there has been no confirmation of the sale 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.
a. After the confirmation of the sale, the mortgagor does not have a right to redeem the
property anymore. This is the general rule in judicial foreclosures there is no right of
redemption after the sale is confirmed.
The proceeds of the sale of the property will be disposed as follows:
a. First, 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.
The rule on extrajudicial foreclosure is
different. The mortgagee must go to court and file another action for the collection of the
deficiency.
ONE WOULD SHY AWAY FROM A JUDICIAL FORECLOSURE:
1. Judicial foreclosure is costly, since the parties would need to hire lawyers. But then again, the

present rules provide that court fees are needed to be paid in extrajudicial proceedings also.
2. The parties have very little control over the sale because there is court intervention.
3. More susceptible to stalling/dilatory tactics by the mortgagor, since he can file all sorts of
motions in court to prevent the sale.
4. It is more efficient to have extrajudicial proceedings since for judicial proceedings, there is a
minimum lapse of time of 6 years.
EXTRAJUDICIAL FORECLOSURE
(UNDER

ACT

3135/4118

AND

SC

ADMINISTRATIVE CIRCULAR)

WHERE SHOULD AN EXTRAJUDICIAL FORECLOSURE

SALE BE DONE?
> Sale cannot be made legally outside the city or province wherein the property sold is
situated. In case the place has been stipulated, it shall be made in the municipal building of
the said place
NOTICE OF THE SALE
1. POSTING of the notices of the sale FOR NOT LESS THAN 20 DAYS in at least 3 public
places of the municipality or city where the property is situated
2. IF THE PROPERTY IS WORTH MORE THAN P400, such notice shall also be published
once a week at least 3 consecutive weeks in a newspaper of general circulation in the
municipality or city. (You don't need to count 6 days between publications.)
NOTE: there is jurisprudence, which held that there is sufficient notice when there is
publication.
PUBLIC AUCTION/SALE
1. Time shall be between 9AM and 4PM. It shall be made in the direction of the sheriff of the
province, the justice or auxiliary justice of the peace of the municipality, or of the notary public
of the municipality, who shall be compensated with P5 for each day of actual work or
performance in addition to his expenses.
2. Anyone may bid at the sale, unless there are stipulations in the agreement.

POSSESSION

> Upon foreclosure, if the mortgagor is in possession of the property, he will retain possession
during the redemption period1 year from the date of sale
> If the winning bidder wants possession during the redemption period, he may execute a
bond in the amount equivalent to the use of the property for 12 months, to indemnify the
debtor in case it be shown that the sale was made without violating the mortgage or without
complying with the requirements of the Act. Upon approval, a writ of possession will be issued in his
favor.
> If the winning bidder is able to secure possession, the mortgagor may petition that the sale is
set aside and the writ of possession be cancelled on the ground that he wasn't in default
or that the sale wasn't made in accordance with Act 3135. This must be filed within 30
days from issuance of the writ of possession.

RIGHT OF REDEMPTION
> The debtor, his successors-in-interest, or any judicial creditor or 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 the same at any time WITHIN THE TERM
OF 1 YEAR FROM AND AFTER THE DATE OF THE SALE and such will be governed by the Rules
of Court
> When the property is redeemed after the purchaser has been given possession, the
redeemer is entitled to deduct from the price of redemption any rentals that said purchaser
may have collected in case the property or any part thereof was rented. If the property was used as
his own dwelling, it being town property, or used it gainfully, it being rural property, the redeemer
may deduct from the
price the interest of 1% per month provided in the Rules of Court.
RULES OF COURT, RULE 39, SECTIONS 29 TO 31, AND 35

Sec. 29. Effect of redemption by judgment obligor, and a certificate to be delivered and
recorded thereupon; to whom payments on redemption made. If the judgment obligor redeems,
he must make the same payments as are required to effect a redemption by a
redemptioner, whereupon, no further redemption shall be allowed and he is restored to his
estate. The person to whom the
redemption payment is made must execute and deliver to him a certificate of redemption
acknowledged before a notary public or other officer authorized to take acknowledgments of
conveyances of real property. Such certificate must be filed and recorded in the registry of deeds of
the place in which the property is situated, and the registrar of deeds must note the record thereof on
the margin of the record of the certificate of sale. The payments mentioned in this and the last
preceding sections may be made to the purchaser r redemptioner, or for him to the officer who made
the sale.

Sec. 30. Proof required of redemptioner.

A redemptioner must produce to the officer, or person from whom he seeks to redeem, and serve
with his notice to the officer a copy of the judgment or final order under which he claims the right to
redeem, certified by the clerk of the court wherein the judgment or final order is entered; or, if he
redeems upon a mortgage or other lien, a memorandum of the record thereof, certified by the
registrar of deeds; or an original or certified copy of any assignment necessary to establish
his claim; and an affidavit
executed by him or his agent, showing the amount then actually due on the lien.
Sec. 31. Manner of using premises pending redemption; waste restrained.
Until the expiration of the time allowed for redemption, the court may, as in other proper cases,
restrain the commission of waste on the property by injunction, on the application of the purchaser
or the judgment obligee, with or without notice; but it is not waste for a person in possession of the
property at the time of the sale, or entitled to possession afterwards, during the period allowed for
redemption, to continue to use it in the same manner in which it was previously used; or to use
it in the ordinary course of husbandry; or to make the necessary repairs to buildings thereon while
he occupies the property.
Sec. 35. Right to contribution or reimbursement.
When property liable to an execution against several persons is sold thereon, and more than a
due proportion of the judgment is satisfied out of the proceeds of the sale of the property of one of
them, or one of them pays, without a sale, more than his proportion, he may compel a
contribution from the others; and when a judgment is upon an obligation of one of them, as
security for another, and the surety pays the amount, or any part thereof, either by sale of his
property or before sale, he may compel repayment from the principal.
GENERAL BANKING LAW OF 2000, SECTION 47

Sec. 47. Foreclosure of Real Estate Mortgage. - In the event of foreclosure, whether judicially
or extra-judicially, of any mortgage on real estate which is security for any loan or other
credit accommodation granted, the mortgagor or debtor whose real property has been sold
for the full or partial payment of his obligation shall have the right within one year after the sale
of the real estate, to redeem the property by paying the amount due under the mortgage deed,
with interest thereon at 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. However, the purchaser at the auction sale concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter upon and take possession of such property
immediately after the date of the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be given due
course only upon the filing by the petitioner of a bond in an amount fixed by the court

conditioned that he will pay all the damages which the bank may suffer by the enjoining or
the
restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an
extrajudicial foreclosure, shall have the right to redeem the property in accordance with this
provision
until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of
Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier.
Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall
retain their redemption rights until their expiration.
NOTES:
1. For judicial foreclosure, the redemption period is within one year. For extrajudicial, its 90
days from sale or registration.
2. The purpose is to give concession to the banks. Banks cannot get properties
mortgaged by those in financial distress.
3. The redemption price would be the mortgaged obligation plus the interest as stipulated in
the original obligation. Compare this with judicial foreclosure wherein the redemption price
is the original price. In this case, you have to pay more when redeeming from a bank.
4. There is immediate possession
5. A motion to enjoin would not be entertained unless secured by a bond.
6. Court will fix the amount of the bond. Normally, this would be the liability of the bank
plus costs. This remedied the loopholes in Act 3135protect the bank during
foreclosures.
This makes it hard to secure injunctions and it shortens the redemption
period.