ACT NO.

3135 – AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL

POWERS INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES
SECTION 1. When a sale is made under a special power inserted in or attached to any real-
estate mortgage hereafter made as security for the payment of money or the fulfillment of any
other obligation, the provisions of the following election 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.
SECTION 2. Said sale cannot be made legally outside of 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
subject to stipulation, such sale shall be made in said place or in the municipal building of the
municipality in which the property or part thereof is situated.
SECTION 3. Notice shall be given by posting notices of the sale for not less than twenty days
in at least three public places of the municipality or city where the property is situated, and if
such property is worth more than four hundred pesos, such notice shall also be published once
a week for at least three consecutive weeks in a newspaper of general circulation in the
municipality or city.
SECTION 4. The sale shall be made at public auction, between the hours or nine in the
morning and four in the afternoon; and shall be under the direction of the sheriff of the
province, the justice or auxiliary justice of the peace of the municipality in which such sale has
to be made, or a notary public of said municipality, who shall be entitled to collect a fee of five
pesos each day of actual work performed, in addition to his expenses.
SECTION 5. At any sale, the creditor, trustee, or other persons authorized to act for the
creditor, may participate in the bidding and purchase under the same conditions as any other
bidder, unless the contrary has been expressly provided in the mortgage or trust deed under
which the sale is made.
SECTION 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, 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 one year from and after the date of the sale; and such redemption
shall be governed by the provisions of sections four hundred and sixty-four to four hundred
and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent
with the provisions of this Act.
SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the
Court of First Instance of the province or place where the property or any part thereof is
situated, to give him possession thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of twelve 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 this Act. Such petition shall be made under oath and filed
in form of an ex parte motion in the registration or cadastral proceedings if the property is
registered, or in special proceedings in the case of property registered under the Mortgage
Law or under section one hundred and ninety-four of the Administrative Code, or of any other
real property encumbered with a mortgage duly registered in the office of any register of
deeds in accordance with any existing law, and in each case the clerk of the court shall, upon
the filing of such petition, collect the fees specified in paragraph eleven of section one hundred
and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered
Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that
a writ of possession issue, addressed to the sheriff of the province in which the property is
situated, who shall execute said order immediately.
SECTION 8. The debtor may, in the proceedings in which possession was requested, but not
later than thirty days after the purchaser was given possession, petition that the sale be set
aside and the writ of possession cancelled, specifying the damages suffered by him, because
the mortgage was not violated or the sale was not made in accordance with the provisions
hereof, and the court shall take cognizance of this petition in accordance with the summary
procedure provided for in section one hundred and twelve of Act Numbered Four hundred and
ninety-six; and if it finds the complaint of the debtor justified, it shall dispose in his favor of all
or part of the bond furnished by the person who obtained possession. Either of the parties may
appeal from the order of the judge in accordance with section fourteen of Act Numbered Four
hundred and ninety-six; but the order of possession shall continue in effect during the
pendency of the appeal.
SECTION 9. When the property is redeemed after the purchaser has been given possession,
the redeemer shall be 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
purchaser occupied the property 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 one
per centum per month provided for in section four hundred and sixty-five of the Code of Civil
Procedure.
SECTION 10. This Act shall take effect on its approval.
ACT NO. 4118 – AN ACT TO AMEND ACT NUMBERED THIRTY-ONE HUNDRED AND
THIRTY-FIVE, ENTITLED “AN ACT TO REGULATE THE SALE OF PROPERTY UNDER
SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES.”
SECTION 1. Section six of Act Numbered Thirty-one hundred and thirty-five, entitled “An Act
to regulate the sale of property under special powers inserted in or annexed to real-estate
mortgages,” is hereby amended to read as follows:
“Section 6. In all cases in which an extrajudicial sale is made under the special power herein
before referred to, 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 one year from and after the date of the sale; and such redemption shall be
governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-
six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the
provisions of this Act.”
SECTION 2. The following three sections are hereby inserted after section six of said Act
Numbered Thirty-one hundred and thirty-five:
“Section 7. In any sale made under the provisions of this Act, the purchaser may petition the
Court of First Instance of the province or place where the property or any part thereof is
situated, to give him possession thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of twelve 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 this Act. Such petition shall be made under oath and filed
in form of an ex parte motion in the registration or cadastral proceedings if the property is
registered, or in special proceedings in the case of property registered under the Mortgage
Law or under section one hundred and ninety-four of the Administrative Code, or of any other
real property encumbered with a mortgage duly registered in the office of any register of
deeds in accordance with any existing law, and in each case the clerk of the court shall, upon
the filing of such petition, collect the fees specified in paragraph eleven of section one hundred
and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered
Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that
a writ of possession issue, addressed to the sheriff of the province in which the property is
situated, who shall execute said order immediately.
“Section 8. The debtor may, in the proceedings in which possession was requested, but not
later than thirty days after the purchaser was given possession, petition that the sale be set
aside and the writ of possession cancelled, specifying the damages suffered by him, because
the mortgage was not violated or the sale was not made in accordance with the provisions
hereof, and the court shall take cognizance of this petition in accordance with the summary
procedure provided for in section one hundred and twelve of Act Numbered Four hundred and
ninety-six; and if it finds the complaint of the debtor justified, it shall dispose in his favor of all
or part of the bond furnished by the person who obtained possession. Either of the parties may
appeal from the order of the judge in accordance with section fourteen of Act Numbered Four
hundred and ninety-six; but the order of possession shall continue in effect during the
pendency of the appeal.
“Section 9. When the property is redeemed after the purchaser has been given possession,
the redeemer shall be 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
purchaser occupied the property 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 one
per centum per month provided for in section four hundred and sixty-five of the Code of Civil
Procedure.”
SECTION 3. The number of the present section seven of said Act Numbered Thirty-one
hundred and thirty-five is hereby changed, making it section ten.
SECTION 4. This Act shall take effect on its approval.
Approved, December 7, 1933

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 clause—on occasion of the
mortgagor’s default, the whole sum remaining unpaid automatically becomes due and
payable
> Essence of mortgage contract—property 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 period—1 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
ed 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 extra-judicial 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 3135—protect the
bank during foreclosures. This makes it hard to secure injunctions and it
shortens the redemption period.