REAL MORTGAGE

Group 2
Rona D. Solde
Hannah Lou D. Gumapon
Tirso I. Bangod
Roland Intud
Leonila Incinarial

Definition

Real Mortgage is 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
1.

It is an accessory and subsidiary contract.

2.

It is also unilateral because it creates only an

obligation on the part of the creditor who must free
the property from the encumbrance once the
obligation is fulfilled.

3.

The mortgagor, as a general rule, retains possession

of the property mortgaged as security for the
payment of the sum borrowed from the mortgagee,
and pays the latter a certain percent thereof as
interest on his principal by way of compensation for
his sacrifice in depriving himself of the use of said
money and the enjoyment of its fruits, in order to
give them to the mortgagor.

Characteristics
4. The objects of a real mortgage are immovable
(Article 415) and alienable real rights imposed
upon immovables.
Note:
While a mortgage of land necessarily
includes, in the absence of stipulation, the
improvements thereon, a building by itself may
be mortgaged apart from the land on which it is
built. Possessory rights over said property
before title is vested on the grantee may be
validly transferred or conveyed as in a deed of
mortgage. (prudential Bank vs. Panis, 153 SCRA
390 [1967]); Nartales vs. GSIS, 156 SCRA 205
[1987]).

Characteristics
5. In order that a mortgage may be
validly constituted, it must appear in
a public document duly recorded in
the Registry of Property (see Gaotian
vs. Gaffud, 24
SCRA 706 [1969])

Note: If the instrument of mortgage is

not recorded, the mortgage is
nevertheless binding between the parties.

Characteristics
6. A mortgage creates a real right, a lien inseparable from the
property mortgaged, which is enforceable against the whole
world. Until discharged, it follows the property wherever it
goes and subsists notwithstanding changes of ownership.
Note:
a.) If the mortgagor sells the mortgaged property, the property remains subject to
the fulfillment of the obligation secured by it. All subsequent purchasers of the
property must respect the mortgage, whether the transfer to them be with or
without the consent of the mortgagee. But the mortgage must be registered
(Article 2125) or, if not registered, the buyer must know of its existence. The
mortgagor may not be the principal debtor (Article 2085, 2 nd par.).
b.) The right or lien of an innocent mortgagee for value upon the mortgaged
property must be respected and protected, even if the mortgagor obtained his
title through fraud. The remedy of the persons prejudiced is to bring an action
for damages against the person who caused the fraud and if the latter is
insolvent, an action against the Treasurer of the Philippines may be filed for
the recovery of damages against the Assurance Fund.

Kinds of Mortgage

Voluntary
One which is agreed to between the parties or constituted
by the will of the owner of the property on which it is
created

Legal
one required by law to be executed in favor of certain
persons

Equitable
one which, although it lacks the proper formalities or other
requisites of a mortgage required by law, nevertheless
reveals the intention of the parties to burden real property
as a security for a debt, and contains nothing impossible or
contrary to law.

Subject Matter of Mortgage

Immovables

Alienable

rights imposed upon

immovables

Note: Future property cannot be object of

a contract of mortgage

Essential Requisites of
Mortgage

That they be constituted to secure the

fulfillment of a principal obligation
That the mortgagor be the absolute
owner of the thing mortgaged
That the persons constituting the
mortgage have the free disposal of their
property, and in the absence thereof, that
they be legally authorized for the purpose
That the document in which it appears be
recorded in the Registry of Property

Incidents of Registration of
Mortgage
1. Mortgagee entitled to registration of
mortgage as a matter of right
2. Proceedings for registration do not
determine validity of mortgage or its
effect
3. Registration is without prejudice to
better right of third parties

Incidents of Registration of
Mortgage
4. Mortgage deed once duly registered
forms part of the records for the
registration of the property
mortgaged
5. Mortgage by surviving spouse of
his/her undivided share of conjugal
property can be registered

Effect of Mortgage
1. The only right of a mortgagee in
case of non-payment of a debt
secured by real mortgage would be
to foreclose the mortgage and have
the encumbered property sold to
satisfy the outstanding indebtedness.

Effect of Mortgage
2. The mortgagors default does not
operate to vest in the mortgagee the
ownership of the encumbered property.
His failure to redeem the property does
not automatically vest ownership of the
property to the mortgagee which would
grant the latter the right to appropriate
the property or dispose of it for such
effect is against public policy as
enunciated by Article 2088.

Extent of Mortgage

General Rule: A mortgage constituted

on immovable property is not limited to
the property itself but also extends to all
its accessions, improvements, growing
fruits and rents or income (see Article
2102) as well as to the proceeds of
insurance should the property be
destroyed of the expropriation value of
the property should it be expropriated.

Exception: contrary stipulation

Alienation or Assignment of
Mortgage
1. Said assignment is valid and assignee
may foreclose the mortgage in case of
nonpayment of the mortgage
indebtedness.
2. The fact that the mortgagor has
transferred the mortgaged property to a
third person does not relieve him from his
obligation to pay the debt to the mortgage
creditor in the absence of novation

Alienation or Assignment of
Mortgage
3. The mortgage credit being a real right
which follows the property, the creditor
may demand from any possessor the
payment of the credit secured by said
property. It is necessary, however, that
prior demand for payment must have been
made on the debtor and the latter failed to
pay.
4. An assignee cannot acquire greater rights
than those pertaining to an assignor

Stipulation Forbidding Alienation

of Mortgaged Property

Such a stipulation is void.

However, if the mortgagor alienates
the property, the transferee is bound
to respect the encumbrance because
being a real right, the property
remains subject to the fulfillment of
the obligation for whose guaranty it
was constituted (Article 2126).

Foreclosure
Definition:

- it is the 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.

Foreclosure of Mortgages
1.

Judicial foreclosure governed by Rule 68 of the Rules of Court.

2.

Extrajudicial Foreclosure governed by Act. No. 3135 as amended, if and

when the mortgagee is given a specific power or express authority to do so.
Public auction must be conducted in the province where the property is
situated.
Posting of notice of sale in at least 3 public places therein
Publication in a newspaper of general circulation
Personal notice to mortgagor is not required
Debtor has the right to redeem the property sold within the term of one year
from and after the date of the sale (Section 6). The reckoning date in case of
registered land is from the registration of the certificate of sale since it is
only from such date that the sale takes effect as a conveyance. Every
conveyance of lands acquired under the free patent or homestead
provisions, when proper, shall be subject to repurchase by the applicant, his
widow or legal heirs, within a period of five years from the date of the
conveyance. (Section 119, C.A. No. 141 [Public Land Law], as amended) or
foreclosure sale.

Nature of Judicial Foreclosure

An action quasi in rem

Result or incident of failure to pay

indebtedness

Survives death of mortgagor

Nature of Extrajudicial
Foreclosure

Conferred for mortgagees protection

An ancillary stipulation

A prerogative of the mortgagee

Distinction of Judicial Foreclosure &

Extrajudicial Foreclosure
Judicial foreclosure

Extrajudicial foreclosure

There is court intervention

No court intervention

Decisions are appealable

Not appealable, it is immediately

executory

Order of the court cuts off all

rights of the parties impleaded

Foreclosure does not cut off right

of all parties involved

There is equity of redemption

except on banks which provides
for a right of redemption

There is right of redemption

Period of redemption starts from

the finality of the judgment until
order
of confirmation

Period to redeem start from date

of registration of certificate of
sale

No need for a special power of

attorney in the contract of
mortgage

Special power of attorney in favor

of mortgagee is needed in the
contract

Right of Mortgagee to Recover

Deficiency
1.

If there be a balance due to the mortgagee after applying

the proceeds of the sale, the mortgagee is entitled to
recover the deficiency.
In judicial foreclosure, the Rules of Court specifically gives the
mortgagee the right to claim for deficiency in case a deficiency
exists (Section 6, Rule 70).
While Act No. 3135 governing extrajudicial foreclosures of mortgage
does not give a mortgagee the right to recover deficiency after the
public auction sale, neither does it expressly or impliedly prohibit
such recovery.

Note: This right to recover deficiency had been categorically

resolved in State Investment vs. Court of Appeals (217 SCRA
32 [1993]). Ergo, the mortgagee is entitled to recover the
deficiency in case the sale proceeds are not sufficient to cover
the debt in extrajudicial foreclosures.
2.

The action to recover a deficiency after foreclosures

prescribes after ten (10) years from the time the right of
action accrues as provided in Article 1144(2) of the Civil Code

Effect of Inadequacy of Price

in Foreclosure Sale
1. Where there is right to redeem
General Rule: Inadequacy of price
is immaterial because the
judgment debtor may redeem the
property
Exception: the price is so inadequate
as to shock the conscience of the court
taking into consideration the peculiar
circumstances

Effect of Inadequacy of Price

in Foreclosure Sale
2. Property may be sold for less than its
fair market value upon the theory
that the lesser the price the easier for
the owner to redeem
3. The value of the mortgaged property
has no bearing on the bid price at the
public auction, provided that the
public auction was regularly and
honestly conducted

Waiver of Security by Creditor

1.

2.

The mortgagee may waive the right to

foreclose his mortgage and maintain a
personal action for recovery of the
indebtedness. There is no statutory provision
in our jurisdiction prohibiting a personal action
to recover a sum of money even though a
mortgage has been given as security for the
payment of the same.
The mortgagee cannot have both remedies.
He has only one cause of action, i. e., nonpayment of the mortgage debt; hence, he
cannot split up his cause of action by filing a
complaint for payment of the debt and another
complaint for foreclosure.

Redemption
Definition:
- a transaction by which the mortgagor
reacquires by which or buys back the
property which may have passed
under the mortgage or divests the
property of the lien which the
mortgage may have created.

Kinds of Redemption

Equity of redemption or the right of the mortgagor to

redeem the mortgaged property after his default in the
performance of the conditions of the mortgagee but
before the sale of the mortgaged property or
confirmation of the sale. The mortgagors equity of
redemption is simply the right of the mortgagor to
extinguish the mortgage and retain ownership of the
property by paying the secured debt within the 90-day
period after the judgment becomes final, in accordance
with Section 2, Rule 68 of the Rules of Court or even
after the foreclosure sale but prior to its confirmation.

Right of redemption or the right of the mortgagor to

redeem the mortgaged property within a certain
period(1 yr) after it was sold for the satisfaction of the
mortgaged debt.

Right of Redemption

In all cases of extrajudicial sale, the mortgagor may redeem the

property at any time within the term of one year from and after the
date of registration of the sale (see Section 6, Act No. 3135).

In judicial foreclosure of real estate mortgage, there is a right of

redemption which he can exercise at any time after service of
judgment of foreclosure and within the 90-day period and even
thereafter provided he does so before the foreclosure sale is
confirmed by the court. Confirmation of the sale of mortgaged real property
cuts off all the rights or interests of the mortgagor and of the mortgage and
persons holding under him, and with them the equity of redemption in the
property and vests them in the purchaser. Confirmation retroacts to the date of
the sale. It is a final order, not interlocutory.
Exception: However, if the property has been mortgaged in favor of the banks,
banking and credit institutions (RA 337, or the General Banking Act) or rural
banks (RA 2670), redemption is allowed within one year from the registration of
the sale. The redemption must be made within one year after the sale if the
mortgagee is a bank, banking or credit institution (Section 78, R. A. No. 337).
Under the Revised charter of the PNB, the period is one year from the
registration of the foreclosure sale.

Period of Redemption
1. Extra-judicial (Act No. 3135)
a. natural person 1 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) 3
months after foreclosure or before
registration of certificate of foreclosure
whichever is earlier (Sec. 117 of General
Banking Law)

Period of Redemption
2. Judicial before confirmation of the
sale by the court
NOTE: Allowing 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

Requisites for Valid

Redemption
1.

2.

3.

The redemption must be made within 12

months from the time of the registration of the
sale.
Payment of the purchase price of the property
plus 1% interest per month together with the
taxes thereon, if any, paid by the purchaser
with the same rate of interest computed from
the date of registration of the sale; and
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.

Persons Entitled to
Exercise Right of Redemption
Mortgagor or one in privity of title with mortgagor
Successor-in-interest

1.
2.

One to whom the debtor has transferred his right of redemption

One to 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 ore more joint debtors who were joint owners of the
property sold
One with a joint interest in the property, or his spouse, or his
heirs

Under the Rules of Court

3.

The judgment debtor, or his successor-in-interest in the whole

or any part of the property
A 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.

Rights & Obligation of

Mortgagee in Possession

Entitled to retain such possession

until the indebtedness is satisfied
and the property redeemed
Mortgagee in possession of
mortgaged property who introduces
improvements is NOT entitled to
reimbursement for value upon the
redemption of the mortgage

Where Rights of
Third Person Involved

Claimants with interest adverse to

mortgagor
Successor-in-interest of mortgagor
Lessee of agricultural land
Buyer of condominium unit

Recent Jurisprudence on
Real Mortgages
Ocampo v. Land Bank of the Phils.
(591 SCRA 562 [2009])

Facts: Ocampo & Tan obtain a loan from the Land Bank & the latter
which released the loan proceeds. It was agreed that the loan be
secured 80% by Quedancor, while the remaining 20% by the
Deed of Real Mortgage. Petitioner allege the nullity of mortgage.
Issue: Whether the deed of real estate mortgage is valid?
Held: The essence of a contract of mortgage indebtedness is that
the a property has been identified or set apart from the mass of
the property of the debtor-mortgagor as security for the payment
of money or the fulfillment of an obligation to answer the amount
of indebtedness, in case of default of payment. The loan was
established.

Recent Jurisprudence on
Real Mortgages
Recebido v. People
(346 SCRA 881 [2000])

Facts: Private complainant decided to redeem the land mortgaged

to petitioner. But the latter refused because she had sold her
property on him. It was found out that the deed of sale was
falsified by the petitioner.
Issue: Whether the petitioner is entitled to possession as
mortgagee?
Held: The deed of sale was forged hence, could not be a valid basis
of possession. Neither can his status as mortgagee be the basis of
possession. Since it is the mortgagor in a contract of mortgage
who is entitled to possession of the subject property, it follows
that ones status as mortgagee cannot be the basis of possession.

Recent Jurisprudence on
Real Mortgages
Tarnate vs. Court of Appeals
(241 SCRA 254)
It is a settled rule that a mortgagee may
recover any deficiency in the mortgage
account which is not realized in a
foreclosure sale and that the action for
recovery of that deficiency may be filed
even during the redemption period.

Recent Jurisprudence on
Real Mortgages
Olea vs. Court of Appeals
(247 SCRA 274)

A stipulation that the ownership of the property would automatically pass to the
vendee in case no redemption is effected within a stipulated period is void for
being a pactum commissorium which enables the mortgagee to acquire
ownership of the mortgaged property without need of foreclosure.

Where in a contract of sale with pacto de retro, the vendor remains in physical
possession of the land sold as lessee or otherwise, the contract should be
considered an equitable mortgage.

Where the contract contains a stipulation that upon payment by the vendor of
the purchase price within a certain period the document shall become null and
void and have no legal force and effect, the purported sale should be
considered a mortgage contract.

In case of doubt, a contract purporting to be sale with the right of purchase

shall be considered an equitable mortgage.

A mortgage action prescribes after 10 years.

Recent Jurisprudence on
Real Mortgages
DBP vs. Court of Appeals
(249 SCRA 331)

The fact that the annulment of the sale will also result in
the invalidity of the mortgage does not have an effect
on the validity and efficacy of the principal obligation,
for even an obligation that is unsupported by any
security of the debtor may also be enforced by means
of an ordinary action. Where a mortgaged is not valid,
as where it is executed by one who is not the owner of
the property, or the consideration of the contract is
simulated or false, the principal obligation which it
guaranteed is not thereby rendered null and void. That
obligation matures and becomes demandable in
accordance with the stipulations pertaining to it.

Recent Jurisprudence on
Real Mortgages
Gabonseng vs. Court of Appeals
(246 SCRA 472)

The application for foreclosure of

mortgage is premature where the
debtors have not yet defaulted on
the payment of either the principal or
the interest on their loans.

Recent Jurisprudence on
Real Mortgages
Borromeo v. Court of Appeals
(550 SCRA 269 [2008])
The right of foreclosure cannot be
exercised by any person other than
the creditor-mortgagee or his
assigns.

Recent Jurisprudence on
Real Mortgages
BPI Family Savings Bank, Inc.
v. Vda. De Cosculluela
(493 SCRA 472 [2006])

There is no statutory provision

prohibiting personal action to recover
a sum of money even though the
mortgage has been given as a
security for the payment for the same.

Recent Jurisprudence on
Real Mortgages
Estanislao, Jr. v. Court of Appeals
(362 SCRA 229 [2001])

The redemption must be made within 1 year

from the date of registration of the certificate of
the sales, not from the date of the foreclosure
sale. The existence of the right of redemption
operates to depress the market value of the
property until the period expires, and to render
the period indefinite would render nugatory the
period fixed by the statute.

Rosales v. Suba
408 SCRA 664 [2003]

An equitable mortgage is not different

from the real estate mortgage, and the
lien created thereby ought not to be
defeated by requiring compliance with
the formalities necessary to the validity
of a voluntary real estate mortgage.

End