MORTGAGE LEGAL MORTGAGE: the persons in whose favor the law establishes a

mortgage have on other right than to demand the execution and the recording
REAL MORTGAGE (Arts. 2124-2131) of the document in which the mortgage is formalized.
It is a contract whereby the debtor secures to the creditor the fulfillment of a
principal obligation, specially subjecting to such security immovable property INCIDENTS OF REGISTRATION OF MORTGAGE
or real rights over immovable property in case the principal obligation is not 1. Mortgagee entitled to registration of mortgage as a matter of right
complied with at the time stipulated. 2. Proceedings for registration do not determine validity of mortgage or its
effect
OBJECTS OF REAL MORTGAGE: 3. Registration is without prejudice to better right of third parties
1. immovables 4. Mortgage deed once duly registered forms part of the records for the
2. alienable real rights in accordance with the laws, imposed upon registration of the property mortgaged
immovables * future property cannot be object of mortgage 5. Mortgage by surviving spouse of his/her undivided share of conjugal
property can be registered
IMPORTANT POINTS
1. As a general rule, the mortgagor retains possession of the property EFFECT OF INVALIDITY OF MORTGAGE ON PRINCIPAL
he may deliver said property to the mortgagee without altering the nature of OBLIGATION
the contract of mortgage. 1. principal obligation remains valid
2. It is not an essential requisite that the principal of the credit bears 2. mortgage deed remains as evidence of a
interest, or that the interest as compensation for the use of the principal and personal obligation
the enjoyment of its fruits be in the form of a certain percent thereof.
EFFECT OF MORTGAGE
KINDS OF MORTGAGE: 1. creates real rights, a lien inseparable from the property mortgaged,
1. voluntary enforceable against the whole world
2. legal 2. creates merely an encumbrance
3. equitable – one which, although it lacks the proper formalities of a
mortgage shows the intention of the parties to make the property as a security LAWS GOVERNING MORTGAGE
for a debt (provisions governing equitable mortgage - arts 1365, 1450, 1454, 1. New Civil Code
1602, 1603, 1604 and 1607) 2. PD 1952
3. Revised Administrative Code
ESSENTIAL REQUISITES OF MORTGAGE: 4. RA 4882, as regards aliens becoming
1. constituted to secure the fulfillment of a principal obligation mortgages
2. mortgagor be the absolute owner of the thing pledged or mortgaged
3. the persons constituting the pledge or mortgage have the free disposal of FORECLOSURE OF MORTGAGE: It is the remedy available to the
their property, and in the absence thereof, that they be legally authorized for mortgagee by which he subjects the mortgaged property to the satisfaction of
the purpose the obligation to secure which the mortgage was given.
4. cannot exist without a valid obligation
5. when the principal obligation becomes due, the thing in which the pledge KINDS OF FORECLOSURE
or mortgage consists may be alienated for the payment to the creditor. 1. judicial
6. appears in a public document duly recorded in the Registry of Property to 2. extrajudicial
be validly constituted
Both should be distinguished from execution sale governed by Rule 39 of the
Rules of Court.

• Mere inadequacy of the price obtained at the sheriff’s sale will not be
sufficient to set aside the sale unless”the price is so inadequate as
to shock the conscience of the court” taking into consideration the
peculiar circumstances attendant thereto (Sulit v. CA, 268 SCRA
441)

• The action to recover a deficiency after foreclosure prescribes after 10

years from the time the right of action accrues (Arts 1142 & 1144)
NOTES
A foreclosure sale retroacts to the date of registration of the mortgage and that JUDICIAL FORECLOSURE (governed by Rule 68 of Rules of Court) (B-
a person who takes a mortgage in good faith and for valuable consideration, PACE-PC)
the record showing clear title to the mortgagor, will be protected against
1. May be availed of by bringing an action in the proper court which has
equitable claims on the title in favor of third persons of which he had no actual
jurisdiction over the area wherein the real property involved or a portion
or constructive notice (St. Dominic Corporation v. IAC, 151 SCRA 577
thereof is situated
[1987])
2. If the court finds the complaint to be well- founded, it shall order the MORTGAGE UNDER ACT NO. 1508 (A.M. N0. 99-10-05-0; January 15,
mortgagor to pay the amount due with interest and other charges within a 2000) (ARC-DIN- REA)
period of not less than 90 days nor more than 120 days from the entry of 1. Filing of application before the Executive Judge through the Clerk
judgment of Court
3. If the mortgagor fails to pay at time directed, the court, upon motion, shall 2. Clerk of Court will examine whether the requirement of the law have
order the property to be sold to the highest bidder at a public auction. been complied with, that is, whether the notice of sale has been posted for not
4. Upon confirmation of the sale by the court, also upon motion, it shall less than 20 days in at least 3 public places of the municipality or city where
operate to divest the rights of all parties to the action and to vest their rights the property is situated, and if the same is worth more than P400.00, that such
to the purchaser subject to such rights of redemption as may be allowed by notice has been published once a week for at least 3 consecutive weeks in a
law newspaper of general circulation in the city or municipality
5. Before the confirmation, the court retains control of the proceedings; 3. the certificate of sale must be approved by the Executive Judge
execution on judgment 4. in extrajudicial foreclosure of real mortgages in different locations
6. The proceeds of the sale shall be applied to the payment of the: covering one indebtedness, only one filing fee corresponding to such debt
a. costs of the sale; shall be collected
b. amount due the mortgagee; 5. the Clerk of Court shall issue certificate of payment indicating the
c. claims of junior encumbrancers or persons holding subsequent amount of indebtedness, the filing fees collected, the mortgages sought to be
mortgages in the order of their priority; and foreclosed, the description of the real estates and their respective locations
d. the balance, if any shall be paid to the mortgagor 6. the notice of sale shall be published in a newspaper of general
7. Sheriff’s certificate is executed, acknowledged and recorded to complete circulation
the foreclosure 7. the application shall be raffled among all sheriffs
8. after the redemption period has expired, the Clerk of Court shall
NATURE OF JUDICIAL FORECLOSURE PROCEEDINGS archive the records
1. quasi in rem action 9. no auction sale shall be held unless there are at least 2 participating
2. foreclosure is only the result or incident of the bidders, otherwise the sale shall be postponed to another date. If on the new
failure to pay debt date there shall not be at least 2 bidders, the sale shall then proceed. The
3. survives death of mortgagor names of the bidders shall be reported to the Sheriff of the Notary Public, who
conducted the sale to the Clerk of Court before the issuance of the certificate
EXTRAJUDICIAL FORECLOSURE (governed by Act No, 3135, as of sale.
amended)
1. express authority to sell is given to the mortgagee. RIGHT OF MORTGAGEE TO RECOVER DEFICIENCY
2. authority is not extinguished by death of mortgagor or mortgagee 1. Mortgagee is entitled to recover deficiency
3. public sale should be made after proper notice 2. If the deficiency is embodied in a judgment, it is referred to as deficiency
4. surplus proceeds of foreclosure sale belong to the mortgagor judgment.
5. debtor has the right to redeem the property sold within 1 year from 3. Action for recovery of deficiency may be filed even during redemption
and after the date of sale period.
6. remedy of party aggrieved by foreclosure is a petition to set aside 4. Action to recover prescribes after 10 years from the time the right of action
sale and cancellation of writ of possession. accrues

PROCEDURE FOR EXTRAJUDICIAL FORECLOSURE OF BOTH REAL NATURE OF POWER OF FORECLOSURE BY EXTRAJUDICIAL SALE
ESTATE MORTGAGE UNDER ACT NO. 3135 AND CHATTEL 1. conferred for mortgagee’s protection
2. an ancillary stipulation a certain period after it was sold for the satisfaction of the debt; applies only
3.a prerogative of the mortgagee to extrajudicial foreclosure of real mortgage

Note: Stipulation of upset price in mortgage contract is void NOTE: the right of redemption, as long as within the period prescribed, may
be exercised irrespective of whether or not the mortgagee has subsequently
EFFECT OF INADEQUACY OF PRICE IN FORECLOSURE SALE conveyed the property to some other party (Sta. Ignacia Rural Bank,Inc v.
1. Where there is right to redeem CA, 230 SCRA 513 [1994])
GR: Inadequacy of price is immaterial because the judgment debtor may
redeem the property PERIOD OF REDEMPTION
Exception: the price is so inadequate as to shock the conscience of the court 1. extra-judicial (Act No. 3135)
taking into consideration the peculiar circumstances a.natural person – 1 year from registration of the certificate of sale with
2. Property may be sold for less than its fair market value upon the theory that Registry of Deeds
the lesser the price the easier for the owner to redeem b.juridical person – same rule as natural person
3. The value of the mortgaged property has no bearing on the bid price at the c.juridical person (mortgagee is bank) – 3 months after foreclosure or before
public auction, provided that the public auction was regularly and honestly registration of certificate of foreclosure whichever is earlier (Sec. 117 of
conducted General Banking Law)
2. Judicial – before confirmation of the sale by the court
WAIVER OF SECURITY BY CREDITOR
1. Mortgagee may waive right to foreclose his mortgage and maintain a NOTE: Allowing redemption after the lapse of the statutory period when the
personal action for recovery of the indebtedness buyer at the foreclosure sale does not object but even consents to the
2. Mortgagee cannot have both remedies redemption, will uphold the policy of the law which is to aid rather than defeat
Note: Foreclosure retroacts to the date of registration of mortgage the right of redemption (Ramirez v. CA, 219 SCRA 598 [1993])

STIPULATION OF UPSET PRICE OR “TIPO” AMOUNT OF THE REDEMPTION PRICE:

A stipulation of minimum price at which the property shall be sold to become 1. Mortgagee is not a bank (Act No. 3135 in relation to Sec. 28, Rule 39 of
operative in the event of a foreclosure sale at public auction is NULL and Rules of Court)
VOID a. Purchase price of the
property
REDEMPTION - It is a transaction by which the mortgagor reacquires the b. 1% interest per month on
property which may have passed under the mortgage or divests the property the purchase price
of the lien which the mortgage may have created. c. taxes paid and amount of
purchaser’s prior lien, if any,
KINDS OF REDEMPTION with the same rate of interest
1. equity of redemption: right of the mortgagor to redeem the mortgaged computed from the date of
property after his default in the performance of the conditions of the mortgage registration of sale, up to the
but before the sale of the mortgaged property or confirmation of sale; applies time of redemption
to judicial foreclosure of real mortgage and chattel mortgage foreclosure 2. Mortgagee is a bank (GBL
NOTE: redemption of the banking institutions is allowed within 1 year from 2000)
confirmation of sale a. Amount due under the
2. right of redemption: right of the mortgagor to redeem the property within mortgage deed
b. Interest b. person holding a subsequent mortgage;
c. Cost and expenses c. subsequent attaching creditor.
2. an attaching creditor who so redeems shall be subrogated to the
NOTE: Redemption price in this case is reduced by the income received from rights of the mortgagee and entitled to foreclose the mortgage in the same
the property manner that the mortgagee could foreclose it
3. the redemption is made by paying or delivering o the mortgagee the
CHATTEL MORTGAGE (Arts. 2140-2141) amount due on such mortgage and the costs and expenses incurred by such
It is a contract by virtue of which a personal property is recorded in the Chattel breach of condition before the sale
Mortgage Register as security for the performance of an obligation.
NOTE: If the movable, instead of being recorded is delivered to the creditor, FORECLOSURE OF CHATTEL MORTGAGE
it is pledge and not chattel mortgage. 1. public sale
2. private sale – there is nothing illegal, immoral
or against public order in an agreement for the private sale of the personal
properties covered by chattel mortgage

PERIOD TO FORECLOSE
1. After 30 days from the time of the condition is broken
2. The 30-day period is the minimum period after violation of the
LAWS GOVERNING CHATTEL MORTGAGE mortgage condition for the creditor to cause the sale at public auction with at
1.Chattel Mortgage Law, Act No. 1508, as amended least 10 days notice to the mortgagor and posting of public notice of time,
2. Civil Code place, and purpose of such sale, and is a period of grace for the mortgagor, to
3. Revised Administrative Code discharge the obligation.
4. Revised Penal Code 3. After the sale at public auction, the right of redemption is no longer
5. Ship Mortgage Decree of 1978 (PD 1521) governs mortgage of vessels of available to the mortgagor.
domestic ownership
CIVIL ACTION TO RECOVER CREDIT
AFFIDAVIT OF GOOD FAITH - An oath in a contract of chattel mortgage 1. independent action not required
wherein the parties "severally swear that the mortgage is made for the purpose 2. mortgage lien deemed abandoned by
of securing the obligation specified in the conditions thereof and for no other obtaining a personal judgment
purposes and that the same is a just and valid obligation and one not entered
into for the purpose of fraud. RIGHT OF MORTGAGEE TO RECOVER DEFICIENCY
1. where mortgage foreclosed: creditor may maintain action for deficiency
EFFECT OF REGISTRATION although Chattel Mortgage Law is silent on this point. Reason is chattel
1. creates real rights mortgage is only given as a security and not as payment of the debt.
2. adds nothing to mortgage 2. where mortgage constituted as security for purchase of personal
Note: Registration of assignment of mortgage is not required property payable in installments: no deficiency judgment can be asked and
any contrary agreement shall be void
RIGHT OF REDEMPTION 3. where mortgaged property subsequently attached and sold: mortgagee is
1. when the condition of a chattel mortgage is broken, the ff may redeem: entitle to deficiency judgment in an action for specific performance
a. mortgagor;
APPLICATION OF PROCEEDS OF SALE
1. costs and expenses of keeping and sale
2. payment of the obligation
3. claims of persons holding subsequent mortgages in their order
4. balance, if any, shall be paid to the mortgagor, or person holding under him