CASE ANALYSIS

Prepared by:AGN

I. CASE PROBLEM

"A is preparing to make a loan to a foreign national resident of the Philippines and his wife (a
Philippine citizen) and wishes to secure those loans with a lien/mortgage/deed of trust against a
number of properties that the wife owns in the Philippines. Consider yourself the local attorney
who will advise the client as to the best way to handle the transaction and then to prepare and
record the necessary documents.

A would make a new loan of US$112,500 in addition to an existing US$75,000 loan that has already
been made and would take a mortgage on the following 3 properties for the full amount of the 2
loans:

1. Condo 2. Condo 3. Townhouse

Birch Tower Unit 410
1622 Jorge Bocobo Street
Malate Manila, the Philippines
1004
Victoria Station I Unit PHB15 Block 1, Lot 72, Legian 2
Kamuning Station Baranguay Carsadang Bago 1
793 Epifanio de Los Santos Imus Cavite City, the
Avenue Philippines 4103
Diliman, Quezon City Metro
Manila, the Philippines 1103

The term of the loan would be about 2 years and interest would be at 5% per annum. We would
need you to confirm that there is adequate equity in the property to fully secure the loans. I also
will need a complete explanation of the foreclosure process and any defenses that the borrower
could claim to delay or avoid a successful foreclosure should that become necessary. Understand
that A's status as a foreign national (US citizen) might complicate things.

II. ISSUES:

I. Preparation of Loan Transaction and Records needed for the necessary

transactions
II. Determination WON property to be mortgage would provide adequate equity on
loan
III. Explanation of the Foreclosure Process
IV. Possible legal complications that may arise base on the facts of the case.
III. HELD/ DISCUSSIONS

I. As to the Preparation of Loan Transaction and Records needed for the necessary
transactions

I. Nature and Preparation of Loan Transaction

The Nature of the transaction is a Loan Agreement as the

principal Obligation with an accessory obligation of a Real Estate
Mortgage.

REM Contract is a Real, accessory, unilateral and subsidiary

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.

II. Procedure for Loan Agreement w/ Real Estate Mortgage

a. Execute the document of mortgage

b. Go to a notary public, who will notarize the document.
c. 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.
d. 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.

Note:
 The Client, Creditor while The Foreigner and his Wife should Co-
Debtors (Solidarily Liable)
 Structure the loan to allow an extrajudicial foreclosure.
o In this type of foreclosure, file a foreclosure statement with
the Register of Deeds and with the office of the municipal
sheriff. The sheriff shall post the foreclosure sale notice in a
public place and ask for sealed bids. On a set date, he will open
the bids and declare the winner. For the Client to obtain the
property a bid high enough to close out the mortgage. If this
bid wins, the client gets the property. Thereafter if client
wishes sell it to someone else he may do so.
 o The only issue is the Right of Redemption, prohibition from
selling the property for one year. Must give the previous
owner 12 months to redeem the property; however, client
does take possession during this year.

III. Essential Requisites of a Mortgage

 To secure the fulfillment of a principal obligation
 The mortgagor should be the absolute owner of thing
mortgaged
 The mortgagor should have free disposal of the thing
 When the principal obligation becomes due, the thing
mortgaged may be alienated to secure payment
 For a mortgage to be validly constituted and to prejudice
third persons, the mortgage should be recorded with the
Registry of Property
o Note: Issue on absolute ownership of the Property may
arise to assail validity of the Mortgage.

IV. Documents/Records Needed for the Transaction

1. Documents/Records Needed (Must be registered with the Filipino

Wife):
a. Condominium Certificate of Title
b. Townhouse Certificate of Title
c. If available documents to support capacity to purchase the
property by the Filipino
d. SPA to sell Property attached to deed of Mortgage in case of
Extra-Judicial Foreclosure (Section 1 of Act No. 3135)

2. Additional Documents/Records Needed

a. Alien Certificate of Registration (ACR)
b. Marriage Certificate with Filipino
c. Copies of your personal identification documents (passport),
including your visa type and validity
d. Proof of legal residence in the Philippines
e. Documents to support capacity to pay the loan and prove you
have enough money to service the loan for both Foreigner and
Filipino (usually a certificate of employment, proof of your
wages or a letter from your employer
f.
 II. Determination WON property to be mortgage would provide adequate equity on loan

I. The total amount of the loan is for $112,500 which is approximately

P5,861,643.75
II. Schedule for FMV of the Properties to be Mortgage

Property Mortgaged Fair Market Value1

1. Condo
P2,200,000-2,800,000*
Birch Tower Unit 410 Studio to 1 Bedroom Unit Apartment
1622 Jorge Bocobo Street
Malate Manila, the Philippines 1004

Issue: Type of Condo must be specified

2. Condo

Victoria Station I Unit PHB15 P1,789,088-3,400,000*

Kamuning Station 1 Bedroom to 2 Bedroom
793 Epifanio de Los Santos Avenue unit Apartment
Diliman, Quezon City Metro Manila, the
Philippines 1103

Issue: Type of Condo must be specified

Townhouse

Block 1, Lot 72, Legian 2

Baranguay Carsadang Bago 1 P2,000,000-2,600,000*
Imus Cavite City, the Philippines 4103 Value of similarly situated townhouses in
the area
Issue: Townhouse Developer must be
specified

Estimated Total P5,989,088-8,800,000

Analysis:
The above-quoted prices where arrived at without taking into account other external
factors which may affect value of the property (i.e. Depreciation, Demand for Property
and etc.)

Given the information available and applying the conservative approach for valuation of
Property the estimated total of P 5,989,088 would only provide the Client an equity of
P127,445.

Based from the available facts provided, A request for some additional Securities would
be appropriate.

1
Based from private listings of exact same properties or similar properties on the market
 III. Discussion on the Foreclosure Process (Extra-Judicial Foreclosure)

I. Extrajudicial Procedure

A.M. No. 99-10-05-0 provides for the procedure for Extra-Judicial Foreclosure of Mortgage.
In summary the following are the salient provisions prescribed in extra-judicial foreclosure
of mortgage:.

"1. All applications for extra-judicial foreclosure of mortgage

whether under the direction of the sheriff or a notary public,
pursuant to Act 3135, as amended by Act 4118, and Act 1508, as
amended, shall be filed with the Executive Judge, through the Clerk
of Court who is also the Ex-Officio Sheriff.”

"…Where the application concerns the extra-judicial foreclosure of

mortgages of real estates and/or chattels in different locations
covering one indebtedness, only one filing fee corresponding to
such indebtedness shall be collected.…“

"3. The notices of auction sale in extra-judicial foreclosure for

publication by the sheriff or by a notary public shall be published
in a newspaper of general circulation pursuant to Section 1,
Presidential Decree No. [1079], dated January 26, 1977, and non-
compliance therewith shall constitute a violation of Section 6,
thereof.”

"5. No auction sale shall be held unless there are at least two (2)
participating bidders, otherwise the sale shall be postponed to
another date. If on the new date set for the sale there shall not be
at least two bidders, the sale shall then proceed. The names of the
bidders shall be reported by the sheriff or the notary public who
conducted the sale to the Clerk of Court before the issuance of the
certificate of sale.
II. Noteworthy Jurisprudence

SPOUSES OCHOA vs CHINA BANKING CORPORATION, G.R. No. 192877

The extrajudicial foreclosure sale of a real estate mortgage is governed by Act No. 3135, as
amended by Act No. 4118, otherwise known as "An Act to Regulate the Sale of Property Under
Special Powers Inserted In or Annexed to Real-Estate Mortgages." Sections 1 and 2 thereof clearly
state:

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 sections 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.

Sec. 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 the subject of 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.

These pronouncements were confirmed on August 7, 2001 through A.M. No. 99-10-05-0,
entitled Procedure in Extra-Judicial Foreclosure of Mortgage, the significant portions of which
provide:

In line with the responsibility of an Executive Judge under

Administrative Order No. 6, date[d] June 30, 1975, for the management of courts
within his administrative area, included in which is the task of supervising
directly the work of the Clerk of Court, who is also the Ex-Office Sheriff, and his
staff, and the issuance of commissions to notaries public and enforcement of their
duties under the law, the following procedures are hereby prescribed in extra-
judicial foreclosure of mortgages:

1. All applications for extrajudicial foreclosure of mortgage whether

under the direction of the sheriff or a notary public, pursuant to Act
3135, as amended by Act 4118, and Act 1508, as amended, shall be
filed with the Executive Judge, through the Clerk of Court who is also
the Ex-Officio Sheriff.

Verily then, with respect to the venue of extrajudicial foreclosure sales, Act No. 3135, as
amended, applies, it being a special law dealing particularly with extrajudicial foreclosure sales of
real estate mortgages, and not the general provisions of the Rules of Court on Venue of Actions.
 IV. Possible legal complications that may arise base on the facts of the case.

I. WIFE MAY INTERPOSE SHE IS NOT THE ABSOLUTE OWNER OF THE PROPERTY
WHICH MAY EFFECTIVELY INVALIDATING THE MORTGAGE CONTRACT
o Documentary evidence may prove otherwise

II. ISSUE ON THE EFFECT OF THE CITIZENSHIP OF ONE OF THE DEBTORS TO THE