HANDOUT 5: REAL ESTATE MORTGAGE
J-Culajara
ATENEO DE ZAMBOANGA UNIVERSITY
School of Management and Accountancy
Accountancy Department
REAL MORTGAGE
A contract whereby the debtor secures to the
creditor the fulfillment of a principal obligation, specially
subjecting to such security immovable property for real
rights over immovable property in case the principal
obligation is not complied with at the time stipulated.
REQUISITES OF REAL MORTGAGE (FADI2R)
1. That it be constituted to secure the Fulfillment of a
principal obligation;
2. That the mortgagor be the Absolute owner of the
thing mortgaged;
3. That the person constituting the mortgage must
have the free Disposal of his property, and in the
absence thereof, that he be legally authorized for
the purpose;
4. That it covers only Immovable property and
alienable real rights imposed upon immovables;
5. It must appear in a public Instrument;
6. It must be Recorded in the Registry of Property.
Note: This requirement is necessary to bind
third persons but not for the validity of real
mortgage which may be entered into in any
form.
CHARACTERISTICS OF REAL MORTGAGE (R2I2M-
ANUS)
1. Real right – It creates a lien on the property
mortgaged whereby the mortgagee has a right to
have the mortgaged property sold to satisfy his
claim.
Integrative Course for Regulatory Framework for Business Transactions (RFBT)
2. Real property – It is a real right over immovable
property.
3. Indivisible – It creates a lien on the whole or all of
the properties mortgaged, which lien continues
until the obligation it secures has been fully paid.
4. Inseparable – It 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.
5. Mortgage as lien and not a transfer.
6. Accessory
7. Nominate
8. Unilateral – It creates only an obligation on the
part of the creditor who must free the property
from the encumbrance once the obligation is
fulfilled.
9. Subsidiary
OTHER MATTERS
• The essence of mortgage is setting aside a property
from the mass of the property of the debtor-
mortgagor as security for the fulfillment of his
obligation, in case of default of payment.
• Generally, the mortgagee has no right or claim to
the possession of the property. Such possession is
only a security for the payment of the sum
borrowed. The reason for this is that the mortgage
merely subjects the property to a lien but
ownership thereof is not parted with. Hence, one’s
status as a mortgagee cannot be the basis of
possession. Note: Except when there is
stipulation to the contrary.
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Instructor: K.
KINDS OF MORTGAGE
1. Voluntary – Agreed to by the parties or constituted
by the will of the owner of the property on which
it is created.
2. Legal – Required by law to be executed in favor of
certain persons.
3. Equitable – Although lacking the formalities of a
mortgage, shows the intention of the parties to
make the property a security for a debt.
Samples of equitable mortgage
1. When the price of a sale with right to repurchase is
unusually inadequate;
2. When the vendor remains in possession as lessee or
otherwise;
3. When upon or after the expiration of the right to
repurchase another instrument extending the
period of redemption or granting a new period is
executed;
4. When the purchaser retains for himself a part of
the purchase price;
5. When the vendor binds himself to pay the taxes on
the thing sold;
6. In any other case where it may be fairly inferred
that the real intention of the parties is that the
transaction shall secure the payment of a debt or
the performance of any other obligation.
OBJECT OF REAL MORTGAGE
1. Immovables – lands, buildings, roads and
construction, etc.
2. Alienable real rights
Between the parties – The real mortgage may be in any
form since it is a consensual contract. The contract is
binding between the parties even if not registered in the
HANDOUT 5: REAL ESTATE MORTGAGE
Registry of Property. Note: However, since a real
mortgage creates a real right, the same must be in a
public instrument for the convenience of the parties.
As to third persons – The real mortgage must be recorded
in the Registry of Property. However, the real mortgage is
nevertheless binding against third persons who have
knowledge of the same.
EXTENT OF REAL MORTGAGE
• The property mortgaged;
• Natural accessions;
• Improvements;
• Growing fruits;
• Rents and income not yet received when the
obligation becomes due;
• Indemnity granted or showing to the proprietor
from the insurers of the property mortgaged, or in
virtue of expropriations for public use.
STIPULATIONS
• A stipulation forbidding the owner from alienating
the immovable mortgaged shall be void.
• The mortgagor, being the owner of the property
mortgaged, may execute a second mortgage
thereon, even without the consent of the
mortgage. This is an incident of ownership. Note:
A stipulation wherein the mortgagor must get
the consent of the mortgagee before
subsequently mortgaging the property is valid
if the property is registered under the Torrens
System. Such stipulation, however, may be
disregarded by the mortgagor if the property
was originally registered under the Spanish
Mortgage Law.
Integrative Course for Regulatory Framework for Business Transactions (RFBT)
FORECLOSURE
Foreclosure is the remedy available to the
mortgagee by which he subjects the property mortgaged to
the satisfaction of the obligation secured.
Grounds for foreclosure
1. When the principal obligation is not paid when
due.
2. When there is any violation of any condition,
stipulation or warranty by the mortgagor.
THE 3Ws AND 1H OF FORECLOSURE
 When to exercise – When the principal obligation
is not paid when due, or when the debtor has
violated the terms and conditions of the mortgage
contract.
 Who may exercise – Only the creditor-
mortgagee.
 What is its extent – Foreclosure must be limited
to the amount mentioned in the mortgage
document, unless it is clear that future and other
indebtedness was intended to be included. Note
the Parol Evidence Rule.
 How to construe public notice of foreclosure –
Must be strictly complied with, and slight
deviations will invalidate the sale or render it
voidable.
FORECLOSURE
Kinds of foreclosure
1. Judicial foreclosure – This is a foreclosure made
through the filing of a petition in court.
2. Extra-judicial foreclosure – This is made in
compliance with the provisions of Act No. 3135.
The mortgagee is given a special power of attorney
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Instructor: K. J-Culajara
to sell the mortgaged property by public auction.
Note: If there is no authority given to the
mortgagee the proper remedy is judicial
foreclosure.
JUDICIAL FORECLOSURE (JOSCEAS)
• Judicial action brought to the proper court having
jurisdiction over the mortgaged property.
• Order by the court for the mortgagor to pay
mortgage debt if the court finds the complaint to
be well-founded, within a period of not less than
90 days nor more than 120 days from the entry of
judgment;
• Sale to the highest bidder at public auction if the
mortgagor fails to pay at the time directed in the
court order.
• Confirmation of sale, which operates to divest the
rights of all parties to the action and vest their
rights to the purchaser.
JUDICIAL FORECLOSURE (JOSCEAS)
• Execution of judgment in the manner prescribed
by the law on mortgages.
• The Application of proceeds of the sale shall be as
follows: (a) Costs of sale; (b) Amount due the
mortgagee; (c) Claims of junior encumbrancers or
persons holding subsequent mortgages in the order
of their priority; and (d) The balance, if any, shall
be paid to the mortgagor or his duly authorized
agent, or to the person entitled to it.
• Execution of Sheriff’s Certificate.
EXTRA-JUDICIAL FORECLOSURE
Made in the following cases:
HANDOUT 5: REAL ESTATE MORTGAGE Integrative Course for Regulatory Framework for Business Transactions (RFBT) Instructor: K. J-Culajara

• When there is a stipulation in the mortgage • An Auction sale may be had even with just one (1) As to court There is court There is no court
contract that the mortgagee may be foreclosed participating bidder. Note: The plain result of intervention intervention. intervention.
extrajudicially; or adopting extrajudicial foreclosure under Act
• Where such extra-judicial foreclosure sale is made No. 3135 is that the creditor waives his right to As to the right Decisions are Decisions are not
under a special power of attorney inserted in the recover any deficiency. of appeal appealable. appealable. They
contract. Note: The proceeds shall be • The Clerk of Court shall issue a Certificate of are immediately
distributed in the same order as in the case of payment indicating the amount of indebtedness, executory.
judicial foreclosure. In case of deficiency in the the filing fees collected, the mortgages sought to be
foreclosure sale, the creditor may recover the foreclosed, the description of the real estates and As to cutting The order of Foreclosure does
same from the principal debtor by filing a court their respective locations; off of rights the court cuts not cut off the
action. off all rights of rights of all parties
• The certificate of sale must be Approved by the
Executive Judge; the parties involved.
EXTRA-JUDICIAL FORECLOSURE (FEPRACAA) impleaded.
• After the redemption period has expired, the Clerk
• Filing of an application before the Executive Judge of Court shall Archive the records. As to the right There is equity There is a right of
through the Clerk of Court. of redemption of redemption. redemption.
• Clerk of Court will Examine whether the following EFFECT OF SALE WHEN THERE ARE TWO OR
requirements of the law have been complied with MORE MORTGAGEES As to period of Period of Period starts from
• Posting of notice not less than 20 days in • On senior mortgagees – Foreclosure and sale by a redemption redemption date of registration
at least 3 public places of the municipality junior mortgagee do not affect the rights of person starts from the of the certificate of
or city where the property is situated. having prior encumbrances. The purchaser finality of the sale.
• The correct number of the certificate of acquires the property subject to the right of judgment until
title and the correct technical description foreclosure of a senior mortgagee. order of
of the real property sold must indicated in • On junior mortgagees – Foreclosure and sale by a confirmation.
the notice of a sheriff’s sale. senior mortgagee will extinguish all subsequent As to necessity No need for a An SPA in favor of
• Publication (if property is worth more mortgages. of a special special power mortgagee is
than P400) once a week for at least 3 power of of attorney. needed.
consecutive weeks in a newspaper of JUDICIAL AND EXTRAJUDICIAL FORECLOSURE attorney
general circulation in the city or DISTINCTIONS JUDICIAL EXTRAJUDICIAL
municipality where the mortgage
property is situated. REDEMPTION
A transaction through which the mortgagor, or the
As to the Governed by Governed by Act
EXTRA-JUDICIAL FORECLOSURE (FEPRACAA) one claiming in his right, by means of payment or the
governing rule Rule 68 of the No. 3135.
performance of the condition, reacquires or buys back the
• The application shall be Raffled among different Rules of
value of the title which may have passed under the
sheriffs. Court.
mortgage, or divests the mortgaged premises of the lien
which the mortgage may have created.
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HANDOUT 5: REAL ESTATE MORTGAGE Integrative Course for Regulatory Framework for Business Transactions (RFBT) Instructor: K. J-Culajara

• 1% Interest per month on the purchase price from knowledge, knowledge,

KINDS OF REDEMPTION the date of registration of the certificate up to the unless a unless
time of redemption; description of registered.
Equity redemption – This refers to the right of the • Necessary expenses incurred by the purchaser for the thing
mortgagor to redeem the mortgaged property after his the improvements made by him to preserve the pledged and
default in the performance of his obligation but before the property during the period of redemption; and the date of
property is sold. • Taxes paid and amount of purchaser’s prior lien, if pledge appear
1. Period to exercise – within the period of 90 to 120 any, with the same rate of interest computed from in a public
days from the date of the service of the order of the date of registration of sale up to the time of instrument.
foreclosure, or even thereafter but before the registration of sale, up to the time of redemption.
order of confirmation of the sale. Note: This As to authority Pledgor can Mortgagor can
applies to judicial foreclosure of real mortgage Mortgagee is a bank (CMICE) – to sell sell the thing sell the
and chattel mortgage (only before the sale, in pledged only property
• Amount fixed by the Court or amount due
case of the chattel mortgage). with the mortgaged
under the Mortgage deed;
2. There is no right of redemption from a judicial consent of the even without
• Interest; and
foreclosure after the confirmation of the sale, pledgee. the consent of
except those granted by banks and financial • Costs and Expenses the mortgagee.
institutions as provided under the General Banking
Law. PLEDGE AND REAL MORTGAGE, DISTINCTIONS
REAL MORTGAGE AND PACTO DE RETRO SALE,
DISTINCTIONS PLEDGE REAL DISTINCTIONS
Right of redemption – This refers to the right of the MORTGAGE
mortgagor to redeem the mortgaged property in an DISTINCTIONS REAL PACTO DE
extrajudicial foreclosure of real mortgage. As to subject Constituted on Constituted on MORTGAGE RETRO
1. In extra-judicial foreclosure, the mortgagor has matter movables. immovables.
As to nature of Made as a Not a contract
one (1) year from the date of registration of the
As to delivery Property is Delivery is not contract security. of security.
sale to redeem the property. Note: The right of
redemption, as long as within the period delivered to necessary.
pledgee or by As to transfer There is no Transfers
prescribed, may be exercised regardless of of ownership transfer of ownership
whether or not the mortgagee has subsequently common
consent to a ownership. provided there
conveyed the property to some other party.
third person. is delivery.
AMOUNT OF THE REDEMPTION PRICE As to validity Not valid Not valid As to transfer Generally, Generally,
against third against third against third of possession there is no there is
Mortgagee is not a bank (PINT) – persons persons persons transfer of transfer of
• Purchase price of the property; without without possession. possession.

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HANDOUT 5: REAL ESTATE MORTGAGE Integrative Course for Regulatory Framework for Business Transactions (RFBT) Instructor: K. J-Culajara

As to Indivisible. Redemption
divisibility can be partial.

As to subject Applies only Applies to real

matter to real and personal
property. property.