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municipality or city.

REAL ESTATE MORTGAGE LAW (Act 3135, as amended by RA 4118)

1. Coverage Governs sales made under a special power inserted in or attached to any real-estate mortgage, which is made as security for the payment of money or the fulfillment of any other obligation. Act 3135 will govern the manner in which the sale and redemption shall be effected, whether or not provision for the same is made in the power. (Sec 1) Foreclosure from estate not included settlement of

When sale not held on date specified DBP vs Aguirre (2001) Although the notice of foreclosure sale was duly published, the sale did not take place as scheduled on Sept 25, 1985. Instead, it was held more than two months after the published date of the sale or on Jan 7, 1986. This renders the sale void.

Waiver of notice of sale PNB vs Nepomuceno (2002) and Ouano vs CA (2003) The focal issue in this case is whether the parties to the mortgage can validly waive the posting and publication requirements mandated by Act No. 3135. We answer in the negative. Failure to publish the notice of sale constitutes a jurisdictional defect, which invalidates the sale. While it is established that rights may be waived, Art 6 of the Civil Code provides that such waiver is subject to the condition that it is not contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law. The statutory requirements of posting and publication are mandated for the public or third persons. As such, it is imbued with public policy considerations and any waiver thereon would be inconsistent with the intent and letter of Act No. 3135.

PNB vs CA (2001) The case at bar involves a foreclosure of mortgage arising out of a settlement of estate, wherein the administrator mortgaged a property belonging to the estate of the decedent, pursuant to an authority given by the probate court. The Rules of Court on Special Proceedings comes into play decisively. 2. Foreclosure Sale

Republication of notice of sale DBP vs Emerald Resorts Hotel Facts : DBP published the notice of auction sale scheduled on 12 Aug 1986. However, the auction sale was moved to 11 Sept 1986. DBP contends that the agreement to postpone dispensed with the need to publish again the notice of auction sale. Held: Republication in the manner prescribed by Act No. 3135 is necessary for the validity of a postponed extrajudicial foreclosure sale. Another publication is required in case the auction sale is rescheduled, and the absence of such republication invalidates the foreclosure sale. The last paragraph of the prescribed notice of sale (under SC Circular 7-2002) allows the holding of a rescheduled auction sale without reposting or republication of the notice : In the event the public auction should not take place on the said date, it shall be held on ___________,______ without further notice. However, the rescheduled auction sale will only be valid if the rescheduled date of auction is clearly specified in the prior notice of sale. The absence of this information in the prior notice of sale will render the rescheduled auction sale void for lack of reposting or republication.

TYPE OF SALE: Public auction VENUE OF SALE: Province where the property is situated Sale cannot be made legally outside of the province in which the property sold is situated If venue is subject to stipulation, such sale shall be made in said place (i.e., the place so stipulated) or in the municipal building of the municipality in which the property or part thereof is situated. NOTICE: Notices of the sale are to be posted in at least 3 public places of the municipality or city where the property is situated for not less than 20 days. Such notice shall likewise be published once a week for at least 3 consecutive weeks in a newspaper of general circulation in the

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Newspaper of general circulation Perez vs Perez (2005) Facts : Petitioners argue that the Olongapo News where the notice of public auction was published, was not a newspaper of general circulation in Morong, Bataan. Held : To be a newspaper of general circulation, it is enough that it is published for the dissemination of local news and general information; that it has a bona fide subscription list of paying subscribers; and that it is published at regular intervals. The newspaper must not be devoted to the interests or entertainment of a particular class, profession, trade, calling, race or religious denomination. The newspaper need not have the largest circulation so long as it is of general circulation. TIME OF SALE: Between 9 AM and 4 PM WHO MAY BID: The creditor; The trustee; Other persons authorized to act for the creditor; Other bidders not privy to the mortgage or trust deed PROCEDURE:

4)

There must be at least 2 participating bidders for the auction sale to be valid. If on the new date set for the sale there shall not be at least two bidders, the sale shall then proceed. (SC AM No. 99-10-05-0)

5)

Once the sale has been confirmed, the Clerk of Court signs and issues a certificate of sale to the winning bidder. (SC AM No. 99-10-05-0) 6) period Possession during the redemption

1)

The mortgagee files an application for foreclosure with the Executive Judge through the Clerk of Court, who will receive and docket the application and collect the appropriate filing fees. (SC AM No. 99-1005-0)

General Rule: Purchaser must petition the court where the property is situated for possession during the redemption period. He must also give a bond equivalent to the use of the property for a period of twelve months to indemnify the debtor in case the sale is shown to violate the law (Sec 7, Act 3135) Within 30 days after the purchaser is given possession of the property, the debtor may petition that the sale be set aside on the ground that the mortgage was not violated or the sale was not made in accordance with the provisions of Act 3135. (Sec. 8, Act 3135) Sales made under RA 8791 (General Banking Law): After the date of the confirmation of the auction sale, the winning bidder has the right to enter upon and take possession of such property and administer the same in accordance with law. Samson vs Rivera (2004) The duty of the trial court to grant a writ of possession is ministerial. Such writ issues as a matter of course upon the filing of the proper motion and the approval of the corresponding bond. Any question regarding the regularity and validity of the sale is to be determined in a subsequent proceeding (Sec 8). Such question cannot be raised to oppose the issuance of the writ, since the proceeding is ex parte. A pending action for annulment of mortgage or foreclosure does not stay the issuance of a writ of possession. DBP vs Spouses Gatal (2005) Once a mortgaged estate is extrajudicially sold, and is not redeemed within the reglementary period, no separate and independent action is necessary to obtain possession of the property. The purchaser at the public auction has only to file a petition for issuance of a writ of possession pursuant to Section 33 of Rule 39 of the Rules of Court.

2)

Notice of the sale is posted in at least 3 public places of the municipality or city where the property is situated for not less than 20 days and published once a week for at least 3 consecutive weeks in a newspaper of general circulation in the municipality or city. (Sec. 3, Act 3135)

3)

The auction sale is conducted under the direction of the sheriff, the Executive Judge, or a notary public of the municipality. (Sec. 4, Act 3135) At the 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. (Sec. 5, Act 3135)

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Where the title is consolidated in the name of the mortgagee, the writ of possession becomes a matter of right on the part of the mortgagee, and it is a ministerial duty on the part of the trial court to issue the same. The pendency of a separate civil suit questioning the validity of the sale of the mortgaged property cannot bar the issuance of the writ of possession. The rule equally applies to separate civil suits questioning the validity of the mortgage or its foreclosure and the validity of the public auction sale. 7) Upon failure of the debtor to redeem the property within 1 year after the date of the registration of the certificate of sale, winning bidder becomes the absolute owner. Remedies of mortgagee are not cumulative Caltex vs IAC (1989) CALTEX made a mockery of our judicial system when it initially filed a collection suit then, during the pendency thereof foreclosed extrajudicially the mortgaged property which secured the indebtedness and still pursued the collection suit to the end. A mortgage creditor may institute either a personal action for debt or a real action to foreclose the mortgage. He may pursue either of the two remedies, for each of the two remedies is complete in itself. When the mortgagee chooses the foreclosure of the mortgage, he enforces his lien by the sale of the mortgaged property. The proceeds will be applied to the satisfaction of the debt. With this remedy, he has a prior lien on the property. On the other hand, if the mortgagee resorts to an action to collect the debt, he waives his mortgage lien. He will have no more priority over the mortgaged property. REDEMPTION WHO MAY REDEEM: The debtor; The debtor's successors-in-interest; Any judicial creditor or judgment creditor of the debtor; Any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold Redemption price to be accommodation mortgagors paid by Facts : Eduarda Belo is an accommodation mortgagor. The dispute between the parties is whether Sec 25 of PD 694 applies to an accommodation mortgagor, or her assignees. Said section provides that the mortgagor shall have the right to redeem the property by paying all claims of the Bank against him. Held : The mortgagor referred to by that law is one from whom the bank has a claim in the form of outstanding or unpaid loan; he is also called a borrower or debtor-mortgagor. On the other hand, PNB has no claim against accommodation mortgagor Eduarda Belo inasmuch as she only mortgaged her property to accommodate the Eslabon spouses. The principal contract is the contract of loan between the Eslabon spouses, as borrowers/debtors, and the PNB as lender. The accommodation real estate mortgage is only an accessory contract. The term mortgagor in Sec 25 pertains only to a debtor-mortgagor and not to an accommodation mortgagor. Accommodation mortgagors are not in anyway liable for the payment of the loan or principal obligation of the debtor/borrower. The liability of the accommodation mortgagors extends only up to the loan value of their mortgaged property and not to the entire loan itself. Hence, it is only just that they be allowed to redeem their mortgaged property by paying only the winning bid price thereof (plus interest thereon) at the public auction sale. PERIOD FOR REDEMPTION: Natural persons: Within 1 year from and after the date of the sale (Sec. 6, Act 3135)

Extension of Redemption Period Lazo vs Republic Surety (1970) Facts : After repeated extensions at the instance of the plaintiffs, the defendant company consolidated its title to the property as purchaser at the foreclosure sale on March 28, 1963, and obtained the corresponding transfer certificate of title. That was almost five years after the said sale. Held: The parties had abandoned entirely the concept of legal redemption in this case and converted it into one of conventional redemption, in which the only governing factor was the agreement between them. The registration of the certificate of sale on March 28, 1963 was entirely unnecessary and irrelevant to the question of when the period of redemption agreed upon expired. The plaintiffs' repeated requests for time within which to redeem, each with a definite date of expiration, generated binding contracts when approved by the defendant company. A contract has the force of law between the parties. Ibaan Rural Bank vs CA (1999)

Belo vs PNB (2001)

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When petitioner received a copy of the Certificate of Sale registered in Register of Deeds, it had actual and constructive knowledge of the certificate and its contents. For two years, it did not object to the two-year redemption period provided in the certificate. Thus, it could be said that petitioner consented to the two-year redemption period. By its silence and inaction, petitioner misled private respondents to believe that they had two years within which to redeem the mortgage. In Lazo the parties voluntarily agreed to extend the redemption period. The concept of legal redemption was converted by the parties in Lazo into conventional redemption. This is not so in the instant case. There was no voluntary agreement. Hi-Yield Realty vs CA (2002) The right of redemption should be exercised within one year from the date of registration of the certificate of sale. Moreover, the redemptioner should make an actual tender in good faith of the full amount of the purchase price. The rule works well if both parties agree on the amount to be tendered on or before the end of the redemption period. In this case, however, the parties could not agree on the amount. What is the redemptioners option when the redemption period is about to expire and the redemption cannot take place on account of disagreement over the redemption price? The redemptioner may preserve his right of redemption through judicial action which must be filed within the one-year period of redemption. The filing of the court action to enforce redemption, being equivalent to a formal offer to redeem, would have the effect of preserving his redemptive rights and freezing the expiration of the one-year period. The foregoing interpretation, has three critical dimensions: (1) timely redemption or redemption by expiration date (or judicial action to freeze the expiration of the redemption period); (2) good faith (for the sole purpose of determining the redemption price and not to stretch the redemptive period indefinitely); and (3) once the redemption price is determined within a reasonable time, the redemptioner must make prompt payment in full. Computation of Redemption Period Reyes vs Noblejas (1967) The redemption period, for purposes of determining the time when a final deed of sale may be executed or issued and the ownership of the registered land consolidated in the purchase at an extrajudicial foreclosure sale under Act 3135, should be reckoned from the date of registration of the certificate of sale in the office of the register of deeds concerned and not from the date of the public auction sale. Juridical persons: 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 3 months after foreclosure, whichever is earlier. (Sec. 47, R.A. 8791) Right of Redemption vs Equity of Redemption Huerta Alba Resort vs CA (2000) The equity of redemption is different from and should not be confused with the right of redemption. The right of redemption understood in the sense of a prerogative to re-acquire mortgaged property after registration of the foreclosure sale exists only in the case of the extrajudicial foreclosure of the mortgage. Act 3135 grants to the mortgagor the right of redemption within 1 year from the registration of the sheriff's certificate of foreclosure sale. Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. A judicial foreclosure sale 'when confirmed be an order of the court shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law.' Such rights exceptionally 'allowed by law' are those granted by the charter of the PNB and the General Banking Act. These laws confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure which right may be exercised within a period of one 1 year, counted from the date of registration of the certificate of sale in the Registry of Property. No such right of redemption exists in case of judicial foreclosure of a mortgage if the mortgagee is not the PNB or a bank or banking institution. There then exists only the equity of redemption. This is simply the right of the defendant 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 Rule 68, or even after the foreclosure sale but prior to its confirmation.

EFFECT OF INADEQUACY OF PRICE When there is a right to redeem, inadequacy of price is of no moment for the reason that the judgment debtor always has the chance to redeem and reacquire the property. In fact,

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the property may be sold for less than its fair market value precisely because the lesser the price, the easier for the owner to effect a redemption. (Valmonte v. CA, 303 SCRA 278, citing DBP v. Moll, 43 SCRA 82) EFFECT OF REQUEST FOR EXTENSION OF TIME ON RIGHT TO QUESTION VALIDITY OF FORECLOSURE SALE The act of seeking an extension of the redemption period estops the mortgagors from questioning the foreclosure sale thereafter. (Valmonte v. CA, 303 SCRA 278)

Judicial Foreclosure Rule 68 As to institution of proceedings

A complaint is filed in court to foreclose the property. Judgment is to order payment. If theres default, sell property under provisions of Rule 39. Only real property

Extrajudicial Foreclosure Act 3135

There must be special power given to creditor in the mortgage instrument. File with Exec. Judge through clerk of court, who is ex-officio sheriff. Only real property

Chattel Mortgage Act 1503

Pledge CC 2085-2123

As to subject matter

Recording / Registration

Only personal property; but real property may sometimes be deemed personal property Must be recorded in the Chattel Mortgage Register to bind 3rd persons. Mortgagor must execute an affidavit of good faith Mortgagor can sell property mortgaged, subject to the mortgage. Consent of mortgagee to the sale of the thing must be in writing and annotated on the back of the mortgage instrument.

Only personal property

Not recorded. Instead, the thing pledged (a movable) is delivered to the creditor.

Affidavit of Good Faith Sale of the thing

Pledgor can sell thing with consent of pledgee. Consent of pledgee need not be in writing but may be oral.

As to confirmation of sale As to possession of the property

There must be confirmation. Possession is given to the purchaser, upon confirmation of the sale or expiration of the redemption period (if allowed). The buyer can secure a writ of possession upon motion. Upon motion, court will render judgment for the balance, upon which execution will issue. (sec. 6, R68) Purchaser can petition for possession during the redemption period, furnishing a bond in an amount equal to use of the property for 12 mos. Deficiency judgments allowed because REM is accessory obligation. Principal obligation still subsists until fully paid. Deficiency judgment is allowed, although law is silent. Exception: sale of personal property in installments (as per Recto Law or Art 1484 of the Civil Code) No recovery of deficiency judgment by creditor even if stipulated

As to deficiency judgment

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As to excess of proceeds
Goes to junior encumbrancers, then to mortgagor (R68, S4) Goes to junior encumbrancers (de Leon, p 434) Goes to persons holding subsequent mortgages, then to mortgagor (S14, Chattel Mortgage Law) Debtor not entitled to excess, unless stipulated

Judicial Foreclosure

As to period of redemption

No right to redeem; only equity of redemption (90-120 days from entry of judgment ordering payment)

Extrajudicial Foreclos 1 year from date of (registration of certif. of) sale (Sec.6, Act 3135)

Chattel Mortgage Redemption is before the sale, when the condition of the chattel mortgage is broken. (Sec. 13, Act 1508)

Pledge No redemption

As to who can redeem

As to amount of redemption price

SPECIAL RULE IF MORTGAGEE IS BANK, 1 yr after sale (Gen Banking Law) But for juridical entities, only until registration of certif. of sale or 3 mos after foreclosure, whichever is earlier (Gen Banking Law) 1. Juridical persons 1. Debtor or whose property has been successor in sold, until the interest. registration of the 2. Judicial creditor certificate of sale, which of the debtor cant be more than 3 3. Any person mos. from date of having a lien foreclosure. subsequent to the mortgage. 4. Juridical persons Amount due on debt Purchase price if judgment obligor Sum paid on last redemption if redemptioner (R39, S28) IF MORTGAGEE IS BANK, amount due under mortgage deed (Gen Banking Law)

1.

Mortgagor or person holding a subsequent mortgage

SC Circular 7-2002

All applications for extra-judicial foreclosure of mortgage shall be filed with the Executive Judge, through the Clerk of Court The Clerk of Court shall: o Examine the same to ensure that the SPA authorizing the extra-judicial foreclosure of the real property is inserted into or attached to the deed of real estate mortgage;

collect the appropriate filing fees and issues the corresponding official receipt The application for extra-judicial foreclosure shall be raffled among all Sheriffs The Sheriff to whom the application for extra-judicial foreclosure of mortgage was raffled shall: i. Prepare a Notice of Extra-judicial Sale o

ii.

In case of foreclosure of real estate mortgage, cause the publication of the notice of sale by posting it for not less than 20 days in at least 3

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public places in the municipality or city where the property is situated if such property is worth more than P400, notice must published once a week for at 3 consecutive weeks in a newspaper of general circulation in the municipality or city iv. Unless otherwise stipulated, the debtor-mortgagor need not be personally served a copy of the notice of the extrajudicial foreclosure. After the sale, the Clerk of Courts shall collect the appropriate fees In case of foreclosure, the Sheriff shall, within 30 days from the sale, prepare a return and file the same in the Office of the Registry of Deeds where the mortgage is recorded.

iii.

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