Category Archives: law on mortgage

Real Estate Mortgage

What is a real estate mortgage?

Real estate mortgageis 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

What are the essential requisites of real estate mortgage?

1. Secures the fulfillment of a principal obligation;
2. Mortgagor, must be the absolute owner of the thing mortgaged; and
3. Mortgagor must have free disposal of their property, or be legally authorized for such purpose.

The abovementioned enumeration is based on this article of the law:

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (1857)

Other special requisites include the following:

1. It can cover only immovable property and alienable real rights imposed upon immovables;
2. It must appear in a public instrument;
3. Registration in the registry of property is necessary to bind third persons, but not for the validity of the contract

When the principal obligation becomes due, the things in which was mortgaged may be alienated for the payment to the creditor. This is supported by this article:

Art. 2087. It is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor. (1858)

Mortgagor retains ownership of the thing given as a security.

What are the Kinds of real estate 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- one required by law
3. Equitable- one which, although lacking the formalities of a mortgage, shows the intention of the parties to make the property a security for a debt

What is the rule for alien mortgagors?

1. An alien may accept mortgage but he is prohibited from taking possession of the mortgaged property during the existence of the mortgage and even after default of the mortgage except for the purpose of :

• Foreclosure of mortgage
• Receivership for a period of 5 years from the actual possession
• Participating in the bidding or taking part in any sale of the property mortgaged in cases of foreclosure

The mortgagee has the right to rely on what appears on the face of the certificate and in the absence of suspicion the mortgagee has no obligation to look beyond thereon. If the title bears the name of the real owner and the mortgagee was constituted by an impostor without consent of the owner then the mortgage is null and void.

References:

Guillermo Adriano v. Romulo Pangilinan, GR 137471, January 16, 2002

Paras, E. (2013). Civil Code Volume V (Special Contracts). Quezon City: Rex Printing Company, Inc.

The New Civil Code

Pactum Commissorium

Prohibition against pactumcommissorium?

The stipulation whereby the thing used as security shall automatically become the property of the creditor or there is the automatic transfer of ownership in the event of non-payment of the debt in due time.

As a general rule, PactumCommissorium is forbidden by law and is declared null and void except the pledgee may appropriate the thing pledged if after the first and second auctions, the thing is not sold as required by this article;

Art. 2112. The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary Public to the sale of the thing pledged. This sale shall be made at a public auction, and with notification to the debtor and the owner of the thing pledged in a proper case, stating the amount for which the public sale is to be held. If at the first auction the thing is not sold, a second one with the same formalities shall be held; and if at the second auction there is no sale either, the creditor may appropriate the thing pledged. In this case he shall be obliged to give an acquittance for his entire claim. (1872a)

What is pacta non aliendo?

Pacta non aliendo refers to a stipulation in a mortgage which prohibits the mortgagor from alienating the mortgaged property subject to the mortgage within the mortgage period.
References:

Paras, E. (2013). Civil Code Volume V (Special Contracts). Quezon City: Rex Printing Company, Inc.

Perez v. Cortez, 35 Phil. 211

The New Civil Code

Foreclosure

What is foreclosure?

Foreclosure is the remedy available to the mortgagee by which he subjects the mortgaged property to the satisfaction of the obligation, to secure that for which the mortgage was given. It may mean the usual methods including the sale of the goods at a public auction.The right to foreclose a mortgage prescribes in ten (10) years.

What are the kids of foreclosure?

1. ORDINARY- an ordinary execution sale is governed by the pertinent provisions of Rule 39 of the Rules of Court

2. JUDICIAL – ordinary action for foreclosure under Rule 68 of the Rules of Court.

3. EXTRAJUDICIAL- when mortgagee is given a special power of attorney to sell the mortgaged property by public auction, under Act No. 3135

What is Act No. 3135 on Extrajudicial Foreclosure of Real Property all about?

The law covers only real estate mortgages. It is intended merely to regulate the extrajudicial sale of the property mortgaged.The authority to sell is not extinguished by the death of the mortgagor/mortgagee as it is an essential and inseparable part of a bilateral agreement. No sale can be legally made outside 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 the said place in the municipality building of the municipality in which the property or part thereof is situated

What is the procedure for Extrajudicial Foreclosure of both real estate mortgage under Act No. 3135 and Chattel Mortgage under Act No. 1508?

1. Filing of application before the Executive Judge through the Clerk of Court;

2. Clerk of Court will examine whether the requirement of the law have been complied with. That is, whether the notice of sale has been posted for not less than 20 days in at least three (3) public places of the municipality or city where the property is situated, and where the same is more than P400.00, that such notice has been published once a week for at least three (3) consecutive weeks in a newspaper of general circulation in the city or municipality;

3. The certificate of sale must be approved by the Executive Judge;

4. In extrajudicial foreclosure of real mortgages in different locations covering one indebtedness, only one filing fee corresponding to such debt shall be collected;

5. The Clerk of Court shall issue certificate of payment indicating the amount of indebtedness, the filing fees collected, the mortgages sought to be foreclosed, the description of the real estates and their respective locations;

6. The notice of sale shall be published in a newspaper of general circulation pursuant to Section 1, PD No. 1079;

7. The application shall be raffled among all sheriffs;

8. After the redemption period has expired, the Clerk of Court shall archive the records;

9. 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 there shall not be at least two (2) bidders, the sale shall then proceed. The names of the bidders shall be reported to the Sheriff or the Notary Public, who conducted the sale to the Clerk of Court before the issuance of the certificate of sale

References:

Act No. 3135, “An Act to Regulate the Sale of Property Under Special Powers Inserted in or Annexed to Real-Estate Mortgages”

IFC Service Leasing and Acceptance Corporation v. Venancio Nera, L-21720, Jan. 30, 1967

Paras, E. (2013). Civil Code Volume V (Special Contracts). Quezon City: Rex Printing Company, Inc.

C.N. Hodges, et al. v. Jose Manuel Lezema, et al., L-20630, Aug. 31, 1965

The New Civil Code

Redemption

What is redemption?

Redemption is the transaction by which the mortgagor reacquired 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.

What are the kinds of redemption?

1. Equity of Redemption is theright of mortgagor to redeem the mortgaged property after his default in the performance of the conditions of the mortgage within the 90-day period from the date of the service of the order of foreclosure or even thereafter but before the confirmation of the sale. It applies to judicial foreclosure of real mortgage and chattel mortgage foreclosure.

2. Right of Redemption is the right of mortgagor to redeem the mortgaged property within one year from the date of registration of the certificate of sale. It applies only to extrajudicial foreclosure of real mortgage. It is best supported by this article:

Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall last four years from the date of the contract.

Should there be an agreement, the period cannot exceed ten years.

However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase. (1508a)

What are the Periods of Redemption?

The following are the periods of redemption for the following:

a) Natural person has one year from registration of the certificate of sale with Registry of Deeds
b) Juridical personhas thesame rule as natural person
c) Juridical person(Mortgagee is a bank) isthree months after foreclosure or before registration of certificate of foreclosure whichever is earlier
d) Extrajudicial, the provisions of Act No. 3135 applies

What is the amount of the Redemption Price?

The following rules govern:

Mortgage is not a bank (Act No. 3135, in relation to Sec. 28, Rule 39 of Rules of Court)
a) Purchase price of the property
b) 1% interest per month on the purchase price
c) Taxes paid and amount of purchaser’s prior lien, if any, with the same rate of interest computed from the date of registration of sale, up to the time of redemption

Mortgagee is a bank (General Banking Law 2000)
a) Amount due under the mortgage deed
b) Interest
c) Cost and expenses

What is the redemption period in mortgage for homestead or free patent?

1. Mortgagee is a rural bank under RA 720 as amended-2 years from registration of the sheriff’s certificate of sale (titles or untitled); if the mortgagor fails to redeem he may still repurchase from the expiration of 2 years pursuant to Sec 119 of Public Land Act within 5 years

2. If land is mortgaged to parties other than rural banks, the mortgagor may redeem the property within 1 years and if he fails he or his heirs may repurchase from the expiration of 2 years from the same law within 5 years.

References:

Act No. 3135, “An Act to Regulate the Sale of PropertyUnder Special Powers Inserted in or Annexed to Real-Estate Mortgages”

Hi-Yield Realty, Inc. v. CA, etc. GR 138978, Sep. 12, 2002

Paras, E. (2013). Civil Code Volume V (Special Contracts). Quezon City: Rex Printing Company, Inc.

The New Civil Code