FORECLOSURE

Remedy available to the mortgagee by which he subjects the

mortgaged property to the satisfaction of the obligation to secure
which the mortgage was given
Denotes a procedure adopted by the mortgagee to terminate the rights
of the mortgagor on the property and includes the sale itself

3.

4.

5.
VALIDITY AND EFFECT OF FORECLOSURE
1.

2.

3.

4.

The right to foreclose the mortgage and to have the property

seized and sold with a view to applying the proceeds to the
payment of the principal obligation
A mortgage contract may contain an acceleration clauseon occasion
of the mortgagors default, the whole sum remaining unpaid
automatically becomes due and payable
Essence of mortgage contractproperty has been identified
and separated from a mass of the property of the mortgagor to
secure the payment of a principal obligation
Once the proceeds have been applied to the payment of the
principal obligation, the debtor cannot anymore be asked to pay
unless there is deficiency

KINDS OF FORECLOSURE
1. Judicial
2. Extrajudicial
AN ACT TO AUTHORIZE THE MORTGAGE OF PRIVATE REAL PROPERTY IN
FAVOR OF ANY INDIVIDUAL, CORPORATION, OR ASSOCIATION SUBJECT TO
CERTAIN CONDITIONS
Section 1. Any provision of law to the contrary notwithstanding,
private real property may be mortgaged in favor of any individual,
corporation, or association, but the mortgagee or his successor in interest,
if disqualified to acquire or hold lands of the public domain in the
Philippines, shall not take possession of the mortgaged property during
the existence of the mortgage and shall not take possession of the
mortgaged property except after default and for the sole purpose
of foreclosure, receivership, enforcement or other proceedings and in
no case for a period of more than 5 years from actual possession and
shall not bid or take part in any sale of such real property in case of
foreclosure: Provided, that said mortgagee or successor in interest may
take possession of said property after default in accordance with the
prescribed judicial procedures for foreclosure and receivership and
in no case exceeding 5 years from actual possession.
Section 2. All laws, orders, or regulations, or parts thereof inconsistent with
the provisions of this Act, are repealed or modified accordingly.

the obligation within a period not less than 90 nor more than 120
days from the finality of judgment.
Within this 90 to 120 day period, the mortgagor has the chance to
pay the obligation to prevent his property from being sold. This is
called the EQUITY OF REDEMPTION PERIOD.
If mortgagor fails to pay within the 90-120 days given to him by the
court, the property shall be sold to the highest bidder at public auction
to satisfy the judgment.
There will be a judicial confirmation of the sale. After the confirmation
of the sale, the purchaser shall be entitled to the possession of the
property, and all the rights of the mortgagor with respect to the
property are severed or terminated. The equity of redemption period
actually extends until the sale is confirmed. Even after the lapse of the
90 to 120 day period, the mortgagor can still redeem the property, so
long as there has been no confirmation of the sale yet. Therefore, the
equity of redemption can be considered as the right of the
mortgagor to redeem the property BEFORE the confirmation of the
sale.

After the confirmation of the sale, the mortgagor does not

have a right to redeem the property anymore. This is the
general rule in judicial foreclosures there is no right of
redemption after the sale is confirmed.

The proceeds of the sale of the property will be disposed as follows:

a.
First, the costs of the sale will be deducted from the price at which
the property was sold
b. The amount of the principal obligation and interest will be deducted
c.
The junior encumbrances will be satisfied
d. If there is still an excess, the excess will go back to the mortgagor. In
mortgage, the mortgagee DOES NOT get the excess (unlike in pledge).
e. If there is a deficiency, the mortgagee can ask for a DEFICIENCY
JUDGMENT which can be imposed on other property of the
mortgagor. The rule on extrajudicial foreclosure is different. The
mortgagee must go to court and file another action for the collection of
the deficiency.
ONE WOULD SHY AWAY FROM A JUDICIAL FORECLOSURE:
1.

2.
3.
4.

Judicial foreclosure is costly, since the parties would need to hire

lawyers. But then again, the present rules provide that court fees are
needed to be paid in extrajudicial proceedings also.
The parties have very little control over the sale because there is court
intervention.
More susceptible to stalling/dilatory tactics by the mortgagor,
since he can file all sorts of motions in court to prevent the sale.
It is more efficient to have extrajudicial proceedings since for judicial
proceedings, there is a minimum lapse of time of 6 years.

EXTRAJUDICIAL FORECLOSURE
(UNDER ACT 3135/4118 AND SC ADMINISTRATIVE CIRCULAR)

Section 3. This Act shall take effect upon its approval.

WHERE AN EXTRAJUDICIAL FORECLOSURE SALE SHOULD BE DONE?
NOTES ON RA 133:

1.

2.
3.

You can mortgage to a foreigner. RA 133 sanctions this. Ownership is

not equivalent to mortgage. Nonetheless, he can only institute
judicial
proceedings
and
not extrajudicially foreclose the
mortgage. Furthermore, he cannot bid or take part in the sale of the
real property.
The foreigner may not take possession of the property during the
mortgage. He could only possess the same as a lessee.
The foreigner may only take possession of the mortgaged property
after default, and for the sole purpose of foreclosure,
enforcement or other proceedings.
This should not exceed the
period of 5 years from actual possession.

JUDICIAL FORECLOSURE UNDER RULE 68, RULES OF COURT

1.
2.

The mortgagee should file a petition for judicial foreclosure in the court
which has jurisdiction over the area where the property is situated
The court will conduct a trial. If, after trial, the court finds merit in the
petition, it will render judgment ordering the mortgagor/debtor to pay

Sale cannot be made legally outside the city or province wherein

the property sold is situated.
In case the place has been
stipulated, it shall be made in the municipal building of the said
place

NOTICE OF THE SALE

1.

2.

POSTING of the notices of the sale FOR NOT LESS THAN 20 DAYS
in at least 3 public places of the municipality or city where the
property is situated
IF THE PROPERTY IS WORTH MORE THAN P400, such notice shall
also be published once a week at least 3 consecutive weeks in a
newspaper of general circulation in the municipality or city. (You don't
need to count 6 days between publications.)

NOTE: there is jurisprudence, which held that there is sufficient notice when
there is publication.

PUBLIC AUCTION/SALE
1.

2.

Time shall be between 9AM and 4PM. It shall be made in the direction
of the sheriff of the province, the justice or auxiliary justice of the
peace of the municipality, or of the notary
public
of
the
municipality, who shall be compensated with P5 for each day
of actual work or performance in addition to his expenses.
Anyone may bid at the sale, unless there are stipulations in the
agreement.

POSSESSION

Upon foreclosure, if the mortgagor is in possession of the property, he

will retain possession during the redemption period1 year from
the date of sale
If the winning bidder wants possession during the redemption
period, he may execute a bond in the amount equivalent to the use
of the property for 12 months, to indemnify the debtor in case it be
shown that the sale was made without violating the mortgage or
without complying with the requirements of the Act. Upon approval, a
writ of possession will be issued in his favor.
If the winning bidder is able to secure possession, the mortgagor
may petition that the sale is set aside and the writ of possession be
cancelled on the ground that he wasn't in default or that the
sale wasn't made in accordance with Act 3135. This must be filed
within 30 days from issuance of the writ of possession.

RIGHT OF REDEMPTION

The debtor, his successors-in-interest, or any judicial creditor or

judgment creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under which
the property is sold, may redeem the same at any time WITHIN
THE TERM OF 1 YEAR FROM AND AFTER THE DATE OF THE SALE and
such will be governed by the Rules of Court
When the property is redeemed after the purchaser has been given
possession, the redeemer is entitled to deduct from the price of
redemption any rentals that said purchaser may have collected in
case the property or any part thereof was rented. If the property was
used as his own dwelling, it being town property, or used it gainfully, it
being rural property, the redeemer may deduct from the price the
interest of 1% per month provided in the Rules of Court.

RULES OF COURT, RULE 39, SECTIONS 29 TO 31, AND 35

Sec. 29. Effect of redemption by judgment obligor, and a certificate to
be delivered and recorded thereupon; to whom payments on redemption
made. If the judgment obligor redeems, he must make the same
payments as are required to effect a redemption by a
redemptioner, whereupon, no further redemption shall be allowed and he
is restored to his estate. The person to whom the redemption payment
is made must execute and deliver to him a certificate of redemption
acknowledged before a notary public or other officer authorized to take
acknowledgments of conveyances of real property. Such certificate must be
filed and recorded in the registry of deeds of the place in which the property
is situated, and the registrar of deeds must note the record thereof on the
margin of the record of the certificate of sale. The payments mentioned in
this and the last preceding sections may be made to the purchaser
redemptioner, or for him to the officer who made the sale.
Sec. 30. Proof required of redemptioner. A redemptioner must produce to
the officer, or person from whom he seeks to redeem, and serve with his
notice to the officer a copy of the judgment or final order under which he
claims the right to redeem, certified by the clerk of the court wherein the
judgment or final order is entered; or, if he redeems upon a mortgage or
other lien, a memorandum of the record thereof, certified by the
registrar of deeds; or an original or certified copy of any assignment
necessary to establish his claim; and an affidavit executed by him or his
agent, showing the amount then actually due on the lien.
Sec. 31. Manner of using premises pending redemption; waste restrained.
Until the expiration of the time allowed for redemption, the court may, as
in other proper cases, restrain the commission of waste on the property

by injunction, on the application of the purchaser or the judgment obligee,

with or without notice; but it is not waste for a person in possession of the
property at the time of the sale, or entitled to possession afterwards, during
the period allowed for redemption, to continue to use it in the same manner
in which it was previously used; or to use it in the ordinary course of
husbandry; or to make the necessary repairs to buildings thereon while he
occupies the property.
Sec. 35. Right to contribution or reimbursement. When property liable to
an execution against several persons is sold thereon, and more than a due
proportion of the judgment is satisfied out of the proceeds of the sale of the
property of one of them, or one of them pays, without a sale, more
than his proportion, he may compel a contribution from the others; and
when a judgment is upon an obligation of one of them, as security for
another, and the surety pays the amount, or any part thereof, either by sale
of his property or before sale, he may compel repayment from the
principal.
GENERAL BANKING LAW OF 2000, SECTION 47
Sec. 47. Foreclosure of Real Estate Mortgage. - In the event of foreclosure,
whether judicially or extra-judicially, of any mortgage on real estate
which is security for any loan or other credit accommodation granted,
the mortgagor or debtor whose real property has been sold for the full
or partial payment of his obligation shall have the right within one year
after the sale of the real estate, to redeem the property by paying the
amount due under the mortgage deed, with interest thereon at rate
specified in the mortgage, and all the costs and expenses incurred by the
bank or institution from the sale and custody of said property less the
income derived therefrom. However, the purchaser at the auction sale
concerned whether in a judicial or extra-judicial foreclosure shall have
the right to enter upon and take possession of such property
immediately after the date of the confirmation of the auction sale and
administer the same in accordance with law. Any petition in court to
enjoin or restrain the conduct of foreclosure proceedings instituted
pursuant to this provision shall be given due
course only upon the filing by the petitioner of a bond in an amount
fixed by the court conditioned that he will pay all the damages which
the bank may suffer by the enjoining or the restraint of the foreclosure
proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold
pursuant to an extrajudicial foreclosure, shall have the right to redeem the
property in accordance with this provision 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 three (3) months after
foreclosure, whichever is earlier.
Owners of property that has been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their redemption rights until their
expiration.
NOTES:
1. For judicial foreclosure, the redemption period is within one year. For
extrajudicial, its 90 days from sale or registration.
2. The purpose is to give concession to the banks.
Banks cannot get
properties mortgaged by those in financial distress.
3. The redemption price would be the mortgaged obligation plus the
interest as stipulated in the original obligation. Compare this with
judicial foreclosure wherein the redemption price is the original
price. In this case, you have to pay more when redeeming from a
bank.
4. There is immediate possession
5. A motion to enjoin would not be entertained unless secured by a bond.
6. Court will fix the amount of the bond. Normally, this would be the
liability of the bank plus costs. This remedied the loopholes in Act
3135protect the bank during foreclosures.
This makes it hard
to secure injunctions and it shortens the redemption period.