VII.
REAL ESTATE MORTGAGE
A. GENERAL CONCEPTS
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.
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.
It is a real security transaction constituted to secure the
fulfillment of a principal obligation by the absolute owner
(the mortgagor) of immovable or alienable real rights, which
has free disposal of the property, and in the absence
thereof, is legally authorized for the purpose; subjecting the
mortgaged property (or collateral) to the condition that
when the principal obligation becomes due, the collateral
may be alienated for payment to the creditor (the
mortgagee)
B. FORM OF REAL ESTATE MORTGAGE
Art. 2125 In addition to the requisites stated in Article
2085, it is indispensable, in order that a mortgage may be
validly constituted, that the document in which it appears
be recorded in the Registry of Property. If the instrument is
not recorded, the mortgage is nevertheless binding
between the parties.
The persons in whose favor the law establishes a mortgage
have no other right than to demand the execution and the
recording of the document in which the mortgage is
formalized.
Art. 2131 The form, extent and consequences of a
mortgage, both as to its constitution, modification and
extinguishment, and as to other matters not included in this
Chapter, shall be governed by the provisions of the
Mortgage Law and of the Land Registration Law.
To bind third parties, a real estate mortgage must be
recorded in the Registry of Property.
An unregistered or unrecorded real estate mortgage
still binds the parties to the mortgage, but it only gives the
mortgagee the right to demand the execution and recording
of the real estate mortgage.
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C. OBLIGATIONS SECURED
General Rule: Real Estate Mortgage is limited to the
principal obligations mentioned in the contract of real estate
mortgage.
Literal accuracy in describing the obligations is not required,
but the description must be correct and full enough to direct
the attention to the sources of the correct information, and
must not mislead or deceive.
Terms of the contract must be sufficiently clear to put all
parties who may have occasion to deal with the collateral
upon inquiry.
Exceptions: It may also secure future advancements or
future debts so long as these debts that are yet to be
contracted are also accurately described.
Thus, most real estate mortgages contain a stipulation
known as dragnet or blanket mortgage clause, which is
specifically phrased to subsume all debts, whether past or
future.
Dragnet clause shall be carefully and strictly construed.
The amount stated as consideration in the mortgage
contract do not limit the amounts for which the mortgage
may stand as security, provided that the instrument reveals
the intention to secure future and other indebtedness.
A real estate mortgage given to secure future debts is a
continuing security and is not discharged by repayment
of the amount named in the real estate mortgage, until the
full amount of the principal obligation is paid.
Prudential Bank v. Alviar (2005) Tinga, J.
Petitioner: Prudential Bank
Respondent: Don A. Alviar and Georgia B. Alviar
Brief Facts: Sps. contracted a loan amounting to P250,000
from Prudential Bank, secured by a real estate mortgage
with a blanket mortgage clause. Several other loans were
contracted by the spouses with their own securities.
Prudential applied for the foreclosure of the real estate
mortgage for the failure of the spouses to pay 3 loans
evidenced by 3 promissory notes (Loans 1-3).
Doctrine: Mortgages given to secure future advancements,
or those with blanket mortgage clauses and dragnet
clauses are valid and legal contracts. The mortgage will not
secure subsequent obligations if such obligations have
separate securities provided. The SC followed the 2 nd school
of thought that a blanket mortgage clause will not secure
a note that secures in its entirety a subsequent obligation.
The blanket mortgage clause will only secure the portion
not covered by the security of the subsequent obligation.
1
D. OBJECT OF REAL ESTATE MORTGAGE
Art. 2124 Only the following property may be the object of
a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws,
imposed upon immovables.
Nevertheless, movables may be the object of a chattel
mortgage.
Art. 415 The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds
adhered to the soil;
(2) Trees, plants, and growing fruits, while they are attached
to the land or form an integral part of an immovable;
(3) Everything attached to an immovable in a fixed manner,
in such a way that it cannot be separated therefrom without
breaking the material or deterioration of the object;
(4) Statues, reliefs, paintings or other objects for use or
ornamentation, placed in buildings or on lands by the owner
of the immovable in such a manner that it reveals the
intention to attach them permanently to the tenements;
(5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said
industry or works;
(6) Animal houses, pigeon-houses, beehives, fish ponds or
breeding places of similar nature, in case their owner has
placed them or preserves them with the intention to have
them permanently attached to the land, and forming a
permanent part of it; the animals in these places are
included;
(7) Fertilizer actually used on a piece of land;
(8) Mines, quarries, and slag dumps, while the matter
thereof forms part of the bed, and waters either running or
stagnant;
(9) Docks and structures which, though floating, are
intended by their nature and object to remain at a fixed
place on a river, lake, or coast;
(10) Contracts for public works, and servitudes and other
real rights over immovable property.
Alienable real rights includes rights, title and interest in
a contract of lease, as well as the rights, title, and interest
acquired in the land on which the building was constructed.
Consequently, an assignment by way of guaranty of
such rights is a real estate mortgage, inasmuch as it is
executed to guarantee a principal obligation.
Although dominated an assignment, since its purpose is to
guarantee a principal obligation, and it is not an absolute
conveyance of title that confers ownership on the assignee,
then it is a mortgage; especially if it is stipulated that if the
assignor should comply with a principal obligation, the
assignment would become null and void, otherwise it would
remain in full force.
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1. AFTER ACQUIRED PROPERTIES
Stipulation in a registered real estate mortgage that all
property taken in exchange or replacement by the
mortgagor (after acquired property) shall become
subject to the mortgage is binding real estate mortgage
need not be registered a second time in order to bind the
after-acquired properties and affect third parties
Peoples Bank and Trust Co. v. Dahican Lumber Co. (1967)
Dizon, J.
Plaintiff-Appellants: Peoples Bank and Trust Co. (PBTC)
and Atlantic, Gulf and Pacific Co. of Manila (AGPM)
Defendant-Appellants: Dahican Lumber Co (DALCO),
Dahican American Lumber Corp (DAMCO), and Connell Bros.
Co.
Brief Facts: DALCO executed 2 deeds of mortgage in favor
of AGP on the one hand and PBTC on the other, in view of its
obligations to both. In both deeds of mortgage, it was stated
that properties acquired thereafter would be immediately
subject to the lien under the 2 deeds of mortgage. After the
execution of the 2 deeds, DALCO bought machines, parts
and supplies, allegedly from Connell and DAMCO. Later on,
DALCO rescinded the sale it had with Connell and DAMCO.
AGP and PBTC protested, arguing that they were already
covered by the lien.
Doctrine: Stipulations that after acquired properties are
to be immediately subject to the lien are not unjust nor
immoral; they are commonplace and actually logical when
the collateral is perishable, subject to wear and tear or is
intended for resale.
2. EFFECT AND EXTENT
Art. 2126 The mortgage directly and immediately 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.
Art. 2127 The mortgage extends to the natural accessions,
to the improvements, growing fruits, and the rents or
income not yet received when the obligation becomes due,
and to the amount of the indemnity granted or owing to the
proprietor from the insurers of the property mortgaged, or
in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by
law, whether the estate remains in the possession of the
mortgagor, or it passes into the hands of a third person.
Art. 2129 The creditor may claim from a third person in
possession of the mortgaged property, the payment of the
part of the credit secured by the property which said third
person possesses, in the terms and with the formalities
which the law establishes.
Under Art. 2126, a registered or recorded real estate
mortgage is a right in rem
Right in rem: a lien or legal right or interest that a creditor
has in anothers property whoever its owner may be
The real estate mortgage is inseparable from the collateral
and until discharged, follows the property
The sale of the property cannot affect or release the
mortgage; the purchaser of the collateral is bound to
acknowledge and respect the encumbrance, whether the
transfer to them has the consent of the mortgagee or not
2
 Star Two (SPV-AMC) Inc. v. Paper City Corp. Perez, J.
Petitioner: Star Two (SPV-AMC) Inc. (note: it substituted
RCBC in this action)
Respondent: Paper City Corp. of the Phils.(PC)

Brief Facts: PC entered into a loan agreement with RCBC,

secured by chattel mortgages over its machineries. Later
on, this was novated into an Mortgage Trust Indenture with
2 more banks and now secured by real estate mortgages
over the lands and buildings of PC. When PC defaulted, an
extrajudicial foreclosure sale was executed. A dispute arose
when PC moved to take the machineries out of the
foreclosed lands and buildings, contending that they were
not part of the real estate mortgage and consequently, not
covered by the foreclosure. RCBC argued otherwise.

Doctrine:
1. Much as real property may be considered as personalty
for a chattel mortgage, the reverse is also true;
personalty may be the subject of a real estate
mortgage.
2. Accessory follows the principal.
3. Bischoff v. Pomar and Cia. General de Tabacos: Even if
the machinery were not expressly included in the
mortgage, the (old) Mortgage Law provides that
chattels permanently located in a building, either
useful or ornamental, or for the service of some
industry even though they were placed there after the
creation of the mortgage, shall be deemed part of the
mortgage, provided they belong to the owner of the
mortgaged land.

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E. RIGHT TO ALIENATE REAL ESTATE MORTGAGE
CREDIT
Art. 2128 The mortgage credit may be alienated or
assigned to a third person, in whole or in part, with the
formalities required by law.
Art. 1625 An assignment of a credit, right or action shall
produce no effect as against third person, unless it appears
in a public instrument, or the instrument is recorded in the
Registry of Property in case the assignment involves real
property.
Art. 1627 The assignment of a credit includes all the
accessory rights, such as a guaranty, mortgage, pledge or
preference.
A grant of right of first refusal in favor of the mortgagee is
valid
Consideration for the real estate mortgage is the same for
the right of first refusal
Garcia v. Villar (2012) Leonardo-De Castro, J.
Petitioner: Pablo P. Garcia
Respondent: Yolanda Valdez Villar
Brief Facts: Galas and Pingol obtained a loan from Villar
and secured payment by virtue of a Real Estate Mortgage
constituted over real property Galas owned. Galas and
Pingol obtained another loan from Garcia and mortgaged
the same real property previously mortgaged to Villar.
Thereafter, Galas sold the subject property to Villar. Garcia
filed a complaint for foreclosure and damages against Villar,
alleging that the sale was invalid, it being done without his
prior consent.

Right to alienate the real estate mortgage credit: the Doctrine: The mortgagor in a Real Estate Mortgage retains
right of the mortgagee to assign its rights under the ownership over the mortgaged property and may validly
principal obligation secured by the real estate mortgage alienate the same. A stipulation forbidding the alienation of
the immovable mortgaged shall be void.
The mortgagee does not become the owner of the
collateral, but it owns the real estate mortgage credit and
may alienate or assign it to a third person

F. RIGHT TO ALIENATE COLLATERAL

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.

Art. 2130 A stipulation forbidding the owner from

alienating the immovable mortgaged shall be void.

The mortgagor remains to be the owner of the collateral and

retains the right to dispose (jus disponendi), as an attribute
of ownership

Pactum de non alienando (Sp. pacto de non alienando) is

prohibited by Art. 2130

Pactum de non alienando:

(a) Stipulations forbidding the mortgagor from selling
the collateral, and
(b) Stipulations forbidding the mortgagor from selling
the collateral without the consent of the mortgagee

Why (b) is a violation of Art. 2130: it achieves the same

intent and purpose of a stipulation forbidding the mortgagor
from alienating the collateral.

A stipulation prohibiting the mortgagor from entering into

second or subsequent mortgages is valid since there is no
law forbidding it

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G. FORECLOSURE OF REAL ESTATE MORTGAGE
If the principal obligation becomes due and the debtor
defaults, the creditor, as mortgagee, may elect to foreclose
the collateral
Foreclosure of a real estate mortgage may be judicial or
extrajudicial
1. JUDICIAL FORECLOSURE
A. COMPLAINT FOR FORECLOSURE
Rule 68, Sec. 1 Complaint in action for foreclosure In an
action for the foreclosure of a mortgage or other
encumbrance upon real estate, the complaint shall set forth
the date and due execution of the mortgage; its
assignments, if any; the names and residences of the
mortgagor and the mortgagee; a description of the
mortgaged property; a statement of the date of the note or
other documentary evidence of the obligation secured by
the mortgage, the amount claimed to be unpaid thereon;
and the names and residences of all persons having or
claiming an interest in the property subordinate in right to
that of the holder of the mortgage, all of whom shall be
made defendants in the action.
B. JUDGMENT ON FORECLOSURE
Rule 68, Sec. 2 Judgment on foreclosure for payment or
sale If upon the trial in such action the court shall find the
facts set forth in the complaint to be true, it shall ascertain
the amount due to the plaintiff upon the mortgage debt or
obligation, including interest and other charges as approved
by the court, and costs, and shall render judgment for the
sum so found due and order that the same be paid to the
court or to the judgment obligee within a period of not less
than ninety (90) days nor more than one hundred twenty
(120) days from the entry of judgment, and that in default
of such payment the property shall be sold at public auction
to satisfy the judgment.
Korea Exchange Bank vs. Filkor Business Integrated, Inc.
(2002) Quisumbing J.
Petitioners: Korea Exchange Bank
Respondents: Filkor Business Integrated; Kim Eung Joe;
Lee Han San
Brief Facts: For Filkors failure to pay the loan, Korea
Exchange filed a complaint with TC, seeking payment of the
formers obligation and the foreclosure and sale of the REM
executed between the two. TC rendered judgment, ordering
the payment of the obligation but did not order the
foreclosure in case of non-payment, as it treated the
complaint as one for collection of a sum of money and not
an action for foreclosure. As such, it held that the bank has
in effect waived its right to foreclose the mortgaged
property.
Doctrine: It is a basic principle in Civil Procedure that what
determines the nature of an action are the allegations in the
complaint and the reliefs sought. If the complaint
sufficiently complies with the requirements for REM
foreclosure in the Rules, then the action should be treated
as one for foreclosure.
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C. EQUITY OF REDEMPTION
Rule 68, Sec. 2 Judgment on foreclosure for payment or
sale If upon the trial in such action the court shall find the
facts set forth in the complaint to be true, it shall ascertain
the amount due to the plaintiff upon the mortgage debt or
obligation, including interest and other charges as approved
by the court, and costs, and shall render judgment for the
sum so found due and order that the same be paid to the
court or to the judgment obligee within a period of not less
than ninety (90) days nor more than one hundred twenty
(120) days from the entry of judgment, and that in default
of such payment the property shall be sold at public auction
to satisfy the judgment.
D. FORECLOSURE SALE
Rule 68, Sec. 3 Sale of mortgaged property; effect
When the defendant, after being directed to do so as
provided in the next preceding section, fails to pay the
amount of the judgment within the period specified therein,
the court, upon motion, shall order the property to be sold
in the manner and under the provisions of Rule 39 and other
regulations governing sales of real estate under execution.
Such sale shall not affect the rights of persons holding prior
encumbrances upon the property or a part thereof, and
when confirmed by an order of the court, also upon motion,
it shall operate to divest the rights in the property 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.
Upon the finality of the order of confirmation or upon the
expiration of the period of redemption when allowed by law,
the purchaser at the auction sale or last redemptioner, if
any, shall be entitled to the possession of the property
unless a third party is actually holding the same adversely
to the judgment obligor. The said purchaser or last
redemptioner may secure a writ of possession, upon
motion, from the court which ordered the foreclosure.
Rule 68, Sec. 4 Disposition of proceeds of sale The
amount realized from the foreclosure sale of the mortgaged
property shall, after deducting the costs of the sale, be paid
to the person foreclosing the mortgage, and when there
shall be any balance or residue, after paying off the
mortgage debt due, the same shall be paid to junior
encumbrancers in the order of their priority, to be
ascertained by the court, or if there be no such
encumbrancers or there be a balance or residue after
payment to them, then to the mortgagor or his duly
authorized agent, or to the person entitled to it
Rule 68, Sec. 5 How sale to proceed in case the debt is
not all due If the debt for which the mortgage or
encumbrance was held is not all due as provided in the
judgment, as soon as a sufficient portion of the property has
been sold to pay the total amount and the costs due, the
sale shall terminate; and afterwards, as often as more
becomes due for principal or interest and other valid
charges, the court may, on motion, order more to be sold.
But if the property cannot be sold in portions without
prejudice to the parties, the whole shall be ordered to be
sold in the first instance, and the entire debt and costs shall
be paid, if the proceeds of the sale be sufficient therefor,
there being a rebate of interest where such rebate is proper.
Rule 68, Sec. 7 Registration A certified copy of the final
order of the court confirming the sale shall be registered in
the registry of deeds. If no right of redemption exists, the
certificate of title in the name of the mortgagor shall be
5
cancelled, and a new one issued in the name of the
purchaser.
Where a right of redemption exists, the certificate of title in
the name of the mortgagor shall not be cancelled, but the
certificate of sale and the order confirming the sale shall be
registered and a brief memorandum thereof made by the
registrar of deeds upon the certificate of title. In the event
the property is redeemed, the deed of redemption shall be
registered with the registry of deeds, and a brief
memorandum thereof shall be made by the registrar of
deeds on said certificate of title.
If the property is not redeemed, the final deed of sale
executed by the sheriff in favor of the purchaser at the
foreclosure sale shall be registered with the registry of
deeds; whereupon the certificate of title in the name of the
mortgagor shall be cancelled and a new one issued in the
name of the purchaser.
Rule 68, Sec. 8 Applicability of other provisions The
provisions of sections 31, 32 and 34 of Rule 39 shall be
applicable to the judicial foreclosure of real estate
mortgages under this Rule insofar as the former are not
inconsistent with or may serve to supplement the provisions
of the latter
E. RIGHT OF REDEMPTION
Huerta Alba Resort, Inc. vs. Court of Appeals Pursima, J.
Petitioner: Huerta Alba Resort, Inc. (Huerta Alba)
Respondents: Court of Appeals (CA) and Syndicated
Management Group, Inc. (SMGI)
Brief Facts: Huerta Albas mortgaged properties were
judicially foreclosed. In a series of proceedings it did not
invoke its right of redemption under Sec. 78 of RA 337. After
the foreclosure sale was confirmed, it invoked for the first
time its right of redemption under the said provision.
Doctrine: Generally, the right of redemption exists only in
extrajudicial foreclosures. In case of judicial foreclosures,
there exists only an equity of redemption. However, even if
the foreclosure is judicial, the right of redemption exists
when the mortgagee is the PNB, a bank, a banking
institution, or a credit institution. The right of redemption
under Sec. 78 of RA 337 is a compulsory counterclaim that
must be averred in the answer. Failing to invoke it in a
timely fashion shall bar a person from claiming its benefits
in later part of proceedings. (See further discussion based
on the cited case of Limpin vs. IAC below)

Rule 39, 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.

Rule 39, Sec. 32 Rents, earnings and income of property

pending redemption The purchaser or a redemptioner
shall not be entitled to receive the rents, earnings and
income of the property sold on execution, or the value of
the use and occupation thereof when such property is in the
possession of a tenant. All rents, earnings and income
derived from the property pending redemption shall belong
to the judgment obligor until the expiration of his period of
redemption.

Rule 39, Sec. 34 Recovery of price if sale not effective;

revival of judgment If the purchaser of real property sold
on execution, or his successor in interest, fails to recover
the possession thereof, or is evicted therefrom, in
consequence of irregularities in the proceedings concerning
the sale, or because the judgment has been reserved or set
aside, or because the property sold was exempt from
execution, or because a third person has vindicated his
claim, to the property, he may on motion in the same action
or in a separate action recover from the judgment obligee
the price paid, with interest, or so much thereof as has not
been delivered to the judgment obligor; or he may, on
motion, have the original judgment revived in his name for
the whole price with interest, or so much thereof as has
been delivered to the judgment obligor. The judgment so
revived shall have the same force and effect as an original
judgment would have as of the date of the revival and no
more.

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F. RIGHT TO SURPLUS OR DEFICIENCY
Rule 68, Sec. 4 Disposition of proceeds of sale The
amount realized from the foreclosure sale of the mortgaged
property shall, after deducting the costs of the sale, be paid
to the person foreclosing the mortgage, and when there
shall be any balance or residue, after paying off the
mortgage debt due, the same shall be paid to junior
encumbrancers in the order of their priority, to be
ascertained by the court, or if there be no such
encumbrancers or there be a balance or residue after
payment to them, then to the mortgagor or his duly
authorized agent, or to the person entitled to it.
Rule 68, Sec. 6 Deficiency judgment If upon the sale of
any real property as provided in the next preceding section
there be a balance due to the plaintiff after applying the
proceeds of the sale, the court, upon motion, shall render
judgment against the defendant for any such balance for
which, by the record of the case, he may be personally
liable to the plaintiff, upon which execution may issue
immediately if the balance is all due at the time of the
rendition of the judgment; otherwise, the plaintiff shall be
entitled to execution at such time as the balance remaining
becomes due under the terms of the original contract,
which time shall be stated in the judgment.
Rule 86, Sec. 7 Mortgage debt due from estate A
creditor holding a claim against the deceased secured by
mortgage or other collateral security, may abandon the
security and prosecute his claim in the manner provided in
this rule, and share in the general distribution of the assets
of the estate; or he may foreclose his mortgage or realize
upon his security, by action in court, making the executor or
administrator a party defendant, and if there is a judgment
for a deficiency, after the sale of the mortgaged premises,
or the property pledged, in the foreclosure or other
proceedings to realize upon the security, he may claim his
deficiency judgment in the manner provided in the
preceding section; or he may rely upon his mortgage or
other security alone, and foreclose the same at any time
within the period of the statute of limitations, and in that
event he shall not be admitted as a creditor, and shall
receive no share in the distribution of the other assets of
the estate; but nothing herein contained shall prohibit the
executor or administrator from redeeming the property
mortgaged or pledged, by paying the debt for which it is
held as security, under the direction of the court, if the
court shall adjudge it to be for the best interest of the
estate that such redemption shall be made.
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2. EXTRAJUDICIAL FORECLOSURE
A. SPECIAL POWERS
Act No. 3135, Sec. 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 election 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.
Mortgagee has the right to foreclose a real estate
mortgage upon the mortgagors failure to pay his obligation
This right must be exercised according to its clear mandate
requirements of the law must be complied with, otherwise,
valid exercise of the right ends
Extrajudicial foreclosure
May be exercised only if there is a special power inserted
or attached to the document in which the REM appears, and
only in accordance with the provisions of Act No. 3135
B. FORECLOSURE SALE
Act No. 3135, 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 subject to 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.
A.M. No. 99-10-05-0, as amended
Procedure In Extra-Judicial Foreclosure Of Mortgage
In line with the responsibility of an Executive Judge under
Administrative Order No. 6, dated 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 extrajudicial
foreclosure of mortgages:
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.
2. Upon receipt of an application for extra-judicial
foreclosure of mortgage, it shall be the duty of the Clerk of
Court to:
a) receive and docket said application and to stamp thereon
the corresponding file number, date and time of filing;
b) collect the filing fees therefore pursuant to rule 141,
Section 7(c), as amended by A.M. No. 00-2-01-SC, and issue
the corresponding official receipt;
c) examine, in case of real estate mortgage foreclosure,
whether the applicant has complied with all the
requirements before the public auction is conducted under
the direction of the sheriff or a notary public, pursuant to
Sec. 4 of Act 3135, as amended;
d) sign and issue the certificate of sale, subject to the
7
approval of the Executive Judge, or in his absence, the Vice-
Executive Judge. No certificate of sale shall be issued in
favor of the highest bidder until all fees provided for in the
aforementioned sections and in Rule 141, Section 9(1), as
amended by A.M. No. 00-2-01-SC, shall have been paid;
Provided, that in no case shall the amount payable under
Rule 141, Section 9(1), as amended, exceed P100,000.00;
e) after the certificate of sale has been issued to the highest
bidder, keep the complete records, while awaiting any
redemption within a period of one (1) year from date of
registration of the certificate of sale with the Register of
Deeds concerned, after which, the records shall be archived.
Notwithstanding the foregoing provision, juridical persons
whose property is sold pursuant to an extra-judicial
foreclosure, shall have the right to redeem the property
until, but not after, the registration of the certificate of
foreclosure sale which in no case shall be more than three
(3) months after foreclosure, whichever is earlier, as
provided in Section 47 of Republic Act No. 8791 (as
amended, Res. Of Aug. 7, 2001).
Where the application concerns the extrajudicial 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. The
collecting Clerk of Court shall, apart from the official receipt
of the fees, issue a certificate of payment indicating the
amount of indebtedness, the filing fees collected, the
mortgages sought to be foreclosed, the real estates and/or
chattels mortgaged and their respective locations, which
certificate shall serve the purpose of having the application
docketed with the Clerks of Court of the places where the
other properties are located and of allowing the extrajudicial
foreclosures to proceed thereat.
3. The notices of auction sale in extrajudicial 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 2,
1977, and non-compliance therewith shall constitute a
violation of Section 6 thereof.
4. The Executive Judge shall, with the assistance of the
Clerk of Court, raffle applications for extrajudicial
foreclosure of mortgage under the direction of the sheriff
among all sheriffs, including those assigned to the Office of
the Clerk of Court and Sheriffs IV assigned in the branches.
5. The name/s of the bidder/s 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.
(1) REQUIREMENTS OF NOTICE
Notice
Its object is to inform the public of the nature and condition
of the collateral to be sold (and the time, place and terms of
the sale)
For the purpose of securing bidders and to prevent a
sacrifice of the collateral
GR: Under normal circumstances, statutory provisions
governing posting of notice of REM foreclosure sales must
be strictly complied with. Even slight deviations will
invalidate the notice and render the sale voidable
Examples:
o If the sheriff sells the collateral without the required
notice, and induced by the mortgagee, and the
purchaser is the mortgagee, the sale is absolutely
void and no title passes
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o If mistakes or omissions occur in the notice of sale,
calculated to deter or mislead bidders, to
depreciate the value of the property, or to prevent
it from bringing a fair price, such mistakes will be
fatal to the validity of the notice and the
consequent foreclosure sale
XPN: If the objectives are attained, immaterial errors and
mistakes may not affect the sufficiency of the notice
Examples:
o If what is lacking is the posting in three public
places, not the publication in a newspaper of
general circulation, and considering the attendant
circumstances, the publication of the notice of
sale in a newspaper general circulation alone
has been held to be more than sufficient
compliance with the notice-posting
requirement of the law, specifically if the
objectives are attained and there is no showing that
the collateral was sold for a price far below its value
to insinuate any bad faith, nor that there was
collusion
o There is a greater probability that a notice
published in a newspaper of general circulation,
which is distributed nationwide, shall be read by
more people than a notice posted in a public
bulletin board, no matter how strategic its location
Grand Farms, Inc. vs. CA (1991) Regalado, J.
Petitioners: Grand Farms, Inc. and Philippine Shares Corp.
Respondents: CA; Esperanza Echiverri, as Clerk of Court &
Ex-officio Sheriff; Sergio Cabrera as Deputy Sheriff-in-
Charge; and Banco Filipino Savings and Mortgage Bank.
Brief Facts: Grand Farms sought to annul the foreclosure
proceedings instituted by Banco Filipino. Banco Filipino
impliedly admitted that no personal notice was sent to
Grand Farms, although it argues that notice by publication
in a newspaper of general circulation is sufficient. Grand
Farms claims that this lack of notice violates paragraph (k)
of the mortgage contract, and is fatal to the foreclosure
proceedings. Consequently, it filed a motion for summary
judgment.
Doctrine: The need of personal notice to the mortgagor,
while not generally required by law, could be validly
stipulated in the mortgage contract, and the failure to
comply with such is fatal to the foreclosure proceedings.
8
(2) CONDUCT OF SALE
Act No. 3135, Sec. 4 The sale shall be made at public
auction, between the hours or nine in the morning and four
in the afternoon; and shall be under the direction of the
sheriff of the province, the justice or auxiliary justice of the
peace of the municipality in which such sale has to be
made, or a notary public of said municipality, who shall be
entitled to collect a fee of five pesos each day of actual
work performed, in addition to his expenses.
Act No. 3135, Sec. 5 At any 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.
A.M. No. 99-10-05-0
(AS FURTHER AMENDED, AUGUST 7, 2001)
PROCEDURE IN EXTRA-JUDICIAL FORECLOSURE OF
MORTGAGE
In line with the responsibility of an Executive Judge under
Administrative Order No. 6, dated 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 extrajudicial
foreclosure of mortgages:
(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.
(2) Upon receipt of an application for extra-judicial
foreclosure of mortgage, it shall be the duty of the Clerk
of Court to:
a. receive and docket said application and to stamp
thereon the corresponding file number, date and
time of filing;
b. collect the filing fees therefore pursuant to rule
141, Section 7(c), as amended by A.M. No. 00-2-01-
SC, and issue the corresponding official receipt;
c. examine, in case of real estate mortgage
foreclosure, whether the applicant has complied
with all the requirements before the public auction
is conducted under the direction of the sheriff or a
notary public, pursuant to Sec. 4 of Act 3135, as
amended;
d. sign and issue the certificate of sale, subject to the
approval of the Executive Judge, or in his absence,
the Vice-Executive Judge. No certificate of sale
shall be issued in favor of the highest bidder until
all fees provided for in the aforementioned sections
and in Rule 141, Section 9(1), as amended by A.M.
No. 00-2-01-SC, shall have been paid; Provided,
that in no case shall the amount payable under
Rule 141, Section 9(1), as amended, exceed
P100,000.00;
e. after the certificate of sale has been issued to the
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highest bidder, keep the complete records, while
awaiting any redemption within a period of one (1)
year from date of registration of the certificate of
sale with the Register of Deeds concerned, after
which, the records shall be archived.
Notwithstanding the foregoing provision, juridical
persons whose property is sold pursuant to an
extra-judicial foreclosure, shall have the right to
redeem the property until, but not after, the
registration of the certificate of foreclosure sale
which in no case shall be more than three (3)
months after foreclosure, whichever is earlier, as
provided in Section 47 of Republic Act No. 8791 (as
amended, Res. Of August 7, 2001).
Where the application concerns the extrajudicial
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. The collecting Clerk
of Court shall, apart from the official receipt of the
fees, issue a certificate of payment indicating the
amount of indebtedness, the filing fees collected, the
mortgages sought to be foreclosed, the real estates
and/or chattels mortgaged and their respective
locations, which certificate shall serve the purpose of
having the application docketed with the Clerks of
Court of the places where the other properties are
located and of allowing the extrajudicial foreclosures to
proceed thereat.
(3) The notices of auction sale in extrajudicial 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 2, 1977, and non-compliance therewith
shall constitute a violation of Section 6 thereof.
(4) The Executive Judge shall, with the assistance of the
Clerk of Court, raffle applications for extrajudicial
foreclosure of mortgage under the direction of the
sheriff among all sheriffs, including those assigned to
the Office of the Clerk of Court and Sheriffs IV assigned
in the branches.
(5) 5. The name/s of the bidder/s 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.
How: By public auction
When: Between 9 AM and 4 PM
Where:
GR: In the province in which the real property is situated
XPN: When the place within said province is subject of
stipulation, sale shall be made in the place in the
municipal building of the municipality in which the
property or part thereof is situated
Conducted by whom:
(1) Sheriff of the province;
(2) Justice or auxiliary justice of the peace of the
municipality in which such sale has to be made;
(3) Notary public of said municipality entitled to a fee
of P5 each day, in addition to his expenses
Who may participate:
GR:
1. Creditor
2. Trustee
3. Other persons authorized to act for the creditor
9
XPN: Contrary has been expressly provided in the mortgage
or trust deed
Bidding: Through sealed bids, submitted to the Sheriff
In case of a tie, open bidding shall be conducted between
the highest bidders
Payment: In cash or in managers check (in Philippine
currency), within 5 days from notice
Fees: Collected by the Clerk of Court, NON-REFUNDABLE
(even if property subsequently redeemed)
Report: Sheriff or notary public shall report name/s of the
bidder/s to the Clerk of Court
Certificate of Sale: Issued and signed by the Clerk of
Court upon presentation of the appropriate receipts. Subject
to approval of the Exec. Judge (in his absence, Vice-
Executive Judge)
Rabat v. PNB (2012) Bersamin, J.
Petitioner: Spouses Francisco and Merced Rabat
Respondent: Philippine National Bank
Brief Facts: Loan accommodation of P4-M was granted to
the Sps. Rabat by PNB, with a REM securing said obligation.
The aggregate amount of the spouses loan was P3,517,380
(as evidenced by promissory notes). The spouses failed to
pay the balance when it became due, so PNB filed a petition
for the extrajudicial foreclosure of the REM. At the 2 auction
sales, PNB was the highest bidder with a bid of P3,874,800.
As the proceeds were insufficient (entire obligation
amounted to P14,745,398.25), PNB sent demand letters to
the spouses, and when they failed to comply, PNB filed a
complaint for sum of money. The Sps. Rabat filed a
counterclaim, questioning the validity of the auction sales,
and the RTC and CA initially declared the 2 auction sales
void. On remand from the SC, the CA declared the auction
sales valid and ruled that the PNB was entitled to be paid
the remainder of the obligation still owing it because of the
inadequacy of the auction proceeds.
Doctrine: Inadequacy of the price in an extrajudicial
foreclosure does not invalidate the sale, and said sale is still
valid. If the proceeds of the sale are insufficient to satisfy
the principal obligation, the mortgagee is entitled to the
deficiency owing it.
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C. RIGHT OF REDEMPTION
Act No. 3135, Sec. 6 In all cases in which an extrajudicial
sale is made under the special power hereinbefore referred
to, 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 one year
from and after the date of the sale; and such redemption
shall be governed by the provisions of sections four hundred
and sixty-four to four hundred and sixty-six, inclusive, of the
Code of Civil Procedure, in so far as these are not
inconsistent with the provisions of this Act.
A.M. No. 99-10-05-0
(see above)
Who may redeem:
1. Debtors
2. Successors in interest
3. Any judicial creditor or judgment creditor of said debtor
4. Any person having a lien on the property subsequent to
the mortgage or deed of trust under which the property
is sold
Juridical persons: May redeem until the registration of the
certificate of foreclosure sale (shall not be more than 3
months after foreclosure)
When: Within the term of 1 year from and after the date of
the sale.
After issuance of the Certificate of Sale, Clerk of Court shall
keep complete records for a period of 1 year from the date
of registration of the certificate of sale with the Register of
Deeds
How: Rules of Court, Secs. 27-33
Extrajudicial foreclosure sale
Right acquired by the purchaser: is merely inchoate
Ownership remains in the mortgagor until the
expiration of the period granted for the right of
redemption
Right of redemption
Upon its expiration, without the mortgagor having
exercised the right of redemption, the ownership
becomes consolidated in the purchaser (not inchoate
right anymore)
To claim a right of redemption, there must be a specific
law that exceptionally allows it
GR: When a REM is foreclosed extrajudicially, Act 3135
grants the right of redemption within 1 year from the
date of registration of the certificate of the
foreclosure sale
Provision says from date of sale, but jurisprudence
interpreted it to be from date of registration
XPN: RA 8791 (General Banking Law of 2000) provides that
when the REM is foreclosed extrajudicially by a bank, quasi-
bank or trust entity, juridical mortgagors are granted the
right to redeem until, but not later than the
registration of the certificate of foreclosure sale (in
no case shall be more than 3 months after foreclosure)
How to determine if a right of redemption exists?
1. Identify the law that allows the right of redemption
2. Apply its provisions to the specific case
10

On the price of the sale of the collateral:
Immaterial if the collateral is sold at an amount less
than its actual market value
o Mere inadequacy of the price obtained at the
foreclosure sale will not be sufficient to set it aside
if there is no showing that in the event of a regular
sale, a better price can be obtained
o XPT: the amount is shocking to the conscience
When there is a right to redeem, the mortgagor can:
o Exercise the right and sell the collateral; OR
o Sell the right to redeem to a third party
Either of the 2 abovementioned situations allows the
mortgagor to recover any alleged loss suffered by
reason of the low price at the foreclosure sale
Goldenway Merchandising Corp. v. Equitable PCI Bank
(2013) Villarama, Jr., J.
Petitioner: Goldenway Merchandising Corp. (GMC)
Respondent: Equitable PCI Bank
Concept: Real Estate Mortgage; Foreclosure; Extrajudicial
Foreclosure; Right of Redemption
Brief Facts: GMC attempted to redeem its foreclosed
properties from Equitable. Equitable rejected the attempt to
redeem, arguing that the period for redemption, as provided
for by RA 8791, which amended Act No. 3135, has already
lapsed and that the title to the properties had already been
consolidated in its favor. GMC now comes to the Court to
argue against the application of RA 8791.
Doctrine:
-The right of redemption is a statutory right that must be
exercised in the manner prescribed and the period
provided by the statute that grants such right, for it to
be effective.
- Under the General Banking Law of 2000 (RA 8791), juridical
persons, as mortgagors, have a redemption period which
commences from the date of the foreclosure sale
and expires upon (a) registration of the certificate of
sale, or (b) three months after the foreclosure,
whichever is earlier.
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(1) WHO MAY REDEEM
Act No. 3135, Sec. 6 In all cases in which an extrajudicial
sale is made under the special power hereinbefore referred
to, 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 one year
from and after the date of the sale; and such redemption
shall be governed by the provisions of sections four hundred
and sixty-four to four hundred and sixty-six, inclusive, of the
Code of Civil Procedure, in so far as these are not
inconsistent with the provisions of this Act.
Rule 39, Sec. 27 Who may redeem real property so sold
Real property sold as provided in the last preceding section,
or any part thereof sold separately, may be redeemed in
the manner hereinafter provided, by the following persons:
(a) The judgment obligor, or his successor in interest in the
whole or any part of the property;
(b) A creditor having a lien by virtue of an attachment,
judgment or mortgage on the property sold, or on some
part thereof, subsequent to the lien under which the
property was sold. Such redeeming creditor is termed a
redemptioner.
Act No. 3135, Sec. 6 Rule
1. Debtors 1. Judgment o
2. Successors in interest interest in t
3. Any judicial creditor or judgment creditor of property
said debtor 2. Creditor hav
4. Any person having a lien on the property attachment,
subsequent to the mortgage or deed of trust property sol
under which the property is sold subsequent
property was
is termed a r
GR: It is the mortgagor who has the right to redeem the
collateral sold at an extrajudicial foreclosure sale
XPN: Parties who acquire a right to the collateral under
certain conditions are also granted the right to redeem
1. Successor in interest: includes, but not limited to:
a. One to whom the mortgagor has transferred the
statutory right of redemption
b. One to whom the mortgagor has conveyed its
interest in the collateral for the purpose of
redemption
c. One who succeeds to the interest of the mortgagor
by operation of law
d. One or more joint debtor-mortgagors who were joint
owners of the collateral sold
Note: A surety CANNOT redeem the collateral of
the debtor-mortgagor because the surety, by
paying the debt of the debtor-mortgagor, stands in
the place of the creditor, not the debtor-mortgagor,
and consequently is NOT a successor in interest in
the collateral
2. Redemptioner: a creditor of the mortgagor with a lien
on the collateral subsequent to the lien was the basis
of the foreclosure sale (said creditor is called a junior
encumbrancer) (example: second mortgagee)
If the lien of the creditor is PRIOR to the lien under
which the collateral was sold (senior
encumbrancer as, for example, a senior
mortgagee), it is NOT a redemptioner and cannot
redeem
11
 o But said senior encumbrancer is fully protected,
since any purchaser at the foreclosure sale of
the collateral takes the property subject to such
prior lien (mortgage follows the property),
which must first be satisfied
Unlike a mortgagor, a redemptioner must PROVE
its right to redeem by producing the documents
required by Rule 39
Medida, et al. v. CA (1992) Regalado, J.
Petitioners: Manuel D. Medida, Deputy Sheriff of the
Province of Cebu, City Savings Bank (formerly Cebu City
Savings and Loan Association, Inc.) and Teotimo Abellana
Respondents: Sps. Andred Dolino and Pascuala Dolino
Concept: Foreclosure of Real Estate Mortgage; Extrajudicial
Foreclosure; Who may Redeem
Brief Facts: Sps. Dolino obtained a loan from a bank and
executed a real estate mortgage over their property to
secure payment of the loan. They defaulted in payment and
the mortgage was foreclosed. It was purchased in the public
auction by Giandoncho. For fear that they might lose their
right of redemption, they obtained another loan from CSB
and mortgaged the same property to secure payment of the
loan. They again defaulted in payment, and CSB foreclosed
the mortgage and was sold to the latter as highest bidder.
The spouses now assail the validity of the foreclosure and
sale. The CA passed upon the issue of ownership over the
subject property, without it being raised by either of the
parties, and ruled that the second mortgage was not valid,
as the spouses could not have validly constituted a
mortgage over subject property, it being sold to CSB in the
public auction.
Doctrine: There is no obstacle to the legal creation of such
lien even after the auction sale of the property but during
the redemption period, since no distinction is made between
a mortgage constituted over the property before or after the
auction sale thereof. A redemptioner is defined as a creditor
having a lien by attachment, judgment or mortgage on the
property sold subsequent to the judgment under which the
property was sold. While in extrajudicial foreclosure, the
sale contemplated is not under a judgment but the
proceeding pursuant to which the mortgaged property was
sold, a subsequent mortgage could nevertheless be legally
constituted thereafter with the subsequent mortgagee
becoming and acquiring the rights of a redemptioner, aside
from his right against the mortgagor.
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(2) HOW TO REDEEM
Rule 39, Sec. 28 Time and manner of and amounts
payable on, successive redemptions; notice to be given and
filed The judgment obligor, or redemptioner, may redeem
the property from the purchaser, at any time within one (1)
year from the date of the registration of the certificate of
sale, by paying the purchaser the amount of his purchase,
with one per centum per month interest thereon in addition,
up to the time of redemption, together with the amount of
any assessments or taxes which the purchaser may have
paid thereon after purchase, and interest on such last
named amount at the same rate; and if the purchaser be
also a creditor having a prior lien that of the redemptioner,
other than the judgment under which such purchase was
made, the amount of such other lien, with interest.
Property so redeemed may again be redeemed within sixty
(60) days after the last redemption upon payment of the
sum paid on the last redemption, with two per centum
thereon in addition, and the amount of any assessments or
taxes which the last redemptioner may have paid thereon
after redemption by him, with interest on such last-named
amount, and in addition, the amount of any liens held by
said last redemptioner prior to his own, with interest. The
property may be again, and as often as a redemptioner is so
disposed, redeemed from any previous redemptioner within
sixty (60) days after the last redemption, on paying the sum
paid on the last previous redemption, with two per centum
thereon in addition, and the amounts of any assessments or
taxes which the last previous redemptioner paid after the
redemption thereon, with interest thereon, and the amount
of any liens held by the last redemptioner prior to his own,
with interest.
Written notice of any redemption must be given to the
officer who made the sale and a duplicate filed with the
registry of deeds of the place, and if any assessments or
taxes are paid by the redemptioner or if he has or acquires
any lien other than that upon which the redemption was
made, notice thereof must in like manner be given to the
officer and filed with the registry of deeds; if such notice be
not filed, the property may be redeemed without paying
such assessments, taxes, or liens
Rule 39, 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 or redemptioner, or for him to the
officer who made the sale
Rule 39, 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
12
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.
Rule 39, Sec. 33 Deed and possession to be given at
expiration of redemption period; by whom executed or
given If no redemption be made within one (1) year from
the date of the registration of the certificate of sale, the
purchaser is entitled to a conveyance and possession of the
property; or, if so redeemed whenever sixty (60) days have
elapsed and no other redemption has been made, and
notice thereof given, and the time for redemption has
expired, the last redemptioner is entitled to the conveyance
and possession; but in all cases the judgment obligor shall
have the entire period of one (1) year from the date of the
registration of the sale to redeem the property. The deed
shall be executed by the officer making the sale or by his
successor in office, and in the latter case shall have the
same validity as though the officer making the sale had
continued in office and executed it.
Under the expiration of the right of redemption, the
purchaser or redemptioner shall be substituted to and
acquire all the rights, title, interest and claim of the
judgment obligor to the property as of the time of the levy.
The possession of the property shall be given to the
purchaser or last redemptioner by the same officer unless a
third party is actually holding the property adversely to the
judgment obligor.
Requisites for a valid redemption:
1. The redemption must be made within 12 months from
the date of registration of the sale in the Office of the
Register of Deeds
2. Payment of the purchase price of the collateral
involved, plus 1% interest per month, together with the
amount of any assessments or taxes if any, paid by the
purchaser after the sale with the same rate of interest
Under RA 8791, Art. III, Sec. 47, the right to redeem
is exercised by paying the amount due under the
mortgage deed (not the purchase price, as above
indicated)
3. Written notice of the redemption must be served on
the officer who made the sale and a duplicate filed
with the Register of Deeds of the province
GR: Not sufficient that a person offering to redeem
manifests its desire to do so; actual and simultaneous
tender of payment must accompany the statement of
intention
Bona fide redemption necessarily implies a
reasonable and valid tender of the entire redemption
price; otherwise, the rule on the redemption period may
easily be circumvented
BUT filing of a judicial action, made simultaneously with the
deposit of the redemption price, within the redemption
period, may be necessary to preserve the right of
redemption for future enforcement even beyond such
period
Filing of a complaint to enforce redemption, within the
redemption period, is equivalent to an offer to redeem
and has the effect of preserving the right of redemption
Nothing in the law prohibits piecemeal redemption of
collateral sold at a foreclosure (Yap v. Dy, et al.)
Sps. Yap v. Sps. Dy (2011) Villarama, J.
Concept: Right of Redemption - How to Redeem
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Brief Facts: Sps. Tirambulo mortgaged 7 lots to DBRI to
secure loans. They sold all of them to Sps. Dy and Maxino
without the consent and knowledge of the bank. Upon
default of Sps. Tirambulo, DBRI foreclosed the mortgage on
the first loan, and being the highest bidder, sold 3 of the 5
lots to Sps. Yap. When the Dys and Maxinos tried to tender
the redemption lot for 2 of the 3 lots, DBRI and the Yaps
refused, contending that piecemeal redemption is not
allowed pursuant to the doctrine of indivisibility and
mortgage, and as such, they should have tendered the
whole auction price for all of the properties foreclosed.
Doctrine: Nothing in the law prohibits the piecemeal
redemption of the properties sold at a foreclosure
proceeding, as the right of the mortgagor or redemptioner
to redeem one or some of the foreclosed properties is
recognized. The doctrine of indivisibility of mortgage no
longer applies once foreclosure is effected.
D. RIGHT TO DEFICIENCY
Rule 86, Sec. 7 Mortgage debt due from estate A
creditor holding a claim against the deceased secured by
mortgage or other collateral security, may abandon the
security and prosecute his claim in the manner provided in
this rule, and share in the general distribution of the assets
of the estate; or he may foreclose his mortgage or realize
upon his security, by action in court, making the executor or
administrator a party defendant, and if there is a judgment
for a deficiency, after the sale of the mortgaged premises,
or the property pledged, in the foreclosure or other
proceedings to realize upon the security, he may claim his
deficiency judgment in the manner provided in the
preceding section; or he may rely upon his mortgage or
other security alone, and foreclose the same at any time
within the period of the statute of limitations, and in that
event he shall not be admitted as a creditor, and shall
receive no share in the distribution of the other assets of
the estate; but nothing herein contained shall prohibit the
executor or administrator from redeeming the property
mortgaged or pledged, by paying the debt for which it is
held as security, under the direction of the court, if the
court shall adjudge it to be for the best interest of the
estate that such redemption shall be made.
While Act 3135 does not specifically provide for a
mortgagees right to recover the deficiency from the
application of the proceeds of the foreclosure sale, the said
law ALSO does NOT prohibit it.
The mortgagees recovery of the deficiency is supported
by the principle that a real estate mortgage is a
security transaction and not a satisfaction of
indebtedness of the debtor.
- The REM does not in, in any way, limit nor minimize the
amount of the principal obligation, as its only
function is to secure its fulfillment.
Hence, the creditor-mortgagee may proceed against the
debtor-mortgagor in a proper action to recover such
deficiency.
- The creditor-mortgagee must be able to prove the
basis for the deficiency judgment that it seeks.
- The right to recovery of the deficiency only arises
when the proceeds are determined to be
insufficient to cover the obligation and other costs of
the sale.
- Hence, the amount of the obligation prior to the
foreclosure and the proceeds of the foreclosure are
important in enforcing a claim for the deficiency.
13

The exception to the rule that the creditor-mortgagee may
recover the deficiency is when the extrajudicial foreclosure
of a mortgage arises out of a settlement of estate.
- In such a case, Rule 86 grants three distinct and
independent remedies to the creditor-mortgagee.
GR: The creditor-mortgagee, in a separate action, may
recover the deficiency from the debtor-mortgagor when it
has been established that the proceeds of the foreclosure
sale is insufficient to pay the amount of the obligation and
the other costs of the sale.
Doctrine: Pursuant to Rule 68, Sec. 4, the disposition of the
proceeds of the sale in foreclosure shall be as follows: (a)
first, pay the costs; (b) secondly, pay off the mortgage debt;
(c) thirdly, pay the junior encumbrancers, if any, in the order
of priority; and (d) fourthly, give the balance to the
mortgagor, his agent or the person entitled to it. Since the
application of the proceeds from the sale of mortgaged
property is an act of payment, it is the mortgagees duty to
return any surplus in the selling price to the mortgagor.

EX: If the extrajudicial foreclosure of mortgage arises out of

a settlement of the estate, then the right to recover the
deficiency does NOT apply. However, Rule 86 privedes for
three distinct, independent, and mutually exclusive
remedies, which the mortgagee may pursue, alternatively,
to satisfy the principal obligation. These three remedies are:
1. WAIVE the mortgage and CLAIM the principal obligation
from the estate of the mortgagor as an ORDINARY
CLAIM.
2. FORECLOSE the mortgage judicially and prove any
deficiency as an ORDINARY CLAIM,
3. RELY on the mortgages exclusively, EXTRAJUDICIALLY
FORECLOSING the same at any time BEFORE it is barred
by prescription, WITHOUT right to file a claim for any
deficiency.

Heirs of the Late Spouses Maglasang vs. Manila Banking

Corporation Perlas-Bernab, J.
Concept: Right to deficiency (real estate mortgage)

Brief Facts: Flaviano had a loan with MBC. His loan was
secured by a real estate mortgage. He died. Respondent
(substitute of MBC) extra-judicially foreclosed the mortgage.
There was a deficiency in the proceeds. Respondent wanted
to recover the deficiency.

Doctrine: Section 7, Rule 86, ROC applies when a secured

creditor wants to recover his claims against the estate of a
deceased. The provision gives three options: a) waive the
mortgage and claim the entire debt from the estate of the
mortgagor as an ordinary claim; b) foreclose the mortgage
judicially and prove the deficiency as an ordinary claim; and
c) rely on the mortgage exclusively, or other security and
foreclose the same before it is barred by prescription,
without the right to file a claim for any deficiency. The
options are alternative, not cumulative. In case the third
option is chosen, the procedure governing extra-judicial
foreclosures set forth in Act No. 3135 shall be observed.

Suico v. PNB (2007) Chico-Nazario, J.

Petitioner: Sps. Esmeraldo and Elizabeth Suico
Respondent: Philippine National Bank and CA
Concept: Real Estate Mortgage: Extrajudicial Foreclosure
Right to surplus

Brief Facts: The Sps. Suico obtained a loan from PNB,

secured by a REM on real parties in the names of the Sps
Because they were unable to pay their obligation, PNB
extrajudicially foreclosed the mortgage over their
properties. A year later, PNB secured a certificate of final
sale and had the subject properties registered in its name.
The spouses filed a complaint for declaration of nullity of the
extrajudicial foreclosure of mortgage, the certificate of sale
and the final deed of sale. RTC declared the sale null and
void because of the error in the notice of sale. CA reversed
RTC and held that the sale was valid.

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(1) DURING REDEMPTION PERIOD
Act No. 3135, Sec. 7 In any sale made under the
provisions of this Act, the purchaser may petition the Court
of First Instance of the province or place where the property
or any part thereof is situated, to give him possession
thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of
twelve 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 this Act. Such
petition shall be made under oath and filed in form of an ex
parte motion in the registration or cadastral proceedings if
the property is registered, or in special proceedings in the
case of property registered under the Mortgage Law or
under section one hundred and ninety-four of the
Administrative Code, or of any other real property
encumbered with a mortgage duly registered in the office of
any register of deeds in accordance with any existing law,
and in each case the clerk of the court shall, upon the filing
of such petition, collect the fees specified in paragraph
eleven of section one hundred and fourteen of Act
Numbered Four hundred and ninety-six, as amended by Act
Numbered Twenty-eight hundred and sixty-six, and the
court shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in
which the property is situated, who shall execute said order
immediately.
Act No. 3135, Sec. 8 The debtor may, in the proceedings
in which possession was requested, but not later than thirty
days after the purchaser was given possession, petition that
the sale be set aside and the writ of possession cancelled,
specifying the damages suffered by him, because the
mortgage was not violated or the sale was not made in
accordance with the provisions hereof, and the court shall
take cognizance of this petition in accordance with the
summary procedure provided for in section one hundred
and twelve of Act Numbered Four hundred and ninety-six;
and if it finds the complaint of the debtor justified, it shall
dispose in his favor of all or part of the bond furnished by
the person who obtained possession. Either of the parties
may appeal from the order of the judge in accordance with
section fourteen of Act Numbered Four hundred and ninety-
six; but the order of possession shall continue in effect
during the pendency of the appeal.
Act No. 3135, Sec. 9 When the property is redeemed after
the purchaser has been given possession, the redeemer
shall be 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 purchaser
occupied the property 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 one per
centum per month provided for in section four hundred and
sixty-five of the Code of Civil Procedure.
Sec. 7 of Act 3135 directs the issuance of a writ of
possession in favor of the purchaser that seeks possession
of the foreclosed collateral during the redemption period.
In issuing this writ, there is no discretion left on the part of
the court; any question regarding the validity and regularity
of the sale must be ventilated in a subsequent proceeding.
This writ is issued in an ex-parte proceeding, involving only
the purchaser, without need for notice to or consent from
any person who is adversely interested (ex. mortgagor).
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Sec. 8 provides that the plain, speedy and adequate remedy
in opposing the issuance of such a writ. A party may file a
petition to set aside the foreclosure sale and to cancel the
writ of possession. This may be filed in the Court which
issued the writ of possession.
However, if the appeal interposed was from an order
granting the issuance of the writ, then the order shall
continue to be in effect during the pendency of the appeal.
(2) AFTER CONSOLIDATION OF OWNERSHIP
Rule 39, Sec. 33 Deed and possession to be given at
expiration of redemption period; by whom executed or
given If no redemption be made within one (1) year from
the date of the registration of the certificate of sale, the
purchaser is entitled to a conveyance and possession of the
property; or, if so redeemed whenever sixty (60) days have
elapsed and no other redemption has been made, and
notice thereof given, and the time for redemption has
expired, the last redemptioner is entitled to the conveyance
and possession; but in all cases the judgment obligor shall
have the entire period of one (1) year from the date of the
registration of the sale to redeem the property. The deed
shall be executed by the officer making the sale or by his
successor in office, and in the latter case shall have the
same validity as though the officer making the sale had
continued in office and executed it.
Under the expiration of the right of redemption, the
purchaser or redemptioner shall be substituted to and
acquire all the rights, title, interest and claim of the
judgment obligor to the property as of the time of the levy.
The possession of the property shall be given to the
purchaser or last redemptioner by the same officer unless a
third party is actually holding the property adversely to the
judgment obligor.
If the purchaser is entitled to the possession of the
foreclosed collateral, then it is all the more reason that such
possession be granted to the purchaser once ownership has
been consolidated in his favor.
Sec. 7 of Act 3135 again provides for the issuance of such a
writ.
At this point however, there is no need to file a bond and
have it approved, as the writ of possession shall be issued
as a matter of course and as a matter of right.
o Such issuance by the Court is merely a ministerial
function and may be compelled through mandamus.
Once possession is secured, the purchasers unassailable
right to possession is now founded on the right of
ownership.
Chu, et al. v. Lacqui and PBC (2010) Carpio, J.
Concept: Real Estate Mortgage: Extrajudicial Foreclosure
Right to possession after consolidation of ownership
Contracts Involved:
(a) Contracts of loan:
(1) P3.2-M by Chu and Sps. Castro from PBC
(2) Increased to P5-M by Amendment of REM
(b) Deed of real estate mortgage: In favor of PBC by
Sps. Castro over their property (TCT No. 22990)
Brief Facts: Chu and the Sps. Castro obtained a P3.2-M
loan from PBC, which was secured by a REM. Later, the
Deed of REM was amended to increase the loan amount to
P5-M. Upon demand, Chu and the sps. Castro failed to pay
the loan, and PBC applied for the extrajudicial foreclosure of
15
the REM. At the sale, PBC emerged as the highest bidder
and a certificate of sale was executed in its favor and
annotated on the TCT. After the lapse of the 1-year
redemption period, PBC filed an affidavit of consolidation to
consolidate its ownership, which was granted, and a new
TCT was issued in its favor. Later, it applied for the issuance
of a writ of possession on the foreclosed property, which
Chu and the sps. Castro opposed.
Doctrine: Failure to redeem within the 1-year redemption
period grants the purchaser an absolute right to the writ of
possession. Moreover, once ownership has been
consolidated, issuance of a writ of possession becomes a
ministerial duty because, as purchaser of the property at
the foreclosure sale, the right over the property had become
absolute, vesting in the purchaser the corollary right of
possession.
(3) WHEN HELD BY A THIRD PARTY
Rule 39, Sec. 33 Deed and possession to be given at
expiration of redemption period; by whom executed or
given If no redemption be made within one (1) year from
the date of the registration of the certificate of sale, the
purchaser is entitled to a conveyance and possession of the
property; or, if so redeemed whenever sixty (60) days have
elapsed and no other redemption has been made, and
notice thereof given, and the time for redemption has
expired, the last redemptioner is entitled to the conveyance
and possession; but in all cases the judgment obligor shall
have the entire period of one (1) year from the date of the
registration of the sale to redeem the property. The deed
shall be executed by the officer making the sale or by his
successor in office, and in the latter case shall have the
same validity as though the officer making the sale had
continued in office and executed it.
Under the expiration of the right of redemption, the
purchaser or redemptioner shall be substituted to and
acquire all the rights, title, interest and claim of the
judgment obligor to the property as of the time of the levy.
The possession of the property shall be given to the
purchaser or last redemptioner by the same officer unless a
third party is actually holding the property adversely to the
judgment obligor.
Rule 39, Sec. 16 Proceedings where property claimed by
third person If the property levied on is claimed by any
person other than the judgment obligor or his agent, and
such person makes an affidavit of his title thereto or right to
the possession thereof, stating the grounds of such right or
title, and serves the same upon the officer making the levy
and a copy thereof upon the judgment obligee, the officer
shall not be bound to keep the property, unless such
judgment obligee, on demand of the officer, files a bond
approved by the court to indemnify the third-party claimant
in a sum not less than the value of the property levied on. In
case of disagreement as to such value, the same shall be
determined by the court issuing the writ of execution. No
claim for damages for the taking or keeping of the property
may be enforced against the bond unless the action
therefor is filed within one hundred twenty (120) days from
the date of the filing of the bond.
The officer shall not be liable for damages for the taking or
keeping of the property, to any third-party claimant if such
bond is filed. Nothing herein contained shall prevent such
claimant or any third person from vindicating his claim to
the property in a separate action, or prevent the judgment
obligee from claiming damages in the same or a separate
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action against a third-party claimant who filed a frivolous or
plainly spurious claim.
When the writ of execution is issued in favor of the Republic
of the Philippines, or any officer duly representing it, the
filing of such bond shall not be required, and in case the
sheriff or levying officer is sued for damages as a result of
the levy, he shall be represented by the Solicitor General
and if held liable therefor, the actual damages adjudged by
the court shall be paid by the National Treasurer out of such
funds as may be appropriated for the purpose.
GR: In extrajudicial foreclosures, possession of the collateral
may be awarded to the purchaser during the redemption
period, or after its lapse, without the need of a separate
and independent action.
EX: Such rule will not apply where a third party
holds/possesses the collateral adversely to the debtor-
mortgagor.
Sec. 16 of Rule 39 provides two remedies to a third party
who holds the foreclosed property adversely against the
debtor-mortgagor:
1. Terceria, in order to determine whether the sheriff
has rightly or wrongly taken hold of a property not
belonging to the mortgagor. This action is filed
against the sheriff or officer effecting the writ, by
serving on him an affidavit of title with a copy to the
purchaser.
By this action, the sheriff/officer is not bound to
keep the collateral and could be held liable for
damages if he does.
2. An independent and separate action to vindicate its
claim of ownership or possession over the collateral,
filed before a forum of competent jurisdiction, even
before or without filing a claim in the court that
issued the writ of possession.
The object of this action is the recover of
ownership and/or possession of the collateral
seized by the sheriff or officer who effected the
writ of possession.
These remedies can be exercised cumulatively; they can
be availed of, independently or separately from each other.
BPI Family Savings Bank v. Golden Power Diesel
Sales Center
A purchaser is entitled to a writ of possession and it is the
courts ministerial duty to issue said writ; it is a matter of
right.
However, the duty ceases to be ministerial once it has been
shown that a third party possesses the collateral and that its
possession is adverse to that of the mortgagor.
BPI Family Savings Bank v. Golden Power Diesel Sales
Center (2011) Carpio, J.
Petitioner: BPI Family Savings Bank Inc. (BPI)
Respondents: Golden Power Diesel Sales Center Inc.
(Golden) and Renato Tan
Concept: REM; Foreclosure; Extrajudicial Foreclosure; Right
to Possession; When Held by Third Party
Brief Facts: BPI was able to foreclose upon the properties
mortgaged by CEDEC in its favor. However, the writs of
possession it prayed for and issued by the RTC was not
implemented because Golden had taken possession of the
foreclosed properties, by virtue of a deed a sale between
Golden and CEDEC. The RTC eventually stayed the
implementation of the writs of possession, finding Golden to
be in the nature of a third party possessing the property
16
adversely as against CEDEC, the judgment debtor, which is
a situation recognized as an exception to the rule that writs
of possession are issued as a matter of ministerial duty.
Hence, the petition.
Doctrine:
-GR: A purchaser in a public auction sale of a foreclosed
property is entitled to a writ of possession and, upon an
ex parte petition of the purchaser; it is ministerial upon
the trial court to issue the writ of possession in favor of
the purchaser.
-EX: If it can be shown that (a) the foreclosed property is in
the possession of a third party and (b) that such third
party possesses such property adversely to the
judgment obligor, the duty to issue the writ ceases to be
ministerial.
Nagtalon v. United Coconut Planters Bank (2013) Brion, J.
Concept: Foreclosure of Real Estate Mortgage; Extrajudicial
Foreclosure; Right to Possession; When Held by a Third Party
Contracts Involved:
(1) Contract of Loan (Credit Accommodation Agreement)
between Sps. Nagtalon and UCPB
(2) Real Estate Mortgage over several properties in
Kalibo, Aklan executed by Sps. Nagtalon in favor of
UCPB
Brief Facts: Sps. Nagtalon entered into a Credit
Accommodation Agreement with UCPB. To secure payment
of their obligation, they executed a Real Estate Mortgage
over properties in Kalibo, Aklan. Having defaulted in
payment, the mortgage was foreclosed and subject
properties were sold to UCPB at the public auction, as
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highest bidder. The redemption period expired without the
spouses exercising their right of redemption. UCPB sought
for the issuance of a writ of possession, having consolidated
its ownership of the subject properties. Nagtalon opposes
the issuance of said writ, citing the pendency of a civil case
wherein the validity of the mortgage, foreclosure, and sale
is at issue.
Doctrine: Once title to the property has been consolidated
in the buyers name upon failure of the mortgagor to
redeem the property within the one-year period of
redemption, the writ of possession becomes a matter of
right belonging to the buyer. The pendency of a civil case
questioning the validity of the mortgage, its foreclosure, and
subsequent sale of mortgaged properties is not a bar for the
issuance of the writ of possession. The same does not
constitute the presence of peculiar and equitable
circumstances that can be considered as an exception to
the general rule that issuance of said writ is the ministerial
duty of the court when ownership of properties has been
consolidated in buyers name.
An exception the said general rule is when there is a third
party claiming right adverse to debtor/mortgagor. The
obligation of the court to issue a writ of possession in favor
of the purchaser in a foreclosure mortgage ceases to be
ministerial when a third party in possession of the property
claims a right adverse to that of the debtor-mortgagor.
Where such third party claim and possession exist, the trial
court should conduct a hearing to determine the nature of
the adverse possession
17