Foreclosure of Real

Estate Mortgage

Extrajudicial Foreclosure
PROCEDURE:
Act

No. 3135

File

application with Executive Judge

through the Clerk of Court

Under

Public

direction of Sheriff or Notary

Public Auction Sale and Registration

of Certificate of Sale
Conduct

Public Auction Sale

Certificate of Sale issued to
highest bidder
Registration/annotation in
Register of Deeds

Right of Redemption

1 year from REGISTRATION/ANNOTATION of Certificate of Sale

Mortgagor may redeem by paying amount due under the mortgage with
interest and costs

3 months OR Registration (whichever is earlier), if:

Mortgagor = Juridical Entity

Mortgagee = Bank

Sec. 47, GBL

During redemption period, Writ of Possession discretionary/bond required

If Right of Redemption not exercised, consolidate title (issuance of Deed of

Sale) mortgagor divested of all rights to the property

After redemption period, Writ of Possession ministerial

Right of Redemption

GR: Applicable only to Extrajudicial Foreclosure

EXC:

Huerta Alba Resort Inc. v CA, GR No. 128567 (September 1, 2000)

Where the foreclosure is judicially effected, however, no equivalent right of

redemption exists. The law declares that a judicial foreclosure sale when confirmed by
an order of the court. . . shall operate to divest the rights of all parties to the action and
to vest their rights in the purchaser, subject to such redemption rights as may be
allowed by law.

Sec.3, Rule 68: Allowed by law

ex. PNB Charter and GBL

Mortgagee = PNB or Bank

1 year from REGISTRATION of Certificate of Sale

Redemption after Statutory Period

Agreement to extend statutory period

Estoppel

Ibaan Rural Bank, Inc. vs. CA, G.R. No. 123817, December 17, 1999

Due to silence and inaction of the bank, Mortgagor was misled and made to believe
that he had two years to redeem

If period expired, redemption actually repurchase

Right of redemption is by force of law purchaser compelled to re-sell

property to mortgagor at foreclosure sale price (plus costs)

Repurchase carries no such obligation purchaser may or may not re-sell

property to mortgagor at whatever price

Judicial Foreclosure
PROCEDURE:
Rule

68 Rules of Court

Trial
Judgement

Order to Pay

NOTE: Demand essential in order to constitute a cause of action (No

demand = no default)

(Nunez vs. GSIS Family Bank, G.R. No. 163988, November 17, 2005)

Equity of Redemption

Sec. 2, Rule 68

90 to 120 days AFTER JUDGMENT HAS BECOME FINAL

Mortgagor given final opportunity to extinguish

obligation and retain ownership of property

In reality, any time AFTER DEFAULT but BEFORE

CONFIRMATION OF SALE

Public Auction Sale and Confirmation

of Sale
If

Equity of Redemption not exercised,

proceed with public auction sale

Certificate

of Sale issued to highest bidder

Confirmation

of Sale mortgagor divested of

all rights to the property

Writ

of Possession ministerial

Other Remedies of Mortgagor

Annulment of Mortgage

Sumerariz vs. DBP,G.R. No. L-23764, December 26, 1967

Challenge validity of Foreclosure Sale

Rosales vs. CA, G.R. No. 137566, February, 28, 2001

Action does not toll the running of the period for redemption

Offer to repurchase does not constitute a waiver to question the sale

Set aside Sale and Writ of Possession

Grounds: Mortgage NOT violated or sale not made in accordance with Act
3135

Other Considerations

Real property may be mortgaged to aliens (individuals or corporations)

RA 133 (as amended by RA 4882)

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 mortgage 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
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 five 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 five years from actual possession.

Other Considerations

In case of rehabilitation of a corporate debtor, rights of the Bank are

merely suspended

Preferred status over unsecured creditors retained as regards coroporations

in financial distress

Only enforcement is suspended

Metrobank v ASB Holdings, Inc., G.R. No. 166197, February 27, 2007

Major Investments

Policy Sec. 50, GBL

For the purpose of enhancing bank supervision, the

Monetary Board shall establish criteria for reviewing
major acquisitions or investments by a bank including
corporate affiliations or structures that may expose
the bank to undue risks or in any way hinder effective
supervision

Ceiling on Investments

May acquire real estate as shall be necessary for its own use in the
conduct of its business

Total Investment (real estate + improvements + equipment)

Shall not exceed 50% of combined capital accounts

Equity investment (in another corporation engaged primarily in real estate, unless
otherwise provided by MB)

Sec. 51, GBL

Rules provided in Sec. X606.2, Manual of Regulations for Banks (inclusions)

Bank Premises + computation of total investment in bank premises

Real properties/equipment purchased for officers and employees use

Tala Realty Services Corp., v BF Savings

and Mortgage
G.R. No, 143263, January 29, 2004

FACTS:

BF reached allowable limit

Major stockholders formed corporation (TALA) to purchase existing bank sites, then lease
back to BF

BF defaulted in payment of rents

TALA sued to collect

BF cited arrangement as a defense

ISSUE: W/N TALA can collect

HELD: No

Pari delicto

Arrangement intended to circumvent law proposed and participated in by both parties.

Acquisitions by way of Satisfaction of

Claims Sec. 52, GBL

Despite limitations under law, bank may acquire/hold/convey real

property under the following circumstances:

Such as shall be mortgaged to it in good faith by way of security

Such as shall be conveyed to it in satisfactions of debts previously contracted

in the course of its dealings

Such as it shall purchase at sales under judgments, decrees, mortgages, or

trust deeds held by it and such as it shall purchase to secure debts due it

BUT:

Must be disposed of within 5 years (or as prescribed by the MB)

BUT also:

Bank may continue to hold such property after such period for it sown use,
subject to Sec. 51, GBL (50%)