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Mortgages and Foreclosures

(GROUP 9: SUNSHINE S. NALZARO, ANGELITA B. LUMAKIN, CHAMY CARE
A. DIASEZ, JOYCE GRACE MORI, RODRIGO ESTRIBOR JR)

 ESSENCE OF MORTGAGE (by Sunshine Saranillo Nalzaro)

The essence of a contract of Mortgage indebtedness is that a property has been
identified or set apart from the mass of the property of the debtor-mortgagor as
security payment of money or the fulfillment of an obligation to answer the
amount of indebtedness, in case of default payment.
 Mortgage
Mortgages are secured loans, meaning the lender has a legal claim (lien)
on the property as collateral. This lien protect the lender in case the
borrower defaults on payments.
 Mortgagee (the lender)

The mortgagee is the entity that provides the mortgage loan.

The mortgagee holds the mortgage lien on the property, giving them the
right to foreclose if the borrower defaults on payments.

 Mortgagor (the borrower)

The mortgagor is the person or entity borrowing money. They are the ones
who receive the mortgage loan and agree to repay it with interest.

 Mortgage Contracts and Contracts of adhesion

A mortgage is often considered as a contract of adhesion.
This means that the terms of the agreement are largely dictated by the
mortgagee, with the mortgagor having limited ability to negotiate or
modify them.

 Characteristic of adhesion contracts

1. Pre-drafted terms- the contract is typically drafted by the party
with greater bargaining power. The borrower is presented with
standardized form contract with a little room for negotiation.
2. Take-it-or-leave it- the borrower has only 2 options: accept the
terms as presented or decline the loan.
3. Unequal bargaining power- this disparity in bargaining power
makes it difficult for borrowers to challenge the terms of the
contract.

 Valid Mortgage
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For a person to validly constitute a valid mortgage on real estate, he must

be the absolute owner thereof as required by Article 2085 of the Civil
Code, otherwise the mortgage is void.

 Mortgage or lease of Registered land

 Section 60 of PD NO. 1529

 Mortgage and leases shall be registered in the manner
provided in Section 54 .
 No mortgagee’s or lessee’s duplicate certificate of title shall
hereafter be issued by the Registers of Deeds.
 Registration

 Upon Presentation of the deed of mortgage or lease together with the

owner’s duplicate, the Register of Deeds shall enter upon the original of
the certificate of title and also upon the owner’s duplicate certificate a
memorandum thereof, the date and time of filing and the file number
assigned to the deed, and shall sign the said memorandum. He shall also
note on the deed the date and time of filing and a reference to the volume
and page of the registration book in which it is registered.
(Section 61 PD NO 1529)

 RECORDED MORTGAGE

 A recorded mortgage is a right in rem, a lien on the property whoever its

owner may be.
 A mortgage lien is inseparable from the mortgaged property because it is
a right in rem

 Pactum commissorium
 Definition- Pactum Commissorium is a prohibited stipulation in
contracts of pledge of mortgage. It refers to an agreement where
the creditor automatically acquires ownership of the property
pledged or mortgaged upon the debtor’s failure to pay the principal
obligation within the stipulated period.
 It enables the mortgagee to acquire ownership of the mortgaged
property without need of foreclosure.
 This practice is considered null and void as it violates the principle
of fairness and protects the debtor’s right to redeem the property.

 Elements of Pactum commissorium

1. There should be a property mortgaged by way of security for the
payment of a principal obligation; and
2. There should be a stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of non-payment of the
principal obligation within stipulated period.

 Mortgagee rights as an “innocent holder for value”.

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 The principle of “innocent holder for value” is a legal doctrine that

protects individuals who acquire property in good faith and for value
consideration, without knowledge of any defects in the title.
Mortgagee who qualifies as an innocent holder for value is
entitled to certain legal protections including:
1. Priority over subsequent claimants.
2. Protection against defects in title.
3. Right to foreclosure
Factors affecting Mortgagee status as an "innocent holder for
value”:
1. Good faith- the mortgagee must have acted in good faith,
meaning they have no knowledge of any defects in the title or
any fraudulent activities.
2. Value consideration- mortgagee must have given something of
value in exchange for the security interest in the property.
3. Due diligence- mortgagees are expected to exercise a higher
degree of care and prudence in their dealings.

 Mortgage in Good Faith Doctrine, when inapplicable

(by ANGELITA B. LUMAKIN)

Definition: MORTGAGE in GOOD FAITH DOCTRINE refers to a legal

principle that protects mortgages who act in good faith when acquiring a
mortgage on a property. The doctrine is particularly relevant when the
mortgagor (the person who borrows money and gives the mortgage) does
not have a valid title to the property.
Some instances where Mortgage in Good Faith Doctrine does not
apply include the following:
1. Mortgagee’s Knowledge of Defects
If the mortgagee had knowledge or should have reasonably known
about defects in the mortgagor’s title, the doctrine may not apply. This
could include situations where the mortgagee was aware of previous
claims on the property or where there were obvious irregularities in the
title documents.
2. Lack of Due Diligence
The mortgagee must have exercised due diligence in verifying
mortgagor’s title which include conducting a thorough examination
of the title documents and making reasonable inquiries about the
property’s history.
Hence, if the mortgagee fails to conduct such due diligence and later
discovers defect in the title, they may not be considered a
mortgagee in good faith.
3. Mortgagor’s Fraudulent Intent
If the mortgagor intentionally misrepresents their title or engages in
fraudulent activities to obtain the mortgage, the doctrine may not
protect the mortgage. This is because mortgagee’s good faith is
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undermined if they are complicit in or aware of the mortgagor’s

fraudulent actions.
4. Subsequent Encumbrances
If a subsequent lien or encumbrance is registered on the property
after the mortgage but before the foreclosure sale, the mortgagee’s
rights may be affected because the foreclosure sale retroacts to the
date of the mortgage registration, making it prior in time to the
subsequent lien. However, if the mortgagee was not aware of the
subsequent encumbrances and acted in good faith, their rights may
still be protected.
5. Adverse Claims
If there are adverse claims on the property that were not properly
disclosed or registered, the mortgagee’s rights may be challenged.
The mortgagee’s good faith is questioned if they were aware of or
should have been aware of the adverse claims.

Such in the case of Danilo Santiago F. Jimenez vs Damian F. Jimenez,

et al G.R. No. 228011, February 10, 2021 which highlighted the
importance of due diligence, the impact of knowledge defects, and
the potential consequences of fraudulent activities in mortgage
transactions.

 Equitable Mortgage when contract is presumed

Equitable Mortgage refers to a contract though seemingly sale but is
actually intended to secure a debt. This means that the property is used
as collateral, but the transaction lacks the formal requirements of a
traditional mortgage.
The following the scope of Equitable Mortgage when contract is presumed
are the following: presumption of intent, lesser transmission of rights, and
pactum commissorium.
Presumption of Intent refers to the presence of any of the
circumstances that creates strong presumption that the transaction is an
equitable mortgage. The burden of proof shifts to the parties claiming its
sale to demonstrate. The Lesser Transmission of Rights refers to
equitable mortgages involving lesser transfer of rights compared to a
traditional mortgage; thus, the seller retains some ownership rights, while
the buyer acts as a secured creditor. For Pactum Commissorium, is
concept prohibited by law because the mortgagee automatically acquires
ownership of the mortgaged property upon default. If the transaction is
deemed an equitable mortgage, the buyer cannot simply take ownership,
instead they must follow a legal process of foreclosure.
The Philippine Civil Code (Article 1602) outlines specific
circumstances where a contract is presumed to be an equitable mortgage,
even if it appears to be a sale:
a. Unusually Inadequate price. If the price of a sale with a right
to repurchase is significantly lower than that the property’s fair
market value, it raises suspicion that the transaction is actually
disguised mortgage.
b. Vendor Remains in Possession. When the seller continues to
occupy the property as a lessee or in any other capacity after
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the supposed sale, it indicates that the transaction was meant to

secure a debt, not transfer ownership.
c. Extension of Redemption Period. If the parties execute a
new agreement extending the redemption period after the
original repurchase right expires, it suggests that the transaction
was intended as mortgage.
d. Purchaser Retains Part of Purchase Price. If the buyer
keeps a portion of the purchase price, it raises doubts about the
true nature of the transaction and suggests a mortgage
arrangement.
e. Vendor Pays Taxes. When the seller continues to pay property
taxes after the supposed sale, it indicates that the transaction
was not genuine transfer of ownership.
f. Other circumstances. Any other situation where the parties
true intention is to secure a debt through the property, even if
not explicitly stated, can be considered an equitable mortgage.

 Contract Denomination, not binding

A Contract denomination may refer to nature of contracts related to land
transactions. It may takes in various forms such as Sale, where there is a
contract of where the ownership of a property is transferred from the
seller to the buyer for a specific price. Mortgage is a contract where a
borrower (mortgagor) pledges property as collateral to secure loan from a
lender (mortgagee). Lease is a contract where a landlord (lessor) grants a
tenant (lessee) the right to use a property for a specific period in
exchange for rent. Option to Purchase is a contract where one party
(option holder) is granted the right, but not the obligation, to purchase a
property from another property (option grantor) within a specific time
period. All these four contract denominations mentioned ceased to be
binding when there are lack of essential elements, fraud or
misinterpretation, unfair contract terms, and lack of proper formalities.
For easement, a legal right granted to one party (dominant tenement) to
use another party’s property (servient tenement) for a specific purpose is
not binding when there are lacking of proper formalities and invalid grant.
While Memorandum of Understanding (MOU), which is a non—binding
agreement that outlines the key terms and intentions of parties regarding
a future transaction.

 Foreclosure of Real Estate Mortgage

Foreclosure of real estate mortgage refers to the legal process by which a
lender can take possession of a property when the borrower defaults on
their mortgage loan payments by missing payments, violating loan terms
or failing to pay taxes. It is a legal process that impacts land titles and
deeds by transferring ownership of a property from a defaulting borrower
to a new owner, typically the lender or a third-party buyer, through a
court-supervised or out-of- court procedure. The process is recorded in
public land records, reflecting the change in ownership and the removal of
the original mortgage lien.
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 Remedy, Availment of
-Lender’s availment. the lender can choose the remedy that best suits
their interests and is allowed under the mortgage contract and applicable
law. Some remedies include Judicial Listing of Order (Judicial Sale),
foreclosure order, appointment of a receiver, and assignment of rents.
Borrower’s availment. The borrower’s ability to avail themselves of
remedies depends on the specific circumstances, the terms of the
mortgage contract, and the applicable laws in their jurisdiction. The
remedies they can seek are right of redemption, negotiation with the
lender, loss mitigation options and legal defense.

FORECLOSURE OF UNREGISTERED LAND (by JOYCE GRACE MORI)

 The absence of Torrens title, which provides definitive and
conclusive proof of ownership.

EXTRAJUDICIAL FORECLOSURE OF MORTGAGE

 If the property has been subject of extrajudicial foreclosure, the
sheriff’s certificate of sale shall be filed with the Register of Deeds
and a brief memorandum thereof entered on the mortgagor’s,
certificate of title. In case of redemption by the mortgagor, the
same procedure as in the case of judicial foreclosure shall be
followed. If no redemption is made, the final deed of sale executed
by the officer authorized for the purpose, or his certificate of non-
redemption, shall be filed with the Register of Deeds who shall
thereupon cancel the mortgagor's certificate of title and issue a new
title to the purchaser.
 Extrajudicial foreclosure is governed by Act No. 3135, as amended
by Act No. 4118

PUBLICATION OF NOTICE OF FORECLOSURE

 SEC. 3 of ACT NO. 3135 . Notice shall be given by posting notices of the
sale for not less than twenty days in at least three public: places of the
municipality or city where the property is situated, and if such property is
worth more than four 'hundred pesos, such notice shall also be published
once a week for at least three consecutive weeks in a newspaper of
general circulation in the municipality or city.

REQUIRED WEEKLY NOTICE UNDER ACT 3135, HOW CONSTRUED

 According to Section 3 of Act No. 3135 as an exhaustive enumeration of
requirements on proper notice for purposes of extrajudicial foreclosure
proceedings. Because the only notice required under Act No. 3135 is a
notice of sale addressed to the public, the Court has repeatedly concluded
that notice to the mortgagor is not mandated under the law.

 Accordingly, in Administrative Matter No. 99-10-05 -0,37 the Court issued

guidelines and rules governing the extra-judicial foreclosure of mortgages.
In Bonnevie: ( 1) to GRANT the aforesaid request for the correction of
Circular No. 7-2002, except No. 3 regarding the addition of a provision for
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personal notice of extrajudicial foreclosure of real estate mortgages to the

debtormortgagor, which is hereby denied. Personal notice to the
debtormortgagor in case of the extrajudicial foreclosure of real estate
mortgage is not required by Act No. 3135 (Bonn evie v. Court of Appeals,
125 SCRA 122 (1983)), being merely the enforcement of the agreement of
the parties to a contract ( Community Savings and Loan Association, Inc.
v. Court of Appeals, 153 SCRA 564 (1987)). The addition of such
requirement can only make the procedure for extrajudicial foreclosure
cumbersome; and (2) to AMEND Sec. 4(b)(l) of its Circular No. 7-2002 so
as to make it read as follows: Sec. 4. The Sheriff [t]o whom the application
for extra-judicial foreclosure of mortgage was raffled shall do the following
b. ( 1) In case of foreclosure of real estate mortgage, cause the publication
of the notice of sale by posting it for not less than twenty (20) days in at
least three (3) public places in the municipality or city where the property
is situated and if such property is worth more than four hundred (P400.00)
pesos, by having such notice published once a week for at least three (3)
consecutive weeks in a newspaper of general circulation in the
municipality or city (Sec. 3, Act No. 3135, as amended). The Executive
Judge shall designate a regular working day and definite time each week
during which said notice shall be distributed personally by him for
publication to qualified newspapers or periodicals as defined in Sec. 1 of
P.D. No. 1079, which distribution shall be effected by raffle (A.M. No. 01 -1-
07-SC, Oct. 16, 2001). UNLESS OTHERWISE STIPULATED BY THE PARTIES
TO THE MORTGAGE CONTRACT, THE DEBTOR-MORTGAGOR NEED NOT BE
PERSONALLY SERVED A COPY OF THE NOTICE OF THE EXTRAJUDICIAL
FORECLOSURE. (Emphases supplied)

 Pursuant to Bonnevie, the guidelines and rules on extrajudicial foreclosure

specified that personal notice to a mortgagor is not necessary for the
validity of an extrajudicial foreclosure sale.

Failure to publish an auction sale ( by RODRIGO

ESTRIBOR JR)
This refers to a situation where a property or item is scheduled for an
auction but the required legal notices or advertisements are not published
as mandated by law. This failure can have significant consequences,
potentially rendering the auction invalid or subject to legal challenges.
Importance of Publication:
-Public notice
-Legal requirements
-Due process
Consequences of Failure to publish:
- Invalidity of sale
-Legal challenges
-Reputational damage
Factors affecting consequences:
- Jurisdiction
-Nature of the sale
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-Intent
A writ of possession is a court order that gives a landlord the legal right to
remove a tenant from a rental property. It is issued after a landlord has
won an eviction lawsuit against the tenant, and the tenant has refused to
leave voluntarily.

A redemption period is a timeframe during which a borrower, who has

defaulted on a debt, can reclaim their property or asset by paying off the
entire amount owed, including any associated fees and costs. [1][2]

How it Works:

- Default
- Reclaiming the Property
- Foreclosure Sale

Types of Redemption:

- Equitable Right of Redemption

- Statutory Right of Redemption
Legal redemption, also known as retracto legal, is a right granted by law
that allows certain individuals to buy back a property that has been sold,
under specific conditions. This right is often exercised by co-owners of a
property when one of them sells their share to a third party. [1][2][3][4][5]

Co-ownership and Legal Redemption:

When a co-owner sells their share in a property to a third party, other co-
owners have the right to redeem that share. This right is designed to
prevent the forced dissolution of co-ownership and to give existing co-
owners the opportunity to maintain their ownership interest.

REDEMPTION PRICE ( by CHAMY CARE ACBAYAN DIASEZ)

- in property law, the redemption price is the amount needed to reclaim a
property that has been foreclosed upon or seized. This often includes the
original amount owed plus any additional costs, interest, and penalties.
- Article 1620 of the Civil Code provides: Article 1620. A co-owner of a thing
may exercise the right of redemption in case the shares of all the other co-
owners or of any of them, are sold to a third person. If the price of the
alienation is grossly excessive, the redemptioner shall pay only a
reasonable one.
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CARRY OVER OF MORTGAGE LIEN

In property law, a "carryover" of a mortgage lien refers to the continuation or

extension of a mortgage lien from one property to another or from one loan to
another. This can occur in a few different contexts:
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1. Refinancing: When a property owner refinances their mortgage, the new

loan may "carry over" the existing lien from the previous mortgage.
Essentially, the lien on the original property is transferred to the new loan,
often with updated terms. This means the mortgage lender's claim against
the property remains in place, but the terms of the loan may change.
2. Property Sale or Transfer: If a property with an existing mortgage is
sold or transferred, the new owner may assume the existing mortgage lien
if the lender agrees to this arrangement. This is known as assuming the
mortgage. The lien "carries over" to the new owner, who then becomes
responsible for the mortgage payments.
3. Subordination Agreements: In some cases, a new mortgage might be
placed on the property, and the lender of the new mortgage may agree to
subordinate their lien to the existing mortgage. This means that the
existing mortgage lien will take priority over the new one, but the new
mortgage lien is still carried over in a subordinate position.
4. Cross-Collateralization: Sometimes, lenders might use a single
mortgage to secure multiple properties. In this case, the mortgage lien
"carries over" to cover all the properties involved, not just one.

Understanding how a mortgage lien might carry over in various scenarios is

important for property owners, buyers, and investors, as it affects their financial
obligations and the legal standing of their property interests.

CHATTEL MORTGAGE: CIVIL PROVISIONS

ARTICLES 2140-2141, CHATTEL MORTGAGE LAW

Art. 2140. By a chattel mortgage, personal property is recorded in the

Chattel Mortgage Register as a security for the performance of an
obligation. If the movable, instead of being recorded, is delivered to the
creditor or a third person, the contract is a pledge and not a chattel
mortgage. (n)
CHATTEL MORTGAGE

- Contract by virtue of which personal property is recorded in the

Chattel Mortgage Register as security for the performance of an
obligation
- a formal term that refers to a finance agreement that provides funds to
purchase an asset and the finance provider accepts that financed asset as
the security for the credit.

CHARACTERISTICS
1. Accessory contract
2. Formal contract

WHAT MAKES IT DIFFERENT FROM A PLEDGE?

1. Delivery of the personal property to the mortgagee is not necessary
2. The registration in the Register is required by law
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3. Procedure for the sale of the thing is different

4. If the property is foreclosed and there is excess, the amount goes
to the debtor
5. If there is deficiency, the creditor may recover the deficiency

WHEN DO YOU DO A Chattel Mortgage OR PLEDGE?

> When property needs to be retained by the debtor, then opt for a
chattel mortgage

Art. 2141. The provisions of this Code on pledge, insofar as they are not
in conflict with the Chattel Mortgage Law shall be applicable to chattel
mortgages. (n)

LAWS GOVERNING CHATTEL MORTGAGE

1. Chattel mortgage law, Act 1508
2. Civil Code provisions
3. Revised Administrative Code
4. Revised Penal Code

OFFENSES INVOLVING CHATTEL MORTGAGE

1. Knowingly removing personal property mortgaged to any province or

city other than the one in which it was located at the time of the
execution of the mortgage without the written consent
2. Selling or pledging personal property already mortgaged or any part
thereof, under the terms of the Chattel Mortgage Law without the
consent of the mortgage written on the back of the mortgage and
duly recorded in the CM Register

CONSENT TO ALIENATIONS OF MORTGAGED PROPERTY

- Refers to the process by which a mortgage lender grants permission for a

property owner to transfer or sell a property that is currently subject to a
mortgage lien. Here’s a breakdown of the concept:
Key Points:
1. Mortgage Terms and Conditions:
o Most mortgage agreements include a clause that prohibits the
property owner from transferring or selling the property without the
lender's consent. This is because the lender has a financial interest
in the property due to the mortgage lien.
2. Alienation:
o The term "alienation" in this context means transferring ownership
of the property. This can include selling the property, transferring it
to another party, or any other change in ownership.
3. Consent Process:
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o To obtain consent, the property owner must formally request

permission from the lender. This often involves providing
information about the proposed transaction, such as the buyer's
details, the sale price, and how the existing mortgage will be
handled.
o The lender may review the request to ensure that the transaction
does not negatively impact their financial interest. If the lender
agrees, they will provide written consent, allowing the transaction to
proceed.
4. Reasons for Consent:
o Lenders typically require consent to ensure that they can protect
their investment. They want to ensure that the new owner will be
able to meet the mortgage obligations or that the property sale will
not negatively impact their security interest.
5. Impact on the Mortgage:
o In some cases, if the property is sold or transferred, the mortgage
might be paid off with the proceeds of the sale. Alternatively, the
new owner might assume the existing mortgage, in which case the
lender would need to approve the assumption and potentially adjust
the loan terms.
6. Default Clauses:
o If a property owner transfers or sells the property without obtaining
the lender's consent, it might be considered a breach of the
mortgage agreement, which could lead to legal consequences or
even foreclosure.