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FORECLOSURE

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

VALIDITY AND EFFECT OF FORECLOSURE

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

KINDS OF FORECLOSURE


1.   Judicial  
2.   Extrajudicial

AN  ACT  TO  AUTHORIZE  THE  MORTGAGE  OF  PRIVATE  REAL PROPERTY IN FAVOR OF ANY INDIVIDUAL, CORPORATION, OR ASSOCIATION SUBJECT TO CERTAIN CONDITIONS

Section    1.    Any    provision    of    law    to    the    contrary notwithstanding, private real property may be mortgaged in favor of any individual, corporation, or association, but the mortgagee  or  his  successor  in  interest,  if  disqualified  to acquire   or   hold   lands   of   the   public   domain   in   the Philippines,  shall  not  take  possession  of  the  mortgaged property during the existence of the mortgage and shall not
take  possession  of  the  mortgaged  property  except  after default    and    for    the    sole    purpose    of    foreclosure, receivership,  enforcement  or  other  proceedings  and  in  no case  for  a  period  of  more  than   5  years   from  actual possession and shall not bid or take part in any sale of such real  property  in  case  of  foreclosure:  Provided,  that  said mortgagee or successor in interest may take possession of said   property   after   default   in   accordance   with   the prescribed    judicial    procedures    for    foreclosure    and receivership  and  in  no  case  exceeding  5  years  from  actual
possession.

Section 2. All laws,  orders, or regulations,  or parts thereof inconsistent with the provisions of this Act, are repealed or modified accordingly.

Section 3. This Act shall take effect upon its approval.
NOTES ON RA 133:

1.   You can mortgage to a foreigner.   RA 133  sanctions this.  Ownership is not equivalent to mortgage.  Nonetheless, he can    only    institute    judicial    proceedings    and    not extrajudicially  foreclose  the  mortgage.    Furthermore,  he cannot bid or take part in the sale of the real property.
2.   The  foreigner  may  not  take  possession  of  the  property during the mortgage.  He could only possess the same as a lessee.
3.   The foreigner may only take possession of the mortgaged property   after   default,   and   for   the   sole   purpose   of foreclosure,  enforcement  or   other  proceedings.     This should  not  exceed  the  period  of  5  years  from  actual possession.

JUDICIAL FORECLOSURE UNDER RULE 68, RULES OF COURT


1.   The mortgagee should file a petition for judicial foreclosure in the court which has jurisdiction over the area where the property is situated
2.   The court will conduct a trial.  If, after trial, the court finds merit in the petition, it  will render judgment  ordering the mortgagor/debtor to pay the obligation within a period not less  than  90  nor  more  than  120  days  from  the  finality  of judgment.
3.   Within  this  90  to  120  day  period,  the  mortgagor  has  the chance to pay the  obligation to prevent his property from being  sold.    This  is  called  the  EQUITY  OF  REDEMPTION PERIOD.   
4.   If mortgagor fails to pay within the 90-120 days given to him by the court, the property shall be sold to the highest bidder at public auction to satisfy the judgment.
5.   There will be a judicial confirmation of the sale.  After the confirmation of the sale, the purchaser shall be entitled to the  possession  of  the  property,  and  all  the  rights  of  the mortgagor  with  respect  to  the  property  are  severed  or terminated.  The  equity  of  redemption  period  actually extends until the sale is confirmed.  Even after the lapse of the 90 to 120 day period, the mortgagor can still redeem the property, so long as there has been no confirmation of the sale yet.  Therefore, the equity  of redemption  can  be
considered  as  the  right  of  the  mortgagor  to  redeem  the property BEFORE the confirmation of the sale.

a.    After  the  confirmation  of  the  sale,  the  mortgagor does  not  have  a  right  to  redeem  the  property anymore.    This  is  the  general  rule  in  judicial foreclosures – there is no right of redemption after the sale is confirmed.

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

1.   Judicial foreclosure is costly, since the parties would need to hire lawyers.  But then again, the present rules provide that  court  fees  are  needed  to  be  paid  in  extrajudicial proceedings also.  
2.   The  parties  have  very  little  control  over  the  sale  because there is court intervention.

3.   More   susceptible   to   stalling/dilatory   tactics   by   the mortgagor, since he can file all sorts of motions in court to prevent the sale.
4.   It is more efficient to have extrajudicial proceedings since for judicial proceedings, there is a minimum lapse of time of 6 years.
EXTRAJUDICIAL FORECLOSURE

(UNDER    ACT    3135/4118    AND    SC    ADMINISTRATIVE CIRCULAR)

WHERE SHOULD AN EXTRAJUDICIAL FORECLOSURE SALE BE DONE?


> Sale  cannot  be  made  legally  outside  the  city  or  province wherein  the  property  sold  is  situated.    In  case  the  place has  been  stipulated,  it  shall  be  made  in  the  municipal building of the said place
NOTICE OF THE SALE

1.   POSTING  of  the  notices  of  the  sale  FOR  NOT  LESS  THAN 20 DAYS in at  least 3 public  places  of the municipality or city where the property is situated
2.   IF  THE  PROPERTY  IS  WORTH  MORE  THAN  P400,  such notice  shall  also  be  published  once  a  week  at  least  3 consecutive weeks in a newspaper of general circulation in the municipality or city.  (You don't need to count 6 days between publications.)
NOTE:  there  is  jurisprudence,  which  held  that  there  is  sufficient notice when there is publication.
PUBLIC AUCTION/SALE

1.   Time shall be between 9AM and 4PM.  It shall be made in the  direction  of  the  sheriff  of  the  province,  the  justice  or auxiliary justice of the peace of the municipality, or of the notary    public    of    the    municipality,    who    shall    be compensated  with  P5  for  each  day  of  actual  work  or performance in addition to his expenses.

2.   Anyone may  bid at the  sale,  unless there  are  stipulations in the agreement.

POSSESSION

> Upon foreclosure, if the mortgagor is in possession of the property,  he  will  retain  possession  during  the  redemption period—1 year from the date of sale
> If   the   winning   bidder   wants   possession   during   the redemption period, he may execute a bond in the amount equivalent  to  the  use  of  the  property  for  12  months,  to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of the Act.  Upon approval, a writ of possession will be issued in his favor.
>  If  the  winning  bidder  is  able  to  secure  possession,  the mortgagor may petition that the sale is set aside and the writ  of  possession  be  cancelled  on  the  ground  that  he wasn't   in   default   or   that   the   sale   wasn't   made   in accordance  with  Act  3135.    This  must  be  filed  within  30 days from issuance of the writ of possession.

RIGHT OF REDEMPTION


> The  debtor,  his  successors-in-interest,  or  any  judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or  deed  of  trust  under  which  the  property  is  sold,  may redeem  the  same  at  any  time  WITHIN  THE  TERM  OF  1 YEAR FROM AND AFTER THE DATE OF THE SALE and such will be governed by the Rules of Court
> When  the  property  is  redeemed  after  the  purchaser  has been given possession, the redeemer is entitled to deduct from  the   price   of  redemption   any  rentals  that  said purchaser may have collected in case the property or any part thereof was rented.  If the property  was used as  his own dwelling, it being town property, or used it gainfully, it being  rural  property,  the  redeemer  may  deduct  from  the
price the interest of 1% per month provided in the Rules of Court.
RULES OF COURT, RULE 39, SECTIONS 29 TO 31, AND 35


Sec.  29.  Effect  of  redemption  by  judgment  obligor,  and  a certificate  to  be  delivered  and  recorded  thereupon;  to whom payments on redemption made. If  the  judgment  obligor  redeems,  he  must  make  the  same payments   as   are   required   to   effect   a   redemption   by   a redemptioner, whereupon, no further redemption shall be allowed and  he  is  restored  to  his  estate.  The  person  to  whom  the
redemption  payment  is  made  must  execute  and  deliver  to  him  a certificate  of  redemption  acknowledged  before  a  notary  public  or other officer authorized to take  acknowledgments of conveyances of real property. Such certificate must be filed and recorded in the registry of deeds of the place in which the property is situated, and the registrar of deeds must note the record thereof on the margin of the record of the certificate of sale. The payments mentioned in this and the last preceding sections may be made to the purchaser r redemptioner, or for him to the officer who made the sale.

Sec. 30. Proof required of redemptioner.
A redemptioner must produce to the officer, or person from whom he seeks to redeem, and serve with his notice to the officer a copy of the judgment or final order under which he claims the right to redeem, certified by the clerk of the court wherein the judgment or final order is entered; or, if he redeems upon a mortgage or other lien,  a  memorandum  of  the  record  thereof,  certified  by  the registrar  of  deeds;  or  an  original  or  certified  copy  of  any assignment  necessary  to  establish  his  claim;  and  an  affidavit
executed  by  him  or  his  agent,  showing  the  amount  then  actually due on the lien.

Sec.  31.  Manner  of  using  premises  pending  redemption; waste restrained.
Until the expiration  of the time allowed for redemption, the court may,  as  in  other  proper  cases,  restrain  the  commission  of  waste on the property by injunction, on the application of the purchaser or the judgment obligee, with or without notice; but it is not waste for a person in possession of the property at the time of the sale, or entitled to possession afterwards, during the period allowed for redemption, to continue to use it in the same  manner in which it was  previously  used;  or  to  use  it  in  the  ordinary  course  of husbandry; or to make the necessary repairs to buildings thereon while he occupies the property.

Sec. 35. Right to contribution or reimbursement.
When  property  liable  to  an  execution  against  several  persons  is sold thereon, and more than a due proportion  of the judgment is satisfied out of the proceeds of the sale of the property of one of them,  or  one  of  them  pays,  without  a  sale,  more  than  his proportion,  he  may  compel  a  contribution  from  the  others;  and when a judgment is upon an obligation of one of them, as security for another, and the surety pays the amount, or any part thereof, either  by  sale  of  his  property  or  before  sale,  he  may  compel repayment from the principal.

GENERAL BANKING LAW OF 2000, SECTION 47


Sec. 47. Foreclosure of Real Estate Mortgage. - In the event of   foreclosure,   whether   judicially   or   extra-judicially,   of   any mortgage  on  real  estate  which  is  security  for  any  loan  or  other credit  accommodation  granted,  the  mortgagor  or  debtor  whose real  property  has  been  sold  for  the  full  or  partial  payment  of  his obligation shall have the right within one year after the sale of the real  estate,  to  redeem  the  property  by  paying  the  amount  due under the mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by the bank or  institution  from the  sale and custody  of  said property less the income derived therefrom. However, the purchaser at the auction sale  concerned  whether  in  a  judicial  or  extra-judicial  foreclosure shall  have  the  right  to  enter  upon  and  take  possession  of  such property  immediately  after  the  date  of  the  confirmation  of  the auction sale and administer the same in accordance with law.  Any petition  in  court  to  enjoin  or  restrain  the  conduct  of  foreclosure proceedings instituted pursuant to this provision shall be given due
course  only  upon  the  filing  by  the  petitioner  of  a  bond  in  an amount  fixed  by  the  court  conditioned  that  he  will  pay  all  the damages  which  the  bank  may  suffer  by  the  enjoining  or  the
restraint of the foreclosure proceeding.

Notwithstanding  Act  3135,  juridical  persons  whose  property  is being sold pursuant to an extrajudicial foreclosure, shall have the right  to  redeem  the  property  in  accordance  with  this  provision
until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier.
Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their expiration.

NOTES:
1.   For  judicial  foreclosure,  the  redemption  period  is  within one  year.    For  extrajudicial,  its  90  days  from  sale  or registration.
2.   The  purpose  is  to  give  concession  to  the  banks.    Banks cannot  get  properties  mortgaged  by  those  in  financial distress.
3.   The  redemption  price  would  be  the  mortgaged  obligation plus  the  interest  as  stipulated  in  the  original  obligation.  Compare   this   with   judicial   foreclosure   wherein   the redemption  price  is  the  original  price.    In  this  case,  you have to pay more when redeeming from a bank.
4.   There is immediate possession
5.   A  motion  to  enjoin  would  not  be  entertained  unless secured by a bond.
6.   Court  will  fix  the  amount  of  the  bond.    Normally,  this would  be  the  liability  of  the  bank  plus  costs.    This remedied  the  loopholes  in  Act  3135—protect  the  bank during   foreclosures.      This   makes   it   hard   to   secure injunctions and it shortens the redemption period.