Act 4118 – Act 3135 as amended and governs extrajudicial foreclosures by JAY CASTILLO on DECEMBER 21, 2009 in ACT 3135
- EXTRAJUDICIAL FORECLOSURES, ACT 4118 - AMENDMENT TO ACT 3135, REAL ESTATE LAWS
As mentioned in my previous post which contains the full text of Act No. 3135, I am posting here Act No. 4118 which amends the original Act 3135. However, after reading the contents of Act No. 4118, I am inclined to believe that the full text of Act 3135 which I shared in my previous post was already Act 3135 as amended by Act 4118. Why am I posting these? For starters, I just want to be sure that we are all on the same page when it comes to extrajudicial foreclosure sales in the Philippines. Please continue reading to find out more… ACT NO. 4118 – AN ACT TO AMEND ACT NUMBERED THIRTY-ONE HUNDRED AND THIRTY-FIVE, ENTITLED “AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES.” SECTION 1. Section six of Act Numbered Thirty-one hundred and thirty-five, entitled “An Act to regulate the sale of property under special powers inserted in or annexed to real-estate mortgages,” is hereby amended to read as follows: “Section 6. In all cases in which an extrajudicial sale is made under the special power herein before 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.” SECTION 2. The following three sections are hereby inserted after section six of said Act Numbered Thirty-one hundred and thirty-five: “Section 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
. who shall execute said order immediately. “Section 9. because the mortgage was not violated or the sale was not made in accordance with the provisions hereof. petition that the sale be set aside and the writ of possession cancelled. upon the filing of such petition. addressed to the sheriff of the province in which the property is situated. “Section 8. it shall dispose in his favor of all or part of the bond furnished by the person who obtained possession. 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. and if it finds the complaint of the debtor justified. but not later than thirty days after the purchaser was given possession.part thereof is situated. order that a writ of possession issue. 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. 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. in the proceedings in which possession was requested. specifying the damages suffered by him. it being rural property. The debtor may. 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. collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six. and in each case the clerk of the court shall. When the property is redeemed after the purchaser has been given possession. as amended by Act Numbered Twenty-eight hundred and sixty-six. it being town property. 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. and the court shall. furnishing bond in an amount equivalent to the use of the property for a period of twelve months. to give him possession thereof during the redemption period. but the order of possession shall continue in effect during the pendency of the appeal. or used it gainfully. upon approval of the bond. 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. Either of the parties may appeal from the order of the judge in accordance with section fourteen of Act Numbered Four hundred and ninetysix. 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.
if disqualified to acquire or hold lands of the public domain in the Philippines.SECTION 3. OR ASSOCIATION SUBJECT TO CERTAIN CONDITIONS Section 1. Judicial 2. the debtor cannot anymore be asked to pay unless there is deficiency KINDS OF FORECLOSURE 1. Any provision of law to the contrary notwithstanding. Extrajudicial AN ACT TO AUTHORIZE THE MORTGAGE OF PRIVATE REAL PROPERTY IN FAVOR OF ANY INDIVIDUAL. SECTION 4. or association. 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:
. CORPORATION. making it section ten. 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. receivership. 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. This Act shall take effect on its approval. corporation. 1933 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. but the mortgagee or his successor in interest. Approved. The number of the present section seven of said Act Numbered Thirty-one hundred and thirty-five is hereby changed. private real property may be mortgaged in favor of any individual. December 7.
Section 3. JUDICIAL FORECLOSURE UNDER RULE 68. The foreigner may not take possession of the property during the mortgage. and all the rights of the mortgagor with respect to the property are severed or terminated. 4. orders. the equity of redemption can be considered as the right of the mortgagor to redeem the property BEFORE the
. RULES OF COURT 1. or regulations. Ownership is not equivalent to mortgage. after trial. There will be a judicial confirmation of the sale. he cannot bid or take part in the sale of the real property. are repealed or modified accordingly. This should not exceed the period of 5 years from actual possession. enforcement or other proceedings. Section 2. and for the sole purpose of foreclosure. He could only possess the same as a lessee. 2. Therefore. If mortgagor fails to pay within the 90-120 days given to him by the court. RA 133 sanctions this. Nonetheless. The court will conduct a trial. You can mortgage to a foreigner. 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. The equity of redemption period actually extends until the sale is confirmed. The foreigner may only take possession of the mortgaged property after default. 3. After the confirmation of the sale. the mortgagor can still redeem the property. he can only institute judicial proceedings and not extrajudicially foreclose the mortgage. the court finds merit in the petition. This Act shall take effect upon its approval. the mortgagor has the chance to pay the obligation to prevent his property from being sold. Furthermore. the property shall be sold to the highest bidder at public auction to satisfy the judgment. or parts thereof inconsistent with the provisions of this Act. The mortgagee should file a petition for judicial foreclosure in the court which has jurisdiction over the area where the property is situated 2. 5. the purchaser shall be entitled to the possession of the property. 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. Even after the lapse of the 90 to 120 day period.Provided. All laws. 3. This is called the EQUITY OF REDEMPTION PERIOD. If. NOTES ON RA 133: 1. so long as there has been no confirmation of the sale yet. Within this 90 to 120 day period.
In case the place has been stipulated. But then again. The rule on extrajudicial foreclosure is different. This is the general rule in judicial foreclosures – there is no right of redemption after the sale is confirmed. the mortgagee DOES NOT get the excess (unlike in pledge). since the parties would need to hire lawyers. there is a minimum lapse of time of 6 years. ONE WOULD SHY AWAY FROM A JUDICIAL FORECLOSURE: 1. If there is still an excess. 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. The proceeds of the sale of the property will be disposed as follows: a. Judicial foreclosure is costly. More susceptible to stalling/dilatory tactics by the mortgagor. 4. If there is a deficiency. i. the costs of the sale will be deducted from the price at which the property was sold b. The parties have very little control over the sale because there is court intervention. In mortgage. the present rules provide that court fees are needed to be paid in extrajudicial proceedings also. it shall be made in the municipal building of the said place NOTICE OF THE SALE
. the mortgagor does not have a right to redeem the property anymore. After the confirmation of the sale. the mortgagee can ask for a DEFICIENCY JUDGMENT which can be imposed on other property of the mortgagor. 2.confirmation of the sale. the excess will go back to the mortgagor. since he can file all sorts of motions in court to prevent the sale. The junior encumbrances will be satisfied d. First. 3. It is more efficient to have extrajudicial proceedings since for judicial proceedings. a. The mortgagee must go to court and file another action for the collection of the deficiency. The amount of the principal obligation and interest will be deducted c.
the justice or auxiliary justice of the peace of the municipality. or of the notary public of the municipality. 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.
. It shall be made in the direction of the sheriff of the province. RIGHT OF REDEMPTION > The debtor. unless there are stipulations in the agreement. 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. Anyone may bid at the sale. which held that there is sufficient notice when there is publication. 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. who shall be compensated with P5 for each day of actual work or performance in addition to his expenses. 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.1. This must be filed within 30 days from issuance of the writ of possession. > If the winning bidder is able to secure possession. Time shall be between 9AM and 4PM. a writ of possession will be issued in his favor. PUBLIC AUCTION/SALE 1. 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. Upon approval. or any judicial creditor or judgment creditor of said debtor. 2. his successors-in-interest. POSSESSION > Upon foreclosure. (You don't need to count 6 days between publications. 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. 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.) NOTE: there is jurisprudence. he may execute a bond in the amount equivalent to the use of the property for 12 months. if the mortgagor is in possession of the property.
the redeemer may deduct from the price the interest of 1% per month provided in the Rules of Court. or used it gainfully. RULES OF COURT. or to use it in the ordinary course of husbandry. whereupon. a memorandum of the record thereof. as in other proper cases. Sec. If the judgment obligor redeems. RULE 39. 31. Until the expiration of the time allowed for redemption. it being town property. certified by the clerk of the court wherein the judgment or final order is entered. Right to contribution or reimbursement. he must make the same payments as are required to effect a redemption by a redemptioner. or to make the necessary repairs to buildings thereon while he occupies the property. 29. Sec. and serve with his notice to the officer a copy of the judgment or final order under which he claims the right to redeem. restrain the commission of waste on the property by injunction. or entitled to possession afterwards. and
.If the property was used as his own dwelling. A redemptioner must produce to the officer. Manner of using premises pending redemption. 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. or. waste restrained. but it is not waste for a person in possession of the property at the time of the sale. SECTIONS 29 TO 31. to continue to use it in the same manner in which it was previously used. and the registrar of deeds must note the record thereof on the margin of the record of the certificate of sale. 30. during the period allowed for redemption. and a certificate to be delivered and recorded thereupon. and an affidavit executed by him or his agent. showing the amount then actually due on the lien. no further redemption shall be allowed and he is restored to his estate. to whom payments on redemption made. the court may. Sec. Such certificate must be filed and recorded in the registry of deeds of the place in which the property is situated. certified by the registrar of deeds. on the application of the purchaser or the judgment obligee. or for him to the officer who made the sale. or person from whom he seeks to redeem. 35. The payments mentioned in this and the last preceding sections may be made to the purchaser r redemptioner. AND 35
Sec. Effect of redemption by judgment obligor. with or without notice. if he redeems upon a mortgage or other lien. When property liable to an execution against several persons is sold thereon. it being rural property. or an original or certified copy of any assignment necessary to establish his claim. Proof required of redemptioner.
Sec. juridical persons whose property is being sold pursuant to an extrajudicial foreclosure. as security for another. GENERAL BANKING LAW OF 2000. 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. 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. NOTES: 1. its 90 days from sale or registration. 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. the redemption period is within one year. 47. However. he may compel a contribution from the others. or one of them pays. to redeem the property by paying the amount due under the mortgage deed. For judicial foreclosure. whether judicially or extra-judicially. either by sale of his property or before sale. Foreclosure of Real Estate Mortgage. Notwithstanding Act 3135. he may compel repayment from the principal. with interest thereon at rate specified in the mortgage. 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. but not after. shall have the right to redeem the property in accordance with this provision until. more than his proportion.more than a due proportion of the judgment is satisfied out of the proceeds of the sale of the property of one of them. 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. . or any part thereof. whichever is earlier. 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.
. and the surety pays the amount. extrajudicial. and when a judgment is upon an obligation of one of them. without a sale.In the event of foreclosure.
Compare this with judicial foreclosure wherein the redemption price is the original price. Court will fix the amount of the bond. In this case. Banks cannot get properties mortgaged by those in financial distress. 4. 6. Normally.
.2. 3. The purpose is to give concession to the banks. this would be the liability of the bank plus costs. This remedied the loopholes in Act 3135—protect the bank during foreclosures. A motion to enjoin would not be entertained unless secured by a bond. The redemption price would be the mortgaged obligation plus the interest as stipulated in the original obligation. This makes it hard to secure injunctions and it shortens the redemption period. There is immediate possession 5. you have to pay more when redeeming from a bank.