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September 23, 2017

Extrajudicial and judicial foreclosure

Extra- judicial- no case file, registers the real estate mortgage to the RD, when the obligation is already
due and demandable and the mortgagor has not paid the obligation there is a letter of demand and the
loan obligation has matured pursuant to the provision of the real estate mortgage there is a special
power of Attorney where in the owner of the land the mortgagor appoint the mortgagee to cause the
extrajudicial foreclosure of the mortgage. So what the bank has the choice to avail the remedy of EJF
they just have to go to court and file a for extrajudicial foreclosure, he will apply, it is just a mere letter
in the RTC clerk of court is automatically the sheriff, they are lawyers, then he has deputy clerk of court,
in branches of RTC they have branch clerk of court. Try to visit the RTC you will see offices labeled: office
of the Clerk of court. That is where you file extrajudicial foreclosure. You have to register it to the RD to
foreclose it. Under the to torrens system. It has to be annotated in the MOE.

There is such thing as 1st mortgage and 2nd mortgage although seldom lang nangyayari yan, let say the
property is a commercial lot with 1000 sq with 10 stories building located at Davao City dyan sa
downtown and it is valuated 500 million assuming kung ang loan nya is 20 million taos e mortage bya
the encumbrance is worth 20 m then a year later he mortgage the same property to another say PNB it
depends on the discretion of the bank whether the bank want to accept the mortgage. So the 1st
mortgage will reflect the MOE so as 2nd mortgage all the mortgage will reflect the MOE . input na natin

This came out twice already in the Bar Exam.

We have this thing called DRAG NET CLAUSE In the contract of mortgage, in the previous bar exam
this may come out in civil law, commercial law or land title and deeds. So take note of this, open your
minds to this you will take this u when you reach mercantile law or special contract.

What is the nature of this drag net clause. This is of American origin. What is the picture of this? I am a
good client of a bank, the bank they have this employees that canvass depositor, actually the essence of
banking they collect money from depositor and which they gave out as loan to the public.

MR. Robinos LYR, he has many property of course it will be known to the bank he is a depositor, then he
creates a credit line like to the bank. He then say putangin mo ako mo ako ng 1b my property is 2b ,
kasi ipapautan nya din pero yung 1b hindi nya yan kukunin lahat siguro every month he withdraw
around 50 million from the 1 b. this is what the drag net clause will apply, they will mke a contract with a
bank that consist of a drag net clause, then he will sublit a title that he mortgage it, with a value of say
3billions then kukuha sya from that mortgage an amount 10 million on staggard basis or whenever he
wants, it would just be noted or listed. Now the Real state mortagae it is not registered, although he has
a contract that has open application of such. It is not registered because it will be expensive, 2nd tho
avoid inconvenience, because of the long process of engaging to mortgage, the effese of this clause is if
hindi na maka bayad dun na sya e foreclose or register. Pero he already sign an internal agreement.

DRAG NET CLAUSE- it is a business practice, usually between banks and their borrowers, where in the
borrower signs in blank a real estate mortgage contract of this his properties as collateral as security for
loans which are not totally withdrawn upon signing on staggered basis and the real estate mortgage is
not registered in the RD meantime to avoid payment of registration fees and the inconvenience of
preparing so many mortgage contract.

Will continue on extrajudicial foreclosure; remember that you cannot foreclose the mortgage if it is not
register in the registry of deeds. So it will be annotated in the government copy as well as you ODC
memorandum of encumbrance, you pay there then the sheriff will schedule a public sale it will be sold in
a public auction, there are procedure that strictly needs to be followed pero there must be nitice by
publication in NP of general circulation in the province or city where the property is located not only
that the shireff if required to post a notice in the courts building or bulletin board of the court and the
bulletin board of RD and Municipal building if this requirement is not followed any aggrieved party can
file a petition in court to declared the foreclosure land null, because this part of due process, many
petitions in court will annulled because of lack of publication. What is the porpose their , the general
public should be notified that this property should be sold., to the hiesht bidder. What is the purpose of
the law why it should be sold to the highest bidder and not the lowest bidder? Why? To protect the
debtor that his property will be able to satify this obligation aron na deduct iyang utang naa pay mabalik
sa iya sobra. Because kung lowest lay luoy the creditor will always be in bad terms you know the law is
fair, humane and just it protects the debtor that he will not be taken advantage by the creditor this is
the humane side of the that is why there is anti-usury law, to protect because if there is a need to
protect this people it must be it the dedtor because he will be the one who will cost the property, that is
why there is this schedule the sale is mportant so the whole world will be notified to acquire the
property then pataasan ng bid, that is where due process is required through notice. There is now a
action sale assuming maraming nag bid the highest bidder will win, the shiereff will declared the highest
bidder, what will the sheriff do they will prepared the certificate of sale. This time the sheriff will be the
one to sign the certificate of sale in favor of the highest bidder. In real estate mortgage there is this
attached a special power of attorney authorizing the mortgagee to cost the foreclosure, there is now a
certificate of sale in favor of the higedt bidder with the register of deed and shall be annotate in the
MOE in the governments copy and ODC sold na sya, but then under the mortgage law one yr from the
registration mandatory in favor of the mortgagor that the latter will have the right of redemption within
one yr form registration of the. What you call they? That is the right of redemption that is a right under
the law. So if youre a owner of a property by means of public auction, you are not yet an owner in fee
simple title. Your ownership is inqouate because the original owner has the right to exercise this
Redemption, this being a right the owner may transfer it to any person for consideration.

Q: after 1 yr should ma expre na sya?

A: pag nag expri na sya wala na talaga.

When the one year period has expire and the mortgagor failed to redeem the property the buyer in
auction sale will petition the RD to consolidate the property in his name. what is consolidate mean,
cancel na yung name ng pervious owner and will be changed to the new owner that one who borught it
on auction sale, there are provision on PD act if the property is homestead in addition to the one year
redemption period the mortageegor has another 1 yr under public land act to redeem the property so
favored yung original patentee, rember he must be an originall patentee meaning maging 2 yrs sya and
not only that in the case of government banks i dunno if its been amended parang may another 1 yr pa
syang redemption period, so I think the additional 1 yr is still their. Pero kng private banks wala kang
matakbohan nyan.

Q: usually kasi most buyer in PA are bankers?

A: in the aucton if there is no buyer so the mortgaee is the buyer palitun na sya withstand the utang
minus expenses. But under the banking laws it will be register in their name, but there is this law that
banks cannot hold real property within 5 years they have to dispose it after 5 yrs because the private
purpose why they are established under the corporation code is not their porpose to acquire real
properties, because if there is no such provisions under the banking law ma ubus lahat ng lupa, ang
kanila na mang purpose if the purpose of funds and just to engage in private business not in agriculture.
That is why marunong may pera saan sila ppumupnta dun sa banko na foreclose na land. Chances are
hindi mataas they are require to dispose it within 5 years, dun ka makaka bili ng lupa na mura.

The bank in actual practice they will circumvent the law, they dont avail the remedy of foreclosure ano
ginagawa nila matured na ang gagawin nila they will avail Dacion in Pago. Parang pinag bili ng may utang
ang kanyang property sa banko he cannot pay he will sell it to the bank with the provision to buy back
the property so the owner still remain the owner of the property.

Halimbawa na sold ang property it was sold in PA and the price is comparatively low, lets say the
obligation is 1m but the property is sold 500,000 so lugi ang bangko. This was foreclose extra-judicially,
under the law the bank can file an action for difiency judgement.

Action for difiency judgement is the case where the mortagaee files against the mortagegor when there
is a defiency in the price of the land in the auction sale and the obligtation of the borrower has not been


Judicial through the court, the bank has achoice whether it avails judicial or extrajudicial. Ang judiciacial
naman may araise from bridge from loan agreement or you fail to pay the obligation. The creditor can
go to court to collect since there is a mortage . for example what was loan is a a rice field may dryer may
makina yan ang collateral na, now the brrower as if there is fraud so say they is a breach of conract even
if the obligation is not due and demandable and there is this breach then on that on that fault alone on
the debtor has the right now to go to court because of the breach and the action now is judicial
foreclosure of mortage, there is factual issue, is it true that borrower removed the machineries so the
bank needs t go to court, or there is a breach or failure to fulfill the obligation. That is why the bank use
judicial foreclosure as a remedy there is a case file the court, there is a complaint the borrower the
debtor shall file a differences to be determine by the court. they will prove it their will be recession, it is
an ordinary case the disadvantage if this they could appeal, unlike ectrajudicial mablis basta complete
ang papers and publication. This is seldom use by bank, kasi masyadong mahal. The judgment becomes
final the mortagaee after the finality will file a motion for reissuance for order of auction sale it will go to
the same process of extrajudicial e.g positing of notice then the sheriff will conduct the auction sale. The
next there is there is an auction sale then the sheriff will make a report in the auction sale then the
mortagee will file a motion for approval of the auction sale, the judge will issue an order for approval,
why bakit e heararing pa kasi baka may protesta yung nag participate nag reklamo sya or due process
then the court will conduct the hearing to hear the motion of approval of the sale, the court will then
issue a an order for the registration of the Certificate of sale now take note of this According to
jurisprudence for as long as the Certificate of sale is not yet register in the RD even upon the hearing of
motion of approvsl of auction sale, the borrower if he wants to redeem the property he can still redeem
until it is not register, hangat hindi pa sya na register yan pwd ma nyang bayaran, pag na register na he
has 3 months to redeem the property. So anong deffirence nya sa extrajudicial 1 yr from the regstratio
nang reddemtion period sa judicial 90 days another deffierence take note of this if there is a difference
in the auction sale what is require for the mortgagee is not an action for defiency judgement but he wil
motion for defiency judgement after the experiation of the period of redemption. Bakit sa extrajudicial
diffiency judgement talaga pero sa judicial Motion nalang? Sinong magaling dyan?

A form the student: because the case is already filed.

DEAN: YES! Because there is already a case filed correct. Motion is only an interlocutory. Motion is only
an action if there is a case file.

Tentative pointers

So my lecture tonight isa yang sa ilalabas ko

We have been lecturing here the drag net provision of the law

EXPLAIN DRAG NET PROVISION because it came out the bar twice.

Distinguish procedure of extrajudicial and judicial foreclosure of mortgagee.

What kind of action is that etraducial and judicial?

Redemption period..

Primary entry
Judicial foreclosure

Then para maka bawi kayo, you prepare a petition for re issuance of lost owners duplicate tille

OCT 21, 2017

So this afternoon we take up an important subject matter in land titles, take note of this. The basic
principle in land registration is Registration is the operative act . We will explain the meaning of the
phrase , you know under the torrens system you already know that priority in rights over registered land
is the registration of the title, or transactions pertaining are in the hands of the registry of deeds. For
example there is an owner of the land a titled property he sold his land twice or even thrice and the
buyers are not so knowledgeable, he then executed 3 deeds of absolute sale in favor of 3 buyers not on
the same dates, different dates not on the same time, that could happened and there are a lot of cases
like that, the owners duplicate title was not delivered to the 1st buyer and 2nd buyer it was delivered to
the 3rd buyer, assuming that the 1st buyer in the absolute sale brought the land on Jan 2017 . on
February same year 2017 the seller sold it to the 2nd buyer and executed another deed of sale same land
the owners duplicate copy was not delivered, on the 3rd march 2017 he executed another deed of
absolute sale this time he delivered the owners duplicate copy to the third buyer. The 2nd buyer as well
as the 3rd buyer was not aware that there was a previous deed of sale to a first buyer so the third buyer
kasi nasa kanya ang owners duplicate copy, this requires payment of taxes he registered it to the
registry of deeds the deed of absolute sale and everything there. Title was issued to him. Now question
did the third buyer validly acquire a title over the land ?

YES! Because of the Doctrine of Registration is the Operative Act. The 1st and 2nd buyer brought the
property however they failed to register it. So the first to register has the valid title. What then is the
recourse of the 1st and 2nd buyer?

Now because the 3rd buyer has a valid title, the 1st and 2nd buyer not pray for annulment of the sale the
course of action is they will go against the owner of the land for reimbursement and damages. Although
they were the 1st to acquire the land they did not register it they cannot register it they could not
recover it. Why? The 3rd he did not know that it was sold to persons sold prior to him, his a buyer in
good faith he did not know about the Flaw and he acquire it for a fair value (Buyer in good faith and for
fair value) now what if the 3rd is the buyer is a buyer in Bad faith, for example he was aware that it was
sold to other before him? Yet he pursue buying it. Tho he paid it for a value still he is consider a buyer in
bad faith. So what is the effect?

He has a a bad title did not confer any right over the property. Since the title did not confer any right
to him what is the effect? Although the land is already register in his name what is the effect? If the 1st
buyer will file a case against him for recovery of the property on the ground that he is a buyer in bad
faith the case will prosper the property can be recover. Because of knowledge about the flaws of the
sale when you brought the property it cannot be cured by registering the title, it can be recover from
you by the real owner which is the 1st buyer. What is the reason? The reason which is the wording of the
SC Registration cannot be used as a shield to cover fraudulent acts you cannot use the torrens
system from concealing your fraudulent act.

Another , when you are consider in bad faith because of your actual knowledge of the flaw, another
principle will apply. another principle that is involve there is the effect of that. TAKE NOTE OF THIS.
From the time the third buyer learned of the fact that the lot he brought was already brought by the 1st
buyer although the 1st buyer did not register his title with the RD the knowledge or acquisition of the 3rd
buyer of the fact that the 1st buyer had already brought it. Theoretically under the law the act is
tantamount to registration of title the fist buyer. The effect would be like the 1st buyer had already
registered it , when the 3rd buyer already register it under his name. The law considers that the
knowledge of the third buyer and upon his registration is considered registration on the part of the 1st
buyer. Constructive knowledge of the Flaw is tantamount to registration of the title of the buyer who
brought it in good faith, pero If his knowledge is after the registration he is consider in good faith
because he registered it in good faith before he acquired the knowledge of it flaw.

There is such thing as constructive registration.

The other kind of knowledge is the actual knowledge of the records of the registry of deeds. Once it
recorded to the RD that serves as a notice to the whole world, so when you know it or not that is
consider binding upon you.

Q from the class: What if the buyer know of the flaw he already paid everything when he went to the RD
he acquired the of the knowledge of the Flaw.

Answer: if he can prove that he can acquired knowledge after he brought the land, because the torrens
system will operate on the 1st buyer. Registration is the operative act because, because the law in
torrens system is base on public policy. There are may cases like that but its hard to prove such thing.

So you know already the principle that the torrens system cannot be used a shield to cover a fraud.

There is a cases the laureta Case.

This is a case of Coronel Laureta vs Erwin Caram , Caram a very prominent person. After the war he
brought property here in Tagum that land in Gaisano is one. Laureta brought it from a native he did not
register it but he was in possession of the land already. Caram was already aware that the properties
were already brought by Laureta this is according to the facts by the SC. He brought the land to the
same buyer despite the fact. When laureta brought it he did not acquire the title because it was still a
homestead meaning hindi pa naka abot sa DENR. When the title came the name of the native seller was
in the title, he sold it to Caram. Caram registered the title to the RD, when Laureta Brought the land it
was still unregistered. So Laureta filed an action to court to annul and cancel the title of Caram. That is
the leading case on the principle of constructive knowledge, Contructive knowledge on the part of
Caram theortically the knowledge of Caram about the Fact of the sale of land amount s of the
registration as if it was already in the name of Laureta. Laureta Won.

READ: LAURETA VS CARAM (Constructive Registration) by fiction law there was already registration of
the 1st buyer then the 2nd buyer registered the land.

Now you have time visit the RD they have this library where the government copy of the title, deed of
sale extrajudicial sale or etc.

The first one who wrote in the primary entry book of the RD will be assume to be the 1 st to register.
Assuming everybody is in good faith. So know the 1st buyer registred it, the rule is there is a priory right
that us the function of the primary entry book, the entry in the primary entry book will determine who
has the propriety tight 1st in right, from the PRB it will be examine by the examiner then if ok will be
annotated in the Memorandum of encumbrance af the government copy that is the back of the title
with date. So 2 primary entry book MOE, it is a need that it wount stop in PEB it should be sangko in
the MOE, if ever there is error na una sa PEB pero nag sangol-sangol ang papers then naulahi sa sa
annotation ng tatak. How will the the transaction be? What will would prevail the annotation in the
MOE or the PEB?

The rule is basta mu abot sya sa MOE it is deemed registered or complete. Basta hindi sya mag SANKO it
is not register.

The one who went to the MOE is registered. What if nahuli sa MOE but na una sa PEB. The ruling of the
court is basta mag abot lang sya MOE likod sa titulo basta na una sya sa PEB. It retroacts back to the
primary entry. As long as the transaction reach the memorandum of encumbrance at the back of the
government copy the date of registration so far as the law is concern dates back from the date of PEB.
Later on it has to be annotated in MOE, because the one who 1st annotated the MOE is the one who is
deemed registered. (IMPORTANT)

There are so many cases on that and that is the doctrine.

IN Cunslta

(assurance Fund)

There are instances where errors are committed by the RD and the error resulted from damage from the
registered owner, RD Represent the government. There is a land owner who suffered damages from the
negligence of the RD can he be paid damages? Remember that the employees of national government,
the owner can file an action that he will be paid he can file a claim on the assurance fund. The fund is
intended to answer for damages that owners of property has suffered by reason of operation of torrens
system, most cases negligence or fault of government functionality, he will file a came on the assurance
fund. But mind you in reality,, there is no records of the assurance fund. But that s in the law, you 1 st
have to file your Claim SG that will determine if your claim is valid or not assuming that you succeeded
you file your Claim AF in court with the consent of SG because it is tantamount to a suit against the
government that is why consent is need. It is the SG that will give the consent.

The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned
It is the act of registration which creates a constructive notice to the whole world and binds third persons Absent
such registration, a conveyance doesnt affect or bind the land the purchaser has examined every instrument of
record affecting the title He is charged with notice of every fact shown by the record and is presumed to know
every fact shown by the record and is presumed to know every fact which an examination of the record would
have disclosed Since it is the act of registration which transfers ownership of the land sold, it has been held that a
subsequent claimant cannot claim a better right over the land which had been previously registered in the name of
another. A notice of lis pendens serves as a warniong to a prospective purchaser or encumbrancer that the
particular property is in litigation and that he should keep his hands off the same, unless he intends to gamble on
the results of the litigation


When there is nothing in the certificate of title to indicate any cloud or vice in the ownership of the
property, or any encumbrance thereon, the purchaser is not required to explore farther than what the
Torrens title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently
defeat his right thereto

Remember though that a Torrens title doesnt create or vest title. It only confirms and records title
already existing and vested


A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then
claim that he acted in good faith under the belief that there was no defect in the title of the vendor

His mere refusal to believe that such defect exists or his willful closing of his eyes to the possibility of the
existence of a defect in the vendors title, will not make him an innocent purchaser for value, if it
afterwards develops that the title was in fact defective, and it appears that he had no such notice of the
defect as would have led to its discovery had he acted with that measure of precaution which may
reasonably be required of a prudent man in a like situation


We will have problems in action reconveyance and quitting of the title ? Its in the book.

The lecture the registration if the operative act? In relation to primary entry and annotation and
recording the MOE of the title.

Then judicial and ectrajudicial foreclosure of mortgage.

Homework agad. Together with sample Petition for issuance of title.

The rule 18 percent slope it is below agricultural- pa file mo is alienable and disposable.