MORTGAGE, FORECLOSURE AND REDEMPTION

Larry P. Ignacio

REAL ESTATE MORTGAGE 

A real estate mortgage is a contract in which the debtor guarantees to the creditor the
fulfillment of a principal obligation, subjecting for the faithful compliance therewith a real
property in case of non-fulfillment of said obligation at the time stipulated (Manresa).

It is a lien on specific or identified immovable property. It directly and immediately

subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment
of the obligation for whose security it was constituted. It creates a real right enforceable against
the whole world (DBP v. NLRC, 183 SCRA 328 [1990]).

Foreclosure of mortgage 

Foreclosure of mortgage is the process by which a property covered may be subjected to

sale to pay demand for which mortgages stand as security (Pacific Commercial Co. v. Alvarez,
38 OG 758).
Foreclosure is the necessary consequence of non-payment of mortgage indebtedness. The
mortgage can be foreclosed only when the debt remains unpaid at the time it is due (Producers
Bank v. CA, GR No. 111584, 17 Sept. 2001; Gov’t of the PI v. Espejo, 57 Phil 496) or in case of
default in the payment of obligation (PNB v. CA, GR No. 126908, 16 Jan. 2003; Chinabank v.
CA, 265 SCRA 327 [1996])

Demand is essential for default.

Demand, however, is necessary for default to exist and which gives the right to collect
debt and foreclose the mortgage. The maturity dates in the promissory notes or the acceleration
clause (“[i]n case of non-payment of this note or any portion of it on demand, when due, on
account of this note, the entire obligation shall become due and demandable. . .”) therein stated
only indicate when payment can be demanded. It is the refusal to pay after demand that gives
the creditor a cause of action against the debtor (DBP v. Licuanan, GR No. 150097, 26 February
2007). Default commences upon judicial or extrajudicial demand (UCPB vs. Beluso, G.R. No.
159912, August 17, 2007). Demand, however, is not necessary where the law or the obligations
expressly declare it unnecessary (Premiere Dev’t. Bank v. Central Surety & Insurance Company,
Inc., 579 SCRA 359, 13 February 2009). 

        Mora solvendi or debtor’s default is defined as a delay in the fulfillment of an obligation, by

reason of a cause imputable to the debtor. There are three requisites necessary for a finding of

default.  First, the obligation is demandable and liquidated; second, the debtor delays
performance; third, the creditor judicially or extrajudicially requires the debtor’s performance

(Selegna Management & Dev’t. Corp. v. UCPB, GR No. 165662, 03 May 2006).

 Prohibition against Pactum Commissorium. 

       

A stipulation in a deed of mortgage which states that upon failure of the mortgagor to pay

the debt within the agreed period, the land covered by the mortgage shall become property of

the mortgagee or the transaction shall become a sale and the consideration shall be considered

as payment of the price of the land is pactum commissorium and is null and void (Reyes v.

Nebreja, 98 Phil 639 [1956]). Such stipulation is void since it enables the mortgagee to acquire

ownership of the mortgaged property without need of foreclosure (Olea v. CA, 247 SCRA 274

[1995]); it is a nullity being contrary to the provisions of Article 2088 of the Civil Code (Lumayag

v. Heirs of Jacinto Nemeno, 526 SCRA 315 [2007]).

   Two modes of foreclosure of real estate mortgage. 

Foreclosure of real estate mortgage is either done extra-judicially or judicially.  The

provisions of Rule 68 of the 1997 Rules of Civil Procedure govern judicial foreclosure.
The extra-judicial foreclosure of real estate mortgage, on the other hand, is carried out in the
procedure governed by the provisions of Act 3135, as amended, otherwise known as “An Act to
Regulate the Sale of Property Under Special Powers Inserted in or Annexed to Real Estate
Mortgages.”
 

EXTRA-JUDICIAL FORECLOSURE OF REAL ESTATE MORTGAGE UNDER ACT 3135, AS

AMENDED & REDEMPTION

Essential requirements under Act 3135 

        Under Act 3135, as amended and settled jurisprudence, the following essential
requirements must be met:

 1.                  There must be a special power of attorney inserted in or attached to the real estate
mortgage authorizing the sale pursuant to the provisions of Act, 3135, as amended (Section 1;
Paguyo v. Gatbunton, 523 SCRA 156 [2007]).
2.                  The sale must be made within the province where the property or any part thereof is
located, unless otherwise stipulated (Section 2; Supena v. de la Rosa, 267 SCRA 1).

3.                  There must be a notice of sale to be posted in three public places of the municipality
or city where the property is situated.  If the property is worth more than P400.00, the notice
shall also be published once a week for three consecutive weeks in a newspaper of general
circulation in the city or municipality (Section 3).

4.                  The sale shall be made at public auction between the hours of nine in the morning
and four in the afternoon, and shall be under the direction of the sheriff of the province, the
justice or auxiliary justice of the peace (now municipal judge) of the municipality in which such
sale shall be made, or a notary public of said municipality (Section 4).

Procedure of extrajudicial foreclosure under Act 3135 

In Administrative Matter No. 99-10-05-0 (as further amended on 07 August 2001), the
Supreme Court prescribed the following procedures in the extra-judicial foreclosure of mortgage:

 1.   All applications for extra-judicial foreclosure of mortgage whether under the direction of the
sheriff or a notary public, pursuant to Act 3135, as amended, shall be filed with the Executive
Judge, through the Clerk of Court who is also the Ex-Officio Sheriff.

2.   Upon receipt of an application for extra-judicial foreclosure of mortgage, it shall be the duty
of the Clerk of Court to:

a)   receive and docket said application and to stamp thereon the corresponding file number,
date and time of filing;

b)   collect the filing fees therefore pursuant to Rule 141, Section 7(c) as amended by A.M. No.
00-2-01-SC, and issue the corresponding official receipt;

c)   examine, in case of real estate mortgage foreclosure, whether the applicant has complied
with all the requirements before the public auction is conducted under the direction of the sheriff
or a notary public, pursuant to Sec. 4 of Act 3135, as amended;

d)   sign and issue the certificate of sale, subject to the approval of the Executive Judge, or in his
absence, the Vice-Executive Judge.  No certificate of sale shall be issued in favor of the highest
bidder until all fees provided in the aforementioned sections and in Rule 141, Section 9(1) as
amended by A.M. 00-2-01-SC, shall have been paid; Provided, that in no case shall the amount
payable under Rule 141, Section 9(1), as amended, exceed P100,000.00;

e)   after the certificate of sale has been issued to the highest bidder, keep the complete records,
while awaiting any redemption within a period of one (1) year from date of registration of the
certificate of sale with the Register of Deed concerned, after which, the records shall be
archived.

Notwithstanding the foregoing provision, juridical persons whose property is sold pursuant
to an extrajudicial foreclosure, shall have the right to redeem the property until, but not
after, the registration of the certificate of foreclosure sale which in no case shall be more than
three (3) months after foreclosure, whichever is earlier, as provided in Section 47 of Republic
Act No. 8791 (as amended, Res. of August 7, 2001) 

Where the application concerns the extrajudicial foreclosure of mortgages of real estates and/or
chattels in different locations covering one indebtedness, only one filing fee corresponding to
such indebtedness shall be collected.  The collecting Clerk of Court shall, apart from the official
receipt of the fees, issue a certificate of payment indicating the amount of indebtedness, the
filing fees collected, the mortgages sought to be foreclosed, the real estates and/or chattels
mortgaged and their respective locations, which certificate shall serve the purpose of having the
application docketed with the Clerks of Court of the places where the other properties are
located and of allowing the extrajudicial foreclosures to proceed thereat.

3.   The notices of auction sale in extrajudicial foreclosure for publication by the sheriff or by a
notary public shall be published in a newspaper of general circulation pursuant to Section 1,
Presidential Decree No. 1079, dated January 2, 1977, and non-compliance therewith shall
constitute a violation of Section 6 thereof.

4.   The Executive Judge shall, with the assistance of the Clerk of Court, raffle applications for
extrajudicial foreclosure of mortgage under the direction of the sheriff among all sheriffs,
including those assigned to the Office of the Clerk of Court and Sheriffs IV assigned in the
branches.

5.   The name/s of the bidder/s shall be reported by the sheriff or notary public who conducted
the sale to the Clerk of Court before the issuance of the certificate of sale.

Time when to conduct auction sale. 

Issue: Whether a sale a public auction, to be valid, must be conducted the whole day from 9:00
a.m. until 4:00 p.m. of the scheduled auction day. Section 4 of Act 3135 provides that the sale
must take place between the hours of nine in the morning and four in the afternoon.

The word “between” ordinarily means “in time interval that separates.” Thus, “between the
hours of nine in the morning and four in the afternoon” merely provides a time frame within
which an auction sale may be conducted.

Therefore, a sale at public auction held within the intervening period provided by law ( i.e., at
any time from 9:00 a.m. until 4:00 p.m.) is valid, without regard to the duration or length of
time it took the auctioneer to conduct the proceedings (PNB v. Cabatingan, 557 SCRA 426
[2008]).

Act 3135 regulates the extrajudicial sale of mortgaged real properties by prescribing a procedure
which effectively safeguards the rights of both debtor and creditor (ibid.).

Notice and publication requirements. 

1. Notice and publication under PD 1079 and Act 3135, as amended.

  

Section 1 of PD 1079, as amended provides:

         “All notices of auction sales in extra-judicial foreclosure of real estate mortgage under Act
3135, as amended x x x required by law to be published in a newspaper of general circulation in
particular provinces and/or cities shall be published in newspapers or publications published,
edited and circulated in the same city and/or province where the requirement of general
circulation applies: Provided, That the province or city where the publication’s principal office is
located shall be considered the place where it is edited and published x x x.” 

        Section 3 of Act 3135, as amended, reads:

         “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 three consecutive weeks in a newspaper of general circulation in the municipality or city.” 

        A reading of the above provisions gives us the impression that the publication of extra-
judicial sales under Act, 3135, if the property is worth more than four hundred pesos, shall be in
a newspaper of general circulation in the city or municipality where the property lies.   Hence, if
the property in question is located in Quezon City, it logically follows that the auction sale of said
property should be published in a newspaper of general circulation that is edited and published
in Quezon City.
       However, such application and/or interpretation are too narrow and very limited that it
virtually defeats the purpose and intention of the law.  If this is the case, the leading dailies, like
the Philippine Daily Inquirer (PDI) (with head office in Makati City) and Manila Bulletin (with
head office in Manila), which enjoys a wide circulation nationwide, cannot publish notice of extra-
judicial sales of properties located in Quezon City simply because it is outside their place of
publication.

What is important is that the newspaper is of general circulation in the place where the
property/ies to be foreclosed is/are located.

In a line of cases, the Highest Court declared that publication of the extra-judicial sale in a
newspaper of general circulation is more than sufficient compliance with the notice-posting
requirement of the law (Fortune Motors v. Metrobank, 265 SCRA 72; Cristobal v. CA, 328 SCRA
256; Concepcion v. CA, 274 SCRA 614; Bohanan v. CA, 256 SCRA 355; Olizon v. CA, 236 SCRA
148; Gravina v. CA 220 SCRA 178).  PD 1079 and Act 3135 do not require that the newspaper
which publishes judicial notices should be a daily newspaper (Fortune Motors, 265 SCRA
72).        

In Olizon at 156, it was ruled that:

         “x x x the publication of the notice of sale in the newspaper of general circulation alone is
more than sufficient compliance with the notice-posting requirement of the law.  By such
publication, a reasonably wide publicity had been effected such that those interested might
attend the public sale, and the purpose of the law had thereby subserved.   The object of a
notice of sale is to inform the public of the nature and condition of the property to be
sold, and inform of the time, place and terms of the sale.  Notices are given for the
purpose of securing bidders and to prevent a sacrifice of the property.  If these objects are
attained, immaterial errors and mistakes will not affect the sufficiency of the notice; x x x”
(emphases supplied) 

        An extra-judicial foreclosure sale is an action  in rem and thus requires only notice by
publication and posting to bind the parties in the foreclosed property.  No personal notice is
necessary (Langkaan Realty Dev’t., supra; Bohanan v. CA, supra; Fortune Motors, 265 SCRA
72).
 

A certificate of posting is not required, much less considered indispensable, for the validity
of a foreclosure sale under Act 3135 – it is significant only in the matter of providing compliance
with the required posting of notice (Bohanan v. CA, 256 SCRA 355; Olizon v. CA, 256 SCRA 355;
Cristobal v. CA, 328 SCRA 256 [2000]; DBP v. CA, GR No. 125838, 10 June 2003). 

The failure to post a notice is not per se a ground for invalidating the sale provided that
the notice thereof is duly published in a newspaper of general circulation (DBP v. Aguirre, GR No.
144877, 07 September 2001).
 

However, the failure to publish the notice of auction sale as required by the statute
constitutes a jurisdictional defect which invalidates the sale (DBP v. Aguirre, GR No. 144877, 07
Sept. 2001).
 

        The affidavit of publication executed by the publisher, business/advertising manager that a

newspaper is a newspaper of general circulation constitutes prima facie evidence of compliance
with the requisite publication (Bonnevie v. CA, 125 SCRA 122 [1983]; Sadang v. GSIS, 18 SCRA
491).
 
        A single act of posting the notice of auction sale satisfies the requirements of law. The
burden of proving that the posting requirement was not complied with is shifted to the one who
alleges non-compliance (Bonnevie v. CA, 125 SCRA 122 [1983]).
 

2. The purpose of notice and publication.

 

        The object of a notice of sale is to inform the public of the nature and condition of the
property to be sold, and inform of the time, place and terms of the sale.  Notices are given for
the purpose of securing bidders and to prevent a sacrifice of the property (Olizon v. CA, 236
SCRA 148).  Publication, therefore, is required to give the foreclosure sale a reasonably wide
publicity such that those interested might attend the public sale (Ouano v. CA, 129279, 04
March 2003).
 

3. The notice and publication requirement are mandatory and failure to comply is a
jurisdictional defect that vitiates the foreclosure auction sale.
 Non-compliance with the notice and publication requirement in Act 3135, as amended is a
jurisdictional defect that vitiates the auction sale (Tambunting v. CA, 167 SCRA 16). 

“The rule is that statutory provisions governing publication of notice of mortgage

foreclosure sales must be strictly complied with, and that even slight deviation therefrom will
invalidate the notice and render the sale at least voidable. x x x It has been held that failure to
advertise a mortgage foreclosure sale in compliance with statutory requirements constitute a
jurisdictional defect invalidating the sale and that a substantial error or omission in a notice of
sale will render the notice insufficient and vitiate the sale.” (Tambunting v. CA, 167 SCRA 16).
 

        Statutory provisions governing publication of notice of mortgage foreclosure sales must be

strictly complied with and slight deviations therefrom will invalidate the notice and render the
sale at the very least voidable (PNB v. Nepomuceno Productions, Inc., GR No. 139479, 27
December 2002; Ouano v. CA, GR No. 129279, 04 March 2003; Lucena v. CA, 313 SCRA47,
[1999]).
 

The failure to publish the notice of auction sale as required by the statute constitutes a
jurisdictional defect which invalidates the sale (DBP v. Aguirre, GR No. 144877, 07 September
2001).
       
The right of a bank to foreclose a mortgage upon the mortgagor’s failure to pay his
obligation must be exercised according to its clear mandate and every requirement of the law
must be complied with, lest the valid exercise of the right end.  The valid exercise of the right
ends when the right disappears, and it disappears when it is abused especially to the prejudice
of others (PNB v. Nepomuceno, supra.).
 

4. The parties have no right to waive the notice and publication requirements. There is no
estoppel in case of an agreement to dispense with the notice and publication requirements.
 

        The parties have absolutely no right to waive the posting and publication requirements
(PNB v. Nepomuceno Productions, Inc., GR No. 139479, 27 December 2002; Ouano v. CA, GR
No. 129279, 04 March 2003). Foreclosure auction sale is imbued with public policy
considerations and any waiver on the notice and publication requirements would be inconsistent
with the intent and letter of Act 3135, as amended (PNB v. Nepomuceno, supra.).
       
To request postponement of the sale is one thing; to request it without need of
compliance with the statutory requirements is another.  Therefore, a party is not estopped from
questioning the validity of the foreclosure sale for non-compliance with Act 3135 (PNB v.
Nepomuceno, supra.).
       
Publication, therefore, is required to give the foreclosure sale a reasonably wide publicity
such that those interested might attend the public sale.  To allow the parties to waive this
jurisdictional requirement would result in converting into a private sale what ought to be a public
auction (Ouano v. CA, GR No. 129279, 04 March 2003).
       
In the case of DPB v. CA, GR No. 125838, 10 June 2003, the Supreme Court clarified that:
         “The form of the notice of extrajudicial sale is now prescribed in Circular No. 7-2002
issued by the Office of the Court Administrator on 22 January 2002.  Section 4(a) of Circular No.
7-2002 provides that: x x x The last paragraph of the prescribed notice of sale allows the holding
of a rescheduled auction sale without reposting or republication of the notice. However, the
rescheduled auction sale will only be valid if the rescheduled date of auction is clearly specified
in the prior notice of sale.  The absence of this information in the prior notice of sale will render
the rescheduled auction sale void for lack of reposting or republication.  If the notice of auction
sale contains this particular information, whether or not the parties agreed to such rescheduled
date, there is no more need for the reposting or republication of the notice of the rescheduled
auction sale.”  

5. Personal notice to the mortgagor is REQUIRED if it is stipulated.

 

There being no contractual stipulation therefore, personal notice is not necessary and

what governs is the general rule in Section 3 of Act 3135, as amended, which directs the
posting of notices of the sale in at least three (3) public places of the municipality where the
property is situated, and the publication therefore in a newspaper of general circulation in said
municipality (PNB v. International Corporate Bank, 199 SCRA 508).
 

Act 3135 only requires (1) the posting of notices of sale in three public places, and (2) the
publication of the same in a newspaper of general circulation.  Personal notice to the mortgagor
is not necessary.  Nevertheless, the parties to the mortgage contract are not precluded from
exacting additional requirement (Metrobank v. Wong, GR No. 120859, 26 June 2001;
Concepcion v. CA, 274 SCRA 614).  Thus, while publication of the foreclosure proceedings in the
newspaper of general circulation was complied with, personal notice is still required when the
same was mutually agreed upon by the parties as additional condition of the mortgage
contract.  Failure to comply with such stipulation is fatal (Community Savings & Loan
Association, Inc. v. CA, 153 SCRA 564; Grand Farms Inc.  v. CA, 193 SCRA 748; Concepcion v.
CA, GR No. 122079, 27 June 1997).
 

The rule is that statutory provisions governing publication of mortgage

foreclosure sales must be strictly complied with, and that even slight deviation
therefrom will invalidate the notice and render the sale at least voidable. x x x Where
required by the statute or by the terms of the foreclosure decree, public notice of the place and
time of the mortgage foreclosure sale must be given, a statute requiring it being held
applicable to subsequent sales as well as to the first advertised sale of the property.  It
has been held that failure to advertise a mortgage foreclosure sale in compliance with statutory
requirements constitutes a jurisdictional defect invalidating the sale and that a substantial error
or omission in a notice of sale will render the notice insufficient and vitiates the sale
(Tambunting v. CA, 167 SCRA 16, 23 [1988] citing Jalandoni v. Ledesma, 64 Phil 1058 & 59 CJS
1314, emphases supplied).
 

        The failure to publish the notice of auction sale as required by the statute constitutes a
jurisdictional defect which invalidates the sale (DBP v. Aguirre, GR No. 144877, 07 September
2001).
       
“The Act only requires (1) the posting of notices of sale in three public places, and (2) the
publication of the same in a newspaper of general circulation. Personal notice to the mortgagor
is not necessary. Nevertheless, the parties to the mortgage contract are not precluded from
exacting additional requirements. In this case, petitioner and respondent in entering into a
contract of real estate mortgage, agree inter alia:
 “all correspondence relative to this mortgage, including demand letters, summonses,
subpoenas, or notifications of any judicial or extrajudicial action shall be sent to the
MORTGAGOR at 40-42 Aldeguer St., Iloilo City, or at the address that may hereafter be given in
writing by the MORTGAGOR to the MORTGAGEE.”

Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action
which petitioner might take on the subject property, thus according him the opportunity to
safeguard his rights. When petitioner failed to send the notice of foreclosure sale to respondent,
he committed a contractual breach sufficient to render the foreclosure sale on November 23,
1981 null and void.” (Metrobank v. Wong, 359 SCRA 608 [2001])
  

The OLIZON CASE is an exception:

 “Obviously, as correctly pointed out by respondent, what prompted the Court to dispense with
the posting requirement is the “unusual nature of the attendant facts and the peculiarity of the
confluent circumstances” involved in Olizon. It bears stressing that in the said case, the
extrajudicial-judicial foreclosure sale sought to be annulled was conducted more than 15 years
ago, thus, even on the equitable ground of laches, the Olizons’ action for annulment of
foreclosure proceedings and certificate of sale was bound to fail. An extrajudicial foreclosure sale
is an action in rem and thus requires only notice of publication and posting to bind the parties in
the foreclosed property. (Langkaan Realty Dev’t. v. UCPB, GR No. 139437, 08 December 2000;
Olizon v. CA, 2236 SCRA 148; Bohanan v. CA, 256 SCRA 355). No personal notice is necessary
to the mortgagor (Bonnevie v. CA, 125 SCRA 122; Fortune Motors v. Metrobank, 265 SCRA
72) unless stipulated upon by the parties (PNB v. International Corporate Bank, 199 SCRA 508;
Community and Savings Loan Association, Inc. v. CA, 153 SCRA 564; Grand Farms Inc. v. CA,
193 SCRA 748). Publication of the extrajudicial sale in a newspaper of general circulation is more
than sufficient compliance with the notice-posting requirement of the law (Cristobal v. CA, 328
SCRA 256; Gravina v. CA, 220 SCRA 178; Concepcion v. CA, 274 SCRA 614; Olizon v. CA, 236
SCRA 148). The notice and publication requirement are mandatory and failure to comply is a
jurisdictional defect that vitiates the foreclosure auction sale (Tambunting v. CA, 167 SCRA 16).
The parties have absolutely no right to waive the posting and publication
requirements.  Foreclosure auction sale is imbued with public policy considerations and any
waiver on the notice and publication requirements would be inconsistent with the intent and
letter of Act 3135, as amended (PNB v. Nepomuceno, GR No. 1139479, 27 December
2002).  Publication is therefore required to give the foreclosure sale a reasonably wide publicity
such that those interested might attend the public sale.  To allow the parties to waive this
jurisdictional requirement would result in converting into a private sale what ought to be public
auction (Ouano v. CA, GR No. 129279, 04 March 2003). Notices are given for the purpose of
securing bidders and to prevent a sacrifice of the property (Olizon v. CA, 236 SCRA 148). 

REDEMPTION

Redemption period
After the issuance of the certificate of sale to the highest bidder, this shall be registered with the
Register of Deeds where the property is located.  At this point, the remaining right of the
mortgagor/debtor is to redeem the property.

The period to redeem property sold extrajudicially following the foreclosure of mortgage is one

(1) year from the registration of the sheriff’s certificate of foreclosure sale (Bernardez v. Reyes,
201 SCRA 648; Section 6, Act 3135, as amended).

In case the mortgagor is a juridical person Section 47, RA 8791, the General Banking Law of
2000 provides:  “Notwithstanding Act 3135, juridical persons x x x 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 the foreclosure, whichever is earlier.”  

Redemption period not suspended by TRO or a separate civil case. The period to redeem
was not suspended by the institution of a separate civil case for annulment of mortgage,
foreclosure, etc. (Sumerariz v. DBP, 21 SCRA 1374; Unionbank v. CA, GR No. 134068, 25
June 2001) and NEITHER is it suspended by the issuance of a TRO by the courts (Peoples
Financing Corp. v. CA, 192 SCRA 34).

Redemption price 

In case of redemption, a written notice of redemption must be served on the officer who
made the sale and a duplicate filed with the applicable Register of Deeds (Rosales v. Yboa, 120
SCRA 869; Section 28[par. 3], Rule 39, Rules of Court). 
The redemption price shall be: the purchase price with one percent (1%) per month
interest; assessment or taxes paid with 1% per month interest (Section 28, Rule 39). 
When the mortgagee is a bank or a banking or credit institution, the redemption price is
that which is stipulated in the mortgage document or the outstanding obligation of the mortgage
plus interest and expenses (Unionbank v. CA, GR No. 134068, 25 June 2001; Ponce de Leon v.
RFC, 36 SCRA 289; Sy v. CA, 172 SCRA 125). 
The redemption amount includes the assessment of taxes paid by the purchaser and the
interest on the auction price that should be computed from the date of the registration of the
certificate of sale (Sps. Estanislao, Jr. v. CA, GR No. 143687, 31 July 2001).

 Effect of failure to redeem. 

If no redemption is made within the prescribed period, the buyer at foreclosure sale
becomes the absolute owner of the property purchased (Joven v. CA, 212 SCRA 700; PNB v.
Adil, 118 SCRA 110). 
The purchaser then has the absolute right to a writ of possession that is the final process
to carry out or consummate the extrajudicial foreclosure.  Henceforth, the mortgagor/debtor
loses his right over the property (Bernardez v. Reyes, 201 SCRA 648; Section 6, Act 3135, as
amended).
Consolidation of title likewise becomes a matter of right on the part of the auction buyer,
and the issuance of a certificate of title in favor of the purchaser becomes ministerial upon the
Register of Deeds (Unionbank v. CA, GR No. 133366, 05 August 1999).

 Redemption vs. repurchase

The right to redeem (a foreclosed property) becomes functus oficio on the date of its expiry, and
its exercise after the period is not really one of redemption but of repurchase. Distinction must
be made because redemption is by force of law; the purchaser at public auction is bound to
accept redemption. Repurchase however of a foreclosed property, after redemption period,
imposes no such obligation. After expiry, the purchaser may or may not resell the property but
no law will compel him to do so. And, he is not bound by the bid price; it is entirely within his
discretion to set a higher price, for after all, the property already belongs to him as
owner (Prudencio v. CA, 431 SCRA 566). 

JUDICIAL FORECLOSURE OF REAL ESTATE MORTGAGE UNDER RULE 68, RULES OF

COURT
  

        Judicial foreclosure of real estate mortgage is governed by the provisions of Rule 68 of the

Rules of Court. It is like any ordinary civil action filed in court that shall be proven by

preponderance of evidence.

 Procedure 
1. Preparation and filing of complaint which shall set forth the following allegations (Sec. 1, Rule
68):
 

a)   Date and due execution of the mortgage and its assignments, if any;
        b) Names and residences of the mortgagor and mortgagee;
        c) Description of the mortgaged property/ies;
d) Documentary evidence/s of the obligation/s secured by the mortgage and the unpaid
obligation;
e) Names and residences of all persons having or claiming an interest in the mortgaged
property/ies.
  
1. The trial court shall render a judgment based on the facts proven and shall ascertain the
amount due based on the mortgage debt or obligation, including interests, charges and costs.
 The court shall then direct the defendant to pay said amount within a period of not less than
ninety (90) days nor more than one-hundred twenty (120) days (Sec. 2, Rule 68).
 
1. In the event of failure to pay as directed within 90 to 120 days, the mortgage realty/ies shall
be sold at an auction sale, the proceeds of which shall be applied to the mortgage debt,
pursuant to Rule 39 of the Rules of Court (Sec. 3, Rule 68).
 

3.1. Before the sale of the real property/ies, notice must be given:
 

a) By posting for 20-days in three (3) public places. If the assessed value is more than
P50,000.00, by publishing a copy of the notice once a week for two (2) consecutive
weeks in one newspaper selected by raffle (Sec. 15c, Rule 39).
b) Written notice to the judgment obligor at least three (3) days
 before the sale (Sec. 15d, Rule 39).
 

3.2. The highest bidder shall be issued a certificate of sale (Sec. 25, Rule 39).
 
1. Upon motion and after notice and hearing, the trial court will issue an order of confirmation
of the sale (Rural Bank of Oroquieta v. CA, 101 SCRA 5 [1980]).
 

4.1. The final order of confirmation shall be registered with the Registry of Deeds (Sec. 7,
Rule 68).
 

a) If no right of redemption exists, the certificate of title in the name of the mortgagor
shall be cancelled and a new one issued in the name of the purchaser.
 

b)   Where a right of redemption exists, the certificate of title of the mortgagor shall not
be cancelled. Instead, the certificate of sale and order of confirmation shall be
registered with a memorandum of the right redemption. If the property is not
redeemed a final deed of sale shall be executed by the sheriff in favor of the purchaser
which shall be registered in the Register of Deeds, whereupon the title of the
mortgagor shall be cancelled and a new one issued in the name of the purchaser.
 
1. If the proceeds of the auction sale of the property are not sufficient, the trial court, upon
motion, shall render a deficiency judgment against the defendant (Sec. 6, Rule 68).

 Equity of Redemption 
        Equity of redemption is the right of the mortgagor to redeem the mortgaged property after

his default in the performance of the conditions of the mortgage but before the sale of the

property or the confirmation of the sale after judicial foreclosure thereof (International Services,

Inc. v. IAC, 142 SCRA 467 [1986]).

This is the right of the defendant mortgagor to extinguish the mortgage and retain

ownership of the property by paying the secured debt within a 90-day period after the judgment

becomes final or after the foreclosure sale but prior to its confirmation (GSIS v. CFI, 175 SCRA

19 [1989]).

No right of redemption in judicial foreclosure. 

        There is no right of redemption from a judicial foreclosure of mortgage, except foreclosure

of mortgage by banks or banking institutions (GSIS v. CFI, 175 SCRA 19 [1989]; Huerta Alba

Resort, Inc. v. CA, 339 SCRA 534 [2000]).

 Equity of redemption vs. right of redemption. 

        The Supreme Court already ruled on the distinction between the equity of redemption and

the right of redemption as follows:

 “The equity of redemption is, to be sure, different from and should not be confused with
the right of redemption.

The right of redemption in relation to a mortgage – understood in the sense of a

prerogative to re-acquire mortgaged property after registration of the foreclosure sale – exists
only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized in
a judicial foreclosure except only where the mortgagee is the Philippine National Bank or a bank
or banking institution.

Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right
of redemption within one (1) year from the registration of the sheriff’s certificate of foreclosure
sale. 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, x x shall operate to divest the rights of all the parties to the action and to vest their rights
in the purchaser, subject to such rights of redemption a may be allowed by law.’ Such rights
exceptionally “allowed by law’ (i.e. even after confirmation by an order of the court) are those
granted by the charter of the Philippine National Bank (Acts No. 2747 and 2938), and the
General Banking Act (R.A. 337).

These laws confer on the mortgagor, his successors in interest or any judgment creditor of
the mortgagor, the right to redeem the property sold on foreclosure – after confirmation by the
court of the foreclosure sale – which may be exercised within a period of one (1) year, counted
from the date of registration of the certificate of sale in the Registry Property.

But, to repeat, no such right of redemption exists in case of judicial foreclosure of a

mortgage if the mortgagee is not the PNB or a bank or banking institution. In such a case, the
foreclosure sale, ‘when confirmed by an order of the court. x x shall operate to divest the rights
of all the parties to the action and to vest their rights in the purchaser.’ There then exists only
what is known as the equity of redemption. This is simply the right of the defendant mortgagor
to extinguish the mortgage and retain ownership of the property by paying the secured debt
within the 90-day period after the judgment becomes final, in accordance with Rule 68, or even
after judgment becomes final, in accordance with Rule 68, or even after the foreclosure sale but
prior to its confirmation. Section 2, Rule 68 provides that – ‘xx If upon the trial xx the court shall
find the facts set forth in the complaint to be true, it shall ascertain the amount due to the
plaintiff upon the mortgage debt or obligation, including interest and costs, and shall render
judgment for the sum so found due and order the same to be paid into court within a period of
not less than ninety (90) days from the date of the service of such order, and that in default of
such payment the property be sold to realize the mortgage debt and costs.’ This is the
mortgagor’s equity (not right) of redemption which, as above stated, may be exercised by him
even beyond the 90-day period ‘from the date of service of the order,’ and even after the
foreclosure sale itself, provided it be before the order of confirmation of the sale. After such
order of confirmation, no redemption can be effected any longer.” (Italics supplied, Huerta Alba
Resort, Inc. v. CA, 339 SCRA 534 [2000] citing Limpin v. IAC, 166 SCRA 87) 

Deficiency judgment

It refers to judgment for any unpaid balance of the obligation, which remains after
foreclosure of mortgage, judicial or extrajudicial, which a creditor may secure from the court
(Phil. Bank of Commerce v. de Vera, 6 SCRA 1026 [1962]). In extrajudicial foreclosure of
mortgage, where the proceeds of the sale are insufficient to pay the debt, the mortgagee has
the right to recover the deficiency from the debtor (Prudential Bank v. Martinez, 189 SCRA 612
[1990]. In a foreclosure, the deficiency is determined by simple arithmetical computation
immediately after foreclosure (United Planters Sugar Milling Co., Inc. (UPSUMCO) v. CA, 527
SCRA 336 [2007]).

Extrajudicial foreclosure (EJF) vs. judicial foreclosure (JF) 

1. On the governing law. EJF is governed by the provisions of Act 3135, as amended, while JF is
by the provisions of Rule 68 of the Rules of Court.
 
1. On the publication requirement. In EJF, the auction sale shall be published once a week for
three (3) consecutive weeks in a newspaper of general circulation. In JF, the publication shall
only be for two (2) consecutive weeks.
 
1. On the notice requirement. Personal notice to the mortgagor is not required in EJF as a rule,
UNLESS stipulated upon. In JF, written notice to the judgment obligor at least three (3) days
before the auction sale is required.
 
1. On redemption. There is a right of redemption in EJF, which is one year from registration of
the certificate of sale. If the mortgagor is a juridical person the redemption period is until,
but not after, the registration of the certificate of foreclosure sale with the applicable Register
of Deed which in no case shall be more than three (3) months after the foreclosure,
whichever is earlier. In JF, there is no right of redemption but only equity of redemption,
unless the mortgagee is a bank or banking institution. In the latter instance, the redemption
period shall be one (1) year from the date of registration of the certificate of sale.
2.
 CHATTEL MORTGAGE 

Chattel mortgage is a security for the performance of obligation effected by the recording

of the personal property mortgaged in the chattel mortgage register (Art. 2140, Civil Code;

Northern Motors, Inc. v. Coquia, 66 SCRA 415 [1975]). Only personal property may be the

object of a chattel mortgage (Sec. 2, Act No. 1508).  While the subject of a chattel mortgage is

personal property, the parties thereto may by agreement treat as personal property that which

by nature would be real property, such as a building, as the subject of a chattel mortgage, and

the owner thereof may be estopped from subsequently claiming otherwise (Tumalad v. Vicencio,

41 SCRA 143 [1971]).  Such agreement, however, is valid only as between the contracting

parties (Evangelista v. Alto Surety, 103 Phil 401).

 

Affidavit of good faith.

       

Section 5 of Act No. 1508 requires the following form of an affidavit of good faith to be

appended to the chattel mortgage:

 “We severally swear that the foregoing mortgage is made for the purpose of securing the
obligation specified in the conditions thereof, and for no other purpose, and that the same is a
just and valid obligation, and one not entered into for the purpose of fraud” 
       

        The absence of such affidavit vitiates a mortgage as against creditors and subsequent

encumbrances (Phil. Refining Co. v. Jarque, 61 Phil 229; Giberson v. Jureideni Bros., 44 Phil

216; Benedicto de Tarrosa v. Yap Tico & Co., 46 Phil 753) but may, however, be valid as

between the parties (Lilius & Lilius v. Manila Railroad Co., 62 Phil 56).
    

Foreclosure of chattel mortgage.

        It appears that a chattel mortgage may only be foreclosed extrajudicially pursuant to

Section 14 of Act No. 1508 with the deletion of Section 8, Rule 68 of the former rule on judicial

foreclosure of chattel mortgage.

        In Section 14 of Act No. 1508, it is a condition precedent before foreclosure that the

conditions of the chattel mortgage be broken and at least 30-days already elapsed.
 Procedure 

        Section 14 of Act No. 1508, provides the following procedure in the extrajudicial

foreclosure of chattel mortgage –

1. Posting of the notice of auction sale at least 10 days before auction, indicating time, place
and purpose of sale, at two or more public places in the municipality where the mortgagor
resides, or where the property is situated.
 
1. Notification of the mortgagor or his assigns, of the time and place of sale, at least 10-days
previous to the sale, either in writing if a resident of the municipality, or by registered mail if
a resident outside of the municipality. 
 
1. Auction sale of the mortgaged property by a public officer at a public place in the municipality
where the mortgagor resides, or where the property is situated.
 
1. The officer making the sale shall, within 30-days thereafter, make in writing a return of his
doings and file the same in the office of the register of deeds where the mortgage is
recorded, and the register of deeds shall record the same. The return shall particularly
describe the articles sold, and state the amount received for each article, and shall operate
as a discharge of the lien thereon created by the mortgage.
 
1. The proceeds of the sale shall be applied in the following order:
 

a)   Costs and expenses of keeping the sale;

b)   Payment of the demand or obligation secured by such mortgage;
 c)   Residue shall be paid to persons holding subsequent mortgages in their order;
d)   Balance, if any, shall be paid to the mortgagor or persons holding him on demand. 
 Deficiency judgment in chattel mortgage. 

        If in an extrajudicial foreclosure of chattel mortgage a deficiency exists, an independent

civil action may be instituted for recovery of said deficiency, the chattel mortgage being given

only as security and not as payment for debt in case of failure of payment (Bicol Savings & Loan

Assn. v. Guinhawa, 188 SCRA 642 [1990]; Superlines v. ICC, GR No. 150673, 28 Feb. 2003).

       

Note however, that in a contract of sale of personal property where the price is payable in

installments and in the event of foreclosure of the chattel mortgage should the vendee fail to

pay two or more installments, the vendor shall have no further action against the purchaser to

recover any unpaid balance of the price. Any agreement to the contrary shall be void (Art. 1484,

Civil Code; Recto Law). Please note that this is applicable in cases of sale of personal property

on installment.

  Distinction: real estate mortgage (REM) vs. chattel mortgage (CM) 

1. Properties covered: REM is constituted on immovables/real properties. Only
movables/personal properties may be the object of a chattel mortgage
 
1. Modes of foreclosure: There are two modes of foreclosure in a REM – extrajudicial under Act
No. 3135, as amended or judicial under Rule 68 of the Rules of Court. In a CM, only
extrajudicial foreclosure under Sec. 14 of Act No. 1508 is now available.
 
1. On redemption: There is NO right of redemption in CM. In REM, there is right of redemption
in case of extrajudicial foreclosure, and when the mortgagee is a bank or banking institution
in case of judicial foreclosure. In CM, the purchaser at an auction sale becomes the owner of
the property.