Real Mortgage

COVERAGE OF DISCUSSION:
• REQUISITES
• IMPORTANT CHARACTERISTICS OF REAL MORTGAGE
• KINDS OF REAL MORTGAGE
• OBJECT OF REAL MORTGAGE
• FORM OF REAL MORTGAGE
• EXTENT OF REAL MORTGAGE
PROBLEM

 X, at Y’s request, executed a Real Estate Mortgage on his land to secure Y’s loan
from Z. Y defaulted. Thereafter, Z successfully foreclosed the Real Estate
Mortgage however half of Y’s obligation remained unpaid.

Question: May Z sue X to enforce his right to the deficiency?

Answer:

 No, because X is not Z’s debtor.

 A mortgage is just an accessory obligation. X is not liable for the deficiency
because what he constituted is a real security. The right of the mortgagee is only
limited to a lien on the mortgaged property.
 X furthermore is not a party to the principal obligation.
REMEDIES OF A MORTGAGEE-
CREDITOR

Debtor is in
Default

Collection of
Foreclosure Sum of
Money

Judicial Extra Judicial Personal

Foreclosure Foreclosure Action

Rule 68 of the
Act No. 3135
Rules of Court
PARTIES

Mortgagor
Mortgagee
Debtor / 3rd
Creditor
Person
Requisites of Real Mortgage

1. That it be constituted to secure the fulfillment of a principal obligation.

2. That the mortgagor be the absolute owner of the thing mortgaged.
3. That the person constituting the mortgage must have the free disposal of his
property, and in the absence thereof, that he be legally authorized for the purpose.
4. That the document in which the mortgage appears be recorded in the Registry of
Property.
 This requirement is necessary to bind third persons but not for the validity of the real
mortgage which may be entered into in any form.
Important characteristics of Real
Estate Mortgage

1. Accessory
2. Indivisible
3. Inseparable
 Example: D obtained a loan from C amounting to 100,000. To secure the debt, D constituted
a mortgage on his lot which C registered with the Register of Deeds. Before the due date of
the loan, D sold the lot to X who knew nothing of the mortgage. If D later defaults in the
payment of his loan, C can foreclose the mortgage although X was not a party thereto and
even if he was not aware of the mortgage at the time he purchased the lot since the
registration of the mortgage operates as notice of its existence to the whole world.
4. Real right
5. Real property
REM: A Real Right

The recorded mortgage, until discharge, follows the property.

 The registered mortgage subsists whoever the owner may be

 All subsequent purchasers of a property must respect the mortgage, whether or
not the transfer be with or without the consent of the mortgagee.
Problem

 Can a mortgagor
Kinds of Real Mortgage

1. Conventional or voluntary mortgage – one which is created by the agreement of

the parties.
2. Legal mortgage – one executed pursuant to an express requirement of a provision
of law.
3. Equitable mortgage – one in which, although it lacks certain formality, form or
words or other requisites prescribed by statute, shows the intention of the parties
to charge a real property as a security for a debt and contains nothing contrary to
law.
Object of Real Mortgage

1. Immovables
 Land, buildings, roads and construction of all kinds adhered to the soil.
 Tress, plants and growing fruits, while they are attached to the land or form an integral part of an immovable.
 Everything attached to an immovable in a fixed manner, in such a way that is cannot be separated therefrom
without breaking the material or deterioration of the object.
 Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands by the
owner of the immovable in such a manner that it reveals the intention to attach them permanently to the
tenements.
 Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs
of the said industry or works.
  Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar nature, in case
their owner has placed them or preserves them with the intention to have them permanent part of it;
the animals in these places are included.
 Fertilizers actually used on the piece of land.
 Mines, quarries, slag, dumps, while the matter thereof form parts of the bed, and waters either
running or stagnant.
 Docks and structures which, though floating are intended by their nature and object to remain at a
fixed place on a river, lake or coast.
 Contracts for public works, and servitudes and other real rights over immovable property.
2. Alienable real right in accordance with laws, imposed on immovables.
Form of Real Mortgage

 Between the parties

 The real mortgage may be in any form since it is a consensual contract. The contract
is binding between the parties even if not registered in the Registry of Property.
 As regards third persons
 The real mortgage must be recorded in the Registry of Property.
Extent of Real Mortgage

1. The property mortgaged.

2. Natural accessions.
3. Improvements
4. Growing fruits
5. Rents and income not yet received when the obligation becomes due.
6. Indemnity granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriations for public use.
Stipulation prohibiting alienation
and second mortgage

1. Alienation
 A stipulation forbidding the owner from alienating the immovable mortgaged shall be
void.
2. Second mortgage
 The mortgagor, being the owner of the property mortgaged, may execute a second
mortgage thereon, even without the consent of the mortgagee. This is an incident of
ownership.
 Torrens system
 Spanish Mortgage Law
 Foreclosure of Real Mortgage

1. Foreclosure, concept
 Foreclosure is the remedy available to the mortgagee by which he subjects the property mortgaged to the satisfaction of the obligation
secured.
2. Grounds for foreclosure
 When the principal obligation is not paid when due.
 When there is any violation of any condition, stipulation or warranty by the mortgagor.
3. Kinds of foreclosure
A. Judicial foreclosure – this is a foreclosure made through the filing a petition in court.
1. If the defendant fails to pay the amount due within the time directed by the court, the property shall be sold.
2. The proceeds of sale shall be distributed as follows:
a) The costs of the sale

b) Claim of the person foreclosing the mortgage

c) Claims of junior encumbrances in the order of their priority.

d) Balance, after all the above are paid, shall be paid to the mortgagor or his agent.

3. Deficiency judgment – if the proceeds of sale are not sufficient to satisfy the claim of the creditor, the court, upon motion, shall render judgement
against the debtor, for such balance.
 “Tipo” or upset price – the price which is set by the parties as the amount at which the
property will be sold at public auction. This stipulation is null and void because it
contravenes Rule 68 of the Rule of Court which provides that the property mortgaged shall
be sold to the highest bidder. Accordingly, even if there is such stipulation, the sale of the
property shall take place in accordance with the requirements of the law, and the property
sold to the highest bidder.
B. Extra-judicial foreclosure – this is made in compliance with the provisions of Act No. 3135 in the
following cases:
1. Where there is a stipulation min the mortgage contract that the mortgage may be foreclosed extra-judicially;
or
2. Where such extra-judicial foreclosure sale in made under a special power of attorney inserted in the
contract.
Distribution of proceeds:
The proceeds shall be distributed in the same order as in the case of judicial foreclosure.
Recovery of deficiency
In case of deficiency in the foreclosure sale, the creditor may recover the same from the principal debtor by filing
a court action.
4. Effect of sale when there are two or more mortgages
A. On senior mortgagees – Foreclosure and sale by a junior mortgagee do not affect the right of persons holding
prior encumbrances. The purchaser acquires the property subject to the right of the foreclosure of a senior
mortgagee.
B. On junior mortgagees – Foreclosure and sale by a senior mortgagee will extinguish all subsequent mortgages.
5. Redemption
A. Concept – a transaction through which the mortgagor, or one claiming in his right, by means of payment or the
performance of the condition, reacquires or buys back the value of the title which may have passed under the
mortgage, or divests the mortgaged premises of the lien which the mortgage may have created.
B. Kinds of redemption
1. Equity of redemption – this refers to the right of mortgagor to redeem the mortgaged property after his default in the
performance of his obligation but before the property is sold.
A. In Judicial Foreclosure, the mortgagor is given not less than 90 days to pay the mortgage debt before the property is sold.

B. In Extra-Judicial Foreclosure, the mortgagor may avail himself of this right after his default but before the sale of the property.
2. Rights of redemption – this refers to the right of the mortgagor to repurchase the property within a
certain period after it was sold for the payment of the mortgage debt.
A. In judicial foreclosure, the mortgagor may redeem the property after the sale and before the confirmation by the
court of the sale.
B. In extra-judicial foreclosure, the mortgagor has one year from the date of registration of the sale to redeem the
property.
Exception: Juridical persons whose property is being 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 with the
applicable Register of Deeds which in no case shall be more than there (3) months after foreclosure, whichever is
earlier.
Real Mortgage distinguished from
sale with right to repurchase

 Real mortgage is constituted as security for a principal obligation. Sale with right
to repurchase is not a security for an obligation.
 There is not transfer of ownership in Real Mortgage. In sale with right of
repurchase, ownership of the property is transferred upon delivery.
 In real mortgage is indivisible. In sale with right to repurchase, redemption of the
property may be partial.
 Real mortgage applies only to real property. Sale with right to repurchase applies
to both real and personal property.