REAL ESTATE MORTGAGE LAW

WHAT IS A REAL ESTATE MORTGAGE LAW (REM)?

It is a contract whereby the debtor secures to the creditor the fulfillment of the principal
obligation, specially subjecting to such security immovable property or real rights over immovable
property in case the principal obligation is not fulfilled at the time stipulated.
(Exp: Ito’y isang dokumento na kung saan ang lupa o REM ay ginagamit na collateral o panagut
pambayad sa utang)
OBJECT (Art. 2124):
Only the following property may be the object of a contract of mortgage:
1. Immovables.
2. Alienable real rights in accordance with the laws, imposed upon immovables.
Nevertheless, movables may be the object of a chattel mortgage.
FORM: there is no form required to constitute a contract of real estate mortgage, but in order to affect
third persons, there must be a public instrument containing the description thereof and the same should be
recorded in the Registry of Property. The creditor-mortgagee has no other right than to demand the
execution and the recording of the document in which the mortgage is formalized.
CHARACTERISTICS OF REM

1. Real right – perfected by a mere delivery.

2. Accessory – hindi siya maaaring tumayo sa kanyang sarili dapat mayroong principal
contract (Ex. Contract of loan)
3. Subsidiary
4. Unilateral – it creates only an obligation on the part of the creditor who must free the
property from the encumbrance once the obligation is fulfilled.
EXTENT OF MORTGAGE:
The property itself. However, it also extent to the accessions, improvements, growing fruits and income of
the property not yet received when the obligation becomes due and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of
expropriation for public use.
ESSENTIAL REQUISITES:

1. To secure the fulfillment of a principal obligation

2. The mortgagor should be the absolute owner of thing mortgaged

3. The mortgagor should have free disposal, or he must be legally authorized to dispose of the property.

4. The object must cover only an immovable property or real rights.

5. When the principal obligation becomes due, the thing in which the pledge or mortgage consists of, may
be alienated for the payment to the creditor.

6. Requirement of Registration in the Registry of Property in necessary to bind third persons, but not for
the validity of the contract (Art. 2125)

IMPORTANT POINTS

A mortgage does not involve a transfer, cession or conveyance of property but only constitutes a lien
thereon. Until discharged, it follows the property wherever it goes and subsists notwithstanding changes
of ownership.

(For example, it is not necessary na kapag sinanla mo kay motgagee/ creditor ang iyong lupa o bahay ay
dapat pagmamay ari o sila na ang titira doon.

A mortgage gives the mortgagee no right or claim to the possession of the property, and therefore,
a mere mortgagee has no right to eject an occupant of the property mortgaged unless the mortgage should
contain some provision to that effect. The only right of a mortgagee in case of non-payment of a debt
secured by mortgage would be to foreclose the mortgage and have the encumbered property sold to
satisfy the outstanding indebtedness. If the possession is transferred to the mortgagee, it must not
expressly be for purpose of applying the fruits to the interest then to the principal of the credit, for then it
would be an antichresis.

(The ownership of the property is not TRANSFERABLE dahil ang pagsasangla ay pang-uutang lang.
Ang Sanglaan ay actually utang, isang klase ng utang na may security, ang security doon ay yung bagay
na sinanla mo)

It is not an essential requisite that the principal of the credit bears interest, or that the interest as a
compensation for the use of the principal and the enjoyment of its fruits be in the form of a certain
percent.

(Kasi diba usually kapag ka umuutang ka yung halaga ng inutang mo laging mas mababa yan don sa
halaga nong binibigay mo as security minsan 50% o kaya below 50% para mas madaling tubusin)

Ex. Kahit magsangla ka ng bahay at lupa tas ang presyo ng pagsangla mo 100k e 7M ang actual prize
nung property okay lang walang problema dahil ang purpose ng ating batas ay para mas madaling
matubus ang property na iyong sinangla.

INCIDENTS OF REGISTRATION OF MORTGAGE

 Mortgagee entitled to registration of mortgage as a matter of right.

 Proceedings for registration do not determine validity of mortgage or its effect .
 Registration is without prejudice to the rights of third parties.
 Mortgage deed once duly registered forms part of the records for the registration of the property
mortgaged
 Mortgage by surviving spouse of his/her undivided share of conjugal property can be registered.
EFFECT OF INVALIDITY OF MORTGAGE ON PRINCIPAL OBLIGATION

 Principal obligation remains valid.

 Mortgage deed remains as evidence of a personal obligation.

EFFECT OF MORTGAGE

 Creates real rights, a lien inseparable from the property mortgaged, enforceable against the whole
world creates merely an encumbrance.

KINDS:
1. Voluntary – agreed to by the parties or constituted by the will of the owner of the property on which it
is created.
2. Legal – one required by law to be executed in favor of certain persons. The persons in whose favor the
law establishes a mortgage have no other right than to demand the execution and the recording of the
document in which the mortgage is formalized (Art 2125 par 2).
3. Equitable – one which, although lacking the formalities of a mortgage, shows the intention of the
parties to make the property a security for a debt.
PACTUM COMMISSORRIUM
 It is a prohibition by law. It prohibits any stipulation allowing for the authomatic appropriation of
the property mortgage to the creditor upon non-payment at maturity. The creditor cannot
authomatically be the owner of the property upon failure to pay by the debtor.
CHATELL MORTGAGE
In a chattel mortgage, the personal property is recorded in the Chattel Mortgage Register as a
security for the performance of an obligation.
COVERAGE:
Debts/obligations indicated in the Affidavit of Good Faith unless there is stipulation as to
increase in coverage which will be binding but the security itself arises only after amending the old
contract.
DISTINGUISHED PLEDGE AND CHATTEL MORTGAGE?
1. In chattel mortgage, the delivery of the personal property to the mortgagee is not necessary,
while in pledge, such delivery is necessary;
2. In chattel mortgage, the registration of the same in the Chattel Mortgage Register is required
by law, while in pledge, registration in the Registry of Property is not necessary;
3. The procedure for the sale of the thing given as security is different. In chattel mortgage, the
procedure is found in Section 14 of Act No. 1508, as amended, while in pledge, it is found in Article 2112
of the Civil Code;
 4. In chattel mortgage, if the property is foreclosed, the excess over the amount due goes to the
debtor (Sec. 14, Act No. 1508.), while in pledge, if the property is sold, the debtor is not entitled to the
excess unless it is otherwise agreed (Art. 2115.) or except in the case of a legal pledge (Art. 2121.); and
5. In chattel mortgage, if the property is foreclosed and there is a deficiency, the creditor is
entitled to recover the deficiency from the debtor except if the chattel mortgage is a security for the
purchase of personal property in installments. (see Art. 1484.) In pledge, if the property is sold, and there
is a deficiency, the creditor is not entitled to recover the deficiency notwithstanding any stipulation to the
contrary. (Art. 2115.)
SIMILARITIES OF CHATTEL MORTGAGE AND PLEDGE
1. Both are executed to secure performance of a principal obligation;
2. Both are constituted only on personal property;
3. Both are indivisible;
4. Both constitute a lien on the property;
5. In both cases, the creditor cannot appropriate the property to himself in payment of debt;
6. In both cases, when the debtor defaults, the property must be sold for the payment of the creditor ; and
7. Both are extinguished by the fulfillment of the principal obligation or by the destruction of the property
pledged or mortgaged.
FORECLOSURE
It is a remedy available to the mortgagee in which he subjects the mortgaged property to the
satisfaction of the obligation. It is initiated by filing a petition with the office of the sheriff. It may also be
initiated through a Notary Public commissioned in the place where the property is situated. Notice
containing the place and date is required before an auction sale is made in extrajudicial foreclosure.
Judicial - governed by Rule 68, Rules of Court
Extrajudicial - mortgagee is given a SPA to sell the mortgaged property (Act No.3135)
EQUITY REDEMPTION
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 mortgaged property or confirmation of sale;
applies to judicial foreclosure of real mortgage and chattel mortgage foreclosure.

PERSONAL PROPERTY SECURITY ACT (R.A 11057)

An Act Strengthening the Secured Transactions Legal Framework in the Philippines, Which Shall
Provide for the Creation, Perfection, Determination of Priority, Establishment of a Centralized Notice
Registry, and Enforcement of Security Interests in Personal Property, and for Other Purpose.

Personal Property Security Act or PPSA was signed into law on August 17, 2018. It took effect on
September 7, 2018. Additionally, the implementing rules and regulations of this law was passed on
October 10, 2019.

RATIONALE:

Policy of the state to promote economic activity by increasing access to lease cost credit,
particularly for micro, small, and medium enterprises (“MSMEs”), by establishing a unified andmodern
legal framework for securing obligations with personal property. (Sec. 2 and Sec. 1.04, Declaration of
Policy RA 11057 and IRR) 

It strengthened the secured transactions legal framework in the Philippines and provided for:
(CPDEE)

 Creation

 Perfection

 Determination of priority;

 Establishment of a Centralized Notice Registry; and

 Enforcement of security interests in personal property 

Under R.A. 11057, Security Interest may be created over all forms of tangible or intangible asset
orpersonal property as defined by the Civil Code, but not limited to:
  Pursuant to Republic Act No. 11057, or the Personal Property Security Act (PPSA), which was
promulgated on August 17, 2018, the PPSR will serve as a centralized and online notice-based
registry that will contain information on mortgages involving personal and movable properties.
 The new law also mandated the Land Registration Authority (LRA) to establish and maintain the
PPSR, which can be accessed through www.philppsr.lra.gov.ph and was made available for public
use on March 25, 2021.
Security interest - refers to a property right in collateral that secures payment or other performance of an
obligation, regardless of whether the parties have denominated it as a security interest, and regardless of
the type of asset, the status of the grantor or secured creditor, or the nature of the secured obligation;
including the right of a buyer of accounts receivable and a lessor under an operating lease for not less than
one (1) year.
What is the extent of security interests over right to proceeds?
A security interest in personal property shall extend to its identifiable or traceable proceeds.
Where proceeds in the form of funds credited to a deposit account or money are commingled with other
funds or money

HOW IS SECURITY INTEREST CREATED?

 A Security interest is created through a security agreement that must be written (including
electronic) contract signed by the parties.
 It must identify the collateral and the secured obligation.
 It may consist of one (1) or more writings that, taken together, establish the intent of the parties to
create a security interest.

Note: A security agreement may provide for the creation of a security interest in future property or after-
acquired assets, but the security interest in that property is created only when the grantor acquires rights
in it or the power to encumber it. It may provide that a security interest in a tangible asset that is
transformed into a product extends to the product, but such interest shall be limited to the value of the
encumbered asset immediately before it became part of the product. A security agreement may also
provide that a security interest in a tangible asset extends to its replacement, but such interest shall be
limited to the value of the encumbered asset immediately before it was replaced.
What is the extent of security interest over tangible assets commingled in a mass?
A security interest in a tangible asset that is commingled in a mass extends to the mass, but such
interest shall be limited to the same proportion of the mass as the quantity of the encumbered asset bore to
the quantity of the entire mass immediately after the commingling.
A security agreement may provide for security interest in accounts receivable arising from:
(i) a contract for the supply or lease of goods or services other than financial services;
(ii) a construction contract or contract for the sale or lease of real property; and
(iii) a contract for the sale, lease, or license of intellectual property.
Note: Any stipulation limiting the grantor’s right to create a security interest shall be void. A security
interest in an account receivable shall be effective notwithstanding any agreement between the grantor
and the account debtor or any secured creditor limiting in any way the grantor’s right to create a security
interest.

Rules on formalities as to creation, perfection/registration, and enforcement havebeen simplified

and harmonized:

 A signed contract (security agreement) isenough to create security interest.

 As to perfection of security interest, may bemade by:

 registration of notice with theregistry
 possession of the collateral by thesecured creditor, or
 control of the investment propertyand deposit account

 SET OF PRIORITY RULES provided - -to determine the priority of interests andliens in the same
collateral.
ELECTRONIC CENTRAL REGISTRY - Allows the public to access information contained here, you
can search for it online because under PPSA, the information contained in the register notice is considered
a public record to bind third parties.
GRANTOR

 The person who grants a security interest in collateral to secure its own obligation or that of
another person;

 A buyer or other transferee of a collateral that acquires its right subject to a security interest;

 A transferor in an outright transfer of an accounts receivable; or A lessee of goods;

NOTE:
  In case of a security interest in accounts receivable, which arise from either a contract of supply
or lease of goods or services, or in case of a construction contract, or in case of accounts
receivable from a contract of sale, or lease of real property, or sale, lease or license of intellectual
property, the security interest will still be valid, even if there is a contractual limitation put upon
that, even if there is a contractual limitation on the grantors right to create a security interest.
PPSA DEFINES PRIORITY:
As the right of a person in an encumber assets in preference to the right of a competing claimant.
In other word, it is a PREFERENCE OF THE SECURED CREDITOR IN PAYMENT, HE GETS TO BE
PAID FIRST BEFORE OTHERS.

(a) The following laws are hereby repealed:

• Sections 1 to 16 of Act No. 1508, otherwise known as "The Chattel Mortgage Law";

• Articles 2085-2092 of the “Civil Code of the Philippines, insofar as movable property is concerned;

• Articles 2093-2123 and 2140-2141 of the “Civil Code of the Philippines;

• Section 13 of Republic Act No. 5980, as amended by Republic Act No. 8556, otherwise known as the
"Financing Company Act of 1998";

• Sections 114-116 of Presidential Decree No. 1529, otherwise known as the "Property Registration
Decree"; and

• Section 5(e) of Republic Act No. 4136, otherwise known as the "Land Transportation and Traffic
Code".

The following laws are hereby amended in so far as the provisions thereof are inconsistent with the
PPSA:

 Section 10 of the Presidential Decree No.1529;

 Article 2127 of the Civil Code of the Philippines
 Articles 2241, 2243, and 2246-2247 of Civil Code of the Philippines, insofar as the preferences
created by these provisions are inconsistent with the priority rights of the secured creditor
perfected pursuant to the PPSA and these Rules;

(c)All laws, decrees, orders, and issuances or portions thereof, which are inconsistent with the provisions
of the PPSA, are hereby repealed, amended, or modified accordingly. (Section 9.01, Rule IX of IRR