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Notes On Credit Transactions 3

The document outlines the legal framework of real estate mortgages, detailing the characteristics, types, and essential requisites of a mortgage contract. It explains the process of foreclosure, including judicial and extrajudicial methods, as well as the rights of the mortgagee and mortgagor regarding redemption and deficiency recovery. Key points include the necessity of public recording for validity, the implications of alienation, and the conditions under which a mortgage may be waived or foreclosed.

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11 views4 pages

Notes On Credit Transactions 3

The document outlines the legal framework of real estate mortgages, detailing the characteristics, types, and essential requisites of a mortgage contract. It explains the process of foreclosure, including judicial and extrajudicial methods, as well as the rights of the mortgagee and mortgagor regarding redemption and deficiency recovery. Key points include the necessity of public recording for validity, the implications of alienation, and the conditions under which a mortgage may be waived or foreclosed.

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Whatxchamaco
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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I.

Real Estate Mortgage

Contract of Mortgage
It is a contract whereby the debtor secures to the creditor the fulfillment of a
principal obligation, specially subjecting to such security immovable property or real
rights over immovable property in case the principal obligation is not complied with
at the time stipulated.

Characteristics of Mortgage
1. Accessory- dependent to the existence of a principal contract
2. Subsidiary- not solidarily liable with the principal obligation
3. Unilateral- creates an obligation only on the part of the creditor who must
free the property from encumbrance once the obligation is fulfilled.
4. Nominate- has a specific/special designation in law

IMPORTANT POINTS
• As a general rule, the mortgagor retains possession of the property, because by
the mortgage, the debtor merely subjects the property to a LIEN but ownership
thereof is not parted with.
• Mortgagor may deliver said property to the mortgagee without altering the nature
of the contract of mortgage.
• It is not an essential requisite that the principal of the credit bears interest, or that
the interest as compensation for the use of the principal and the enjoyment of its
fruits be in the form of a certain percent thereof.
• The interest may be in the form of fruits of the mortgaged property, without the
contract’s losing its nature of a contract of mortgage.

KINDS OF MORTGAGE
1. Voluntary – one which is agreed to between 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 (Arts.2125,
2083)
3. Equitable – one which, although it lacks the proper formalities of a mortgage
shows the intention of the parties to make the property as a security for a debt
(provisions governing equitable mortgage - arts 1365, 1450, 1454, 1602, 1603,
1604 and 1607)

ESSENTIAL REQUISITES OF MORTGAGE


1. constituted to secure the fulfillment of a principal obligation
2. mortgagor is the absolute owner of the thing mortgaged
3. the persons constituting mortgage have free disposal of their property, and in the
absence thereof, that they be legally authorized for the purpose
4. cannot exist without a valid obligation
5. when the principal obligation becomes due, the thing in which the mortgage
consists may be alienated for the payment to the creditor.
6. appears in a public document duly recorded in the Registry of Property to be
validly constituted

PUBLIC INSTRUMENT AND RECORDING

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• It is indispensable in order that a mortgage may be validly constituted that it
appears in a public instrument duly recorded in the Registry of Property
• If in private instrument – no valid mortgage is constituted, but it is still binding
upon the parties

EXTENT OF MORTGAGE
•Not limited to the property itself but also extends to all its accessions,
improvements, growing fruits and rents or income (Art. 2102)as well as to proceeds
of insurance should the property be destroyed, or expropriation value of the
property should it be expropriated.
• TO EXCLUDE accessions, accessories and improvements subsequently introduced,
there must be a stipulation to that effect

STIPULATION FORBIDDING ALIENATION IS VOID


ARTICLE 2130 – ANY STIPULATIONPROHIBITING THE OWNER FROMALIENATING THE
MORTGAGED PROPERTYSHALL BE VOID
• Mortgagee can simply withhold consent
• If alienated, transferee is bound to respect the encumbrance which is a lien on the
property

FORECLOSURE OF MORTGAGE
‘Foreclosure’ defined
• it is the remedy available to the mortgagee by which he subjects the mortgaged
property to the satisfaction of the obligation to secure which the mortgage was
given.

KINDS OF FORECLOSURE
1. Judicial – governed by Rule 68 of theRules of Court
2. Extrajudicial – governed by Act No. 3135

Judicial Foreclosure Extrajudicial Foreclosure


• There is court intervention; • No court intervention;
• Decisions are appealable; • Not appealable, it is immediately
• Order of the court cuts off all rights of executory;
the parties impleaded; • Foreclosure does not cut off right of
• There is equity of redemption except all parties involved;
on banks which provides for a right of • There is right of redemption;
redemption; • Period to redeem starts from date of
• Period of redemption starts from the registration of certificate of sale;
finality of the judgment until order of • Special power of attorney in favor of
confirmation; mortgagee is needed in the contract
• No need for a special power of
attorney in the contract of mortgage.

RIGHT OF MORTGAGEE TO RECOVER DEFICIENCY


1. Mortgagee is entitled to recover deficiency
2. If the deficiency is embodied in a judgment, it is referred to as deficiency
judgment.
3. Action for recovery of deficiency may be filed even during redemption period.

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4. Action to recover prescribes after 10 years from the time the right of action
accrues

EFFECT OF INADEQUACY OF PRICE IN FORECLOSURE SALE


1. Where there is right to redeem
General Rule: Inadequacy of price is immaterial because the judgment
debtor may redeem the property
Exception: the price is so inadequate as to shock the conscience of the court
taking into consideration the peculiar circumstances

2. Property may be sold for less than its fair market value upon the theory that the
lesser the price the easier for the owner to redeem
3. The value of the mortgaged property has no bearing on the bid price at the public
auction, provided that the public auction was regularly and honestly conducted

WAIVER OF SECURITY BY CREDITOR


1. Mortgagee may waive right to foreclose his mortgage and maintain a personal
action for recovery of the indebtedness
2. Mortgagee cannot have both remedies

Note: In case of default by the mortgagor, the mortgagee have two options, either
file a collection suit or foreclose the mortgage. These remedies/options are
alternative. Choosing one, will waive the other.

REDEMPTION
‘Redemption’ defined
-it is a transaction by which the mortgagor reacquires or buys back the property
which may have passed under the mortgage or divests the property of the lien
which the mortgage may have created.

KINDS OF REDEMPTION
1. EQUITY OF 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
2. RIGHT OF REDEMPTION- right of the mortgagor to redeem the property within a
certain period after it was sold for the satisfaction of the debt; applies only to
extrajudicial foreclosure of real mortgage

PERIOD OF REDEMPTION
1. Extra-judicial (Act No. 3135)
a. natural person – 1 year from registration of the certificate of sale with
Registry of Deeds
b. juridical person – same rule as natural person, 1 year

If Mortgagee is PNB, a bank or banking institution:


a. Natural Person – 1 year from registration of the certificate of sale with
Registry of Deeds

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b. Juridical Person – 3 months (90 days) after foreclosure or before
registration of certificate of foreclosure whichever is earlier (Sec. 117 of
General Banking Law)

2. Judicial
General Rule: Any time before confirmation of the sale by the court (only equity of
redemption) Exception: Mortgagee is PNB, a bank or banking institution.

Act Nos. 2247 or 2938 and General Banking Law


Confer right of the mortgagor to redeem the property sold on foreclosure after
confirmation by the court of the foreclosure sale – which right may be exercised by
the following:
a. Natural Person - within a period of one year, counted from the date of
registration of the certificate of sale in the Registry of Property.
b. Juridical Person – within a period of 3 months after the foreclosure sale or until
the registration of the certificate of sale, whichever comes first.

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