FORECLOSURE OF REAL ESTATE MORTGAGE

SEC 1. COMPLAINT IN AN ACTION FOR FORECLOSURE:

• Action for foreclose of a mortgage or other encumbrances upon real estate

• Complaint shall set forth
1. Date and execution of the mortgage
2. Its assignments, if any
3. Names and residences of the mortgagor and mortgagee
4. Description of the mortgaged property
5. Statement of the date of the note or other documentary evidence of the obligation secured
by the mortgage
6. Amount claimed to be unpaid thereon; &
7. The names and residences of all persons having or claiming an interest in the property
subordinate in right to that of the holder of the mortgage all of whom shall be made
defendants in the action

DEFENDANT FILE AN ANSWER WITHIN 30 DAYS FROM SERVICE OF SUMMONS, AND NOT A
MOTION TO DISMISS unless the grounds of lack of jurisdiction over the subject matter, ltis
pendentia, res judicata, or statute of limitations are present.

SEC 2. JUDGMENT ON FORECLOSURE FOR PAYMENT OR SALE

• If the court shall find the facts in the complaint to be true

o it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation ,
including interest and other charges as approved by the court, and costs
o shall render judgment for the sum so found due
o order that the judgment sum be paid to the court or to the judgment oblige within a
period of not less than 90 days, not more than 120 days from the entry of judgment
o that in default of such payment, the property shall be sold at public auction to satisfy the
judgment

SEC 3. SALE OF MORTGAGED PROPERTY; EFFECT

• when the defendant fails to pay the judgment amount within the period specified in the sec. 2,
the court, upon motion, shall order the property to be sold in the manner and under the
provisions of Rule 39, and other regulations governing sales of real estate under execution
• the sale shall not affect the rights of persons holding prior encumbrances upon the property or a
part thereof
• when confirmed by order of the court, and also upon motion, it shall operate to divest the rights
in the property of all the parties to the action
o and to vest their rights in the purchaser, subject to such rights of redemption as may be
allowed by law
o
• Upon the finality of the order of confirmation /or/ upon the expiration of the period of
redemption when allowed by law
 o The purchaser at the auction sale /or/ the last redemptioner, if any, shall be entitled the
possession of the property unless a third party is actually holding the same adversely to
the judgment obligor.
o Said purchaser /or/ last redemptioner may secure a writ of possession, upon motion, from
the court which ordered the foreclosure

SEC 4. DISPOSITION OF PROCEEDS OF SALE

• The amount realized from the foreclosure sale of the mortgaged property shall, after deducting
the costs of the sale, be paid to the person foreclosing the mortgage
• When there shall be any balance or residue, after paying off the mortgage debt due, the same
shall be paid to junior encumbrances in the order of their priority, to be ascertained by the court
• Or if there be no such encumbrancers or there be a balance or residue after payment to them,
then to the mortgagor or his duly authorized agent, or the person entitled to it

SEC 5. HOW SALE TO PROCEED IN CASE THE DEBT IS NOT ALL DUE

• If the debt for which the mortgage or encumbrance was held is not all due as provided in the
judgment, the sale shall terminate as soon as a sufficient portion of the property has been sold to
pay the total amount and the costs due
• Afterwards, as often as more becomes due for principal or interest and other valid charges, the
court may, on motion, order more to be sold.
• But, if the property cannot be sold in portions without prejudice to the parties, the whole shall be
ordered to be sold in the first instance, and the entire debt and costs shall be paid
• If the proceeds of the sale be sufficient therefore, there being a rebate of interest where such
rebate is proper

SEC 6. DEFICIENCY JUDGMENT

• If upon the sale of any real property as provided in the next preceding section, there be a balance
due to the plaintiff after applying the proceeds of the sale
o The court, upon motion, shall render judgment against the defendant for any such
balance for which, by the record of the case, he may be personally liable to the plaintiff
▪ Upon which execution may issue immediately if the balance is all due at the time
of the rendition of the judgment
▪ Otherwise, the plaintiff shall be entitled to execution at such time as the balance
remaining becomes due under the terms of the original contract, which time shall
be stated in the judgment

SEC 7. REGISTRATION

• A certified copy of the final order of the court confirming the sale shall be registered in the registry
of deeds.
• If no right to 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
• Where aright of redemption exists, the certificate of title in the name of the mortgagor shall not
be cancelled
 o But the certificate of sale and the order confirming the sale shall be registered and a brief
memorandum thereof made by the registrar of deeds upon the certificate of title.
• In the event the property is redeemed, the deed of redemption shall be registered with the
registry of deeds, and a brief memorandum thereof shall be made by the registrar of deeds on
said certificate of title
• If the property is not redeemed, the final deed of sale executed by the sheriff in favor of the
purchaser at the foreclosure shall be registered with the registry of deeds
o Whereupon, the certificate of title in the name of the mortgagor shall be cancelled and a
new one issued in the name of the purchaser

SEC 8. APPLICABILITY OF OTHER PROVISIONS

• The provisions of secs 31, 32 & 34 of Rule 39 shall be applicable to the judicial foreclosure of real
estate mortgages under this rule insofar as the former are not inconsistent with or may serve to
supplement the provisions of the latter

REAL ESTATE MORTGAGE

- A contract in which the obligor guarantees to the oblige the fulfillment of a principal obligation,
subjecting for the faithful compliance therewith a real property in case of nonfulfillment of said
obligation at the time stipulated

ESSENCE OF CONTRACT OF MORTGAGE INDEBTEDNESS

- A property has been identified or set apart from the mass of the property of the debtor-mortgagor
as security for the payment of money or fulfillment of an obligation to answer the amount of
indebtedness, in case of default on payment
- The mortgage 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. (art. 2126, NCC)

MORTGAGE CREATES REAL RIGHT WHICH

1. Follows the property; &

2. Is enforceable against the whole world.

Even if the mortgaged property is sold or its possession is transferred to another, the property
remains to be subject to the fulfillment of the obligation for whose security it was constituted.

UPON DEFAULT OF MORTGAGOR, FORECLOSURE BECOMES A NECESSARY CONSEQUENCE OF NON-

PAYMENT OF THE MORTGAGE INDEBTEDNESS.

- Writ of preliminary injunction will not lie to prevent a mortgage from foreclosing a mortgage on
the ground that debtor-mortgagor would lose his right to the said property mortgaged.
 o By constituting the mortgage, the debtor mortgagor was aware of the consequences
thereof if the loan was unpaid.
o Fear of loss of property does not constitute irreparable injury as would warrant the
issuance of a writ of preliminary injunction.
o Debtor mortgagor will not be deprived outrightly of the property as the debtor-mortgagor
would have other remedies under the rules
- Debtor cannot seek damages against the creditor for foreclosing the mortgage since the
foreclosure is not a wrongful act.

HOW FORECLOSURE OF REAL ESTATE MORTGAGE MAY BE DONE

1. Judicially under rule 68; or

- Should be enforced within 10 years from the time the right of action accrues. When the
mortgagor defaults in the payment of his obligation to the mortgagee.
- Otherwise, it will be barred by prescription and the mortgagee will lose his rights under
the mortgage
- Prescription commences from the time the obligation becomes due and demandable,
or upon demand by the creditor, as the case may be.

2. Extrajudicially pursuant to provisions of Act. No. 3135 or GBL of 2000, as the case may be.

JURISDICTION AND VENUE (determined by the assessed value of the property involved)

- Foreclosure suit is a real action so far as it is against the property, and seeks the judicial
recognition of a property debt, and an order for the sale of the res.
- When the principal obligation is not paid when due, the mortgagee has the right to foreclose the
mortgage and o have the property seized and sold with the view of applying the proceeds to the
payment of the obligation.
- Pursuant to BP. Blg. 129
o RTC exercises exclusive original jurisdiction over the action where the assessed value of
the property outside of Metro Manila exceeds P20k, if within MM, when the assessed
value exceeds P50k.
o Municipal Trial Courts + Metropolitan Trial Courts + Municipal Trial Courts in Cities +
Municipal Circuit Trial Courts exercise exclusive original jurisdiction over real actions
when the assessed value is not more than P20k or P50k when the property involved is
outside or within MM, respectively
- Failure to state the assessed value of the mortgaged real property shall be fatal to the case since
it cannot be determined which court would exercise jurisdiction over the case.
o There would be no bases for the computation of the docket fees and without payment of
correct docket fees, the court cannot acquire jurisdiction over the case and the complaint
may be dismissed.
 - Venue shall be where the area of the mortgaged property or a portion thereof is situated.
o Where mortgaged property covers several parcels of land located in different cities, the
action may be filed in the city where any one of the mortgaged properties may be found
and the court where the action is filed would have jurisdiction to enter a decree of
foreclosure of mortgage covering the lands in the said cities.

FORECLOSURE OF MORTGAGE IS WAIVER OF OTHER REMEDIES TO COLLECT THE UNPAID DEBT

- In loan contracts secured by a real estate mortgage, the rule is that the creditor-mortgagee has a
single cause of action against the debtor-mortgagor – it is the recovery of the debt either through
the filing of a:
a. Personal action for collection of sum of money; or
b. Institution of a real action to foreclose on the mortgage security.

- Creditor-mortgagee may pursue either of the 2 remedies. Remedies are alternative, not
cumulative or successive, cannot avail both.
- For non-payment of a loan secured by mortgage, the creditor has a single cause of action against
the debtor.
o This single cause of action consists in the recovery of the credit with execution of the
security.
o The end goal in either case is for the creditor to be paid the loan.
- The 2 reliefs arise from the same cause, the non-payment of the debt. The money debt is the
principal things, the foreclosure of the property is only the result, or incident of the failure to pay
the indebtedness.
- A creditor- mortgagee cannot split up his single cause of action by filing a complaint for payment
of the debt and thereafter file another complaint for foreclosure of the mortgage.
o The filing of the first complaint will bar the subsequent complaints.
o Nemo debet bis vexari, pro una et eadem causa – no man shall be twice vexed for one
and the same cause.
▪ Thus, if the creditor-mortgagee opts to foreclose the real estate mortgage, he
waives the action for the collection of the unpaid debt.
• Creditor-mortgagee however may still be entitled to recover whatever
deficiency may remain in the outstanding obligation of the debtor-
mortgagor after deducting the bid price in the public auction sale of the
mortgaged properties.

DEFICIENCY JUDGMENT

- An unsatisfied judgment in a foreclosure of mortgage would still give the creditor-mortgagee the
right to a deficiency judgment, in which case, all the properties of the debtor-mortgagor, other
than the mortgaged property, would be open for him for the satisfaction of the deficiency.
- In deficiency judgment, there is no violation of the rule against splitting of cause of action since
the deficiency judgment shall be obtained in the same action for judicial foreclosure of real estate
mortgage, in its 3rd stage.
- No separate and independent action will be filed to recover the deficiency, otherwise, there will
be a violation of the rule against splitting of cause of action.
o The remedy of the creditor-mortgagee is to ask, by motion, for deficiency judgment and
thereafter obtain execution thereof in the same judicial foreclosure of real estate
mortgage action.
o The creditor-mortgagee however may elect to waive his security and bring instead, an
ordinary action to recover the indebtedness with the right to execute a judgment thereon
on all properties of the debtor, including the subject matter of the mortgage, subject to
the qualification that if the mortgagee fails in the remedy elected by him, he cannot
pursue further the remedy he has waived.
▪ An election to bring a personal action for collection of sum of money will leave
open to him all the properties of the debtor for attachment and execution, even
including the mortgaged property itself. An execution sale involving the
mortgaged property would not amount to a foreclosure of mortgage.
a. During the pendency of the collection of sum of money case filed by the
mortgagee, a writ of attachment may be obtained to attach the debtor’s
mortgagor’s property, including the mortgaged property, should there be
grounds to warrant the issuance of the same.

Section 1. Grounds upon which attachment may issue. – At the

commencement of the action or at any time before entry of judgment, a
plaintiff or any proper party may have the property of the adverse party
attached as security for the satisfaction of any judgment that may be
recovered in the following cases:

(a) In an action for the recovery of a specified amount of money or

damages, other than moral and exemplary, on a cause of action arising
from law, contract, quasi-contract, delict or quasidelict against a party
who is about to depart from the Philippines with intent to defraud his
creditors;

(b) In an action for money or property embezzled or fraudulently

misapplied or converted to his own use by a public officer, or an officer
of a corporation, or an attorney, factor, broker, agent, or clerk, in the
course of his employment as such, or by any other person in a fiduciary
capacity, or for a willful violation of duty;

(c) In an action to recover the possession of property unjustly or

fraudulently taken, detained or converted, when the property, or any
part thereof, has been concealed, removed, or disposed of to prevent its
being found or taken by the applicant or an authorized person;
 (d) In an action against a party who has been guilty of a fraud in
contracting the debt or incurring the obligation upon which the action is
brought, or in the performance thereof;

(e) In an action against a party who has removed or disposed of his

property, or is about to do so, with intent to defraud his creditors; or

(f) In an action against a party who does not reside and is not found in
the Philippines, or on whom summons may be served by publication.

▪ A remedy is deemed chosen upon the filing of the suit for collection or upon the
filing of the complaint for foreclosure of mortgage.
▪ Marilag vs. Martinez: by availing of a judicial foreclosure of real estate mortgage,
the creditor-mortgagee was barred from subsequently filing a personal action for
collection of the same debt during the pendency of the former case under the
principle of litis pendentia.

For its part, litis pendentia "refers to that situation wherein another action
is pending between the same parties for the same cause of action, such
that the second action becomes unnecessary and vexatious." For litis
pendentia to exist, three (3) requisites must concur:

(a) the identity of parties, or at least such as representing the same

interests in both actions;

(b) the identity of rights asserted and relief prayed for, the relief being
founded on the same facts; and

(c) the identity of the two cases such that judgment in one, regardless
of which party is successful, would amount to res judicata in the other.

On the other hand, res judicata or prior judgment bars a subsequent

case when the following requisites are satisfied:

(1) the former judgment is final;

(2) it is rendered by a court having jurisdiction over the subject matter

and the parties;

(3) it is a judgment or an order on the merits;

(4) there is between the first and the second actions - identity of
parties, of subject matter, and of causes of action.

▪ A promissory note executed by a person other than the debtor does not
constitute a separate and distinct contract of loan because the same was made
for and in behalf of the debtor. When there is no showing of any novation of the
 original agreement, a real estate mortgage and promissory note refer to only 1
loan and as such, there exists only 1 cause of action for a single breach of that
obligation.
▪ If a loan is secured by a real estate mortgage and post-dated checks and an
information for violation of BP 22 was filed against the debtor die to the said
checks being dishonored, the creditor can no longer file a separate action for
collection of sum of money or an action for judicial foreclosure of mortgage
because the said criminal case was also in effect a collection suit for the
recovery of the mortgage-debt.
o
- Spouses Yap vs. First e-Bank Corporation: if a debtor fails or unjustly refuses to pay his debt when
it falls due and the debt is secured by a mortgage & a check, the creditor has 3 options against the
debtor and creditor may pursue any of the 3 options, but not all or a combination of the following:
1. The creditor may file a collection suit against the debtor and this will open up all the
properties of the debtor to attachment and execution, even the mortgaged property
itself;
2. The creditor may opt to foreclose on the mortgaged property & in case the debt is not
fully satisfied, he may obtain against the debtor a deficiency judgment in the same judicial
foreclosure case, and not in a separate collection case for the whole indebtedness.
1. In case of such deficiency judgment, all the properties of the debtor, other than the
mortgaged property, are again opened up for the satisfaction of the deficiency.
3. The creditor may opt to sue the debtor for violation of BP 22 if the checks securing the
obligation bounce, and in which case, the criminal action shall be deemed to necessarily
include the corresponding civil action. No reservation to file such civil action separately
shall be allowed or recognized.

3 STAGES IN JUDICIAL FORECLOSURE OF REAL ESTATE MORTGAGE AND MULTIPLE APPEALS

1. FIRST STAGE
→ Filing of the complaint itself which shall set forth:
1. The date and due execution of the mortgage and its assignments, if any;
2. The names and residences of the mortgagor and the mortgagee;
3. A description of the mortgaged property;
4. A statement of the date of the note or other documentary evidence of the
obligation secured by the mortgage and the amount claimed to be unpaid thereon;
&
5. The names and residences of all persons having or claiming an interest in the
property subordinate in right to that of the holder of the mortgage, all of whom
shall be made defendants in the action.
→ In the 1st stage, the court determines first whether the foreclosure is proper.
 1. The court determines if there is a due and demandable loan supported by a real
estate mortgage that would warrant the foreclosure of the mortgage.
i. The creditor-mortgagee has the legitimate right to foreclose the mortgage
where the obligation is already past due.

→ There will be trial or presentation of evidence for the court to:

a. Determine the facts set forth in the complaint are true; &
b. Ascertain the amount due to the creditor-mortgagee, including interest and other
charges & costs.

→ The 1st stage ends, after trial, when the court shall render judgment on the amount due
and order the same to be paid to the court or to the judgment oblige, within the equity
of redemption period – or – the period provided in the said judgment.
2. SECOND STAGE
→ It begins after the period stipulated in the said judgment lapses and there is still failure
to pay the sum adjudged in the 1st stage.
→ A motion shall be filed praying for the foreclosure sale of the mortgaged property.
→ After the court orders the property to be sold at a public auction, the proceeds of the sale
shall be paid in satisfaction of the outstanding obligation.
→ The second stage ends with the court’s issuance of an order confirming the sale.
3. THIRD STAGE
→ The purpose of this stage is to
1. Obtain a deficiency judgment – or –
2. For the satisfaction of the deficiency in the mount due as adjudged in the first
stage.

→ When there was a surplus in the proceeds of the sale, or when the proceeds fully
satisfied the judgment debt, third stage is no longer necessary.
→ Deficiency judgment may be satisfied by the execution pursuant to Rule 39. (Execution as
a matter of right & Discretionary Execution).
o if the debtor is unable to pay the deficiency, the property of the debtor-
mortgagor, other than the mortgaged property, may be attached, levied on or
garnished and sold at a public auction. The proceeds therefor to be applied for
the satisfaction of the said deficiency.
→ Creditor-mortgagee may avail of the provisional remedy of a writ of preliminary
attachment to:
1. Ensure that there would be property of the debtor-mortgagor other than the
mortgaged property that may be later attached or executed on for the satisfaction
of the deficiency judgment; &
 2. Prevent the debtor-mortgagor from fraudulently disposing the said property
during the pendency of the case.
→ Writ of preliminary attachment may be availed of in an action for foreclosure of
mortgage in order to:
1. Seize upon the property of the debtor-mortgagor, other than the mortgaged
property, in advance of the final deficiency judgment
2. Satisfy the said final deficiency judgment; &
3. Prevent the loss or dissipation of the property through fraud or other means
- In all 3 stages, the respective judgments or orders of the court may be subject of appeal.
o Multiple appeals are allowed in the same case to enable the rest of the case to proceed
in the event that a separate and distinct issue is resolved by the court and held to be final.
▪ In such case, the filing of a record on appeal becomes indispensable since only a
particular incident of the case is brought to the appellate court for resolution with
the rest of the proceedings remaining in the jurisdiction of the trial court.

EQUITABLE MORTGAGE

- One and the same as judicial foreclosure.

- It is one which, although lacking in some formality, or form, or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the parties to charge real property
as security for a debt, and contains nothing impossible or contrary to law.
- Lien created thereby ought not to be defeated by requiring compliance with the formalities
necessary to the validity of a voluntary real estate mortgage.

PARTIES TO BE IMPLEADED

1. Mortgagor
2. Mortgagee
3. All persons having or claiming an interest in the property subordinate in right to that of the
holder of the mortgage.
- The debtor who obtained the loan for which the mortgage was constituted, if the debtor is
different from the mortgagor, said debtor must still be impleaded because the debtor is an
indispensable party.
o On the other hand, although an accommodation mortgagor – one who mortgaged his
property but did not benefit/ was not a recipient of the loan, is still considered an
indispensable party.
▪ Accommodation mortgagor must also be impleaded as an indispensable
party because the foreclosure of the mortgage would affect their property,
which they may lose in case of a foreclosure sale.
- Indispensable Parties. – Parties in interest without whom no final determination can be had of an
action shall be joined either as plaintiffs or defendants
 o Parties with such interest in the controversy that a final decree would necessarily
affect their rights, so that the court cannot proceeds without their presence. There
can be no final determination of the case.
- A transferee pendente lite of a mortgaged property is not an indispensable party.
o a transferee pendente lite stands in exactly the same position as his predecessor-in-
interest and is bound by the proceedings had in the cse before the property was
transferred to him.
o Only a proper party as he would, in any event, be bound by the judgment against
their predecessor, even if not formally included as a defendant in the complaint.
- If debtor-mortgagor is deceased, the executor/administrator of the estate shall be the
indispensable party.
o A creditor whose claim is secured by mortgage, pledge, or any specific lien need not
present his claim for allowance in the settlement of the estate or probate court in
order to preserve his right to subject the property covered by the lien to the
satisfaction of his claim.
▪ Said claim arises from the contract of the debtor, whereby he has, during
his life, set aside a certain property for its payment.
▪ Such property does not belong to the estate, so far as its value may exceed
the debt.
▪ The instrument being of record or the property being in the possession of the
creditor is notice to all the world of such contract.
o A probate court has no authority to enforce a lien unless conferred by a statute.
▪ The statutory jurisdiction of a probate court is exclusive.
i. Money claims arising from a contract whether express or implied, it is
reasonable to assume that all money claims secured with a lien are
outside the jurisdiction of the probate court.
▪
o
-
-

DISCHARGE OF REAL ESTATE MORTGAGE

Debtor-mortgagor must pay the creditor-mortgagee:

1. The total amount due as the principal loan with stipulated interest computed from the filing of
the complaint until finality of decision
2. The legal interest on the total amount due from finality until fully satisfied
3. The reasonable attorney’s fees, if awarded
 4. Costs of the suit, if adjudged by the court, within the period specified for the exercise of equity of
redemption, or even thereafter as long as it is done before the confirmation of the foreclosure
sale

DISPOSITION OF THE PROCEEDS OF THE SALE IN FORECLOSURE

1. The payment of the costs of the sale

2. Payment of the mortgage debt
3. Payment of junior encumbrances
4. The balance, if any, shall be given to the mortgagor, his agent, or the person entitled thereto.

The sale shall not affect the rights of persons holding prior encumbrances upon the property or a part
thereof, when confirmed by an order of the court. Also upon motion, it shall operate to divest the rights
in the property of all parties to the action and to vest their rights in the purchaser, subject to such rights
of redemption as may be allowed by law.

WHEN THE PURCHASER IS THE JUDGMENT MORTGAGEE AND NO THIRD-PARTY CLAIM IS FILED

- Mortgagee need not pay the amount of the bid if it does not exceed the amount of his judgment.
- There is no need for the mortgagee who is the purchaser, to pay the bid amount in cash.

WHEN PURCHASER REFUSES TO PAY THE AMOUNT BID

- Officer may again sell the property to the highest bidder and shall not be responsible for any loss
occasioned thereby.
- The court may order the refusing purchaser to pay in the court the amount of such loss with costs,
and may be punished for contempt if he disobeys the order.
o The amount shall be for the benefit of the person entitled to the proceeds of the sale
-