Real Estate

Mortgage
1. Batara, Jordan
2. Dimabuyu, Kristine
3. Dinaga, Shiela mae
4. Guerrero, Ma. Krisna S.
5. Legayada, Erwin
6. Lim, Christian
7. Siazon, Patrick
Definition of Real Estate Mortgage
Real Estate
"Real estate" refers to the land and all those items which
are attached to the land. It is the physical, tangible entity,
together with all the additions or improvements on,
above or below the ground. (Source: REPUBLIC ACT No.
9646)
Real Estate Mortgage
A real estate mortgage is a contract whereby immovable
property or real rights over immovable property are given in
order to secure the fulfillment of a principal obligation. If the
debtor defaults, the property given must be sold at a
foreclosure sale, and the proceeds thereof applied to the
principal obligation.
Mortgage
Contract whereby the debtor secures to the
creditor the fulfillment of a principal obligation,
specially substituting to such security
immovable property or real rights over
immovable property which obligation shall be
satisfied with the proceeds of sale of said
property or rights in case the said obligation is
not complied with at the time stipulated
Real, accessory, unilateral and subsidiary
contract
 REAL ESTATE MORTGAGE

1. Concept
Art. 2085, supra Art. 2087, supra

A real estate mortgage is a contract whereby

immovable property or real rights over immovable
property are given in order to secure the
fulfillment of a principal obligation. If the debtor
defaults, the property given must be sold at a
foreclosure sale, and the proceeds thereof applied
to the principal obligation.
2. Characteristics

Art. 2052, supra Art. 2086, supra Art. 2092, supra

a. Consensual
The REM is perfected upon consent, subject to the formal requirements.
b. Unilateral
It creates only an obligation on the part of the creditor, who must free the property from
the encumbrance, once the principal obligation has been fulfilled.
c. Nominate
The Civil Code gives it a specific name.
d. Subsidiary
The right to foreclose arises only when there has been breach of or default in fulfilling the
principal obligation.
e. Accessory
REM secures a principal obligation.
f. Gratuitous or onerous
The REM is gratuitous if given by a third person who is not a party to
the principal obligation, and onerous if given by the debtor.
g. Formal
In order to be valid, the REM must be made in a public document and
recorded in the Registry of Property.
3. Essential requisites
 a. Consent
The parties must have capacity to give consent to a contract.
 b. Object
Valid subject matter of real estate mortgage
1. Immovable property
2. Realrightsoverimmovableproperty
3. Natural accessions, improvements, growing fruits, rents or
income of the property (principle of accession follows principal)
*Future property generally cannot be given in a REM.
 c. Cause
Art. 1350, supra
For a third person, the cause is liberality (gratuitous REM). For the
debtor, the cause is his fulfillment of the principal obligation
(onerous REM).
4. Parties

Art. 2085, supra

Art. 111, Family Code, supra
Parties to a contract of real estate mortgage

Mortgagor - Owns the thing given in mortgage Either debtor or

third person
Mortgagee -Receives the thing in mortgage Creditor in principal
obligation
5. Form

Rules on form of real estate mortgage

Formal requisites - Must be made in a public instrument Must be recorded in
the Registry of Property
Effect of private document - If mortgage is in a private instrument, it is not
binding as a mortgage, but parties may compel conformity with form (Art.
1357)*
Effect of not recording - Binding between the parties, but not upon third
persons
Right of parties in legal mortgage - May compel execution of REM document
May demand recording of such document
6. Types

Types of real estate mortgage

Voluntary or Conventional -Created by agreement of the parties

Legal – Arises by operation of Law

Equitable mortgage – Lacks of proper foramalities of a mortgage,

but reveals parties’ intention to burden property as security for a
debt, and contains nothing contrary to law
7. Obligations of the mortgagor

Summary of obligations of the mortgagor

1. Implied right to take care of the thing
2. Allow foreclosure
Kinds of foreclosure
Judicial Foreclosure - Done through court proceedings
Governed by Rule 68, Rules of Court
Extrajudicial foreclosure - Governed by Act 3135;

Applies only when mortgagee has the special power to sell property in a
foreclosure
8. Obligations of the mortgagee

Release the mortgaged property from encumbrance

A mortgagee who is in lawful possession of the thing is entitled

to continue in possession until the indebtedness is fully satisfied.
But once the mortgagor has fulfilled the principal obligation, the
mortgagee must release the property from the encumbrance.
9. Special rules

a. Ownership of property after creation of mortgage

Rules on ownership
As to transfer of ownership - No transfer of ownership occurs
As to possession Thing remains in mortgagor’s possession
As to sale of thing - Mortgagor may sell the mortgaged property
- Stipulation forbidding sale is void
- Stipulation requiring mortgagee’s consent
before sale also void
- Mortgage liens follows properly
b. Registration requirement; effects
ART. 1312, CC
In contracts creating real rights, third persons who come into possession of
the object of the contract are bound thereby, subject to the provisions of the
Mortgage Law and the Land Registration Laws. (n)
Art. 2125, supra
ART. 2126, CC
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. (1876)
ART. 2129, CC
The creditor may claim from a third person in possession of the mortgaged
property, the payment of the part of the credit secured by the property which
said third person possesses, in the terms and with the formalities which the law
establishes. (1879)

Registration creates a real right binding upon third persons.

Where the REM must be indicated ?

1. As an entry in the books of the Register of Deeds

2. As an annotation on the back of the TCT/OCT
c. Stipulations
d. Indivisibility of mortgage

e. Alienation of mortgage credit

ART. 2128, CC
The mortgage credit may be alienated or assigned to a third
person, in whole or in part, with the formalities required by law.
(1878)

Mortgage is a real right owned by the mortgagee, and he may

assign or alienate this right to another person, provided that they
comply with the legal formalities. But registration of the assignment
only serves to bind third parties, and is not required for validity.
Hence, an unregistered transfer is binding between the parties.
f. Foreclosure

There can only be foreclosure when the debt has become due, and the
debtor defaults in fulfillment.

Procedure for judicial foreclosure

1. Judicial action brought for purpose of foreclosure
2. Hearing
3. Court order to pay within 90-120 days from entry of judgment
4. Sale at public auction
5. Confirmation of sale—Divests mortgagor of his right to the
property
6. Registration of confirmation with the Register of Deeds
7. Issuance of TCT,subject to the right o fredemption for banks and
financial institutions
g. Redemption & equity of redemption

Redemption is the right to reacquire mortgaged property free of

the lien, within a certain period.
Requisites of valid extension of redemption period

1. Voluntary agreement of parties to extend redemption period; and

2. Debtor’s commitment to pay redemption price on a fixed date
Requisites of valid redemption

1.Redemption is made within 1 year from date of registration of

certificate of sale
2. Tender of payment for full amount of #3, made within the prescribed
period
3. Payment of the following, to either the purchaser or the officer who
made the sale:
 Purchase price of property
 1% interest per month, counted from date of
 registration
 Taxes
 Amount of prior lien,ifany
4. Written notice of redemption served on officer who made the sale
5. Duplicate of written notice filed with Register of Deeds
Effects of valid exercise of right of redemption

1. It does not “restore ownership” to mortgagor, since ownership is

not lost until the redemption period lapses without the exercise of
the right. Redemption only defeats purchaser’s inchoate right to the
thing and frees thing from encumbrance.
2. The exercise of the right to redemption also admits the validity of
the foreclosure, such that the mortgagor is later estopped from
impugning it.
Who may exercise the right of redemption

Redemption may be exercised not only by the debtor, but also his successors-in-
interest, i.e. the following:
1. One to whom the debtor has transferred the right;
2. One to whom the debtor has conveyed his interest in the property, for the
purpose of redemption;
3. One who succeeds to the debtor’s interest by operation of law;
4. One or more joint debtors who jointly owned the property sold; or
5. One with a joint interest in the property, or his spouse or heirs.
10. Risk of loss & deterioration

Art. 2103, supra

The risk of loss is borne by the mortgagor, who

remains the owner of the thing.
11. Extinguishment

Causes for extinguishment of REM

1. Exercise of right to redemption/equity of
redemption
2. Lapse of period of redemption without
mortgagor exercising his right
3. Fulfillment of principal obligation
12. Distinguished from equitable mortgage
Art. 1602, supra

ART. 1603, CC
In case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage. (n)

ART. 1604, CC
The provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale. (n)

ART. 1605, CC
In the cases referred to in Articles 1602 and 1604, the apparent
vendor may ask for the reformation of the instrument. (n)
 An equitable mortgage is one that lacks the formalities of a
mortgage, but the intent of the parties to burden the property as a
security for a principal obligation is still evident, and nothing in the
contract is contrary to law.

Art. 1602 provides the cases in which a contract, regardless of its

nomenclature, will be considered an equitable mortgage. The lien
created on the thing thus cannot be defeated by requiring
compliance with the requisites of a REM.