REAL ESTATE MORTGAGE

2124-2131)

(Articles

A contract whereby the debtor

secures to the creditor the

fulfilment 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 the contract:
1. Real
2. Accessory
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.
NOTES:

As an accessory contract, its consideration is that of the principal contract from which it receives life.

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

Special Requisites (in addition to the common essential requisites):

1. It can cover only immovable property and alienable real rights imposed upon immovables (Art
2124);
2. It must appear in a public instrument (Art. 2125); and
3. Registration in the registry of property is necessary to bind third persons, but not for the validity of the
contract (Art 2125).

An order for foreclosure cannot be refused on the ground that the mortgage had not been registered
provided no innocent third parties are involved.
NOTE: Where a mortgage is not valid or false, the principal obligation which it guarantees is not
rendered null and void. What is lost only is the right to foreclose the mortgage as a special remedy for
satisfying or settling the indebtedness which is the principal obligation but the mortgage deed remains
as evidence or proof of a personal obligation of the debtor and the amount due to the creditor may be
enforced in an ordinary personal action.

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 favour of certain persons

The persons in whose favour 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
PLEDGE
1. Constituted on
movables
2. Property is
delivered to pledgee
or by common
consent to a third
person
3. Not valid against
third persons unless a
description of the
thing pledged and
date of pledge
appear in a public
instrument

REAL MORTGAGE
1. Constituted on
immovables
2. Delivery is not
necessary

3. Not valid against

third persons unless
registered

Extent of Mortgage:

Absent express stipulation to the contrary, the mortgage includes 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 (Art
2127)

Kinds:
1. Judicial ordinary action for
foreclosure under Rule 68 of
the Rules of Court
2. Extrajudicial

when
mortgagee is given a special
power of attorney to sell the
mortgaged
property
by
public auction, under Act
No. 3135

Object of Mortgage:

Future property cannot be an

object of a contract of mortgage
(Art
2085[2])
However,
a
stipulation subjecting to the
mortgage
lien,
properties
(improvements)
which
the
mortgagor may subsequently
acquire install, or use in
connection with real property
already mortgaged belonging to
the mortgagor is valid
(Peoples Bank and Trust Co.
vs.
Dahican Lumber Co., 20 SCRA 84)

Special Rights:
1. Mortgagor - To alienate the
mortgaged property but the
mortgage shall remain attached
to the property.
NOTE: A stipulation forbidding the
owner from alienating the immovable
mortgage shall be void (Art 2130)
being contrary to public policy
inasmuch as the transmission of
property should not be unduly
impeded.
2. Mortgagee - To claim from a 3rd
person in possession of the
mortgaged property the payment
of the part of the credit secured
by the which said third person
possesses
(Art 2129)
NOTE: It is necessary that prior
demand for payment must have been
made on the debtor and the latter
failed to pay (BPI vs Concepcion &
Hijos, Inc., 53 Phil 906)
Foreclosure

The remedy available to the

mortgagee by which he subjects
the mortgaged property to the
satisfaction of the obligation to
secure that for which the
mortgage was given
NOTES:

It denotes the procedure

adopted by the mortgagee
to terminate the rights of
the mortgagor on the
property and includes the
sale
itself
(DBP
vs
Zaragoza, 84 SCRA 668)
Foreclosure is valid where
the debtor is in default in
the
payment
of
his

obligation (Gobonseng, Jr. vs

CA, 246 SCRA 472)

Judicial
foreclosure
1. There is court
intervention
2. Decisions are
appealable
3. Order of court
cuts off all rights of
the parties
impleaded
4. There is equity
of redemption
except on banks
which provides for
a right of
redemption
5. Period of
redemption starts
from the finality of
the judgment until
order of
confirmation
6. No need for a
special power of
attorney in the
contract of
mortgage

Extrajudicial
foreclosure
1. No court
intervention
2. Not appealable
because it is
immediately
executory
3. Foreclosure does
not cut off right of
all parties involved
4. There is right of
redemption

5. Period to redeem
start from date of
registration of
certificate of sale
6. Special power of
attorney in favor of
mortgagee is
needed in the
contract

NOTES:
A foreclosure sale retroacts to the
date of registration of the
mortgage and that a person who
takes a mortgage in good faith
and for valuable consideration,
the record showing clear title to
the mortgagor, will be protected
against equitable claims on the
title in favor of third persons, of
which he had no actual or
constructive notice (St. Dominic
Corporation vs. IAC 151 SCRA
577).

Where there is a right to redeem,

inadequacy of price is not
material because the judgment
debtor
may
reacquire
the
property or else sell his right to
redeem and thus recover any loss
he claims to have suffered by
reason of the price obtained at
the auction sale and consequently

not sufficient to set aside the

sale. Mere inadequacy of the
price obtained at the sheriffs
sale will not be sufficient to set
aside the sale unless the price is
so inadequate as to shock the
conscience of the court taking
into consideration the peculiar
circumstances attendant thereto.
(Sulit vs. CA, 268 SCRA 441)

Should there remain a balance

due to the mortgagee after
applying the proceeds of the
sale, the mortgagee is entitled to
recover the deficiency. This rule
applies both to judicial and
extra-judicial foreclosure real
mortgage.

NOTES:

The action to recover a

deficiency
after
foreclosure
prescribes after 10 years from
the time the right of action
accrues (Arts 1142 & 1144).

Stipulation of upset price or tipo

It is a stipulation in a mortgage
of real property of minimum
price at which the property shall
be sold, to become operative in
the event of a foreclosure sale at
public auction. It is null and void
for the property must be sold to
the highest bidder. Parties
cannot,
by
agreement,
contravene the law and interfere
with the lawful procedure of the
courts (BPI vs Yulo, 31 Phil 476)

Extrajudicial foreclosure real

property (Act No. 3135)

The law covers only real

estate mortgages. It is
intended merely to regulate
the extrajudicial sale of the
property mortgaged if and
when the mortgagee is
given a special power of
express authority to do so
in the deed itself or in a
document annexed thereto.

The authority to sell is not

extinguished by the death of the
mortgagor (or mortgagee) as it is
an essential and inseparable part
of a bilateral agreement (Perez
vs PNB, 17 SCRA 833).
No sale can be legally made
outside the province in which the
property sold is situated; and in
case the place within said
province in which the sale is to
be made is the subject of
stipulation, such sale shall be
made in the said place in the
municipal
building
of
the
municipality
in
which
the
property or part thereof is
situated.

Redemption

It is the 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.

A sale by the mortgagor to a third

party of the mortgaged property
during the period for redemption
transfers only the right to redeem
the property and the right to
possess, use and enjoy the same
during said period.
Where sale with assumption of
mortgage not registered and made
without the consent of the
mortgagee, the buyer, thereof,
was not validly substituted as
debtor and, hence, had no right to
redeem (Bonnevie vs. CA, 125
SCRA 122).

Kinds:
1. Equity of Redemption right of
mortgagor
to
redeem
the
mortgaged property after his
default in the performance of the
conditions of the mortgage within
the 90-day period from the date
of the service of the order of
foreclosure or even thereafter but
before the confirmation of the
sale.
Applies
to
judicial
foreclosure of real mortgage and
chattel mortgage foreclosure.
NOTE: Redemption of the banking
institutions is allowed within one year
from confirmation of sale.
2. Right of Redemption right of
mortgagor
to
redeem
the
mortgaged property within one
year from the date of registration
of the certificate of sale. Applies
only to extrajudicial foreclosure
of real mortgage.
NOTE: The right of redemption, as
long as within the period prescribed,
may be exercised irrespective of
whether or not the mortgagee has
subsequently conveyed the property
to some other party (Sta. Ignacia
Rural Bank, Inc. vs. CA, 230 SCRA 51)

MEMBERS:
ALFERES, Mark Anthony A.
QUESADA, Geneses
CORRALES, Reiner Joyze
DIZON, Monica
DALAY-ON, Arianne K.
EDRADA, Grace Ann S.