NOTES ON FORECLOSURE OF REM

FORECLOSURE – meaning – It is a remedy available to mortgagee by

which he subjects the mortgaged property to the satisfaction of the
obligation secured for which the mortgage was given. It refers to the
proceedings to terminate the rights of a mortgagor on the property and
includes the sale itself.

Foreclose – to end or terminate a right in property; to shut out or to

bar.
Foreclosure is an act or a legal proceeding that bars or extinguishes a
mortgagor’s right of redeeming a mortgaged estate.

The power to foreclose the real estate mortgage pertains to the

creditor-mortgagee.

Validity and effect of foreclosure-

1. Foreclosure is valid if debtor is in default in the payment of the

principal obligation or has violated the terms and conditions of the
mortgage contract.
2. It consists in the sale or alienation of the mortgaged property and the
proceeds of the sale applied to the payment of the debt.
3. If proceeds cover the entire obligation then the principal obligation is
extinguished.
4. If proceeds are insufficient, there is a deficiency claim against the
principal debtor.
5. Foreclosure retroacts to the date of the registration of the mortgage –
2nd mortgage, attachment liens are subordinate to the first mortgage
cannot affect rights of the first mortgagee. (PVB vs. Monillas, 550 SCRA
251).
6. As a general rule demand to pay is required before foreclosure.
a) Acceleration clause

Kinds of foreclosure of REM a) Judicial and, 2) extrajudicial.

I. JUDICIAL FORECLOSURE is a judicial or ordinary action in court

governed by Rule 68 of the Rules of Court. The petition for
foreclosure should be filed with the proper court.

A. Nature of the proceedings - It is quasi in rem, i.e., it ia an

action against a specific person but the purpose of the action is
to subject the property to a burden which is the mortgage lien.
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B. Venue of action – The petition or complaint is filed with the

court having territorial jurisdiction over the mortgaged
property.
C. Parties – The principal debtor and all persons having interest,
i.e., with subordinate liens in the property or the junior
encumbrancers should be made party defendants. Those not
included or impleaded in the case will not lose their equity of
redemption.
D. Trial and judgment – After presentation of evidence, if the
court finds for the creditor/mortgagee, then the judgment will
order the principal debtor/mortgagor to pay the debt within s
period of not less than 90 days and not more than 120 days
from entry of judgment. The period within which to pay is
known as the equity of redemption. After the expiration of
this period, the property will be sold at public auction as in an
execution sale.
E. Equity of redemption is the right of the defendant ina judicial
foreclosure of real estate mortgage to extinguish the mortgage
and retain ownership of the property by paying the secured
debt within the prescribed period after judgment has become
final and executory, or even after the sale but prior to its
confirmation. (Rosales vs. Suba, 408 SCRA 664; Robles vs. Yupunco,
739 SCRA 75) It is the right of the mortgagor in case of judicial
foreclosure to redeem the mortgaged property after his default
in the performance of the conditions of the mortgage but
before the confirmation of the sale of the mortgaged property.
(Top-Rate International Services inc. vs. CA, 142 SCRA 467)
F. Auction Sale – Publication and posting of notices – Any
person may bid including the debtor, mortgagor and
mortgagee- if mortgagee is the highest bidder, he need NOT
pay the purchase price as the amount of his credit would be
considered as the consideration. As a rule the amount of the
bid by the creditor/mortgagee should be either the total debt or
the market value of the mortgaged property whichever is
lower.
G. Application of the proceeds of the sale – 1. cost of sale, 2.
Mortgage debt; 3. claims of junior encumbrancers order of
priority of lien, 4. the excess, if any, shall go to the mortgagor.
The Sheriff conducting the auction sale shall execute the
Sheriff’s Certificate of Sale which should then be registered
with the Registry of Deeds.
H. Order Confirming the Sale – cuts off or divests the mortgagor
of title over the property and vests absolute ownership upon
the buyer. 1. Motion for confirmation is filed, 2. Notice and
hearing of motion required. Effect of confirmation retroacts to
the date of the date of sale.
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I. Redemption Price – Purchase price plus interest, cost and

expenses, taxes payable within the equity of redemption.
Redemption is liberally construed and courts will allow the
exercise of redemption.
J. For Banks there is a right of redemption even after
confirmation of sale – 1 year for natural persons, or three
months from sale or registration of sale of juridical.
K. Deficiency – basis – mortgage is a contract of security NOT
satisfaction of the debt – Procedure- file motion to execute
judgment as to the deficiency – NO need to file another action.
ONLY against debtor but NOT 3rd party mortgagor

II. EXTRAJUDICIAL FORECLOSURE – governed by ACT NO.

3135, as amended.

A. Basis of the right is the power to sell (Sec. 1, ACT 3135) that
is granted to the mortgagee in the mortgage contract or in
another document such as Special Power of Attorney (SPA) or
authority. If there is NO authority to foreclose extrajudicially,
the remedy should be judicial foreclosure. The power to sell,
i.e., extrajudicial foreclosure of REM, is NOT extinguished by
the death of either the mortgagor or mortgagee.
B. Nature of proceedings is NOT adversarial and the Executive
Judge with whom the petition for foreclosure is filed merely
performs administrative function, i.e., to ensure compliance
with the conditions and requirements of the law on
extrajudicial foreclosure.
C. Venue – Petition for foreclosure filed with the Executive Judge
of the court having territorial jurisdiction over the mortgaged
property – through the Clerk of Court. It is then assigned to a
Deputy Sheriff thru raffle. The foreclosure may also be
conducted by a NOTARY PUBLIC.
D. Parties are the Creditor/Mortgagee and Debtor/Mortgagor.
E. Notice of Sale prepared by Sheriff or Notary Public - the
purpose of publication in a newspaper of general circulation is
to achieve a reasonably wide publication of the auction sale.
The publication of the notice of sale is made in order to secure
bidders and to prevent a sacrifice of the property. ( Olizon vs. CA,
236 SCRA 148; Metrobank vs. Penafiel, 380 SCRA 352; BPI vs. Castro,
746 SCRA 129)
F. Publication, Posting, Personal Notice to debtor/mortgagor
1. NO waiver of right of publication – postponement of
sale requires republication of notice of sale with a new
date (PNB vs. Nepomuceno Productions, G.R. No. 139479,
Dec. 27, 2002 – If the notice of sale is not published
anew, sale would be VOID even if parties agreed on the
postponement. The requirement of publication is is
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mandated not for the mortgagor’s benefit but for the

public or third persons. As such, it is imbued with
public policy considerations and the waiver thereof
would be violative of the law. Non-compliance with the
publication requirement constitutes jurisdictional defect
that invalidates the sale. It is also a substantial error or
omission in a notice of sale that would render it
insufficient and vitiates the sale. (San Jose vs. CA, 225
SCRA 450)
2. Newspaper of general circulation – published for the
dissemination of local news and general information,
that it has a bona fide subscription list of paying
subscribers and published at regular intervals. – P.D.
No. 1079 – Publication in the city or province where
publication is required.
3. Date of auction sale declared a holiday – the rule on
pretermission of holiday does not apply. Sec. 31 of the
Revised Administrative Code, “Pretermission of
holiday” - where the day or the last day, for doing any
act required or permitted by law falls on a holiday, the
act may be done on the next succeeding business day,
pretermission applies only when the last day of a given
period for doing an act falls on a holiday, e.g., payment
of taxes April 15, 2009; and the period for filing of
pleadings such as within fifteen (15) days from receipt
of an order. If the last day is a holiday, the succeeding
business day is considered the last day (See Rural Bank
of Caloocan vs. CA, 104 SCRA 151 [1981])
Pretermission of holiday” does not apply to a day fixed
by an office or public officer for an act to be done, e.g.
date of hearing of a case, and date of auction sale of
property.
4. Object of notice of sale is to inform public of the sale to
secure as many bidders as possible to get the best price
for the property.
5. If there is NO proof of posting and personal notice, the
same does NOT affect the validity of the sale provided
that the notice of sale is published in a newspaper of
general circulation (Three consecutive weeks in a
newspaper of general circulation in the municipality or
city where the property lies). Evidence of publication
of the notice of sale is the AFFIDAVIT of
PUBLICATION executed by the publisher or his
authorized representative.
6. General rule is that personal notice to mortgagor of the
sale is NOT required. However, personal notice is
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required if expressly provided or stipulated in the deed

of REM. Otherwise the foreclosure sale may be
invalidated because the failure to notify the mortgagor
personally constitutes breach of contract on the part of
the mortgagee.
7. Levy of the mortgaged property is NOT required for
purposes of the sale.

G. Auction sale – ONLY one (1) sale is required and the

mortgagee may bid.
1. Where – The sale should be held in the municipal or
city hall of the municipality or city where the land lies
between 9:00 in the morning to 4:00 in the afternoon.
2. Sale at different places – The principle of indivisibility
of mortgage is not violated by conducting two separate
foreclosure proceedings on mortgage properties located
in different cities or provinces as long as each land is
answerable for the entire debt. (Yu vs. PCIB, 485 SCRA 56;
LBC Bank vs. Marquez, 478 SCRA 160)
3. Who may bid – any person may submit his bid in a
public bidding that is exposed to general or public
view.
4. How bid or price paid- Payment of the purchase price
must be in cash except if the purchaser is the
mortgagee.
5. Winning or highest bidder is declared the purchaser at
the auction sale.
6. Upset or Tipo price – a provision in the deed of REM
specifying the minimum price at which the property
may be sold. VOID agreement
7. Mortgagee – as winning bidder - He need not pay the
bid price as the amount of his debt is the consideration
of the sale which must be stated in the certificate of
sale.
8. Effect of inadequacy of price – general rule – NOT
sufficient ground to set aside sale because of the
mortgagor’s right of redemption –exception- unless the
price is so inadequate as to shock the conscience of the
court taking into consideration the peculiar
circumstance attendant thereto.
9. May be sold for less than the fair market value as it is
easier for mortgagor to effect redemption.
10. Deficiency claim after foreclosure is recognized. The
mortgage is merely a security and not a satisfaction of
an obligation (DBP vs. Mirang, 66 SCRA 141; DBP vs.
Licuanan, 516 SCRA, 644; BPI Family vs. Avenido, 661 SCRA
758). Prescription of action to recover deficiency after
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extrajudicial foreclosure is ten years from the time the

cause of action accrues under Art. 1141 (1) of the Civil
Code. (DBP vs. Toneldan, 101 SCRA 171; Quirino Gonzales
Logging vs. CA, 402 SCRA 181) - Exception to deficiency
claim after foreclosure of REM is the Maceda Law.

H. RIGHT OF REDEMPTION
1. Concept – a transaction by w/c 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.
There is no new title created in favor of the
purchaser at the auction sale as it is still subject to the
mortgagor’s right of redemption. It eliminates the lien
created by the mortgage.
2. Kinds of redemption – 1) equity of redemption; and 2)
right of redemption
3. Only tender of payment of full amount of redemption
price is required as it has the effect of “freezing the one
year redemption period”. The right of redemption may
be enforced beyond the redemption period (Heirs of N.J.
Quisumbing vs. PNB, 576 SCRA 762)
4. Period to exercise right of redemption – One year from
registration of the certificate of sale with Reg. of
Deeds. Exception: the case of Ibaan Rural Bank vs.
CA, G. R. No. 123817, Dec. 17, 1999 – Sheriff placed
2 years redemption period in certificate of sale – bank
did not question said provision in certificate of sale –
enforced by SC silence of bank meant consent to the 2
yr. period and redemption liberally interpreted in favor
of the owner of the property.
5. General Banking Law (R.A. No. 8791, effective June
13, 2000) Sec. 47 par. 2 – Mortgagor is juridical person
– “Notwithstanding Act 3135, juridical persons whose property
is being sold pursuant to an extrajudicial foreclosure, shall have
the right to redeem the property in accordance with this
provision until, but not after, the registration of the certificate of
foreclosure sale with the applicable Register of Deeds which in
no case shall be more than three (3) months after foreclosure,
whichever is earlier.”
6. Right of redemption is a property right that may be
assigned or alienated.
7. Who may exercise right of redemption – mortgagor;
successor-in-interest- transferee of right to redeem; one
who succeeds to right of debtor by operation of law;
joint debtors or joint owners;
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8. How exercised –there should be notice of redemption:

payment of the purchase price; within one year and
the mode or medium of payment may be cash or check
(Co vs. PNB, 114 SCRA 842; Tolentino vs. CA, 517 SCRA 732)
9. Payment of redemption price - to the purchaser or
redemptioner or to officer who made the sale – If
property is sold by purchaser at auction to a third
person, redemption may be effected by redeeming
property from third party buyer by paying only the
amount of obligation and interest - NOT the purchase
price of the subsequent sale.
10. What to pay – purchase price; interest (1% p.a),
expenses of preservation or, if bank is mortgagee (rate
provided in the REM) Exception DBP because of its
law or charter, redemptioner must pay all the amounts
owed by debtor to DBP;
11. Effect of redemption – restores the property to its
original condition prior to the creation of the lien as if
no sale was conducted.
12. Offer to redeem property constitutes waiver of the
defects in the foreclosure. Execution of a dacion en
pago is also considered waiver by mortgagor of the
right of redemption. (First Global Realty vs. San Agustin,
377 SCRA 341)

I. Waiver of Mortgage - Mortgagee may waive mortgage right

and the right to foreclose- by filing ordinary suit based on the
principal obligation. (BPI Family Savings vs. Vda. De Cosculuella,
493 SCRA 472)
J. Consolidation of Title – if NO redemption is effected within
the period of redemption or upon the expiration of the
redemption period, purchaser may consolidate title over the
property by executing and registering affidavit of
consolidation.
K. Vendee’s right of possession of mortgaged property sold –
WRIT OF POSSESSION
1. Sec. 7. while right of redemption still effective – (ex-
parte) petition for issuance of a writ of possession is
filed with land registration court with an offer to post
bond in amount corresponding to the value of the use of
the property.
2. After consolidation of title by purchaser at auction, an
ex parte petition (without bond) may be filed with the
land registration court. The right to the issuance of the
writ of possession is absolute and court has ministerial
duty to issue writ of possession;
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The ministerial duty of courts in issuing writs

of possession has been settled in a long line of cases
decided by the Supreme Court. Thus, in the case of
Banco Filipino Savings and Mortgage Bank vs.
L.A.C. 142 SCRA 44, 47, the Supreme Court ruled that
“considering the present case, that the period of
redemption had already lapsed with no redemption
having been made, there is no justifiable ground why
the writ of possession would not be issued. See also
the case of Teresita V. Idolor vs. Court of Appeals, GR
161028, January 31, 2005.

3. WRIT OF POSSESSION NOT applicable to or may be

enforced against a third person with an interest adverse
to the mortgagor or judgment debtor (Clapano vs.
Gapultos, 132 SCRA 429)

4. Other instances when writ of possession would not be

granted –

a) where property is in possession of lessee -

Although the purchaser at foreclosure sale can be
granted a writ of possession even if the property is
in the possession of a lessee whose lease has NOT
terminated, nevertheless, if the lease had been
previously (i) registered in the Registry of Deeds
(such lease is binding upon mortgagee); or, (ii) the
mortgagee had prior knowledge of the existence
and duration of the lease (actual knowledge of the
lease is equivalent to registration) [Ibasco vs.
Caguioa, 143 SCRA 538], the writ of possession
cannot be enforced against said lessee.
b) Where possessor of property claims adverse right
or title as against mortgagor- Art. 433 of the Civil
Code requires that a person claiming ownership of
property possessed by another should file
appropriate action to recover possession. The
phrase “judicial process” could mean an ejectment
suit or reinvidicatory action in which the issue of
ownership may be properly heard and adjudicated.
The proceedings under Sec. 7 of Act No. 3135, as
amended, is NOT the “judicial process
contemplated in Art. 433. It is not an ordinary suit
filed in court by which one party sues another for
the enforcement or protection of a right or the
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prevention or rederess of a wrong (PNB vs. CA, 374

SCRA 22; Idolor vs. CA, GR 161028, January 31, 2005).
Accordingly, the writ of possession should not be
issued (PNB vs. CA, 374 SCRA 22; DBP vs.
Prime Neighborhood Association., 587 SCRA 582).

The petition is an ex parte proceeding and is a

non-litigious proceeding and summary in nature.
(Arquiza vs. CA, 459 SCRA 753) Since the foreclosure is
extrajudicial, the person claiming a right adverse to
the mortgagor will have no opportunity to be heard on
his claim. It stands to reason, therefore, that such
third person may not be dispossessed on the strength
of a mere ex parte possessory writ, since to do so
would be tantamount to his summary ejectment in
violation of the basic tenets of due process. ( ITC
Service and Leasing Corp, etc. vs. Nera, 19 SCRA 181;
Barican vs. IAC, 162 SCRA 358; Joven vs. CA, 212 SCRA 700;
(PNB vs. CA, 374 SCRA 22; Idolor vs. CA, GR 161028,
January 31, 2005)
c) Where purchaser of property failed to deliver
surplus or excess to the mortgagor- Considerations
of equity demand the deferment of the issuance of
the writ as it would be unfair and iniquitous for the
mortgagor, who as a redemptioner might still
choose to redeem the foreclosed property to pay
the equivalent amount of the bid. (Sulit vs. CA,
268 SCRA 441; Nagtalon vs. UCPB, 702 SCRA
615)

L. REMEDIES of mortgagor after foreclosure of REM -

1. File independent civil action to set aside or nullify
foreclosure sale – the grounds may include failure to
comply with requirements of the auction sale e.g., lack
of publication; there was NO violation of the terms and
conditions of the mortgage; or,
2. File a petition under Sec. 8 of Act. No. 3135 in the
court which issued the writ of possession (LRC Case)
to set aside the sale and to cancel the writ of
possession. The grounds in support of said petition are
that (i) mortgage was not violated, or (ii) sale was not
made in accordance with the law. The petition should
be filed not later than thirty days after the purchaser
was given possession of the property.
3. Preliminary Step to the foregoing remedies is to file a
terceria (third party claim) or an affidavit of claim
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with the Sheriff implementing the writ. By terceria, the

sheriff would not be bound to keep the property and
may be held liable for damages.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to
an extrajudicial foreclosure, shall have the right to redeem the property in accordance
with this provision until, but not after, the registration of the certificate of foreclosure
sale with the applicable Register of Deeds which in no case shall be more than three
(3) months after foreclosure, whichever is earlier. Owners of property that has been
sold in a foreclosure sale prior to the effectivity of this Act shall retain their
redemption rights until their expiration. (78a)