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FORECLOSURE OF

REAL ESTATE
MORTGAGE
RULE 68

DEFINITION OF REAL ESTATE


MORTGAGE
A real estate mortgage is an accessory contract executed
by a debtor in favor of a creditor as security for the
principal obligation.
It is a contract whereby the debtor secures to the creditor
the fulfillment of the principal obligation, specially
subjecting to such security immovable property or real
rights over immovable property in case the principal
obligation is not fulfilled at the time stipulated. (De Leon)

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. (Article 2126 of the
Civil Code)
There can be several mortgages over the same property.

Alternative Remedies of the


Creditor
In case of default of the debtor, the creditor has the
following alternative remedies:
a. To file an action for collection of a sum of money
b. To foreclose the mortgage, if one has been
constituted
An election of one operates as a waiver of the other.

Flores vs Lindo
RULING:
A mortgage creditor may institute against the mortgage debtor either a
personal action for debt or a real action to foreclose the mortgage. In other
words, he may pursue either of the two remedies, but not both. By such
election, his cause of action can by no means be impaired, for each of the
two remedies is complete in itself. On the other hand, a rule that would
authorize the plaintiff to bring a personal action against the debtor and
simultaneously or successively another action against the mortgaged
property, would result not only in multiplicity of suits so offensive to justice
and obnoxious to law and equity but also in subjecting the defendant to the
vexation of being sued in the place of his residence or of the residence of
the plaintiff, and then again in the place where the property lies.

FORECLOSURE
It is a remedy available to the mortgagee in which he subjects
the mortgaged property to the satisfaction of the obligation.
It presupposes something more than a mere demand to surrender
possession of the object of the mortgage. It denotes the
procedure adopted by the mortgagee to terminate the rights of
the mortgagor on the property and includes the sale itself.
Foreclosure is but a necessary consequence of non payment of a
mortgage indebtedness.

Modes of Foreclosure of Real Estate Mortgage

a. Judicial Foreclosure pursuant to Rule 68 of the Rules


of Court
b. Extrajudicial foreclosure pursuant to Act 3135 as
amended by
Act 4118

Jurisdiction
An action to foreclose a real estate mortgage is an action
involving interest in real property.
Under B.P. 129 as amended where the action is one
involving title to or possession of real property or any
interest therein, the determination of jurisdiction shall be
made by inquiring into the assessed value of the
property.

The MTC has jurisdiction if the assessed value of the


mortgaged real estate is not more than P 20, 000 or in
Metro Manila not more than P 50, 000, and the amount of
the mortgage debt is not more than P300,000 or in Metro
Manila not more than P400,000.
If either the assessed value of the mortgaged property or
the amount of the mortgage debt exceeds the said
jurisdictional amounts, the RTC would have jurisdiction.

Venue of the Action


The venue of an action for foreclosure is the place where
the real property involved or a portion thereof, is
situated.
If several parcels of land located in different provinces
are covered by a single mortgage contract, the action
may be filed in any of the provinces where any of the
parcels of land is located

Procedure in Judicial
Foreclosure Of REM
STEP 1: Filing of a complaint in court for the foreclosure of real estate
mortgage.
The complaint shall set forth the following:
a.
b.
c.
d.
e.
f.
g.

The date and due execution of the mortgage


The assignments of the mortgage if any
The names and residences of the mortgagor and mortgagee
A description of the mortgaged property
A statement of the date of the note and other documentary evidence of the obligation
secured by the mortgage
The amount claimed to be unpaid thereon
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 (Section 1, Rule 68)

STEP 2: Hearing and trial of the case


If the court shall find the facts set forth in the complaint
to be true it shall ascertain :
a.
b.
c.
d.

The amount due to the plaintiff upon the mortgage debt or obligation
Interest
Other charges as approved by the court
Costs (Section 2, Rule 68)

STEP 3: Rendition and Entry of judgment


The court shall:
a. render judgment for the sum found due
b. order that the amount found due be paid to the court or to
the judgment obligee within a period of not less than 90 days
nor more than 120 days from the entry of judgment
c. admonition that in default of such payment the property
shall be sold at public auction to satisfy the judgment. (Section
2, Rule 68)

EQUITY OF REDEMPTION
It is the right to extinguish the mortgage and retain
ownership of the property by paying the debt.
The period mentioned in the judgment of the court is the
period within which the mortgagor may start exercising
his equity of redemption.
The payment may be made even after the foreclosure
sale provided it is made before the sale is confirmed by
the court.

Limpin vs IAC
RULING:
The rights and interests of petitioners Limpin and Sarmiento to the property in
question are subordinate to those of respondent Ponce, who holds a prior and senior
lien. The sale to Ponce, as the highest bidder in the foreclosure sale of the two lots
in question should have been confirmed, subject to Limpin's (and now Sarmiento's
equity to redemption. As held in Santiago v. Dionisio the registration of the lands,
first in the name of Limpin and later of Sarmiento, was premature. At most what
they were entitled to was the registration of their equity of redemption.
Moreover the superiority of the mortgagee's lien over that of a subsequent
judgment creditor is now expressly provided in Rule 39, Section 16 of the Revised
Rules of Court, which states with regard to the effect of levy on execution that it
shall create a lien in favor of a judgment creditor over the right title and interest of
the judgment debtor in such property at the time of the levy, subject to the liens or
encumbrances then existing.

RIGHT OF REDEMPTION
It is a right granted to a mortgagor to reacquire the property
even after the confirmation of the sale and the registration
of the certificate of sale.
There is no right of redemption in a judicial foreclosure of
mortgage under Rule 68. This right exists only in
extrajudicial foreclosures where there is always a right of
redemption within one year from the registration of the sale

GENERAL RULE: In Judicial Foreclosure, there is only an


equity of redemption which can be exercised prior to the
confirmation of foreclosure sale.
EXCEPTION: There is a right of redemption in a judicial
foreclosure if the foreclosure is in favor of banks as
mortgagees.

The redemption period is one year after the sale of


real estate/one year from registration of certificate of
sale in the Registry of Property. (General Banking
Law of 2000)

STEP 4: Upon failure of mortgagor to pay the amount of


the judgment within the period specified, the mortgagee
shall file motion for the sale of the mortgaged property.
(Sec 3, Rule 68)
The motion for the sale of the mortgaged property is
non litigable and may be made ex parte pursuant to the
judgment of foreclosure

STEP 5: Public Sale


The manner of sale shall follow the rules governing
execution sales under Rule 39. (Sec. 3, Rule 68)
There should be a notice of foreclosure sales

STEP 6: Filing a motion for Confirmation of the Sale


The motion requires a notice and hearing. In the hearing
the mortgagor will be allowed the opportunity to show
cause why the sale should not be confirmed.
STEP 7: Issuance of order confirming the sale

Tiglao vs Botones
RULING:
A hearing is a very essential part of the proceedings because the
hearing gives the interested parties an opportunity to lay before the
court their reasons why the sale should or should not be confirmed, and
it is the result of this hearing which diverts the title if the sale is
confirmed.
In the case of Grimalt vs. Velasquez, this Court, relying upon its
decision in Raymundo vs. Sunico, ruled that "in order that a foreclosure
sale may be validly confirmed by the court, it is necessary that a hearing
be given the interested parties at which they may have an opportunity
to show cause why the sale should not be confirmed; that a failure to
give notice is good cause for setting aside the sale."

Effect of Confirmation of Sale


It shall operate to divest the rights in the property of all the parties to the action
and vest their rights in the purchaser subject to such rights of redemption as
may be allowed by law. (Sec. 3, Rule 68)
STEP 8: Securing a writ of possession upon motion
Upon the finality of the order of confirmation or upon the expiration of the period
of redemption when allowed by law, the purchaser at the auction sale or last
redemptioner if any shall be entitled to the possession of the property unless a
third party is actually holding the same adversely to the judgment obligor. The
said purchaser or last redemptioner may secure a writ of possession upon
motion from the court which ordered the foreclosure. (Sec. 3, Rule 68)

Disposition of the 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
and when there shall be any balance or residue, it shall
be paid to junior encumbrancers in the order of their
priority. If there be any further balance, it shall be paid
to mortgagor or duly authorized agent or to person
entitled to it. (Sec 4, Rule 68)

If the debt for which the mortgage was held is not all due as
provided in the judgment, as soon as a sufficient portion of the
property has been sold to pay the total amount and costs due,
the sale shall terminate; and 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 therefor, there being a rebate
of interest where such rebate is proper. (Sec. 5, Rule 68)

Deficiency Judgment
If upon the sale of any real property, there be a balance
due to the plaintiff after applying the proceeds of the
sale, the court upon motion shall render judgment
against the defendant for any such balance, for which
he may be personally liable to the plaintiff. (Sec. 6, Rule
68)
Execution may issue immediately if the balance is all
due at the time of the rendition of judgment otherwise
the plaintiff shall be entitled to execution at such time
as the balance remaining becomes due under the terms

Cases when deficiency judgment


cannot be decreed
1. One who mortgages his property to secure the debt of
another without expressly assuming personal liability
for such debt cannot be compelled to pay the
deficiency remaining due after the mortgage is
foreclosed.
2. In an action to foreclose a mortgage against a non
resident defendant not found in the Philippines who
fails to submit himself to the jurisdiction of the court,
no personal judgment for the deficiency can be
rendered.

STEP 9: Registration of the order confirming the sale.


A certified copy of the final order of the court confirming
the sale shall be registered in the registry of deeds .
(Sec. 7, Rule 68)
If no right of redemption exist, 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. 7,
Rule 68)

Where a right of redemption exists, the COT in the name of


the mortgagor shall not be cancelled but the Certificate of
Sale and Order Confirming the Sale shall be registered and a
brief memorandum thereof shall be made by the registrar
of deeds upon the COT. .(Sec. 7, Rule 68)
If 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 the certificate of title. .(Sec. 7, Rule 68)

If the property is not redeemed, the final deed of sale


executed by the sheriff at the foreclosure sale shall be
registered with the Registry of deeds, whereupon the
certificate of title in the name of the mortgagor shall be
cancelled and a new one is issued in the name of the
purchaser. .(Sec. 7, Rule 68)
Step 10: If mortgagee is a bank, the mortgagor has one
year from registration of the sale to redeem the property.

The provisions of Sec 31, 32 and 34 of Rule 39 shall be


applicable to the judicial foreclosure of real estate
mortgages in so far as the former are not inconsistent
with or may serve to supplement the provisions of the
latter. (Section 8, Rule 68)