Mortgage, often referred to as “real estate mortgage” or “real mortgage,” plays a significant role in property financing and securing debt obligations in the Philippines. It is a legally binding contract between a debtor and a creditor, where the debtor pledges specific immovable property or real rights over immovable property as collateral to ensure the fulfillment of a principal obligation. In the event of non-compliance with the agreed-upon terms, the creditor has the right to satisfy the obligation by selling the mortgaged property or rights. This blog explores the intricacies of real estate mortgage, its implications, and the crucial role it plays in property transactions and financial arrangements.
What is Real Estate Mortgage?
Real estate mortgage is a contract whereby the debtor secures to the creditor the fulfillment 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.
What are the requisites of real estate mortgage?
The essential requisites are:
- It must be constituted to secure a principal obligation;
- The mortgagor must be the absolute owner of the thing mortgaged; and
- He must have free disposal of the thing or otherwise be authorized to do so. [1]
Is the contract of real estate mortgage still valid even if not registered in the registry of property?
Yes. Registration in the registry of property is necessary to bind third persons, but not for the validity of the contract.[2]
What is the effect of a real estate mortgage?
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. [3]
Can there be oral mortgage?
Yes, however this is binding only as between parties. The oral mortgage is not binding against third persons since the mortgage cannot be registered in the mortgage in the Registry of Property since it is an oral mortgage.
What is the “doctrine of mortgage in good faith”?
Under the said doctrine, a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of the property given as security in the absence of any sign that may arouse suspicion and has no obligation to undertake further investigation. [4]
What is a foreclosure in real estate mortgage?
Foreclosure is a remedy available to the mortgage by which he subjects the mortgaged property to the satisfaction of the obligation for which the mortgage was constituted.
When is the remedy of foreclosure available?
When the principal obligation is not paid when due, the mortgagee has the right to foreclose the mortgage and to have the property seized and sold, and to apply the proceeds thereof to the payment of the principal obligation.[5]
To whom does the power to foreclose reside?
It resides on the mortgagee.[6]
Is the debtor required to pay the deficiency even after foreclosure?
Yes. Once the proceeds have been applied to the payment of the obligation, the debtor cannot anymore be required to pay, unless there is a deficiency between the amount of the loan and the foreclosure sale price, because the obligation has already been extinguished. [7]
What happens when public notice of foreclosure is not complied with?
The rule governing public notice of foreclosure must be strictly complied with and slight deviations will invalidate the sale or render it voidable[8].
What is extrajudicial foreclosure?
Extrajudicial foreclosure happens when the mortgagee is given a special power of attorney to sell the mortgaged property by public auction, under Act No. 3135. It must be stipulated in the contract.[9]
What is right of redemption?
Right of redemption is the right of the mortgagor to redeem the mortgaged property within 1 year from the date of registration of the certificate of sale. [10]
What is judicial foreclosure?
Judicial foreclosure is an ordinary action for foreclosure under Rule 68 of the Rules of Court. A mortgage may be foreclosed judicially by bringing an action for that purpose, in the proper court which has jurisdiction over the area wherein the real property involved or a portion thereof, is situated. [11]
What is equity of redemption?
[1] Article 2085, The New Civil Code of the Philippines
[2] Article 2125, Ibid.
[3] Article 2126, Ibid.
[4] Bank of Commerce v. Sps. San Pablo, G.R. No. 167848, April 27, 2007.
[5] Sps. Landrito v. CA, G.R. No. 133079, August 9, 2005.
[6] Valmonte v. CA, G.R. No. 41621, February 18, 1999.
[7] State Investment House, Inc. v. CA, G.R. No 99308, November 13, 1992.
[8] Tambunting v. CA, G.R. No. 48278, November 8, 1988.
[9] Act No. 315
[10] Sec. 6, Ibid.
[11] Section 1, Rule 4, Rules of Court.
