FORECLOSURE of Mortgage - Redemption

FORECLOSURE

> Remedy available  to  the  mortgagee  by  which  he  subjects the mortgaged property to the satisfaction of the obligation to secure which the mortgage was given
> Denotes a procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself

VALIDITY AND EFFECT OF FORECLOSURE

> The  right  to  foreclose  the  mortgage  and  to  have  the property  seized  and  sold  with  a  view  to  applying  the proceeds to the payment of the principal obligation
>  A mortgage contract may contain an acceleration clause—on  occasion  of  the  mortgagor’s  default,  the  whole  sum remaining unpaid automatically becomes due and payable
> Essence    of    mortgage    contract—property    has    been identified  and  separated  from  a  mass  of  the  property  of the  mortgagor  to  secure  the  payment  of  a  principal obligation
> Once  the  proceeds  have  been  applied  to  the  payment  of the  principal  obligation,  the  debtor  cannot  anymore  be asked to pay unless there is deficiency

KINDS OF FORECLOSURE

1.   Judicial  
2.   Extrajudicial

AN  ACT  TO  AUTHORIZE  THE  MORTGAGE  OF  PRIVATE  REAL PROPERTY IN FAVOR OF ANY INDIVIDUAL, CORPORATION, OR ASSOCIATION SUBJECT TO CERTAIN CONDITIONS

Section    1.    Any    provision    of    law    to    the    contrary notwithstanding, private real property may be mortgaged in favor of any individual, corporation, or association, but the mortgagee  or  his  successor  in  interest,  if  disqualified  to acquire   or   hold   lands   of   the   public   domain   in   the Philippines,  shall  not  take  possession  of  the  mortgaged property during the existence of the mortgage and shall not
take  possession  of  the  mortgaged  property  except  after default    and    for    the    sole    purpose    of    foreclosure, receivership,  enforcement  or  other  proceedings  and  in  no case  for  a  period  of  more  than   5  years   from  actual possession and shall not bid or take part in any sale of such real  property  in  case  of  foreclosure:  Provided,  that  said mortgagee or successor in interest may take possession of said   property   after   default   in   accordance   with   the prescribed    judicial    procedures    for    foreclosure    and receivership  and  in  no  case  exceeding  5  years  from  actual
possession.

Section 2. All laws,  orders, or regulations,  or parts thereof inconsistent with the provisions of this Act, are repealed or modified accordingly.

Section 3. This Act shall take effect upon its approval.
NOTES ON RA 133:

1.   You can mortgage to a foreigner.   RA 133  sanctions this.  Ownership is not equivalent to mortgage.  Nonetheless, he can    only    institute    judicial    proceedings    and    not extrajudicially  foreclose  the  mortgage.    Furthermore,  he cannot bid or take part in the sale of the real property.
2.   The  foreigner  may  not  take  possession  of  the  property during the mortgage.  He could only possess the same as a lessee.
3.   The foreigner may only take possession of the mortgaged property   after   default,   and   for   the   sole   purpose   of foreclosure,  enforcement  or   other  proceedings.     This should  not  exceed  the  period  of  5  years  from  actual possession.

JUDICIAL FORECLOSURE UNDER RULE 68, RULES OF COURT

1.   The mortgagee should file a petition for judicial foreclosure in the court which has jurisdiction over the area where the property is situated
2.   The court will conduct a trial.  If, after trial, the court finds merit in the petition, it  will render judgment  ordering the mortgagor/debtor to pay the obligation within a period not less  than  90  nor  more  than  120  days  from  the  finality  of judgment.
3.   Within  this  90  to  120  day  period,  the  mortgagor  has  the chance to pay the  obligation to prevent his property from being  sold.    This  is  called  the  EQUITY  OF  REDEMPTION PERIOD.   
4.   If mortgagor fails to pay within the 90-120 days given to him by the court, the property shall be sold to the highest bidder at public auction to satisfy the judgment.
5.   There will be a judicial confirmation of the sale.  After the confirmation of the sale, the purchaser shall be entitled to the  possession  of  the  property,  and  all  the  rights  of  the mortgagor  with  respect  to  the  property  are  severed  or terminated.  The  equity  of  redemption  period  actually extends until the sale is confirmed.  Even after the lapse of the 90 to 120 day period, the mortgagor can still redeem the property, so long as there has been no confirmation of the sale yet.  Therefore, the equity  of redemption  can  be
considered  as  the  right  of  the  mortgagor  to  redeem  the property BEFORE the confirmation of the sale.

a.    After  the  confirmation  of  the  sale,  the  mortgagor does  not  have  a  right  to  redeem  the  property anymore.    This  is  the  general  rule  in  judicial foreclosures – there is no right of redemption after the sale is confirmed.

The  proceeds  of  the  sale  of  the  property  will  be  disposed as follows:
a.    First,  the  costs  of  the  sale  will  be  deducted  from the price at which the property was sold
b.   The amount of the principal obligation and interest will be deducted
c.    The junior encumbrances will be satisfied
d.   If there is still an excess, the excess will go back to the mortgagor.  In mortgage, the mortgagee DOES
NOT get the excess (unlike in pledge).
i.   If there is a deficiency, the mortgagee can ask  for  a  DEFICIENCY  JUDGMENT  which can  be  imposed  on  other  property  of  the mortgagor.      The   rule   on   extrajudicial foreclosure  is  different.  The  mortgagee must go to court and file another action for the collection of the deficiency.   
ONE WOULD SHY AWAY FROM A JUDICIAL FORECLOSURE:

1.   Judicial foreclosure is costly, since the parties would need to hire lawyers.  But then again, the present rules provide that  court  fees  are  needed  to  be  paid  in  extrajudicial proceedings also.  
2.   The  parties  have  very  little  control  over  the  sale  because there is court intervention.

3.   More   susceptible   to   stalling/dilatory   tactics   by   the mortgagor, since he can file all sorts of motions in court to prevent the sale.
4.   It is more efficient to have extrajudicial proceedings since for judicial proceedings, there is a minimum lapse of time of 6 years.
EXTRAJUDICIAL FORECLOSURE

(UNDER    ACT    3135/4118    AND    SC    ADMINISTRATIVE CIRCULAR)

WHERE SHOULD AN EXTRAJUDICIAL FORECLOSURE SALE BE DONE?

> Sale  cannot  be  made  legally  outside  the  city  or  province wherein  the  property  sold  is  situated.    In  case  the  place has  been  stipulated,  it  shall  be  made  in  the  municipal building of the said place
NOTICE OF THE SALE

1.   POSTING  of  the  notices  of  the  sale  FOR  NOT  LESS  THAN 20 DAYS in at  least 3 public  places  of the municipality or city where the property is situated
2.   IF  THE  PROPERTY  IS  WORTH  MORE  THAN  P400,  such notice  shall  also  be  published  once  a  week  at  least  3 consecutive weeks in a newspaper of general circulation in the municipality or city.  (You don't need to count 6 days between publications.)
NOTE:  there  is  jurisprudence,  which  held  that  there  is  sufficient notice when there is publication.
PUBLIC AUCTION/SALE

1.   Time shall be between 9AM and 4PM.  It shall be made in the  direction  of  the  sheriff  of  the  province,  the  justice  or auxiliary justice of the peace of the municipality, or of the notary    public    of    the    municipality,    who    shall    be compensated  with  P5  for  each  day  of  actual  work  or performance in addition to his expenses.

2.   Anyone may  bid at the  sale,  unless there  are  stipulations in the agreement.

POSSESSION

> Upon foreclosure, if the mortgagor is in possession of the property,  he  will  retain  possession  during  the  redemption period—1 year from the date of sale
> If   the   winning   bidder   wants   possession   during   the redemption period, he may execute a bond in the amount equivalent  to  the  use  of  the  property  for  12  months,  to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of the Act.  Upon approval, a writ of possession will be issued in his favor.
>  If  the  winning  bidder  is  able  to  secure  possession,  the mortgagor may petition that the sale is set aside and the writ  of  possession  be  cancelled  on  the  ground  that  he wasn't   in   default   or   that   the   sale   wasn't   made   in accordance  with  Act  3135.    This  must  be  filed  within  30 days from issuance of the writ of possession.

RIGHT OF REDEMPTION

> The  debtor,  his  successors-in-interest,  or  any  judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or  deed  of  trust  under  which  the  property  is  sold,  may redeem  the  same  at  any  time  WITHIN  THE  TERM  OF  1 YEAR FROM AND AFTER THE DATE OF THE SALE and such will be governed by the Rules of Court

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