On foreclosing real estate mortgage
“Debt certainly isn’t always a bad thing,” said financial journalist Jean Chatzky. “A mortgage can help you afford a home. Student loans can be a necessity in getting a good job.”
“Both are investments worth making, and both come with fairly low interest rates.”
In fact, the Bangko Sentral ng Pilipinas (BSP) reported that as of September 2018, loans for real estate activities account for the largest share, or 17.65 percent of the loans for production granted by banks to residents, valued at P7.68 trillion. As of June 2018, residential and commercial real estate loans granted by banks and trust departments are meanwhile valued at about P1.84 trillion.
Banks and other financial institutions would usually require their borrowers to constitute real estate mortgages (REM) to ensure the payment of these loans.
As held by the Supreme Court in Central Bank of the Philippines v. Court of Appeals, the consideration of the accessory REM contract is the same as that of the principal contract. For the borrower, the consideration of his obligation to pay is the existence of a debt.
Thus, in a REM contract, the consideration of the borrower in furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt.
Immovable properties and alienable real rights imposed them may be the object of a REM contract.
Moreover, the REM extends to the following: natural accessions; improvements; growing fruits; rents or income not yet received when the obligation becomes due; 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, with the declarations, amplifications, and limitations established by law.
When the obligation under principal contract becomes due, the property in which the REM consists may be alienated for the payment to the lending bank or other financial institution.
REM may be subjected to judicial or extrajudicial foreclosure proceedings to satisfy the obligation under the principal contract. In Asia Trust Development Bank v. Tuble, the Supreme Court held that once the proceeds from the sale of the property are applied to the payment of the obligation, the obligation is already extinguished.
Judicial foreclosure of REM is commenced by the filing of a complaint with the proper court. The following must be joined as defendants in the said complaint: the persons obliged to pay the mortgaged debt; the owners or occupants of the mortgaged premises or any part thereof; the transferee or grantee of the property; and any person claiming a right or interest in the property subordinate to the mortgage sought to be foreclosed.
The defendants are entitled to equity of redemption in judicial foreclosure proceedings-that is, they may pay the amount ascertained by the court to be due upon the mortgage debt, including interests and other charges, and costs to the court or plaintiff within a period not less than 90 days nor more than 120 days from the entry of judgment.
Should the defendants fail to pay the said amount, the mortgaged property shall then be sold at public auction to satisfy the judgment.
If upon the sale of the mortgaged property, there remains balance due to the plaintiff after applying the proceeds of the sale, the court, upon motion, shall render judgment against the defendants for any such balance for which they may be personally liable to the plaintiff.
Execution may issue immediately if the balance is all due at the time of the rendition of the judgment. Otherwise, the plaintiff shall be entitled to execution at such time as the balance remaining becomes due under the terms of the original contract, which time shall be stated in the judgment.
Meanwhile, the mortgaged property may only be extrajudicially foreclosed within the province where it is located.
Said property may be sold by public auction in the place stipulated by the parties or in the municipal building of the municipality in which the property or part thereof is situated.
At such sale, the creditor, trustee, or other persons authorized to act for the creditor, may participate in the bidding and purchase of the foreclosed property under the same conditions as any other bidder, unless the contrary is stipulated in the mortgage or trust deed.
The right of redemption-that is, the right to redeem the sold property within one year from the registration of its sale, may only be exercised by the mortgagor in extrajudicial foreclosure proceedings and judicial foreclosure proceedings where the plaintiff is a bank or a banking institution.
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