Before and after of foreclosure proceedings

Spouses Gem and Jim entered into a housing loan agreement with Rich Bank.

The housing loan was secured by a real estate mortgage over a property owned by the spouses. The aggregate amount of the loan was P10,500,000, as evidenced by promissory notes.

But Gem and Jim defaulted on the payment of their loan.

The bank started extra-judicial foreclosure action of the real estate mortgage under the provisions of Act No. 3135, or an Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real-Estate Mortgages, as amended.

A certificate of sale was issued on June 11, 2010 and duly registered with the pertinent Register of Deeds on June 24, 2010.

At the end of the one-year redemption period without the spouses attempting to redeem the mortgaged property, the ownership of the lot was then consolidated in favor of the bank as purchaser in the auction sale. A new transfer certificate title was issued in favor of the bank.

When Gem and Jim refused to vacate the property when demanded by the bank, the latter filed an ex-parte petition for the issuance of a writ of possession, which was granted by the Regional Trial Court. Consequently, a notice to vacate was issued by the sheriff.

The writ of possession was successfully implemented and petitioners were evicted from the property, as shown in the Sheriff’s Return on Writ of Possession and Delivery Receipt.

This did not deter Gem and Jim from filing a motion to set aside the extra-judicial foreclosure sale and cancel the writ of possession, with prayer for damages on the ground that there was no violation of the mortgage contract. They argued that: (1) the agreed maturity date of the loan had not yet arrived; (2) the term loan agreement, the real estate mortgage contract, the promissory notes and the disclosure statement of loan/credit transaction did not provide for the amount of the monthly amortizations; and (3) no demand letter or statement of account of any amount payable for any given month was sent to their address.

They also alleged that the extra-judicial foreclosure sale did not conform to the prescribed procedures, as no notice was sent to their given address.

Also, petitioners averred that the bank’s ex-parte petition for writ of possession was fatally defective as it contained no allegation as to the posting and publication of the first and second notices of extrajudicial foreclosure sale, nor the sending of such notices to their given address.

Lastly, the spouses contended that they suffered damages arising from the extra-judicial foreclosure of their property and their eviction therefrom, which were both improper, unjust and oppressive.

The Bank countered that the contract contained an acceleration clause to the effect that, in any event of default, the entire obligation immediately became due and payable.

Thus, as a consequence of such default, the mortgagee had the right to foreclose the mortgage, to have the property seized and sold, and to apply the proceeds to the obligation.

They followed the requirements on posting and publication of the notice of extra-judicial foreclosure under Act No. 3135. Finally, whatever damages petitioners might have suffered were due to their own acts.

Q: Does the provision of Act No. 3135 only apply when the one-year redemption period has not yet lapsed?

A: Yes. The general rule is that, in extra-judicial foreclosures, a writ of possession may be issued to the purchaser in two different instances and based on two different sources: (1) within the redemption period, in accordance with Act No. 3135, particularly Section 7, as amended; and (2) after the lapse of the redemption period, based on the purchaser’s right of ownership.

In the first instance, Section 7 of Act No. 3135 provides that the purchaser in a foreclosure sale may apply for a writ of possession by filing an ex parte motion under oath. The provision also requires that a bond be furnished and approved, and no third person is involved.

On the other hand, Section 8 of the same Act, as amended, provides the remedy available to the debtor, that is, the opportunity to contest the transfer of possession but only within the period of redemption.

Under the second instance, which is what happened in the case at bar, a writ of possession may also be issued after consolidation of ownership of the property in the name of the purchaser or, in this case, the bank.

The purchaser becomes the absolute owner of the property purchased in the foreclosure sale, if it is not redeemed during the one-year period after the registration of the sale. After the consolidation of ownership in the purchaser’s name and issuance of a new Transfer Certificate of Title (TCT), possession of the land also becomes the absolute right of the purchaser.

The issuance of the writ of possession to the purchaser, upon proper application and proof of title, merely becomes a ministerial duty of the court, which cannot be enjoined or restrained even with the filing of a civil case to nullify the foreclosure and consequent auction sale. Any question regarding the regularity or validity of the mortgage or its foreclosure cannot be raised as a justification for opposing the issuance of the writ.

In the case at bar, the respondent bank registered the foreclosure sale on June 24, 2010. After the lapse of one year, or after June 24, 2011, the provisions of Act No. 3135 no longer applied to the parties. The respondent bank became the absolute owner of the subject property as a matter of right.

In line with this, the writ of possession was issued as a ministerial duty of the trial court. It was issued to the respondent bank as a matter of right, a mere incident of the bank’s ownership, and not in accordance with the remedy provided under Section 8.

Q: What is the proper recourse of Jim and Gem?

A: The proper recourse is for them to file a separate action in another proceeding like, for instance, an action for recovery of ownership, for annulment of mortgage and/or annulment of foreclosure. They cannot anymore avail of the remedy provided under Section 8 of Act No. 3135, as the redemption period has lapsed.

Their case can be properly threshed out in a separate proceeding where it will be tried on the merits and the parties will be afforded an opportunity to present their respective evidence in support of their allegations.

Source: Sps. Torrecampo vs. Wealth Development Bank Corp., G.R. No. 221845. March 21, 2022

The author is Chairman of Philippine Association of Law Schools; Dean of Lyceum of the Philippines University; and founder of Mawis Law Office The general rule is that, in extrajudicial foreclosures, a writ of possession may be issued to the purchaser in two different instances and based on two different sources