FAQ on Real Estate Mortgage - Part 2 of 2

[Basic Knowledge for Brokers Series]

Most buyers purchase their first home through amortization. Most amortized properties are bank financed. The real estate transaction that binds the relationship between the financial institution and the buyer is something we call Mortgage.


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What is the effect of a forged power of attorney?

The mortgage is void. The mortgagee is duty bound to verify the validity of the power of attorney.

What are the legal implications of a real estate mortgage?

  • § A mortgage subjects as real estate property whoever the possessor of the same, to the fulfillment of the principal obligation
  • § The owner may alienate the property subject of the mortgage and any stipulation to the contrary shall be null and void
  • § The mortgage credit maybe alienated or assigned to third persons in whole or in part, with the formalities required by law
  • § The parties cannot stipulate a "tipo" or offset price at which the property will be sold at the foreclosure proceedings]

Is the mortgagor always the debtor in a contract of mortgage?

No. A third person who is not a debtor or party to the principal obligation may secure the said obligation by mortgaging his own property.

What is the difference between "pactum comisorium" and "pactum de non-aliendo?"

"Pactum comisorium" is a stipulation in a contract of mortgage which authorizes the mortgagee to appropriate the property as his own upon failure of the debtor to fulfill the principal obligation. On the other hand, a "pactum de non-aliendo" is stipulation which prohibits the mortgagor from alienating or selling the property within the period of mortgage.

What is the difference between an open mortgage and a closed mortgage?

An open mortgage can be paid off at any time before the maturity date while a closed mortgage cannot be paid off before the expiration of the date unless the mortgagee, is willing to accept payment.

When a mortgage without marital consent is allowed?

For the wife:

  • § paraphernal property
  • § administration: as guardian of her husband; when she asks for the declaration of his absence; in case of civil interdiction of the husband
  • § complete separation of property

For the husband:

  • § capital property
  • § wife was declared non compos mentis or a spend thrift; is under civil interdiction; is confined in a leprosarium; refuses unreasonably to give her consent, in which case the court compels her to grant the same

May an alien accept a mortgage of land to secure in his favor?

Yes. The prohibition applies only to acquisition of land by aliens. In a contract of mortgage, however, the mortgagee does not acquire ownership of the property.

Who is entitled to possession of the mortgaged property?

§ The mortgagor

In the absence of any agreement to the effect, is it necessary for the mortgagor to secure authorization from the mortgagee for the purpose of mortgaging the land for the second time?

No. To seek previous consent of the first mortgagee, in the absence of any agreement to that effect, is to ask what the mortgagor is already permitted by law to do, even without any authorization.

If the contract of mortgage prohibits the constitution of a second mortgage with the penalty of foreclosure and the mortgagee nevertheless mortgaged the property again, can the mortgagee treat the second mortgage as void? What is the remedy of the mortgagee?

§ No. The mortgagee can immediately foreclose the mortgage.
What will happen if one failed to pay the obligation on the agreed date?
The land shall automatically belong to the mortgagee.

Is the stipulation a "pactum commisorium?"

This is not a pactum commisorium for it does not authorize the mortgagee to appropriate the mortgaged property; it constitue only a promise to assign said property in payment of the obligation. In other words, the property does not automatically become the property of the creditor; the mortgagor still has to convey it.

What is the difference between a real estate mortgage and a chattel mortgage?

As to Subject Matter

  • § In a real estate mortgage, the subject matter is real property or real rights on real property, while in chattel mortgage, the subject matter is personal property.
  • § A real estate mortgage may secure future obligations, while a chattel mortgage cannot secure future obligation

As to Form

§ A real estate mortgage must be constituted in a public document, while a chattel mortgage may be executed in a private document provided it is accompanied by an affidavit of good faith.

As to Requirement of Registration

§ In real estate mortgage, the requirement of registration is merely for the purpose of binding third person, while in chattel mortgage, the requirement of registration is essential for its validity.

As to Procedure for Foreclosure

§ The procedure for foreclosure of a real estate mortgage is different from that of chattel mortgage.

As to Deficiency Judgment

§ In judicial foreclosure of a real estate mortgage, the creditor is entitled to a deficiency judgment, but not, in extrajudicial foreclosure; in chattel mortgage, the creditor is, likewise, entitled to a deficiency judgment, except in cases provided for by law.

What is junior mortgage?

It is a mortgage subordinate to an earlier mortgage on the same property, where the subsequent leader’s claim against the owner’s right must respect the claim of the first mortgage. For example, John mortgaged his property to Peter which he registered. Then John mortgaged the same property to Joseph, which was also registered. In this case, the mortgage to Joseph is the junior mortgage.

What is foreclosure?

Foreclosure is a process instituted by a mortgaged by which property subject of the mortgage is sold at the public auction to satisfy the principal obligation which the debtor failed to fulfill.

What are the kinds of foreclosure?

  • § Judicial- through the courts
  • § Extrajudicial- when there is a special power to sell

Where is the venue of action for foreclosure?

Regional Trial Court of the province where the land lies or as agreed by the parties.

When may the mortgagee resort to judicial foreclosure and when may he resort to extrajudicial foreclosure?

The mortgagee may resort to extrajudicial foreclosure if the contract of mortgage contains a stipulation appointing him, in case the principal obligation is not fulfilled on the due date as attorney-in-fact of the mortgagor to sell the property at public auction. In the absence of such stipulation, the mortgagee must resort to judicial foreclosure.

What is the nature of judicial foreclosure?

In judicial foreclosure, the mortgagee files a petition or complaint in court with competent jurisdiction, in which petition or complaint he is the plaintiff and the mortgagor, the defendant. He must prove the existence of the mortgage, the amount thereof, the existence of the principal obligation and the non-payment or non-fulfillment thereof. If the court is satisfied, it orders the debtor to pay the debt within (90) days, otherwise, the property will be sold at public auction.

What is the nature of extrajudicial foreclosure?

In extrajudicial foreclosure, the creditor or the mortgage controls the details of the sale. After the posting and publication of the notice of sale, the sale itself is conducted under the direction of the sheriff, a judge of the municipal or metropolitan trial court, or a notary public of the municipality or city where the property is located.

What is the difference between right of redemption and equity of redemption?

In general, the right of redemption is available only in extrajudicial foreclosure of mortgage, where the mortgagor may redeem the property within the term of one (1) year from and after registration of the auction sale.

In judicial foreclosure of mortgage, there is no right of redemption reserved the debtor or mortgagor, unless expressly permitted by law, such as the General Banking Act, which mandates banks, banking or credit institutions, to give the right to the mortgagor, to redeem the property sold in foreclosure proceedings, whether judicial or extrajudicial, within one (1) year from and after registration of such sale.

While in general, the debtor or mortgagor in judicial foreclosure of mortgage has not right of redemption, he has what is known as equity of redemption, in which the debtor or mortgagor may redeem the property within (90) days from the order of foreclosure, or even thereafter, but before the judicial confirmation of the sale.

What are the rights of the second mortgagee in a judicial foreclosure of real estate mortgage?

  • § Right to be joined as a party dependent together with the mortgagor.
  • § Right to participate in public bidding of the mortgaged property held under the judicial foreclosure.
  • § Right to be paid to the extent available out of the excess of the proceeds of the foreclosure sale less claims of the first mortgagee and less the incidental expenses.

What is the obligation of the second mortgagee?

Respect the priority to the first mortgagee

What is redemption?

Redemption is a transaction through which a mortgagor re-acquires or buys back the value of the title which may have passed under the mortgage, or divest the mortgaged premises of the lien which the mortgage may have created.

What are the different kinds of Redemption?

  • § Equity of redemption- the right to redeem after his default but before the foreclosure sale is confirmed by the court
  • § Right of redemption- the right of to repurchase within a certain period after the foreclosure sale
  • § Conventional redemption- takes place when a mortgagor reserves the right to repurchase the thing sold with the obligation to comply with the provision of Article 1616 of the Civil Code and other stipulations agreed upon.
  • § Legal redemption- the right to be subrogated upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment or by any other transaction whereby ownership is transmitted by onerous title.

May a real estate mortgage include the machinery place upon and used in connection with the mortgaged land?

Yes. A mortgage of the land is deemed to include the machinery place upon and used in connection with the mortgaged land, if placed by the owner himself.

May a real estate mortgage include the growing fruits on mortgaged land?

Yes, but only those fruits not yet gathered when the obligation falls due.

May a real estate mortgage include the rent of the mortgaged property?

Yes, but only rents not yet collected when the obligation falls due and all rents payable until the credit is fully satisfied.

If the mortgaged property lies between two provinces, where should the mortgage be registered? What portion of the registration fee shall be paid to each register of deeds?

  • § The mortgage shall be registered in the Register of Deeds of both provinces
  • § Each Register of Deeds shall charge the amount obtained for the properties lying within their respective jurisdiction apportioning the total amount of the mortgage in accordance with the current assessed value of the property

May an alien (individual, corporation or association) be a mortgagee of real estate property?

Yes, RA No.133 provides that aliens may be mortgagees or lessees of real estate up to a period of five (5) years.

Mortgage to alien is allowed but the mortgagee shall not take possession or enjoy the fruits of the mortgaged real property and shall not bid or take part in any sale of such real property in case foreclosure.

How do you compute the registration fees for a deed of sale with mortgage to secure the balance of the purchase price?

  • § The selling price plus the full amount of the mortgage
  • § The selling price plus the unpaid balance of the mortgage if the latter is stated in the mortgage contract

Example: A property is mortgaged for P10, 000.00 said property was then sold for P30,000.00, on condition that the vendee will pay P20, 000.00 cash, and assume the mortgage of P10, 000.00.

What is the basis of the registration fees?

§ The cash paid by the vendee plus the amount of the mortgage assumed by him, which in this case is P30, 000.00 (P20, 000.00 plus P10, 000.00).


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