JUDICIAL FORECLOSURE (RULE 68 of the Rules of Court)

Points to ponder:
> 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 is situated. (Judicial action for the purpose)
> The court shall order the mortgagor to pay the amount due upon the
mortgage debt with interest and other charges within a period of not less
than 90 days nor more than 120 days from the entry of judgment.
> If the mortgagor fails to pay at the time directed in the order, the court,
upon motion, shall order the property to be sold to the highest bidder at
public auction.
> The mortgagor may exercise his equity of redemption before but not after
the sale is confirmed by the court. It is simply the right of the defendant
mortgagor to extinguish the mortgage and retain ownership of the property
by paying the secured debt within the 90-day period after the judgment
become final in accordance with Rule 68, or even after the foreclosure sale
but prior to its confirmation.
> The sale when confirmed (Confirmation of Sale) by an order of the court,
also upon motion, shall operate to divest the rights of all parties to the action
and to vest their rights in the purchaser subject to such right of redemption
as may be allowed by law. Before the confirmation of a judicial foreclosure
sale, the court retains control of the proceedings by exercising a sound
discretion in regard to it.
> In the stage of execution of judgment, no judgment rendered in an action
for foreclosure or mortgage can be executed otherwise than in the manner
prescribed by the law on mortgages. If an aggrieved party wants to seek
reversal of said judgment, the proper remedy is an ordinary appeal of the
judgment itself or from the order confirming said sale of the foreclosed real
estate.
> Once the property is foreclosed, the proceeds thereof shall be applied to
the payment of the following, to wit:
a. Costs of the sale;
b. The amount due the mortgagee;
c. Claims of junior encumbrances or persons holding subsequent mortgages
in the order of their priority; and
d. The balance if any shall be paid to the mortgagor or his duly authorized
agent or to the person entitled to it. If the mortgagee retains it, the mortgagor
has a cause of action to recover such surplus.
e. In judicial foreclosures, the “foreclosure” is not complete until the sheriff’s
certificate is executed, acknowledged and recorded or otherwise known as
the Execution of Certificate. Without a Certificate of Sale, no title passes by
the foreclosure proceedings to the vendee. It is only when the foreclosure
proceedings are completed ant he mortgaged property sold to the purchaser
that all interests of the mortgagor are cut off from the property.
> If there be a balance due to the mortgagee after applying the proceeds of
the sale, under Rule 68 of the Rules of Court, the mortgagee is entitled to
recover the deficiency because the law specifically provides for said remedy.
EXTRAJUDICIAL FORECLOSURE (ACT 3135)
Points to ponder:
> The law covers only real estate mortgages;
> A mortgage may be foreclosed extrajudicially where there is inserted in
the contract a clause giving the mortgagee the power upon default of the
debtor, to foreclose the mortgage by an extrajudicial sale of the mortgaged
property;
> The authority to sell is not extinguished by the death of the mortgagor or
mortgagee;
> The sale, which cannot be made legally outside of the province in which
the property is situated, shall be made at public auction, after the giving of
proper notice after posting said notice in 3 public places and publication in
a newspaper in said city or municipality;
> Failure to comply with the statutory requirements as to publication of
notice of auction sale constitutes a jurisdictional defect which invalidates
the sale or at least renders the sale voidable. A sale held after the scheduled
date indicated in the notice of sale is void.
> Certificate of posting not required. What the law requires is the posting of
the notice, not the execution of the certificate of posting.
> Personal notice to the mortgagor is not generally required unless required
in the mortgage contract, the lack of personal notice to the mortgagor is not
a ground to set aside a foreclosure sale.
> The following are the procedures in extrajudicial foreclosure sales, to wit:
a. All applications shall be filed with the Executive Judge, through the Clerk
of Court.
b. Upon receipt of an application, it shall be duty of the Clerk of Court to:
i. Receive and docket said application and to stamp thereon the
corresponding file number, date and time of filing;
ii. Collect the filing fees, and issue the official receipt;
iii. Examine whether the application has complied with all the
requirements of Sec 4, Act 31351 before the public auction is
conducted;
iv. Sign and issue the certificate of sale, approved by the Executive
Judge or the Vice-Executive Judge. No certificate of sale shall be issued
in favor of the highest bidder until all fees provided for shall have been
paid;
v. After the certificate of sale has been issued to the highest bidder,
keep the complete records, while awaiting any redemption within 1
year from the date of registration of the certificate of sale with the RD

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SECTION 4. The sale shall be made at public auction, between the hours or nine in the morning and four in the
afternoon; and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of the
peace of the municipality in which such sale has to be made, or a notary public of said municipality, who shall be
entitled to collect a fee of five pesos each day of actual work performed, in addition to his expenses.
 concerned, after which the records shall be archived. This is otherwise
known as the right of redemption.
Take note that said rule is different when it comes to juridical persons
such as banks because they have the right to redeem the property
until, but not after the registration of the certificate of foreclosure sale
which in no case shall be more than 3 months after foreclosure,
whichever is earlier.

c. The notices of auction sale in extrajudicial foreclosure for publication of

the sheriff or by a notary shall be published in a newspaper of general
circulation;
d. The Executive Judge shall raffle applications for extrajudicial foreclosure
of mortgage under the direction of the sheriff among all sheriffs; and
e. The names of the bidders shall be reported by the sheriff or the notary
public who conducted the sale before the issuance of the certificate of sale.
> After the extrajudicial foreclosure, and if there is balance due to the
mortgagee after applying the proceeds of the sale, may the mortgagee under
Act 3135 recover the deficiency? The act is silent on the matter. But
remember the principle laid not only under the Act 3135 but also on Rule 68,
the principle is the same, that the mortgage is but a security and not a
satisifaction of the indebtedness. Therefore, you can still recover the
deficiency.
In the case of BPI Family Savings Bank vs. Avenido, GR # 175816, December
7, 2011: The court had laid rest to the recurring issue, to wit: “It is settled that
if the proceeds of the sale are insufficient to cover the debt in an extrajudicial
foreclosure of mortgage, the mortgagee is entitled to claim the deficiency
from the debtor. While Act No. 3135, as amended, does not discuss the
mortgagees right to recover the deficiency, neither does it contain any
provision expressly or impliedly prohibiting recovery. If the legislature had
intended to deny the creditor the right to sue for any deficiency resulting
from the foreclosure of a security given to guarantee an obligation, the law
would expressly so provide. Absent such a provision in Act No. 3135, as
amended, the creditor is not precluded from taking action to recover any
unpaid balance on the principal obligation simply because he chose to
extrajudicially foreclose the real estate mortgage”
After the extrajudicial foreclosure and there is a surplus money, what would
happen? They are considered constructively real property and belong to
the mortgagor or his assigns.
So when does surplus money gain significance? This would come into play
when there are junior encumbrancers on the mortgaged property, that is,
when there are several liens upon the property, the surplus money must be
applied to their discharge in the order of their priority. If there is any excess,
it shall now be lawfully returned to the mortgagor-debtor.
So when a third person is the mortgagor, can he may be held liable for the
deficiency under Rule 68 and Act 3135? No, he cannot be made liable unless
there is an agreement to that effect. The recourse of the creditor is to go
against the debtor.
> Under the law, there is a prescriptive period provided for actions to
recover a deficiency after foreclosure, and be reminded that the same
prescribes in 10 years from the time the right of action accrues. Granting
without admitting that said right to recover the deficiency is within the
period as laid therein, the mortgagee-creditor is not forced to foreclose the
property and follow the rules as provided earlier, he can always file a
complaint for payment of the debt as take note, the mortgage is merely a
security to the principal obligation. So, the mortgagee cannot have both
remedies. He has only one cause of action; hence, he cannot split up his cause
of action but filing a complaint for payment of the debt, and another
complaint for foreclosure.
So what if the mortgagor dies, a secured creditor, has three (3) distinct,
independent, and mutually exclusive :
a. To waive the mortgage and claim the entire debt from the estate of the
mortgagor as an ordinary claim;
b. To foreclose the mortgage judicially and prove any deficiency as an
ordinary claim;
c. To rely on the mortgage exclusively, foreclosing the same at any time
before it is barred by prescription without any right to file a claim for any
deficiency. And this includes the extrajudicial foreclosure which bars any
subsequent deficiency against the estate of the deceased.
Clearly, the rule is different when it is a claim against the estate of the
deceased, that is the provisions under Special Proceedings should be made
applicable.
> When a property subject of mortgaged has been foreclosed, a foreclosure
sale retroacts to the date of the registration of the mortgage and that a person
who takes a mortgage in good faith and for value, the record showing clear
title to the mortgagor, will be protected against equitable claims on the title
in favor of third persons of which he had no actual or constructive notice.
Therefore, a notice of adverse claim annotated after the registration of the
mortgage but before the foreclosure cannot affect the rights of the
mortgagee.
> If the mortgaged property was sold via public auction, the mortgagor may
still redeem the same or reacquire he property which may have passed under
the mortgage or divests the property of the lien which the mortgage may
have created.
What are the kinds of redemption then? And when can the same be made
applicable?
a. EQUITY OF REDEMPTION or the right of the mortgagor in case of
judicial foreclosure (Rule 68) to redeem the mortgaged property after his
default in the performance of the conditions of the mortgage but before the
confirmation of the sale of the mortgaged property. In judicial foreclosure,
the mortgagor may exercise his equity of redemption before but not after the
sale is confirmed by the court. It is simply the right of the defendant
mortgagor to extinguish the mortgage and retain ownership of the property
by paying the secured debt within the 90-day period after the judgment
become final in accordance with Rule 68, or even after the foreclosure sale
but prior to its confirmation.
Why it must be redeemed before the confirmation of sale? It must be
redeemed before it as confirmation of the sale of mortgaged real property
cuts off all the rights or interests of the mortgagor and of the mortgagee, and
with them the equity of redemption in the property and vests them in the
purchaser. However, if the property has been mortgaged in favor of the
Bank, redemption is allowed within one year from the confirmation of the
sale.
Notice and hearing of a motion for confirmation of sale are essential to the
validity of the order of confirmation. An order of confirmation, void for lack
of notice and hearing, may be set aside anytime and the mortgagor may still
redeem the mortgaged property.
b. RIGHT OF REDEMPTION or the right of the mortgagor in case of
extrajudicial foreclosure (Act 3135) to redeem the mortgaged property
within a certain period after it was sold for the satisfaction of the mortgage
debt. In all cases of extrajudicial sale, the mortgagor may redeem the
property at any time within the term of one year from and after the date of
registration of the certificate of sale with the appropriate Registry of deeds.
Be reminded that, Redemption being optional and not compulsory, a formal
offer to redeem, accompanied by a bona fide tender of the redemption price
within the prescribed period of redemption is only essential to preserve the
right of redemption for future enforcement even beyond such period. All in
all, what constitutes a condition precedent is either a formal offer to redeem
or the filing of an action in court together with consignation of the
redemption price within the reglementary period.
Republic Act 87912 limits the redemption period of juridical mortgagors to
only 3 months, to begin from the date of the foreclosure sale but not after the
registration of the certificate of foreclosure sale whichever comes first.

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The General Banking Law of 2000
> In both redemption, a sale by the mortgagor to a third party of the
mortgaged property during the period of redemption transfers only the right
to redeem the property and the right to possess, use and enjoy the same
during the said period. The judgment debtor remains in possession of the
property foreclosed and sold, during the period of redemption, but he
cannot make a conveyance of the ownership of the property as said
ownership belongs to the purchaser at the foreclosure sale.

Chapter four
ANTICHRESIS
Art. 2132. By the contract of antichresis the creditor acquires the right to
receive the fruits of an immovable of his debtor, with the obligation to
apply them to the payment of the interest, if owing, and thereafter to the
principal of his credit. (1881)
The article already defined what is Antichresis.
It has three characteristics, to wit:
a. It is an accessory contract;
b. It gives a real right; and
c. It is a formal contract as it must state the amount of the principal and of
the interest which must be in writing, otherwise the contract of antichresis
shall be void.
A contract of antichresis does not cover the immovable but only as to its
fruits. Keep in mind that mere turnover of the property to pay the obligation
does not necessarily mean antichresis because it must be so stipulated. In
the absence of said stipulation, it may be a dation in payment or a different
contract.
To be antichresis, it must expressly agreed between creditors and debtor that
the former, having been given possession of the properties given as security,
is to apply their fruits to the payment of interest, if owing, and thereafter to
the principal of his credit. But take note, the creditor is only interested as to
the fruits of said property so therefore, it is not anymore necessary to deliver
the possession of the property to the creditor.
Antichresis Pledge
Real property Personal property
Perfected by mere consent Perfected by mere delivery of the
thing
Consensual contract Real Contract

Both are similar in terms of the debtor losing control of the subject matter of
the contract.
So how can we determine under the contract if it what was entered is a
mortgage and not an antichresis? Here is the test of measurement: if in a
contract of loan with security does not stipulate the payment of interest but
provides for the delivery to the creditor by the debtor of the real property
constituted as security for the payment therefor, in order that the creditor
may administer the same and avail himself of its fruits, without stating that
said fruits are to be applied to the payment of interest, if any, and afterwards
to that of the principal of the credit, the contract shall be considered to be
one of mortgage, and not of antichresis.
Art. 2133. The actual market value of the fruits at the time of the
application thereof to the interest and principal shall be the measure of
such application. (n)
The fruits of the immovable which is the object of the antichresis must be
appraised at their actual market value at the time of the application.
Art. 2134. The amount of the principal and of the interest shall be specified
in writing; otherwise, the contract of antichresis shall be void. (n)
The amount of the principal and interest must be in writing. This is
mandatory.
Art. 2135. The creditor, unless there is a stipulation to the contrary, is
obliged to pay the taxes and charges upon the estate.
He is also bound to bear the expenses necessary for its preservation and
repair.
The sums spent for the purposes stated in this article shall be deducted
from the fruits. (1882)
What are the obligations of the creditor?
a. To pay the taxes and charges upon the estate UNLESS it is otherwise
agreed upon;
So if the creditor does not pay the taxes, the debtor is of course, prejudiced.
Therefore, the creditor is liable for damages.
b. To pay expenses for necessary repairs.
The sums spent by the creditor in fulfillment of the obligations under this
article shall be charged against the fruits of the property.
Art. 2136. The debtor cannot reacquire the enjoyment of the immovable
without first having totally paid what he owes the creditor.
But the latter, in order to exempt himself from the obligations imposed
upon him by the preceding article, may always compel the debtor to enter
again upon the enjoyment of the property, except when there is a
stipulation to the contrary. (1883)
In the first paragraph, after the debtor has paid totally what he owes to the
creditor, as a matter of course, debtor can reacquire the enjoyment of the
immovable. Basic.
Under the second paragraph, to exempt the creditor from performing the
tasks as provided under the preceding article, he may compel the debtor to
enter again upon the enjoyment of the property.
Art. 2137. The creditor does not acquire the ownership of the real estate for
non-payment of the debt within the period agreed upon.
Every stipulation to the contrary shall be void. But the creditor may
petition the court for the payment of the debt or the sale of the real
property. In this case, the Rules of Court on the foreclosure of mortgages
shall apply. (1884a)
This article serves as a prohibition against pactum commissorium.
The creditor may either bring an action for specific performance or foreclose
said property either under rule 68 or Act 3135.
May the creditor acquire the ownership over the property subject of the
contract of antichresis? No unless he repudiates his status as an anthicretic
creditor.
Art. 2138. The contracting parties may stipulate that the interest upon the
debt be compensated with the fruits of the property which is the object of
the antichresis, provided that if the value of the fruits should exceed the
amount of interest allowed by the laws against usury, the excess shall be
applied to the principal. (1885a)
Art. 2139. The last paragraph of Article 2085, and Articles 2089 to 2091 are
applicable to this contract.
2085 are essential requisites to the contracts of pledge and mortgage, 2089
and 2090 are the rules as to indivisibility of mortgages and pledges, and
2091 simply means it may secure all kinds of obligations.