PAREB–QCRB : Real Estate Manual 2013
7.2 LEGAL ASPECT OF MORTGAGE
MORTGAGE
Mortgage is a contract where immovable (real property) or alienable rights
thereto is used as a security to pay for a loan. To be valid, it must be recorded in
the title at Registry of Deeds. The mortgage credit may be alienated or assigned
to a third person. A mortgage can be assigned. A stipulation forbidding the
owner from alienating the immovable, mortgaged shall be invalid.
KINDS OF MORTGAGE
1. Conventional or Voluntary – one where the lien is created by mutual agreement
of the mortgagor (usually the borrower) and the mortgagee (creditor). There
are cases where mortgagor is not the real borrower.
2. Legal – one where the lien is created by operation of law wherein the creditor is
deemed to have a lien on the property without the necessity of the parties
stipulating it.
3. Judicial – one created or resulting from a court decision as when a deed of sale
is declared by the court to be a mortgage. Example: Pacto de retro sale
4. Closed Mortgage – one where the mortgage obligation cannot be paid earlier
than maturity, unless the mortgagee agrees to accept early payment.
5. Open Mortgage – one where the mortgage obligation can be paid off at any
time before maturity.
REQUISITES OF MORTGAGE
1. It must be executed to secure a principal obligation
2. Mortgagor must be absolute owner of the property
3. Mortgagor must have free disposal of the property
4. Mortgage must be registered to bind third parties
CHARACTERISTIC OF MORTGAGE
1. It is real right.
2. It is an accessory contract
3. It is indivisible
4. It is inseparable
5. It is a lien
6. It can secure all kinds of obligations
INCLUDED IN MORTGAGE
1. Building and improvements, unless expressly excluded
2. Rents not yet collected at the time of loan maturity
3. Fruits not yet harvested at the time of loan maturity
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VOID STIPULATIONS IN MORTGAGE
1. Pactum commisorium (auto–confiscation);
2. Pactum de non aliendo (prohibition of sale).
ANTICHRESIS – is a contract giving a creditor 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.
DISTINCTIONS BETWEEN REAL ESTATE MORTGAGE & ANTICHRESIS
Real Estate Mortgage Antichresis
1. Possession - Mortgagor retains possession - Mortgagee gets possession
of property of property
2. Fruits - Mortgagor retains right to - Mortgagee collects the fruits and
Collect fruits of property applies value thereof in payment
of interest then principal
3. Realty Tax - Responsibility of mortgagor - Responsibility of the mortgagee
SALE WITH MORTGAGE and SALE WITH ASSUMPTION of MORTGAGE
Sale with Mortgage – a sale with transfer of title but payable on installment
secured by a mortgage.
Sale with Assumption of Mortgage – a sale with transfer of title of a property
covered by pre–existing mortgage; buyer pays the seller a portion in cash and
assumes balance; requires consent of mortgagee.
MORTGAGE TO ALIEN
An alien may be the mortgagee of a real property because the mortgage does not
involve transfer of ownership to the mortgagee. However, in case of foreclosure,
the alien mortgagee cannot bid in the auction sale unless he is s former natural-
born Filipino citizen.
REQUISITES FOR DISCHARGE OF MORTGAGE
1. Payment or fulfilment of the obligation
2. Execution of Deed of Release of Mortgage
3. Registration of Deed of Release of Mortgage at the Registry of Deeds
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DEFICIENCY JUDGMENT – a judgment requiring the mortgagor to pay the
balance of the obligation if proceeds of the judicial foreclosure sale is not enough.
( not applicable to extra–judicial foreclosure sale).
SENIOR and JUNIOR MORTGAGE
1. Senior mortgage is one that is superior inline or claim to another mortgage. Junior
mortgage is one which subordinate or inferior in lien or claim to another mortgage.
2. In case of foreclosure, the claim of the senior mortgage must be paid first. In other
words, the senior mortgagee enjoys right over the junior mortgagee with reference to
proceeds of the foreclosure sale.
3. Government lien like unpaid realty tax is superior in all kinds of lien even if not
annotated.
FORECLOSURE – It is a process instituted by the mortgagee by which the
property subject to mortgage is sold at a public auction to satisfy the principal
obligation.
1. Kinds of Foreclosure Proceedings
a. Extrajudicial – one where foreclosure sale is affected thru a sheriff or notary
public without judicial proceedings, subject only to the required
publication and posting of foreclosure notices. It can be availed of by the
mortgagee when the mortgage contract expressly authorizes the
mortgagee to foreclose the property extra-judicially. Here, the mortgagee
in a mortgage contract is appointed by the mortgagor as an attorney-in-fact.
In effect, the mortgagee can sign Deed of Sale in behalf of the mortgagor.
Redemption here is called right of redemption and it is one year from the
time the certificate of sale is registered at the Registry of Deeds (for an
individual) or 3 months for a corporation.
b. Judicial – resorted to if there is no express authority in mortgage contract
empowering the mortgagee to foreclose extra judicially. Normally,
redemption period here is within 90 days as ordered by the court or before
the court approved the sale. Redemption here is called equity of
redemption.
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RIGHT OF REDEMPTION AND EQUITY REDEMPTION
RIGHT of REDEMPTION
Right of redemption applies in extrajudicial foreclosure and the redemption
period in one year from registration of the sheriff’s certificate of sale, except
when title to the property was obtained by free patent or homestead patent, in
which case the redemption period is five years counted from the expiration of
the first one year period.
EQUITY OF REDEMPTION
Equity of redemption applies in judicial foreclosure that may be exercised before
the court approves the sale. After auction sale has been confirmed by the court,
the mortgagor can no longer redeem the property, except that in cases of
mortgage in favor of a banking institution, the mortgagor may still redeem the
property within one year from confirmation of the sale after judicial foreclosure.
Under R.A 8791, where the mortgagor is a juridical entity whose property has
been mortgaged in favor of a bank, quasi-bank or trust entity and the mortgage
was foreclosed extra judicially, the maximum period of redemption is three
months. Thus, the law provides hat in such a case, the mortgagor “shall have the
right to redeem the property until, but not after, the registration of the certificate
of foreclosure sale with the applicable Register of Deeds which in no case shall be
more than three months after foreclosure, whichever is earlier.”
CHATTEL MORTGAGE
Is an instrument recorded in the Chattel Mortgage Register stating that a
personal property shall serve as a security for the performance of an obligation.
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