RULE 68

Foreclosure of
Real Estate Mortgage
Nature of a Real Estate Mortgage
1. A REM is usually an accessory contract executed by a Debtor in
favor of a Creditor as security for the principal obligation.
2. A REM creates a real right which follows the property whoever the
owner may be after the constitution of the mortgage.
3. The mortgagor need not be the Debtor and the latter need not be
the mortgagor. (Legal basis: Art. 2085, Civil Code of the Philippines)
(Belo vs. Philippine National Bank)
4. There can be several mortgages over the same property. Junior
encumberances are more superior than subsequent encumberances.
Nevertheless, a junior encumberancer is not precluded from initiating
foreclosure proceedings ahead of a prior encumberancer in case the
debt in his favor matures earlier.
5. The failure to register the contract does not affect the validity of the
agreement between both parties. The registration of the mortgage is
however, necessary for the purpose of binding third persons.
DRAGNET CLAUSE/ BLANKET MORTGAGE CLAUSE
A Mortgage Contract may have a provision stating that the mortgage
serves as a security for past, present, and future indebtedness.
(Prudential Bank vs Alviar)
These future debts must be sufficiently described in the mortage
contract. (Traders Royal Bank vs. Castanares)
When Foreclosure is proper; Demand to Pay
1. To establish the default of the Debtor to pay his obligations, a VALID
DEMAND must be made unless the contract between both parties
carries with it a stipulation that demand is not necessary for defaul to
arise.
2. It is essential that a demand is made prior to the foreclosure for the
loan to be due and demandable. Otherwise, it meant that Debtors had
not defaulted in their payments and the foreclosure by the Petitioner
was PREMATURE.
ALTERNATIVE REMEDIES OF THE CREDITOR
1. To file an action for collection of a sum of money OR
2. To foreclose the mortgage, if one has been constituted.
An election of the first bars recourse to the second, otherwise, there
would be multiplicity of suits (Flores vs. Lindo)
Pactum Commissorium
-A stipulation empowering the creditor to appropriate the thing given
as guaranty for the fulfillment of the obligation in the event the obligor
fails to live up to his undertaking, without further formality, such as
foreclosure proceedings and a public sale.
Art. 2088 of the NCC expressly prohibits the creditor from
appropriating the things given by way of pledge or mortgage, and any
stipulation to the contrary is null and void. (Bustamante vs. Rosel)
MODES OF FORECLOSURE OF REAL ESTATE MORTGAGE
1. Judicial Foreclosure pursuant to Rule 68 of the Rules of Court; and

2. Extrajudicial Foreclosure pursuant to Act 3135, as amended by Act

4113.
Section 1, Rule 68. COMPLAINT IN ACTION FOR FORECLOSURE
The Complaint for the foreclosure of Real Estate Mortgage shall set
forth the following:
1. The DATE AND DUE EXECUTION of the mortgage
2. The ASSIGNMENTS of the mortgage if any
3. The NAMES AND RESIDENCES OF THE MORTGAGOR AND
MORTGAGEE
4. A DESCRIPTION of the mortgaged property
5. A STATEMENT OF THE DATE OF THE NOTE AND OTHER
DOCUMENTARY EVIDENCE secured by the mortgage.
6. The AMOUNT claimed to be unpaid thereon
7. The NAMES AND RESIDENCES of all persons having or claiming an
interest in the property subordinate in right to that of the holder of the
mortgage, all of whom shall be made defendants in the action.
COURT WITH JURISDICTION
Original provisions of BP 129: an action for Foreclosure of mortgage
was deemed a real action and it is incapable of pecuniary estimation
and hence, cognizable by the RTC.
MTC: If the assessed value of the mortgaged real estate is not more
than P20,000.00, or in Metro Manila, not more than P50,000.00, and
the amount of the mortgaged debt not more than P300,000.00, or in
metro Manila, not more than P400,000.00, otherwise, the action shall
be filed in the RTC. (Justice Jose y Feria)
EFFECT OF DEATH OF THE MORTGAGOR/DEBTOR
The death of the Mortgagor dooes not extinguish his debt. It does not
also preclude the foreclosure of the REM. The following remedies may
be availed by the creditor:
1. Abandon the security and prosecute claim under Rule 86 and share
in the general distribution of the assets of the estate.
2. Foreclose the mortgage by action in court, making the
administrator/executor a party-defendant. If with a deficiency
judgment after sale of the mortgaged property, he may claim
deficiency under Rule 86.
3. Rely upon the mortgage or other security alone, and foreclose the
same at any time before being barred by prescription, and in that
event, he shall not be admitted as a creditor, without the right to share
in the distribution of the assets of the estate.
SECTION 2. JUDGMENT ON FORECLOSURE FOR PAYMENT OR
SALE
If after the trial the curt finds that the matters set forth in the
complaint are true, it shall render a judgment containing the following
matters:
1. Ascertainment of the amount due to the plaintiff upon the mortgage
debt or obligation, including interest and other charges as approved by
the court, as well as costs.
2. Judgment for the sum found due
3. Order that the amount found due be paid to the Court or to the
Judgment Obligee within a period of not less than ninety (90) days nor
more than one hundred twenty (120) days from the entry of
judgment; and

4. Admonition that in default of such payment, the property shall be

sold at public auction to satisfy the judgment.
Equity of Redemption
Allows for the right to extinguish the mortgage and retain
ownership of the property by paying the mortgage debt. The
Payment may be made before the sale is confirmed by the court.
(GSIS vs. CFI)
After the sale of the mortgaged property and before its
confirmation, the court may still grant the judgment debtor the
opportunity to pay the amount of the judgment. (La Urbana vs.
Belando)
It may also exist in favor of other ecumberancers who were not
made a party to the suit thus not binding upon them.
(Unforeclosed equity of redemption)
A separate foreclosure proceeding has to be brought against them
to require them to redeem from the first mortgagee or from the
party acquiring title over the property. (Limpin vs. IAC)
RIGHT OF REDEMPTION
A right granted to a mortgagor to reacquire the property even after
the confirmation of the sale and the registration of the certificate
of sale.
Exists only in Extrajudicial Foreclosure of Sale.
Exception: Judicial Foreclosure if the Foreclosure is in favor of
banks as mortgagees, whether the foreclosure is judicial or
extrajudicial.
SECTION 3. SALE OF MORTGAGED PROPERTY; EFFECT
1. File a motion for the sale of the mortgaged property.
2. The manner of sale follows the rules governing Rule 39 of the Rules
of Court and other regulations governing sales of real estate insofar as
they are not inconsistent with Rule 68.
3. Statutory provisions governing publication of notice of mortgage
foreclosure sales must be strictly complied with and that even slight
deviations therefrom will invalidate the notice.
4. After the foreclosure of the mortgage, the mortgagee should file a
MOTION for the CONFIRMATION OF SALE. Such motion requires a
NOTICE AND A HEARING.
*The mortgagor will be allowed the oppportunity to show cause why
the sale should not be confirmed. (Tiglao vs. Botones)
*Failure to give notice is a good cause for the setting aside of the sale.
It enables the intersted party to resist the motion and to inform them
of the time when their right of redemption is cut-off. (Raymundo vs.
Sunico)
5. The order confirming the foreclosure of the mortgage will serve as a
judgment in itself and is deemed as a final adjudication on the
property and merits of the sale.
6. The purchaser at the auction sale or the last redemptioner shall be
entitled to the possession of the property and he may secure a writ of
possession, upon motion, from the court which ordered the

foreclosure unless a third party is actually holding the same adversely

to the judgment obligor.
SECTION 4. DISPOSITION OF PROCEEDS OF SALE
Proceeds of the Sale of the Mortgaged property:
1. Deduction of the costs of the sale
2. Payment to the Person who foreclosed the mortgage.
3. If with balance after payment of mortgage debt due, the same be
paid to junior encumberancers in order of priority.
4. If with balance but without any junior encumberancer, the same
shall be paid to the mortgagor or any person entitled thereto.
SECTION 5. HOW SALE TO PROCEED IN CASE THE DEBT IS NOT
ALL DUE
If the debt for the mortgage is not all due as provided in the
judgment, as soon as a sufficient portion of the property has been sold
to pay the total amount and the costs due, the sale shall terminate.
As often as more becomes due for principal and interest and other
valid charges, the court upon motion order more to be sold. If the
property cannot be sold without prejudice to the parties, the whole
property shall be sold in the first instance, and the entire debt and
costs shall be paid , if the proceeds of the sale be sufficient therefor,
there being a rebate of interest where such rebate is proper.
SECTION 6. DEFICIENCY JUDGMENT
It is a Judgment rendered by the Court upon motion and showing that
the proceeds from the sale of the property is not sufficient for the
payment of the judgment debt. Upon motion, the Court shall render
judgment against the defendant for any such balace.
The mortgagor who is not he debtor is not liable for the deficiency
unless he assumed liability for the same in the contract. (Phil. Trust
Co. vs. Echaus Tan Siua)
SECTION 7. REGISTRATION
1. A Certified Copy of the Order of the Court confirming the sale shall
be registered in the ROD. If no Right of Redemption exists, the name
of the mortgagor shall be cancelled and a new one issued in the name
f the purchaser.
2. If With Right of Redemption: Certificate of sale and the Order
confirming the sale shall be registered with a Brief Memoranda on the
title. If it is redeemed, the Deed of redemption shall be registered with
the ROD with a Brief Memoranda on the Title.
3. If not redeemed, the Final Deed of Sale will be registered by the
Sheriff in favor of the purchaser at the foreclosure sale. The name of
the mortgagor shall be canncelled on the title and a new one shall be
isuued under the name of the purchaser.
SECTION 8. APPLICABILITY OF OTHER PROVISIONS
Sections 31, 32 and 34 of Rule 39 shall be applicable to Rule 68 as
long as it is not inconsistent with the provisions of the latter.