Collection

& Remedial
Management
(Echo Seminar)

23/04/2008
I. Secured Obligation

a. Foreclosure – Remedy available to the mortgagee by

which he subjects the mortgaged property to the
satisfaction of the obligation to secure that for which the
mortgage was given.
b. Dation in Payment (Dacion En Pago) – delivery and
transmission of ownership of a thing by the debtor to
the creditor as an accepted equivalent of the
performance of the obligation.

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 General Guidelines:

1. Dacion En Pago is a mode if discharging a monetary obligation

or debt whereby a property is ceded or alienated to the creditor
in satisfaction of the debt. It shall be an amicable, voluntary, and
peaceful transfer of property by the borrower, or a third party on
behalf of the borrower, who has the right to transfer the
ownership of the property in favor of the Bank to settle an
obligation.

The Bank may accept dation in payment after verifying that it is

the more viable way of settling the obligation.

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 2. Proponents of approved “Dation in Payment” shall ensure that
the property offered is surrendered/ vacated promptly and
turned-over to them after appropriate verification that the
state/content of the property corresponds to the approved dation
proposal, and execution by the owner of the required legal
documents/forms. Booking, covering documents and
possession shall be promptly turned over after title to the
property has been transferred to the Bank.

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 3. The following shall be considered in entering a dation
arrangement:

a. The right to sell or alienate – the borrower or third party should

have the free disposal of the property offered for dation.
b. Clean titles and documents – as a way of settling an obligation,
the property should have a clean title and supported with
complete and updated payments of taxes, homeowners
association of condominium dues, and other fees or charges
imposed the property.
c. Marketable, correct and reasonable value – the price of the
property shall be set at a marketable/disposable value upon
appraisal and ocular inspection to ascertain existence and
possession status of the property. The price shall in no case be
greater than 60% of the internal appraised value which is the
maximum loanable value in granting loans.

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 d. Actual physical possession of property – the keys shall be
surrendered to the Bank on the same day the client vacates the
property. This shall be done upon conducting a final inspection/
verification of the property against the Inventory List attached to
the Inspection and Appraisal Report ensuring that there were no
alterations to the original contents of the property. On the day
following the final appraisal, the Voluntary Surrender and the
Debt Settlement by Way of Dacion En Pago shall be signed by
the client and the Bank’s authorized signatory to conclude the
dation agreement.
e. Transfer of booking – This shall be made only after the title to
the property is consolidated in the name of the Bank. While the
consolidation of title is ongoing, the booking of expense shall be
under the marketing unit/branch.

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Kinds of Foreclosure:

1. Judicial Foreclosure
Nature and Purpose: The remedy used for the satisfaction of any
monetary obligation, which a person owes to another, by
proceeding against a property used to secure said obligation. Its
purpose is to cut off the rights of the owner of the property
mortgaged used to secure the obligation and all rights acquired
subsequent to said right.
2. Extra-judicial foreclosure
Nature and Purpose: It is intended merely to regulate the extra-
judicial sale of the property mortgaged if and when the mortgagee
is given a special power of express authority to do so in the deed
itself or in a document annexed thereto

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 Notarial Foreclosure

1. Submission of Petition for Foreclosure with supporting documents

to a duly commissioned notary public in the city or municipality
where the property is located.
2. Filing of the Petition for Foreclosure with the Office of the Clerk of
Court of the Regional Trial Court of the city or municipality where
the property is located.
3. Issuance of Notices of Auction Sale by the Notary Public
conducting the auction sale, stating the date, place, date and time
of the auction sale, name/s of the borrowers, location and
description of the mortgaged property and the amount of the total
outstanding obligation.
4. Posting of notices of auction sale by the notary public in at least
three public places in the city or municipality where the property is
located, for a period of not less than twenty (20) days prior to the
date of the auction.

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5. Publication of notices of auction sale once a week for at least three (3)
consecutive weeks in a newspaper of general circulation in the city or
municipality where the property is located.
6. Sale shall be made at a public auction under the direction of the notary
public of the city or municipality.
7. During auction sale, the Bank shall submit its bid. The bid price shall
be the appraised value of the property or the total bank’s claim
whichever is lower. The Bank’s claim shall be composed of:
a. Principal amount of the loan
b. Accrued Interest Receivable (booked)
c. Past Due Interest
d. Penalty charges
e. Attorney' s fees
f. Other incidental fees and expenses

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8. After the auction sale, the notary public conducting the sale shall
issue a Certificate of Sale in stating the:
a. Date, place and time of the auction
b. Name of the mortgagor-debtor
c. Total amount of the obligation as of date of the auction
d. Highest bidder
e. Bid price
f. Description of foreclosed property
9. The Certificate of Sale issued by the notary public shall be filed with
the Office of the Clerk of Court of the RTC in the city or municipality
where the property is located, for the signature and approval of the
Executive Judge.

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10. Once signed, the Certificate of Sale will then be registered with the
Register of Deeds. The date of annotation of the same on the title to the
subject property shall be operative act for the running of the one
redemption period accorded by law to the mortgagor within which to
redeem the property.

11. Upon receipt of IOL and copies of Notice of Sale, Certificate of Sale
and other foreclosure documents from Legal Retainer informing the
lending unit of the foreclosure, booking of account shall be reclassified
to ROPA. Value of ROPA is the recorded balance of the loan or the
bid/purchase price, whichever is lower. The difference between loan
balance and bid/purchase price is booked to Miscellaneous Income/
Loss account.

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12. Probable deficiency claims (outstanding debt is more than the bid
price of the mortgaged property) against the borrower/ debtor arising
from the foreclosure of mortgaged properties shall be temporarily
lodged under the contingent account Deficiency Claims Receivable
until the Bank has secured a judgment in its favor.

When judgment has been rendered in favor of the bank against the
debtor, the deficiency claims shall be judged under the real account
“Deficiency Judgment Receivable”.

13. In the event that the borrower fails to redeem the property within the
redemption period (Individual accounts – 1 year from annotation;
Juridical entities – whichever is earlier of annotation date or 3 months
from foreclosure), title to ROPA shall be consolidated in favor of the
Bank.

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 II. Clean Obligation – Mode of Collection

a. Sum of Money – A contract whereby a person

obliges to pay the other person a sum certain in
money in a definite period of time.
b. Suretyship – A contract whereby a person
(surety) binds himself solidarily with the
principal debtor.
c. Guaranty – A contract whereby a person
(guarantor) binds himself to the creditor to fulfill
the obligation of the principal debtor in case the
latter fail to do so.

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Comparison between suretyship and guarantee:

Guarantee Suretyship
1. Liability depends upon an1. Surety assumes liability as
independent agreement to pay regular party to the undertaking
the obligation if primary debtor2. Surety is an original promisor
fails to do so 3. Surety is primarily liable
2. Collateral undertaking 4. Surety undertakes to pay if the
3. Guarantor is secondarily liable principal DOES NOT PAY
4. Guarantor binds himself to pay
if the principal CANNOT PAY

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 ROPA Management

Amount of Redemption (GBL 2000)

The bid price shall be the amount due under the mortgage deed, interest,
costs and expenses.

The bid price is reduced by the income received from the property.

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 ROPA Management

Writ of Possession (Sec. 47, GBL)

Generally understood to be an order whereby the sheriff is commanded to

place a person in possession of a real or personal property, such as
when a property is extra-judicially foreclosed.

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 ROPA Management

Writ of Possession (Sec. 47, GBL)

When Necessary: Where no third person not a party thereto intervenes, and
debtor continues in possession of real property mortgaged, writ of
possession is necessary to put an end to litigation.

Effect of Writ: Places purchaser in possession of property he has purchased

at public auction sale, and which has become his by virtue of final decree
confirming sale.

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 ROPA Management

Writ of Possession (Sec. 7, Act 3135)

Issuance of WOP for Extrajudicial Foreclosure Sales During Redemption

Period: In any sale made under the provisions of this Act, the purchaser
may petition the Regional Trial Court of the province or place where the
property or any part thereof is situated, to give him possession thereof
during the redemption period, furnishing bond in an amount equivalent to
the use of the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without violating the
mortgage or without complying with the requirements of this act.

Requirements for issuance of writ, pending redemption: a. filing of motion by

purchaser in foreclosure sale; b. approval of bond

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 ROPA Management

Writ of Possession (Sec. 7, Act 3135)

Issuance of Writ of Possession after Expiration of Redemption Period:

• Buyer in a foreclosure sale becomes absolute owner of the property

purchased if not redeemed during period of one year registration of sale.
Possession becomes absolute right of purchaser.

• As owner, he is entitled to possession of property and can demand it

anytime following consolidation of ownership in his name, and issuance
to him of new title.

• Bond required in Sec. 7, Act 3135, no longer necessary. Mere filing of ex

parte motion for issuance of writ of possession would suffice.

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 ROPA Management

Writ of Possession (Sec. 7, Act 3135)

Question on Cancellation of Writ or Validity and Regularity of Public Sale

“The debtor may, in the proceedings in which possession was requested,

but not later than thirty days after the purchaser was given possession,
petition that the sale be set aside and the writ of possession cancelled,
specifying the damages suffered by him, because the mortgage was not
violated or the sale was not made in accordance with the provisions
hereof.

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 ROPA Management

Ejectment

Summary proceedings intended to provide an expeditious means of

protecting actual possession or right to possession of property.

Who may initiate proceedings:

• Forcible entry – a person deprived force, intimidation, threat, strategy or

stealth

• Unlawful detainer – lessor, vendor, vendee or other person against

whom possession of any land or building is unlawfully withheld; legal
representatives or assigns of any such lessor, vendor, vendee or other
person against whom possession of any land or building is unlawfully
withheld

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 ROPA Management

Ejectment

Against whom action may be maintained:

• Against one is possession at the commencement of the action.

• Tenant with right of possession may bring action another tenant.

• Vendor may bring action for ejectment against vendee upon failure to
pay installments.

• Forcible entry

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