2. Extrajudicial Foreclosure (Act 3135, as amended by Act 4118; AM 99-10-05-0, as amended)

AUTHORITY TO FORECLOSE EXTRAJUDICIALLY

Proceedings for the extrajudicial foreclosure of real estate mortgages are governed by Act 3135, as amended, entitled An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages. As the title itself suggests and as provided in Sec. 1 of the Act, extrajudicial foreclosure sales are proper only when so provided in the real estate mortgage contract. (Casano v. Magat, A.M. No. P-02-1539, Jan. 24, 2002)

Application to Initiate Extra-judicial Foreclosure

Proceedings for the extrajudicial foreclosure of mortgages, as the name already suggests, are not suits filed in a court. They are commenced not by the filing of a complaint, but by submitting an application before an executive judge who, in turn, receives the same neither in a judicial capacity nor on behalf of the court. Necessarily, the orders of the executive judge in such proceedings, whether they be to allow or disallow the extrajudicial foreclosure of the mortgage, are not issued in the exercise of a judicial function but||| issued by the RTC Executive Judge in the exercise of his administrative function to supervise the ministerial duty of the Clerk of Court as Ex Officio Sheriff in the conduct of an extrajudicial foreclosure sale.. (Ingles v. Estrada, G.R. No. 141809, 2013)

Duty of Clerk of Court in an Extra-judicial Foreclosure Sale

Upon the filing of the application, it shall be the duty of the Clerk of Court:

• Receive and docket the application;
• Collect the filing fees;
• Examine whether the applicant has complied with the requirements of Act 3135 before conducting the public auction;
• Sign and issue a certificate of sale, subject to the approval of the executive judge; and
• After the certificate of sale has been issued to the highest bidder, keep the complete records, while awaiting any redemption within a period of 1 from date of registration of the certificate of sale with the Register of Deeds concerned, after which, the records shall be archived.|(A.M. No. 99-10- 05-0)

WHERE TO SELL

In a judicial foreclosure, the place of the sale may be agreed upon by the parties. In the absence of such agreement, the sale of real property or personal property not capable of manual delivery shall be held in the office of the clerk of court of the Regional Trial Court or the Municipal Trial Court which made the order. (Sec. 15, Rule 39)

As for an extra-judicial foreclosure, it cannot be made legally outside of the province in which the property sold is situated; and in case the place within said province in which the sale is to be made is the subject of stipulation, such sale shall be made in said place or in the municipal building of the municipality in which the property or part thereof is situated (Sec. 2, Act No. 3135)

Notice Requirement in Extra-judicial Foreclosure

• Notice shall be given by posting notices of the sale for not less than 20 days in at least 3 public places of the municipality or city where the property is situated;
• If such property is worth more than P400, such notice shall also be published once a week for at least 3 consecutive weeks in a newspaper of general circulation in the municipality or city;
• The sale shall be made at public auction, between the hours of 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 for each day of actual work performed, in addition to his expenses. (Secs. 3 & 4, Act No. 3135).

NEED FOR REPUBLICATION IN CASE OF POSTPONEMENT

If the foreclosure sale does not push through as scheduled, there is a need for re-publication and reposting of the notice thereof. (Metrobank v. Nikko Securities Int’l Corp., G.R. No. 178479, 2009)

PERSONAL NOTICE TO THE MORTGAGOR – WHEN AND WHEN NOT NEEDED

In an extra-judicial foreclosure, unless the parties stipulate, personal notice to the mortgagor in extrajudicial foreclosure proceedings is not necessary because Section 3 of Act 3135 only requires the posting of the notice of sale in three public places and the publication of that notice in a newspaper of general circulation.||(Lim v. Development Bank of the Phils., G.R. No. 177050, 2013)

But in a judicial foreclosure, notice must be sent to the mortgagor. (Sec. 15, Rule 39 vis-à-vis Sec. 3, Rule 68)

POSSESSION BY PURCHASER OF FORECLOSED PROPERTY

See also further discussion on Mortgage & Foreclosure under Civil Law.

In an extrajudicial foreclosure of real property, the purchaser becomes the absolute owner thereof if no redemption is made within 1 year from the registration of the certificate of sale by those entitled to redeem. Being the absolute owner, he is entitled to all the rights of ownership over a property. (Sps. Reyes vs. Sps. Chung, G.R. No. 228112, 2017)

The purchaser may petition the court, to give him possession thereof during the redemption period, provided:

• That he furnish a 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.

Note: No such bond is required after the redemption period if the property is not redeemed.

• The petition shall be made under oath; and
• The court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately. (Sec. 7, Act No. 3135, as amended)

The procedure under Section 7 of Act No. 3135, as amended, may be availed of by a purchaser seeking possession of the foreclosed property he bought at the public auction sale after the redemption period has expired without redemption having been made. (Sps. Teves vs. IC&CS Co., G.R. No. 216714, 2018)

The purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. (Sec. 47, General Banking Law)

In case of refusal of a debtor to surrender the property sold by the sheriff in a public auction, a writ of possession may also be issued in favor of the mortgagee in cases of:

• In an extra-judicial foreclosure of a realty mortgage (Sec. 7, Act No. 3135); and
• In a judicial foreclosure of mortgage, a quasi in rem proceeding, provided that the mortgagor is in possession of the mortgaged realty and no third person, not a party to the foreclosure suit, had intervened. (Mabale v. Apalisok, G.R. No. L-46942, Feb. 6, 1979)

Updated: A purchaser-creditor cannot insist on a writ of possession while the validity of the foreclosure and public auction remains unresolved (Cruz v. Metropolitan Bank, G.R. No. 236605, 29 July 2024).

Instances When Court Cannot Render Deficiency Judgment

• Cases under the Recto Law (New Civil Code, Art. 1484, par. 3);
• When the mortgagor is a non-resident and is not found in the Philippines;
• When mortgagor dies, mortgagee may file his claim with the probate court (Sec. 7, Rule 86);
• If mortgagor is a third-party mortgagor but not solidarily liable with debtor (Phil Trust v. Tan Suisa, G.R. No. L-29736, 1929);
• In case of a mortgage debt due from the estate of a deceased mortgagor and the mortgage creditor availed of the third remedy which is to rely upon his mortgage alone and foreclosing the same within the statute of limitations (Sec. 7, Rule 86); and
• When the deficiency arises under an extrajudicial foreclosure. The mortgagee can recover by action (not by motion) any deficiency in the mortgage account which was not realized in the foreclosure sale. (PNB v. CA, G.R. No. 103953, 1999)