i. Judicial vs. Extrajudicial Foreclosure

When proper: (FEEEL)

• Foreclosure, judicial or extra-judicial, of mortgage. Provided that the mortgagor has possession and no third party has intervened
• Ejectment
• Execution sales
• Eminent domain proceedings
• Land registration cases
• Writ of Demolition - Necessarily issued with writ of possession

A boundary dispute must be resolved in the context of accion reivindicatoria, not an ejectment case. The boundary dispute is not about possession, but encroachment, that is, whether the property claimed by the defendant formed part of the plaintiff’s property. (Manalang vs. Bacani, GR No. 156995, 2015)

Kinds of foreclosure

• Judicial – Governed by Rule 68, Rules of Court;
• Extrajudicial – The mortgagee is given a SPA to sell the mortgaged property. (Act No. 3135)

Judicial foreclosure v. Extrajudicial foreclosure (BAR AREA)

Nature of judicial foreclosure

A judicial foreclosure is an action quasi in rem. It is based on a personal claim against a specific property of the defendant. (Ocampo v. Domalanta, G.R. No. L-21011, August 30, 1967)

Action for foreclosure of mortgage survive the death of the mortgagor

An action for foreclosure of mortgage survives the death of mortgagor because the claim is not a pure money claim but an action to enforce a mortgage lien. Being so, the judgment rendered therein may be enforced by a writ of execution. The action may be prosecuted by the interested person against the executor or administrator independently of the testate or intestate proceedings of the settlement of the mortgagor’s estate “for the reason that such claims cannot in any just sense be considered claims against the estate, but the right to subject specific property to the claim arises from the contract of the debtor whereby he has during life set aside certain property for its payment, and such property does not, except in so far as its value may exceed the debt, belong to the estate.” (Testamentaria de Don Amadeo Matute Olave v. Canlas, G.R. No. L- 12709, February 28, 1962)

EXTRAJUDICIAL FORECLOSURE

An extrajudicial foreclosure may only be effected if, in the mortgage contract covering a real estate, a clause is incorporated therein giving the mortgagee the power, upon default of the debtor, to foreclose the mortgage by an extrajudicial sale of the mortgaged property. (Act No. 3135, Sec. 1, as amended by Act No. 4148)

Authority to sell

The authority to sell may be done in a separate document but annexed to the contract of mortgage. The authority is not extinguished by the death of the mortgagor or mortgagee as it is an essential and inseparable part of a bilateral agreement. (Perez v. PNB, G.R. No. L-21813, July 30, 1966)

Steps in extrajudicial foreclosure of real estate mortgage (AM No. 99-10-05-0, January 15, 2000, further amended on August 7, 2001)

• Filing of an application before the Executive Judge through the Clerk of Court;

In extrajudicial foreclosure of real mortgages in different locations covering a single indebtedness, only one filing fee corresponding to such debt shall be collected.

• Clerk of court will examine whether the following requirements of the law have been complied with:
• Posting of notice for not less than 20 days in at least three public places of the municipality or city where the property is situated. Notices are given to secure bidders and to prevent a sacrifice of the property. (Sps. Suico v. Philippine National Bank, G.R. No. 170215, August 28, 2007)
• Publication (if property is worth more than P400.00) once a week for at least three consecutive weeks in a newspaper of general circulation in the city or municipality. The notice shall be published in a newspaper of general circulation pursuant to Section 1, P.D. 1079
• The application shall be raffled among different sheriffs;
• An auction sale may be had even with just one (1) participating bidder. The name/s of the bidder/s shall be reported by the Sheriff or the Notary Public, who conducted the sale to the Clerk of Court before the issuance of the certificate of sale (As amended by the January 30, 2001 Resolution paragraph 5 of A.M. No. 99-10-05-0; Sps. Certeza et.al. v. Phil. Savings Bank, G.R. No. 190078, March 5, 2010);

The indivisibility of a real estate mortgage is not violated by conducting two separate proceedings on mortgaged properties located in different cities or municipalities as long as each parcel of land is answerable for the entire debt. (Sps. Yu v. Philippine Commercial International Bank, G.R. No. 147902, March 17, 2006)

No sale can be legally made outside the province in which the property sold is situated, 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. (Act No. 3135, Sec. 2)

• The clerk of court shall issue a certificate of payment indicating the amount of indebtedness, the filing fees collected, the mortgages sought to be foreclosed, the description of the real estates and their respective locations;
• The certificate of sale must be approved by the Executive Judge; and
• After the redemption has expired, the clerk of court shall archive the records.

NOTE: The law covers only real estate mortgages. It is intended merely to regulate the extrajudicial sale of the property mortgaged if and when the mortgagee is given a special power or express authority to do so in the deed itself or in a document annexed thereto. (Luna v. Encarnacion, G.R. No. L-4637, June 30, 1952; Ponce de Leon v. Rehabilitation Finance Corp., G.R. No. L-24571, December 18, 1970)

The authority to sell, is not extinguished by the death of either mortgagor or mortgagee. It is an essential and inseparable part of a bilateral agreement. (Perez v. PNB, G.R. No. L-21813, July 30, 1966)

Q: The Development Bank of the Philippines (DBP) and Clarges Realty Corporation (Clarges) executed a Deed of Absolute Sale for the property. The parties agreed that all expenses to be incurred in connection with the transfer of title to Clarges would be borne by the DBP. Moreover, the DBP bound itself under Clause 6 of the Deed of Absolute Sale to deliver a title to the property "free from any and all liens and encumbrances on or before December 15, 1987." The DBP succeeded in having the property registered under its name. TCT No. S-16279 was cancelled and, in its place, TCT No. 151178 was issued. However, TCT No. 151178 contained annotations from the former TCT No. S-16279, specifically, the mortgage lien of the Philippine National Bank and a tax lien for unpaid taxes incurred by Marinduque Mining and Industrial Corporation. DBP delivered to Clarges the owner's duplicate copy of TCT No. 151178 with the mortgage and tax liens still annotated on it. Clarges demanded a clean title from the DBP, but the bank failed to deliver a clean title. Thus, Clarges Realty Corporation filed before the RTC of Makati City a Complaint for Specific Performance and Damages.

Clarges had already rested its case when the DBP moved for leave of court to file a third party complaint. The DBP sought to implead the Asset Privatization Trust as a third-party defendant and maintained that the Asset Privatization Trust had assumed the "direct and personal" obligation to pay for Marinduque Mining and Industrial Corporation's tax liability and to have the partially reduced tax lien canceled. Clarges opposed the Motion for Leave. Consequently, the trial court denied the Motion for Leave. Should the Motion for Leave to File Third-Party Complaint be denied?

A: YES. A lien, until discharged, follows the property. Hence, when petitioner acquired the property, the bank also acquired the liabilities attached to it, among them being the tax liability to the Bureau of Internal Revenue. That the unpaid taxes were incurred by the defunct Marinduque Industrial and Mining Corporation is immaterial. In acquiring the property, petitioner assumed the obligation to pay for the unpaid taxes. With petitioner capable of having the tax lien cancelled, it cannot insist on the admission of its third-party complaint against the Asset Privatization Trust. The admission of a third-party complaint requires leave of court; the discretion is with the trial court. If leave is denied, the proper remedy is to file a complaint to be docketed as a separate case. There was no grave abuse of discretion in denying leave to admit the third-party complaint against the Asset Privatization Trust. As the Court of Appeals observed, the trial court would have wasted time and effort had it admitted the third-party complaint. Respondent, the original plaintiff, had already rested its case when the Motion for Leave was filed. The original case would have dragged on with the addition of a new party at a late stage of the trial. (Development Bank of the Philippines vs. Clarges Realty Corp., G.R. No. 170060, August 17, 2016)

Right to possession of third persons as purchaser

The purchaser in an extra-judicial foreclosure sale is entitled to the possession of the property and can demand that he be placed in possession of the same either during (with bond) or after the expiration (without bond) of the redemption period therefor. (Sps. Marquez v Sps. Alindog, G.R. No. 184045, January 22, 2014)

A writ of possession is an order whereby a sheriff is commanded to place in possession of the real or personal property, the person entitled thereto such as when the property is extrajudicially foreclosed.

NOTE: The right of the applicant or subsequent purchaser for the issuance of a writ of possession never prescribes. (Ching v. Family Savings Bank, G.R. No. 167835, November 15, 2010)

• Before the expiration of the redemption period – possession can be availed of as long as an ex parte motion under oath is filed and a bond in accordance with Sec. 7 of Act No. 3135 is posted. (Philippine Bank of Communications v. Yeung, G.R. No. 179691, December 4, 2013)
• After the lapse of the redemption period – the purchaser is not obliged to bring a separate suit for possession. He must invoke the aid of the courts and ask for a writ of possession. (Javelosa v. CA, G.R. No. 124292, December 10, 1996)

No bond is required of the purchaser after the redemption period if the property is not redeemed. Suspension of the implementation of the writ of possession is not allowed after the redemption period.

NOTE: After the consolidation of title in the purchaser’s name for the failure of the mortgagor to redeem the property, the purchaser’s right to possession ripens into an absolute right of a confirmed owner.

Petition for Annulment of Foreclosure Proceedings

This petition contests the presumed right of ownership of the buyer in a foreclosure sale and puts in an issue such presumed right of ownership, while an ex parte petition for issuance of a writ of possession is a non-litigious proceeding. An action for nullification of foreclosure proceedings may be filed separately, but it may not be consolidated with the ex parte petition for issuance of a writ of possession; the separate action does not, by itself, defeat the buyer’s right of possession.