iii. Right of Redemption vs. Equity of Redemption

Effect of inadequacy of price in foreclosure sale

GR: When there is a right to redeem, the inadequacy of price is immaterial because the judgment debtor may reacquire the property easier at a low price or sell his right to redeem. (PNB v. CA, G.R. No. 121739, June 14, 1999)

XPN: When the price is so inadequate as to shock the conscience of the court taking into consideration the peculiar circumstances attendant thereto. (United Coconut Planters Bank v. CA, G.R. No. 155912, August 17, 2007)

Persons entitled to exercise the right of redemption

• Mortgagor or one in privity of title with the mortgagor;
• Successors-in-interest entitled to redeem under Sec. 27, Rule 39, Rules of Court.

Kinds of redemption

• Equity of redemption – Right of mortgagor to redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the sale of the mortgaged property or confirmation of the sale by the court. The mortgagor pays the secured debt within the period specified. To extinguish the mortgage and retain ownership of the property, the mortgagor must pay the secured debt within the 90-day period after judgement becomes final, or even after foreclosure sale, but prior to its confirmation.

Where applicable:

Judicial foreclosure of real estate mortgage

XPN: There is no right of redemption from a judicial foreclosure sale after the confirmation of the sale, except where a statute grants one, as Section 47 of RA 8791 does for a real estate mortgage securing a loan or other credit accommodation granted by a bank or covered institution. (GSIS v. CFI of Iloilo, G.R. No. 45322, July 5, 1989)

Where a real estate mortgage secures a loan or other credit accommodation granted by a bank or covered institution, the mortgagor or debtor has a statutory right of redemption under Section 47 of RA 8791 even if the foreclosure is judicial in accordance with Rule 68 of the Rules of Court.

Period to exercise: within the period fixed by the court—not less than 90 nor more than 120 days from entry of judgment—or, if a foreclosure sale follows, before confirmation of the sale. (Rule 68, Secs. 2–3, Rules of Court.)

NOTE: The subsequent sale by the purchaser to a third person of the mortgaged property does not prevent the court from granting the mortgagor a period within which to redeem the property by paying the judgment debt and the expenses of the sale and costs.

Notice and hearing of a motion for confirmation of sale are essential to the validity of the order of confirmation. An order of confirmation that is void due to lack of notice and hearing may be set aside anytime, and the mortgagor may still redeem the mortgaged property.

• Right of redemption – Right of the mortgagor to redeem the mortgaged property within one year from the date of registration of the certificate of sale. It applies in case of extrajudicial foreclosure.

Where applicable: Extrajudicial foreclosure

Period to exercise: within 1 year from the date of registration of the certificate of sale. (Rules of Court Sec. 6, Act No. 3135; Sec. 28, Rule 39)

The right of redemption, as long as within the period prescribed, may be exercised regardless of whether or not the mortgagee has subsequently conveyed the property to some other party. (Sta. Ignacia Rural Bank v. CA, G.R. No. 97872, March 1, 1994)

NOTE: Notwithstanding Act No 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure covered by Section 47 of the General Banking Act shall have the right to redeem the property until registration of the certificate of foreclosure sale with the applicable Register of Deeds, but in no case later than three (3) months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this General Banking Act shall retain their redemption rights until their expiration. (RA 8791, Sec. 47)

Q: X and Y, judgment creditors of A, obtained the transfer of the title of the mortgaged property in their names. Earlier, A executed a mortgage over the same property in favor of FGU Insurance. The latter mortgage was registered. When A defaulted, FGU foreclosed the property. A certificate of sale was thereafter issued in FGU’s favor, which was confirmed by the RTC. However, before the new TCT could be issued, X and Y filed their respective motion for intervention and to set aside the judgment alleging that they are the new owners of the property and the failure of FGU to implead X and Y in the action for foreclosure deprived the latter of due process. Is the contention of X and Y correct?

A: NO. Subordinate lien holders acquire only a lien upon the equity of redemption vested in the mortgagor, and their rights are strictly subordinate to the superior lien of the mortgagee. Such equity of redemption does not constitute a bar to the registration of the property in the name of the mortgagee. Registration may be granted in the name of the mortgagee but subject to the subordinate lien holders’ equity of redemption, which should be exercised within ninety (90) days from the date the decision becomes final. This registration is merely a necessary consequence of the execution of the final deed of sale in the foreclosure proceedings. (Looyuko v. CA, G.R. No. 102696, July 12, 2001)

Rights of persons with subordinate interest

• Mortgagor’s equity of redemption before foreclosure – a second mortgagee acquires only the equity of redemption vested in the mortgagor and his rights are strictly subordinate to the superior lien of the first mortgagee (Sun Life Assurance Co. of Canada v. Diez, G.R. No. L-29027, October 25, 1928);
• Mortgagor’s right of redemption after foreclosure – his remedy is limited to the right to redeem by paying off the debt secured by the first mortgage (Tizon v. Valdez and Morales, G.R. No. L-24797, March 16, 1926);
• The second mortgagee is entitled, under the mortgage constituted in his favor to the payment of his credit the excess of the proceeds of the auction sale, after covering the mortgagor’s obligations to the first mortgagee;
• To be made defendant in an action for foreclosure of the mortgage; and,
• To question the legality of the foreclosure proceedings or the effect of the alleged lack of notice to them of such foreclosure. (Gonzalo Puyat and Sons, Inc. v. Philippine National Bank, G.R. No. L-16843, April 30, 1962)

NOTE: The effect of the failure of the mortgagee to implead a subordinate lienholder or subsequent purchase or both is to render the foreclosure ineffective against them

Updated: The redemption price may include contractual interest, foreclosure expenses, and qualifying amounts paid by the purchaser, in addition to the principal obligation (Bank of the Philippine Islands v. LCL Capital, Inc., G.R. No. 243396, 14 September 2021).

Effect of Failure to Redeem

Act No. 3135 provides that if the mortgagor or successors-in-interest fails to redeem within the redemption period, the title over the property consolidates in the purchaser.

The consolidation confirms the purchaser as the owner entitled to the possession of the property. The mortgagor, by failing to redeem loses all interest in the property. (United Coconut Planters Bank v. Lumbo, GR. No. 162757, December 11, 2013)

Q: D obtained a loan from C secured by a REM over a parcel of land. When D defaulted, C extrajudicially foreclosed the property. C was declared the highest bidder in the auction. On October 29, 1993, C caused the registration of the certificate of sale. On November 9, 1994, D filed a complaint for annulment of the extrajudicial foreclosure and auction sale. Can D redeem the property beyond the one-year redemption period?

A: NO. D lost any right or interest over the subject property primarily because of his failure to redeem the same in the manner and within the period prescribed by law. His belated attempt to question the legality and validity of the foreclosure proceedings and public auction must accordingly fail. (Sps. Landrito v. CA, G.R. No. 133079, August 9,2005)

A mortgagor, whose property has been extrajudicially foreclosed and sold, can validly execute a mortgage contract over the same property in favor of a third party during the period of redemption. The purchaser at the foreclosure sale merely acquires an inchoate right to the property which could ripen into ownership only upon the lapse of the redemption period without his credit having been discharged, it is illogical to hold that during that same period of twelve months the mortgagor was "divested" of his ownership, since the absurd result would be that the land will consequently be without an owner although it remains registered in the name of the mortgagor. Such mortgage does not involve a transfer, cession or conveyance of the property but only constitutes a lien thereon. (Medida v. CA, G.R. No. 98334, May 8, 1992)

Q: DBP guaranteed LCD’s loan. When LCD defaulted, DBP paid it and sought reimbursement. LCD failed to reimburse DBP, hence DBP extrajudicially foreclosed the REM, where it was the highest bidder. The Sheriff’s certificate of sale was annotated in the certificate of titles on April 30, 1976. La Campana failed to redeem the properties. The court, among others, ordered LCD to pay such sums of money unlawfully collected or received by way of rentals and/or fruits from the subject properties to DBP. When should the period for the remittance of collected/received rentals/fruits from the properties, of LCD to DBP start?

A: In foreclosure proceedings, the buyer becomes the absolute owner of the property purchased if it is not redeemed during the prescribed period of redemption, which is one year from the date of registration of the sale. The Sheriff’s certificate of sale was annotated in the certificate of titles on April 30, 1976. DBP became the absolute owner of the properties on May 1, 1977.

Thus, the period to be considered in determining the amount of collection should start from May 1, 1977 up to the time when the possession of the properties is actually and completely surrendered to DBP. (La Campana Development Corporation v. DBP, G.R. No. 146157, February 13, 2009)