REAL MORTGAGE

Art. 2124-2131
Definition
Real Mortgage is a contract whereby the debtor secures to the creditor
the fulfillment of a principal obligation, specially subjecting to such security
immovable property or real rights over immovable property in case the
principal obligation is not complied with at the time stipulated.

Characteristics
1. It is an accessory and subsidiary contract. (Ocampo v. Land Bank of the
Phils. 2009]).
2. It is also unilateral because it creates only an obligation on the part of
the creditor who must free the property from the encumbrance once the
obligation is fulfilled.
3. The mortgagor, as a general rule, retains possession of the property
mortgaged as security for the payment of the sum borrowed from the
mortgagee, and pays the latter a certain percent thereof as interest on
his principal by way of compensation for his sacrifice in depriving himself
of the use of said money and the enjoyment of its fruits, in order to give
them to the mortgagor.
4. The objects of a real mortgage are immovable and alienable real rights
imposed upon immovables. While a mortgage of land necessarily
includes, in the absence of stipulation, the improvements thereon, a
building by itself may be mortgaged apart from the land on which it is
built. Possessory rights over said property before title is vested on the
1 | Pag e

grantee may be validly transferred or conveyed as in a deed of

mortgage.
5. In order that a mortgage may be validly constituted, it must appear in a
public document duly recorded in the Registry of Property. If the
instrument of mortgage is not recorded, the mortgage is nevertheless
binding between the parties.
6. A mortgage creates a real right, a lien inseparable from the property
mortgaged, which is enforceable against the whole world.

Until

discharged, it follows the property wherever it goes and subsists

notwithstanding changes of ownership.
If the mortgagor sells the mortgaged property, the property remains
subject to the fulfillment of the obligation secured by it. All subsequent
purchasers of the property must respect the mortgage, whether the
transfer to them be with or without the consent of the mortgagee. But
the mortgage must be registered (Article 2125) or, if not registered, the
buyer must know of its existence.

The mortgagor may not be the

principal debtor.
The right or lien of an innocent mortgagee for value upon the
mortgaged property must be respected and protected, even if the
mortgagor obtained his title through fraud. The remedy of the persons
prejudiced is to bring an action for damages against the person who
caused the fraud and if the latter is insolvent, an action against the
Treasurer of the Philippines may be filed for the recovery of damages
against the Assurance Fund.

Kinds of Mortgage

2 | Pag e

A mortgage maybe: voluntary, legal or equitable. It is voluntary if it is

agreed to between parties or constituted by the will of the owner of the
property on which it is created. It is legal when one required by law to be
executed in favor of certain persons (Art. 2125, par. 2). The mortgage is
equitable when although it lacks the proper formalities or other requisites of
a mortgage required by law, nevertheless reveals the intention of the parties
to burden real property as a security for a debt, and contains nothing
impossible or contrary to law. (Rosales v. Suba, 408 SCRA 664 [2003]).

Subject Matter of Mortgage

The object of the contract of mortgage are immovables and alienable
real rights imposed upon immovables. A real right over real property is real
property. Hence, a mortgage on real property is in itself a real property. The
inclusion of buildings under Art. 415 of Civil Code, separate and distinct
from the land means that a building is by itself an immovable property. While
a mortgage of land necessarily includes, in the absence of stipulation, the
improvements thereon, a building by itself may be mortgaged apart from the
land on which it is built. Posessory rights over said property before title is
vested on the grantee may be validly transferred or conveyed as in a deed of
mortgage. Future property however, cannot be the object of a contract of
mortgage (Art. 2085, par. 2).

3 | Pag e

Essential Requisites of Mortgage

In addition to the requisites stated as common to pledge and
mortgage, it is dispensable that the mortgage may be validly constituted
that it appears in a public document in which it appears be recorded in the
Registry of Property. A duly executed mortgage is presumed to be valid until
the contrary is shown. On the other hand, no valid mortgage is constituted
where the alleged deed of mortgage is a mere private document and
therefore, is not registered. But an additional provision is made that if the
instrument of mortgage is not recorded nevertheless binding between the
parties.
The following are incidents of the registration of mortgage:
1. Mortgagee entitled to registration of mortgage as a matter of right
2. Proceedings for registration do not determine validity of mortgage or its
effect
3. Registration is without prejudice to better right of third parties
4. Mortgage deed once duly registered forms part of the records for the
registration of the property mortgaged
5. Mortgage by surviving spouse of his/her undivided share of conjugal
property can be registered

Effect of Mortgage
Art. 2126 provides that the mortgage directly and immediately
subjects the property upon which it is imposed, whoever the possessor may
be, to the fulfillment of the obligation for whose security it was constituted.
In other words, a registered mortgage creates a right in rem, a real right, a

4 | Pag e

lien inseparable from the property mortgaged, which is enforceable against

the whole world, affording specific security for the satisfaction of a debt. The
only right of a mortgagee in case of non-payment of a debt secured by real
mortgage would be to foreclose the mortgage and have the encumbered
property sold to satisfy the outstanding indebtedness. The mortgagors
default does not operate to vest in the mortgagee the ownership of the
encumbered property.

His failure to redeem the property does not

automatically vest ownership of the property to the mortgagee which would

grant the latter the right to appropriate the property or dispose of it for such
effect is against public policy as enunciated by Article 2088.

Extent of Mortgage
As a general rule, a real estate mortgage constituted on immovable
property is not limited to the property itself but also extends to all its
accessions, improvements, growing fruits and rents or income (Art. 2102) as
well as to the proceeds of insurance should the property be destroyed of the
expropriation value of the property should it be expropriated. To exclude
them, it is necessary that there be an express stipulation to that effect.

Alienation or Assignment of Mortgage

1.

Said assignment is valid and assignee may foreclose the mortgage in

case of nonpayment of the mortgage indebtedness.

2.

The fact that the mortgagor has transferred the mortgaged property to a
third person does not relieve him from his obligation to pay the debt to
the mortgage creditor in the absence of novation.

5 | Pag e

3.

The mortgage credit being a real right which follows the property, the
creditor may demand from any possessor the payment of the credit
secured by said property. It is necessary, however, that prior demand
for payment must have been made on the debtor and the latter failed to
pay.

4.

An assignee cannot acquire greater rights than those pertaining to an

assignor

6 | Pag e

Stipulation Forbidding Alienation of Mortgaged

Property
The law considers void stipulation forbidding the owner from alienating
the mortgaged property. However, if the mortgagor alienates the property,
the transferee is bound to respect the encumbrance because being a real
right, the property remains subject to the fulfillment of the obligation for
whose guaranty it was constituted (Article 2126).

Foreclosure of Mortgages
Foreclosure is the remedy available to the mortgagee by which he
subjects the mortgaged property to the satisfaction of the obligation to
secure which the mortgage was given. Foreclosure is but a necessary
consequence of non-payment of a mortgage indebtedness. As a rule, the
mortgage can be foreclosed only when the debt remains unpaid at the time
it is due. Foreclosure may be effected either judicially or extrajudicially, that
is, by ordinary action by the mortgagee or by a foreclosure by the mortgagee
under the power of sale contained in the mortgage. Judicial foreclosure
governed by Rule 68 of the Rules of Court. While, extrajudicial Foreclosure
governed by Act. No. 3135 as amended, if and when the mortgagee is given
a specific power or express authority to do so. The following is the process
extrajudicial foreclosure:
a.

Public auction must be conducted in the province where the property

is situated.

b.

Posting of notice of sale in at least 3 public places therein

c.

Publication in a newspaper of general circulation

d.

Personal notice to mortgagor is not required.

7 | Pag e

e.

Debtor has the right to redeem the property sold within the term of
one year from and after the date of the sale. The reckoning date in
case of registered land is from the registration of the certificate of
sale since it is only from such date that the sale takes effect as a
conveyance.

Every conveyance of lands acquired under the free

patent or homestead provisions, when proper, shall be subject to

repurchase by the applicant, his widow or legal heirs, within a period
of five years from the date of the conveyance. (Section 119, C.A.
No. 141 [Public Land Law], as amended) or foreclosure sale. The
filing of a collection suit bars the foreclosure of mortgage. (Cerna vs.
CA (220 SCRA 517)

Right of Mortgagee to Recover Deficiency

If there be a balance due to the mortgagee after applying the
proceeds of the sale, the mortgagee is entitled to recover the deficiency. In
judicial foreclosure, the Rules of Court specifically gives the mortgagee the
right to claim for deficiency in case a deficiency exists (Section 6, Rule 70).
While Act No. 3135 governing extrajudicial foreclosures of mortgage does not
give a mortgagee the right to recover deficiency after the public auction
sale, neither does it expressly or impliedly prohibit such recovery.
This right to recover deficiency had been categorically resolved in
State Investment vs. Court of Appeals (217 SCRA 32 [1993]).

Ergo, the

mortgagee is entitled to recover the deficiency in case the sale proceeds are
not sufficient to cover the debt in extrajudicial foreclosures.
The action to recover a deficiency after foreclosures prescribes after
ten (10) years from the time the right of action accrues as provided in Article
1144(2) of the Civil Code.
8 | Pag e

9 | Pag e

Waiver of Security by Creditor

The mortgagee may waive the right to foreclose his mortgage and
maintain a personal action for recovery of the indebtedness.

There is no

statutory provision in our jurisdiction prohibiting a personal action to recover

a sum of money even though a mortgage has been given as security for the
payment of the same.
The mortgagee cannot have both remedies. He has only one cause of
action, i. e., non-payment of the mortgage debt; hence, he cannot split up
his cause of action by filing a complaint for payment of the debt and another
complaint for foreclosure.

(Caltex Phils. Vs. Intermediate Appellate Court,

176 SRCA 741 [1989]).

Redemption
Redemption may be defined as a transaction by which the mortgagor
reacquires by which or buys back the property which may have passed under
the mortgage or divests the property of the lien which the mortgage may
have created. In general, the concept of redemption is to allow the owner to
repurchase or buy back, within a certain period and for a certain amount, a
property has been sold due to debt, tax, or encumbrance.

Kinds of Redemption
Equity of redemption or the right of the mortgagor to redeem the
mortgaged property after his default in the performance of the conditions of
the mortgagee but before the sale of the mortgaged property or confirmation
of the sale. The mortgagors equity of redemption is simply the right of the
mortgagor to extinguish the mortgage and retain ownership of the property
10 | P a g e

by paying the secured debt within the 90-day period after the judgment
becomes final, in accordance with Section 2, Rule 68 of the Rules of Court or
even after the foreclosure sale but prior to its confirmation.
Right of redemption or the right of the mortgagor to redeem the
mortgaged property within a certain period (1 year) after it was sold for the
satisfaction of the mortgaged debt.

Right of Redemption
In all cases of extrajudicial sale, the mortgagor may redeem the
property at any time within the term of one year from and after the date of
registration of the sale (Section 6, Act No. 3135).
In judicial foreclosure of real estate mortgage, there is a right of
redemption which he can exercise at any time after service of judgment of
foreclosure and within the 90-day period and even thereafter provided he
does so before the foreclosure sale is confirmed by the court. Confirmation
of the sale of mortgaged real property cuts off all the rights or interests of
the mortgagor and of the mortgage and persons holding under him, and with
them the equity of redemption in the property and vests them in the
purchaser. Confirmation retroacts to the date of the sale. It is a final order,
not interlocutory.
However, if the property has been mortgaged in favor of the DBP (CA
459) Philippine National Bank (RA 1300), banks, banking and credit
institutions (RA 337, or the General Banking Act) or rural banks (RA 2670),
redemption is allowed within one year from the registration of the sale. The
redemption must be made within one year after the sale if the mortgagee is
a bank, banking or credit institution (Section 78, R. A. No. 337). Under the
11 | P a g e

Revised charter of the PNB, the period is one year from the registration of
the foreclosure sale.

12 | P a g e

Requisites for Valid Redemption

1.

The redemption must be made within 12 months from the time of the

registration of the sale.

2.

Payment of the purchase price of the property plus 1% interest per

month together with the taxes thereon, if any, paid by the purchaser with the
same rate of interest computed from the date of registration of the sale; and
3.

Written notice of the redemption must be served on the officer who

made the sale and a duplicate filed with the proper Register of Deeds.

13 | P a g e

Recent Jurisprudence on Real Mortgages

Ocampo v. Land Bank of the Phils.
(591 SCRA 562 [2009])
Facts: Ocampo & Tan obtain a loan from the Land Bank & the latter which
released the loan proceeds. It was agreed that the loan be secured 80% by
Quedancor, while the remaining 20% by the Deed of Real Mortgage.
Petitioner allege the nullity of mortgage.
Issue: Whether the deed of real estate mortgage is valid?
Held: The essence of a contract of mortgage indebtedness is that the a
property has been identified or set apart from the mass of the property of
the debtor-mortgagor as security for the payment of money or the fulfillment
of an obligation to answer the amount of indebtedness, in case of default of
payment. The loan was established.

Recebido v. People
(346 SCRA 881 [2000])
Facts: Private complainant decided to redeem the land mortgaged to
petitioner. But the latter refused because she had sold her property on him. It
was found out that the deed of sale was falsified by the petitioner.
Issue: Whether the petitioner is entitled to possession as mortgagee?
Held: The deed of sale was forged hence, could not be a valid basis of
possession. Neither can his status as mortgagee be the basis of possession.
Since it is the mortgagor in a contract of mortgage who is entitled to
possession of the subject property, it follows that ones status as mortgagee
cannot be the basis of possession.
Tarnate vs. Court of Appeals
(241 SCRA 254)
It is a settled rule that a mortgagee may recover any
deficiency in the mortgage account which is not realized in a

14 | P a g e

foreclosure sale and that the action for recovery of that

deficiency may be filed even during the redemption period.

Olea vs. Court of Appeals

(247 SCRA 274)
a.)

A stipulation that the ownership of the property would

automatically pass to the vendee in case no redemption is
effected within a stipulated period is void for being a
pactum commissorium which enables the mortgagee to
acquire ownership of the mortgaged property without need
of foreclosure.

b.)

Where in a contract of sale with pacto de retro, the vendor

remains in physical possession of the land sold as lessee or
otherwise, the contract should be considered an equitable
mortgage.

c.)

Where the contract contains a stipulation that upon

payment by the vendor of the purchase price within a
certain period the document shall become null and void
and have no legal force and effect, the purported sale
should be considered a mortgage contract.

d.)

In case of doubt, a contract purporting to be sale with the

right

of

purchase

shall

be

considered

an

equitable

mortgage.
e.)

A mortgage action prescribes after 10 years.

15 | P a g e

DBP vs. Court of Appeals

(249 SCRA 331)
The fact that the annulment of the sale will also result in
the invalidity of the mortgage does not have an effect on the
validity and efficacy of the principal obligation, for even an
obligation that is unsupported by any security of the debtor may
also be enforced by means of an ordinary action.

Where a

mortgaged is not valid, as where it is executed by one who is not

the owner of the property, or the consideration of the contract is
simulated or false, the principal obligation which it guaranteed is
not thereby rendered null and void. That obligation matures and
becomes

demandable

in accordance

with

the stipulations

pertaining to it.

Gabonseng vs. Court of Appeals

(246 SCRA 472)
The application for foreclosure of mortgage is premature
where the debtors have not yet defaulted on the payment of
either the principal or the interest on their loans.

Borromeo v. Court of Appeals

(550 SCRA 269 [2008])
The right of foreclosure cannot be exercised by any person other
than the creditor-mortgagee or his assigns.

16 | P a g e

BPI Family Savings Bank, Inc. v. Vda. De Cosculluela

(493 SCRA 472 [2006])
There is no statutory provision prohibiting personal action to
recover a sum of money even though the mortgage has been given as a
security for the payment for the same.
Estanislao, Jr. v. Court of Appeals
(362 SCRA 229 [2001])
The redemption must be made within 1 year from the date of
registration of the certificate of the sales, not from the date of the
foreclosure sale. The existence of the right of redemption operates to
depress the market value of the property until the period expires, and to
render the period indefinite would render nugatory the period fixed by the
statute.

Rosales v. Suba
408 SCRA 664 [2003]
An equitable mortgage is not different from the real estate mortgage,
and the lien created thereby ought not to be defeated by requiring
compliance with the formalities necessary to the validity of a voluntary real
estate mortgage.

17 | P a g e