Foreclosure of Real Estate Mortgage

In order to fully understand the concept of “foreclosure of real estate

mortgage” it is proper to first discuss real estate mortgage, and the concept
of mortgage itself as the law defines it, as well as its scope.

Mortgage
The word “mortgage” is derived from two French words, “mort” and
“gage”. These are equivalent to the Latin terms mortuum uadium. The word
“mort” means “dead” and the term “gage” means “pledge.” Thus, mortgage
means a dead or unproductive pledge.1
Manresa defined mortgage as “a contract in which the debtor
guarantees to the creditor the fulfillment of a principal obligation, subjecting
for the faithful compliance therewith a real property in case of non-fulfillment
of said obligation at the time stipulated.2

Real Mortgage
According to our laws, immovable and alienable real rights in
accordance with the laws, imposed upon movables may be the object of a
contract of mortgage.3 Movables may however be the object of a chattel
mortgage. At the same time, real property may also be subjected to a chattel
mortgage when the parties thereto intended to considered and stipulated in
their contract that real property be treated as personal property, 4 this is
however a different topic to be discussed. As contemplated by the law, as

1
Sturpe v. Kopp, 201, No. 412, 99 S.W. 1903)
2
12 Manresa
3
Art. 2124. Only the following property may be the object of a contract of mortgage:

(1) Immovables;

(2) Alienable real rights in accordance with the laws, imposed upon immovables.

Nevertheless, movables may be the object of a chattel mortgage.

4
Associated Insurance and Surety Company vs. Iya, G.R. No. L-10837, May 30, 1958
well as the legal word usage, the word mortgage would then be construed as
only referring to real estate mortgage or the mortgage of real property, and
mortgages over movable or personal property are then called chattel
mortgages.

Real Property
The terms real property and immovable property are used
interchangeably and are considered by our laws as one and the same. Article
415 of the Civil Code of the Philippines gives us an extensive list of
immovable or real property.
The following are to be considered as immovable property:
- Land, buildings, roads and constructions of all kinds adhered to the
soil;
- Trees, plants, and growing fruits, while they are attached to the
land or form an integral part of an immovable;
- Everything attached to an immovable in a fixed manner, in such a
way that it cannot be separated therefrom without breaking the
material or deterioration of the object;
- Statues, reliefs, paintings or other objects for use or ornamentation,
placed in buildings or on lands by the owner of the immovable in
such a manner that it reveals the intention to attach them
permanently to the tenements;
- Machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works;
- Animal houses, pigeon-houses, beehives, fish ponds or breeding
places of similar nature, in case their owner has placed them or
preserves them with the intention to have them permanently
attached to the land, and forming a permanent part of it; the
animals in these places are included;
 - Fertilizer actually used on a piece of land;
- Mines, quarries, and slag dumps, while the matter thereof forms
part of the bed, and waters either running or stagnant;
- Docks and structures which, though floating, are intended by their
nature and object to remain at a fixed place on a river, lake, or
coast;

- Contracts for public works, and servitudes and other real rights over
immovable property.5

They are classfied by nature as they cannot be carried from place to

place; by incorporation as they are attached to an immovable in a fixed
manner to be an integral part thereof, like buildings, walls or fences, trees
statues, animal houses; by destination as when they are placed in an
imovable for utility it gives for the activity to be carried thereon such as
machinery installed in a building to meet the demands of the industry; by
analogy or when they are classified as immovable properties by provision of
the law because they are regarded as united to the immovable property.

Article 415, of the Civil Code, particularly paragraph 10 thereof,

included real rights over an immovable property as real property itself,
thereby classifying mortgage being a real right over an immovable property
as by itself a real property.

Characteristics of a Real Mortgage

A real mortgage is a real right as a mortgage binds a purchaser who

knows if its existence or if the mortgage was registered. Real mortgage is
however binding upon the immediate parties whether registered or not so
long as there are no third persons affected thereby.

5
Art. 415, Civil Code of the Philippines
 It is an accessory contract, such that when the principal obligation is
considered void, the mortgage is also considered void. Nonetheless, when a
mortgage is void because it was not made by the owner of the property, the
principal contract of loan may still be valid.

A real mortage is also considered as indivisible and inseparable. It is

inseparable as it adheres to the property, regardless of who the subsequent
owner may be.6 It is a limitation on ownership, as it encumbers ownership,
but it does not however end the ownership, but nonetheless be forclosed. 7
Furthermore, it can secure all kinds of obligations, and the property cannot
be appropriated when there is an existing mortgage, and it is a lien.

Kinds of Real Mortgages

There are three main kinds of real mortgages namely, voluntary or

conventional mortgages, legal mortgages, and equitable mortgages.

It is a voluntary or conventional mortgage when it is created by the

parties. It is a legal mortgage when it is one required by law to guarantee
performance. It is Equitable when it reveals an intent to make the property a
security even if the contract lacks the proper formalities of a real estate
mortgage.

Registration

A document evidencing real mortgage must be recorded in the

Registry of Property, in order for it to be validly constituted. Nonetheless
when the document is not registered, it is still binding between the parties
who constituted the same. 8

6
McCullough vs. Veloso, 46 Phil. 1.
7
Supra.;
8
Art 2125, Civil Code,
 The persons in whose favor the law establishes a mortgage have no
other right than to demand the execution and the recording of the document
in which the mortgage is formalized.9

Once a mortgage has been signe in due form, the mortgagee is

entitled to its registration as a matter of right. By executing the mortgage,
the morgagor is understood to have given his consent to its registration, and
he cannot be permitted to revoke it unilaterally. The validity and fulfillment
of contracts cannot be left to the will of one of the contracting parties.10 The
legal presumption of sufficient cause or consideration supporting a contract,
even if such cause is not stated therein cannot be overcome by a simple
assertion of lack of consideration.11

A mortgage, whether registered or not, is binding between the parties,

registration being necessary only to make the same valid against third
persons. In other words, registration only operates as a notice of the
mortgage to others, but neither adds to its validity nor convert an invalid
mortgage into a valid one between the parties. If the purpose of registration
is merely to give notice, the questions regarding the effect or invalidity of
instruments are expected to be decided after, not before, registration. It
must follow as a necessary consequence that registration must first be
allowed and validity or effect litigated afterwards.12

Scope of Mortgage

Art 2127 of the Civil Code provides “The mortgage extends to the
natural accessions, to the improvements, growing fruits, and the rents or
income not yet received when the obligation becomes due, and to the
9
Ibid.,
10
Gonzales vs. Basa 73 Phil. 704
11
Samanilla v. Cajucom, L-13683
12
Ibid,
amount of the indemnity granted or owing to the proprietor from the insurers
of the property mortgaged, or in virtue of expropriation for public use, with
the declarations, amplifications and limitations established by law, whether
the estate remains in the possession of the mortgagor, or it passes into the
hands of a third person.”

A mortgage therefor attaches to all the other integral parts of the

property, in which it is constituted, itself. A mortgage lien is considered
inseparable from the property in as much as itis a right in rem. If the
mortgage be replaced by a surety bond, the lien would be converted into a
right in personam. Naturally, the mortgagee’s rights under the mortgage
would be diminished.13

Some Rules

A mortgage on the land includes present and future houses thereon,

unless the houses are exempted by express stipulation. 14 Growing fruits
should exclude those already harvested before the obligation falls due.15
Fruits already gathered, of the land mortgaged should not be applied to
payment of the principal obligation unless there is a stipulation to that
effect.16 If equipment on a mortgaged land is temporarily removed, the
mortgage continues on said equipment.17 A land with an old house which was
latter replaced by a more expensive house, in the absence of express
stipulation, the mortgage constituted upon the land with the old house is
covered by the same mortgage.18

Forms

13
Ganzon v. Sanco, G.R. No. 56450, 1983
14
Berkenkotter v. Cu Unjieng, 61 Phil. 663
15
Afable v. Belando, 55 Phil 64
16
Serra vs. NB, 45 Phil. 907
17
Serra vs NB, 45 Phil. 907
18
Philippine Sugar Estate Dev. Co. V. Campos, 36 Phil 85.
 The real estate mortgage contract may be instituted in the form of the
following document:

REAL ESTATE MORTGAGE

KNOW ALL MEN BY THESE PRESENTS:

This Real Estate Mortgage, made by and between:

_____________, of legal age, (single / married / widow), and a resident of

_____________, Philippines (hereinafter known as the MORTGAGOR);

- and -

_____________, of legal age, (single / married / widow), and a resident of

_____________, Philippines (hereinafter known as the MORTGAGEE);

WITNESSETH; That:

The MORTGAGOR is indebted unto the MORTGAGEE in the sum of

_____________ (P__________), Philippine Currency, receipt of which is
acknowledged by the MORTGAGOR upon the signing of this instrument,
payable to the order of the MORGAGEE without need of prior demand or
notice within a period of _____________ (years/months/weeks/days), at
_____________ (P__________) (monthly/weekly/daily) starting on _____________
and on every _____________ thereafter until fully paid, with interest thereon at
the rate of _____________ (______%) percent per (month/annum).

NOW, THEREFORE, for and consideration of the afore-mentioned

indebtedness, and to assure the performance of said obligation to pay, the
 MORTGAGOR does hereby convey and DELIVER by way of MORTGAGE unto
the MORTGAGEE, (his/her) heirs, successors and as signs, the following
parcel of land, together with all the improvements found and standing
thereon, more particularly described as follows:

(Technical Description of Property)

That it is the condition of this Mortgage that should the MORTGAGOR

perform the obligation to pay the afore-cited indebtedness of _____________
together with accrued interest thereon, within the agreed term, this Real
Estate Mortgage shall be discharged and shall at once become null and void
and of no effect whatsoever, otherwise, it shall subsist and remain in full
force and effect and be subject to foreclosure in the manner and form
prescribed by law.

IN WITNESS WHEREOF, we have have hereunto set their hands, this

_____________ at _____________, Philippines.

MORTGAGOR MORTGAGEE

With my Marital Conformity:

Mortgagor's Spouse

SIGNED IN THE PRESENCE OF:

_________________ __________________

(ACKNOWLEDGMENT)

Foreclosure of Real Estate Mortgage

 The Civil Code provides that the form, extent and consequences of a
mortgage, both as to its constitution, modification and extinguishment shall
be governed by the provisions of the Mortgage Law and of the Land
Registration Law.19 It is therefore the Mortgage Law that governs the
foreclosure of the mortgage, foreclosure being a mode of extinguishing the
mortgage.

The Rules of Court particularly Rule 68 thereof provides for the

procedure for the foreclosure.

There are some facts to be considered in the foreclosure of real estate

mortgage. A stipulation in a contract which fixes an upset price at which the
property sold at a foreclosure sale is null and void, as it violates rule 68 of
the Rules of Court, which states that the property mortgaged shall be sold to
the highest bidder.20

Even if not registered in the Registry of Property, a mortgage is

between the parties and the mortgagee has the right to foreclose the
mortgage, as long as no innocent third parties are involved.21

How Instituted

Foreclosure of real estate mortgage begins when the mortgagee files a

complaint. The complaint shall state when and where the mortgage was
executed, the names and corresponding residences of the morgagor and the
mortgagee, a description of the property mortgaged, documentary evidence
of the obligation secured by the mortgage and the amount to be unpaid
thereon. The names and residences of all persons with interest in the
property with a subordinate right to the holder of the mortgage shall also be
included and shall be made defendants in the action. 22

19
Art 2131. Civil Code
20
Bank of the Philippines vs. Yulo, 31 Phil 472
21
Tan v. Valdeheuza, L38745
22
Rule 68, Rules of Court
Where Instituted

The complaint shall be filed at the Regional Trial Court of the province
or municipality wherein the property subject of the mortgage is situated.

Effects

When after trial, the court finds for the plaintiff or the mortgagee, the
court shall ascertain the amount due to the mortgagee upon the debt or
obligation. It shall also compute and include the interes and other charges as
approved by the court. The court will then order the mortgagor to pay the
mortgagee or to pay to the court the sum due to the latter within a period
not less than 90 days nor more than 120 days from the entry of judgment,
otherwise the property foreclosed shall be sold at a public auction to satisfy
the judgment.

If the mortgagor fails to pay, the court shall order the property sold.
Such sale shall not affect the rights of persons holding prior encumbrances
upon the property or a part therof, and when confirmed by an order of the
court, also upon motion, it shall operate to dives the rights in the property of
all the parties to the action and to vest their rights in the purchaser. The
mortgagor will however be given a period to redeem the property foreclosed.

Judicial Sale

The sale shall be made within the province in which the property sold
is situated. The auction shall be held firstly if there is a stipulation as to
place, the place stipulated, and if there be none, it shall be made in the
municipal building of the municipality in which the property or a part therof
is situated.
 Notice shall be given by posting notices of the sale for not less than
twenty days in at least three public places of the municipality or city where
the property is situated, if the property is worth more than four hundred
pesos, the notice shall also be published once a week for three consecutive
weeks in a newspaper of general circulation in the municipality or city.

The sale shall be made at a public auction, between 9 a.m. to 4 p.m.

and shall be under the direction of the sheriff of the province, the Judge. The
creditor or mortgagee shall be allowed to participate, unless there is a
stipulation in the contract that he may not. Any person with interest in the
property directly related to the mortgagor may redeem the property within
one year from and after the date of sale.

Possession of Property

The highest bidder, or the purchaser would then have the right to ask
for the possession of the property during the redemption period, by filing a
bond with the court. If the writ of possession is issued it shall be issued
immediately.

The debtor or the mortgagor may then ask, if he believes that the
mortgage or the contract within which it is constituted is not violated, for the
order of possession to be set aside.

Proceeds of sale

The proceeds of the sale shall be given to the person foreclosing the
mortgage, and where there shall be any balance, the balance shall be paid to
the junior encumbrancers, if there be none, then to the mortgagor or his
agent or any person entitled to the balance.

If there is a deficiency in the amount after applying the proceeds of the

sale, the court upon motion shall render judgment against the mortgagor for
any balance where he may be held liable to the plaintiff.

The court shall certify the final order confirming the sale, and shall be
registered in the registry of deeds. If there is no right of redemption, the
certificate of title in the name of the mortgagor shall be cancelled, and a new
one issued in the name of the purchaser. If there is a right of redemption, the
title would not be cancelled but a certificated and the order confirming the
judicial sale shall be registered and a memorandum shall be made on the
title. If the property is redeemed, the deed of redemption shall be registered
with the registry of deeds, and a brief memorandum thereof shall be made
by the registrar of deeds on said certificate of title.

Redemption

When the property is redeemed after the purchaser has been givem
possession, the mortgagor shall be entitled to deduct from the redemption
price any rentals the purchases may have collected in case the property was
rented to a third person. If the person who purchased the property used it as
his own dwelling or used gainfully, the redeemer may deduct from the price,
the interest of one percent per month.23

If the sale has been confirmed by the court, there can be no

redemption. Such confirmation retroacts to the date of the auction sale. After

23
Act 3135 as amended by Act 4119
confirmation, the previous owners lose any right they have had over the
property, the rights are in turn vested on the purchaser of the property. 24

Equity of Redemption and Right of Redemption

Equity of redemption refers to the right of the 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.
Equity of Redemption is the right of the defendant mortgagor to extinguish
the mortgage and retain ownership of the property by paying the amount
fixed in the decision of the court within ninety (90) to one hundred twenty
(120) days after entry of judgment or even after the foreclosure sale but
prior to its confirmation.25

Right of Redemption refers to the right of the mortgagor to purchase

the property within a certain period after it was sold for the purpose of
paying the mortgage debt. Right of redemption is the right granted to the
debtor-mortgagor, his successor-in-interest or any judicial creditor of said
debtor-mortgagor or any person having a lien in the property subsequent to
its mortgage or deed of trust under which the property is sold to redeem the
property within one (1) year from the registration of the sheriff’s certificate
of foreclosure sale.26

Other Things to Remember in Real Estate Mortgage

Co-possessors of a parcel that is mortgaged must be made parties to

foreclosure proceedings; otherwise, they cannot be deprived of possession of
that portion of the land actually possessed by them.27
24
Lozame v. Amores, L53620
25
Limpin v. IAC, L-70897, 1988
26
De Castro v. IAC L-73859, 1988
27
Concha v. Divinagracia, L-270242 1981
Redemption Price When DBP is Mortgagee

Redemption of Properties mortgaged with the Development Bank of

the Philippines and foreclosed either judicially or extrajudicially is governed
by special laws which provide for payment of all amount owed by debtor.
This special protection to the DBP is not accorded to judgment creditors in
ordinary civil actions. Where real property is mortgaged to and foreclosed
judicially or extrajudicially by DBP, the right of redemption may be exercised
only by paying to DBP all the amount owed by borrower on date of sale with
interest on total indebtedness at rate agreed upon in the obligation from said
date unless bidder has taken material possession of the property or unless
this has been delivered to him, in which case proceeds of the property shall
compensate interest. This rule applies whether the foreclosed property is
sold to DBP or to another person at public auction, provided, that the
property was mortgaged to DBP. Where the property is sold to persons other
than mortgagee, the procedure is for DBP in case of redemption to return to
the bidder the amount it received from him as a result of the auction sale
with corresponding interest by the debtor.28

With regards to juridical persons, the latter are allowed to exercise the
right of redemption only “until, but not after, the registration of the
certificate of foreclosure sale” and in no case more than three months after
foreclosure, whichever comes first.29 The rule was held by the Supreme Court
in response to the General Banking Law of 2000.

28
Development Bank of the Philippines v. West Negros College Inc. G.R. No. 152359, 2002.
29
A.M. No. 99-19-05-0
Appendices
Appendix A.

ACT NO. 3135 – AN ACT TO REGULATE THE SALE OF PROPERTY

UNDER SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL-
ESTATE MORTGAGES

SECTION 1. When a sale is made under a special power inserted in or

attached to any real-estate mortgage hereafter made as security for the
payment of money or the fulfillment of any other obligation, the provisions of
the following election shall govern as to the manner in which the sale and
redemption shall be effected, whether or not provision for the same is made
in the power.

SECTION 2. Said sale 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 subject to 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.

SECTION 3. Notice shall be given by posting notices of the sale for not less
than twenty days in at least three public places of the municipality or city
where the property is situated, and if such property is worth more than four
hundred pesos, such notice shall also be published once a week for at least
three consecutive weeks in a newspaper of general circulation in the
municipality or city.

SECTION 4. The sale shall be made at public auction, between the hours or
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
each day of actual work performed, in addition to his expenses.

SECTION 5. At any sale, the creditor, trustee, or other persons authorized to

act for the creditor, may participate in the bidding and purchase under the
same conditions as any other bidder, unless the contrary has been expressly
provided in the mortgage or trust deed under which the sale is made.

SECTION 6. In all cases in which an extrajudicial sale is made under the

special power hereinbefore referred to, the debtor, his successors in interest
or any judicial creditor or judgment creditor of said debtor, or any person
having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within
the term of one year from and after the date of the sale; and such
redemption shall be governed by the provisions of sections four hundred and
sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil
Procedure, in so far as these are not inconsistent with the provisions of this
Act.

SECTION 7. In any sale made under the provisions of this Act, the purchaser
may petition the Court of First Instance 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. Such
petition shall be made under oath and filed in form of an ex parte motion in
the registration or cadastral proceedings if the property is registered, or in
special proceedings in the case of property registered under the Mortgage
Law or under section one hundred and ninety-four of the Administrative
Code, or of any other real property encumbered with a mortgage duly
registered in the office of any register of deeds in accordance with any
existing law, and in each case the clerk of the court shall, upon the filing of
such petition, collect the fees specified in paragraph eleven of section one
hundred and fourteen of Act Numbered Four hundred and ninety-six, as
amended by Act Numbered Twenty-eight hundred and sixty-six, 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.

SECTION 8. 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, and the court shall take cognizance of this petition in accordance
with the summary procedure provided for in section one hundred and twelve
of Act Numbered Four hundred and ninety-six; and if it finds the complaint of
the debtor justified, it shall dispose in his favor of all or part of the bond
furnished by the person who obtained possession. Either of the parties may
appeal from the order of the judge in accordance with section fourteen of Act
Numbered Four hundred and ninety-six; but the order of possession shall
continue in effect during the pendency of the appeal.

SECTION 9. When the property is redeemed after the purchaser has been
given possession, the redeemer shall be entitled to deduct from the price of
redemption any rentals that said purchaser may have collected in case the
property or any part thereof was rented; if the purchaser occupied the
property as his own dwelling, it being town property, or used it gainfully, it
being rural property, the redeemer may deduct from the price the interest of
one per centum per month provided for in section four hundred and sixty-
five of the Code of Civil Procedure.

SECTION 10. This Act shall take effect on its approval.

Approved: March 6, 1924

 Appendix B
ACT 4118- AN ACT TO AMEND ACT NUMBERED THIRTY-ONE HUNDRED AND
THIRTY-FIVE, ENTITLED “AN ACT TO REGULATE THE SALE OF PROPERTY UNDER
SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL ESTATE MORTGAGES.

SECTION 1. Section six of Act Numbered Thirty-one hundred and thirty-five,

entitled "An Act to regulate the sale of property under special powers
inserted in or annexed to real-estate mortgages," is hereby amended to read
as follows:

"Section 6. In all cases in which an extrajudicial sale is made under the

special power hereinbefore referred to, the debtor, his successors in interest
or any judicial creditor or judgment creditor of said debtor, or any person
having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within
the term of one year from and after the date of the sale; and such
redemption shall be governed by the provisions of sections four hundred and
sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil
Procedure, in so far as these are not inconsistent with the provisions of this
Act."

SECTION 2. The following three sections are hereby inserted after section
six of said Act Numbered Thirty-one hundred and thirty-five:

"Section 7. In any sale made under the provisions of this Act, the purchaser
may petition the Court of First Instance 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. Such
petition shall be made under oath and filed in form of an ex parte motion in
the registration or cadastral proceedings if the property is registered, or in
special proceedings in the case of property registered under the Mortgage
Law or under section one hundred and ninety-four of the Administrative
Code, or of any other real property encumbered with a mortgage duly
registered in the office of any register of deeds in accordance with any
existing law, and in each case the clerk of the court shall, upon the filing of
such petition, collect the fees specified in paragraph eleven of section one
hundred and fourteen of Act Numbered Four hundred and ninety-six, as
amended by Act Numbered Twenty-eight hundred and sixty-six, 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.

"Section 8. 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, and the court shall take cognizance of this petition in accordance
with the summary procedure provided for in section one hundred and twelve
of Act Numbered Four hundred and ninety-six; and if it finds the complaint of
the debtor justified, it shall dispose in his favor of all or part of the bond
furnished by the person who obtained possession. Either of the parties may
appeal from the order of the judge in accordance with section fourteen of Act
Numbered Four hundred and ninety-six; but the order of possession shall
continue in effect during the pendency of the appeal.

"Section 9. When the property is redeemed after the purchaser has been
given possession, the redeemer shall be entitled to deduct from the price of
redemption any rentals that said purchaser may have collected in case the
property or any part thereof was rented; if the purchaser occupied the
property as his own dwelling, it being town property, or used it gainfully, it
being rural property, the redeemer may deduct from the price the interest of
one per centum per month provided for in section four hundred and sixty-
five of the Code of Civil Procedure."

SECTION 3. The number of the present section seven of said Act Numbered
Thirty-one hundred and thirty-five is hereby changed, making it section ten.

SECTION 4. This Act shall take effect on its approval.

Approved, December 7, 1933

Appendix C.

RULE 68

FORECLOSURE OF REAL ESTATE MORTGAGE

SECTION 1. Complaint in action for foreclosure.—In an action for the

foreclosure of a mortgage or other encumbrance upon real estate, the
complaint shall set forth the date and due execution of the mortgage; its
assignments, if any; the names and residences of the mortgagor and the
mortgagee; a description of the mortgaged property; a statement of the date
of the note or other documentary evidence of the obligation secured by the
mortgage, the amount claimed to be unpaid thereon; and the names and
residences of all persons having or claiming an interest in the property
subordinate in right to that of the holder of the mortgage, all of whom shall
be made defendants in the action. (1a)

SEC. 2. Judgment on foreclosure for payment or sale.—If upon the trial in

such action the court shall find the facts set forth in the complaint to be true,
it shall ascertain the amount due to the plaintiff upon the mortgage debt or
obligation, including interest and other charges as approved by the court,
and costs, and shall render judgment for the sum so found due and order
that the same be paid to the court or to the judgment obligee within a period
of not less than ninety (90) days nor more than one hundred twenty (120)
days from the entry of judgment, and that in default of such payment the
property shall be sold at public auction to satisfy the judgment. (2a)

SEC. 3. Sale of mortgaged property; effect.—When the defendant, after

being directed to do so as provided in the next preceding section, fails to pay
the amount of the judgment within the period specified therein, the court,
upon motion, shall order the property to be sold in the manner and under the
provisions of Rule 39 and other regulations governing sales of real estate
under execution. Such sale shall not affect the rights of persons holding
prior encumbrances upon the property or a part thereof, and when confirmed
by an order of the court, also upon motion, it shall operate to divest the
rights in the property of all the parties to the action and to vest their rights in
the purchaser, subject to such rights of redemption as may be allowed by
law.

Upon the finality of the order of confirmation or upon the expiration of the
period of redemption when allowed by law, the purchaser at the auction sale
or last redemptioner, if any, shall be entitled to the possession of the
property unless a third party is actually holding the same adversely to the
judgment obligor. The said purchaser or last redemptioner may secure a writ
of possession, upon motion, from the court which ordered the foreclosure.
(3a)

SEC. 4. Disposition of proceeds of sale.—The amount realized from the

foreclosure sale of the mortgaged property shall, after deducting the costs of
the sale, be paid to the person foreclosing the mortgage, and when there
shall be any balance or residue, after paying off the mortgage debt due, the
same shall be paid to junior encumbrancers in the order of their priority, to
be ascertained by the court, or if there be no such encumbrancers or there
be a balance or residue after payment to them, then to the mortgagor or his
duly authorized agent, or to the person entitled to it. (4a)
SEC. 5. How sale to proceed in case the debt is not all due.— If the debt for
which the mortgage or encumbrance was held is not all due as provided in
the judgment, as soon as a sufficient portion of the property has been sold to
pay the total amount and the costs due, the sale shall terminate; and
afterwards, as often as more becomes due for principal or interest and other
valid charges, the court may, on motion, order more to be sold. But if the
property cannot be sold in portions without prejudice to the parties, the
whole shall be ordered to be sold in the first instance, and the entire debt
and costs shall be paid, if the proceeds of the sale be sufficient therefor,
there being a rebate of interest where such rebate is proper. (5a)

SEC. 6. Deficiency judgment.—If upon the sale of any real property as

provided in the next preceding section there be a balance due to the plaintiff
after applying the proceeds of the sale, the court, upon motion, shall render
judgment against the defendant for any such balance for which, by the
record of the case, he may be personally liable to the plaintiff, upon which
execution may issue immediately if the balance is all due at the time of the
rendition of the judgment; otherwise, the plaintiff shall be entitled to
execution at such time as the balance remaining becomes due under the
terms of the original contract, which time shall be stated in the judgment.
(6a)

SEC. 7. Registration.—A certified copy of the final order of the court

confirming the sale shall be registered in the registry of deeds. If no right of
redemption exists, the certificate of title in the name of the mortgagor shall
be cancelled, and a new one issued in the name of the purchaser.

Where a right of redemption exists, the certificate of title in the name of the
mortgagor shall not be cancelled, but the certificate of sale and the order
confirming the sale shall be registered and a brief memorandum thereof
made by the registrar of deeds upon the certificate of title. In the event the
property is redeemed, the deed of redemption shall be registered with the
registry of deeds, and a brief memorandum thereof shall be made by the
registrar of deeds on said certificate of title.

If the property is not redeemed, the final deed of sale executed by the sheriff
in favor of the purchaser at the foreclosure sale shall be registered with the
registry of deeds; whereupon the certificate of title in the name of the
mortgagor shall be cancelled and a new one issued in the name of the
purchaser. (n)

SEC. 8. Applicability of other provisions.—The provisions of sections 31, 32

and 34 of Rule 39 shall be applicable to the judicial foreclosure of real estate
mortgages under this Rule insofar as the former are not inconsistent with or
may serve to supplement the provisions of the latter. (8a)