FAQ on Real Estate Mortgage - Part 1 of 2 Most buyers purchase their first home through amortization.

Most amortized properties are bank financed. The real estate transaction that binds the relationship between the financial institution and the buyer is something we call Mortgage. Mortgage as an experience, had been very pleasant for those buyers who sustained their capacity-to-pay all throughout the loan period. For some few who were not able to sustain their source of income, it had been a struggle that ended up into foreclosure. When a buyer is no longer able to fulfill the obligation to pay his loan in a mortgage contract, the two devastating consequences are: (1) decline of personal credit rating that will affect future loan credibility, and (2) ejection from own home after a successful foreclosure proceeding in court. The boomerang effects of mortgage are the reasons why many potential buyers are not comfortable with loaning, but their fighting spirit and dream to own a house is still there burning inside their hearts. Many dream everyday for cash to rain from heaven in huge amount so they can buy a home with outright cash. This blog is definitely not to sow fear about mortgage that will discourage people to avail of loan for real estate acquisition purposes. The objective of this blog is to provide light in all areas of the long tunnel of a mortgage deal. This blog will provide comprehensive information about mortgage based on frequently asked questions (FAQ) of many buyers in the past. I believe that knowledge is the foundation of intelligent-buying, and providing this information is my duty as a buyer's agent to ensure that my clients will experience a smooth sailing ride just in case they opt to a bank financed real estate purchasing. Mortgage, as a study, is a combination of mathematics and law - the two most dreaded field of studies. Despite hundreds of books written in layman's terms about mortgage, many still believe that mortgage is very difficult to understand, especially if learning process is through self-study. On self-help medication labels, you can read: "If symptoms persist, consult your doctor". When it comes to Bank Financing of Real Estate Purchase, I would say it in Latin: "Cogita ante salis"- Think before you leap, or look before you leap. To avoid regrets, do your first-time home buying through an Exclusive Buyer Agent (EBA). Defining the Mortgage players Mortgagor - the property owner who used his property as collateral of a loan. Mortgagee - the financial institution who lend money to the Mortgagor. Guarantor - the person who promised to shoulder the loan obligation in case the mortgagor fails to fulfill his obligation to pay. What is Real Estate Mortgage? A real estate mortgage may be defined as an accessory contract whereby the debtor guarantees the performances of the principal obligation by subjecting real property or real rights as security in case of non-performance of such obligation within the period agreed upon. What are the characteristics of real estate mortgage?

It is a real right. The mortgagee has the right to have the property sold to satisfy his claim in case the obligation is not paid. It is an accessory contract. It cannot exist without a principal obligation. The mortgage property serves as a security to the satisfaction of an obligation. It is indivisible. It creates a lien on the whole or all of the properties mortgaged and continues as such even if the obligation is partially or almost paid. It is a real property. It is a real right and considered as an immovable property. It is inseparable. A mortgage always refers to the property even if the ownership was transferred by the mortgagor to another party. It is characterized by publicity. It must be registered with the Register of Deed to be validly constituted. It is a limitation of ownership. It gives to the mortgagee the right to have the property sold, however, the mortgagor retains the right to sell the property. It is a lien. A mortgage is only a lien upon the property. The title to the property together with the right of possession remains with the owner until foreclosed. The property cannot be appropriated. The mortgagee cannot appropriate to himself the mortgaged property. Any stipulation that the mortgages can do is against public policy and is contrary to law.

It can secure all kinds of obligation. Mortgage may secure all kinds of obligations.

What are the essential requisites of a Contract of Real Estate Mortgage?

That is guarantees the fulfillment of a principal obligation. That the mortgagor must be the absolute owner of the property mortgaged. That the mortgagor is the absolute owner of the property, if not, he must be, legally authorized. That it must be registered with the Register of Deeds. That when the obligation becomes due, the property mortgaged may not be appropriated by the creditor, but must be sold in accordance with the procedure prescribed by law

What are the most common kinds of mortgage?

Conventional or voluntary mortgage Legal mortgage Judicial mortgage Equitable mortgage

What is conventional or voluntary mortgage? Conventional or voluntary mortgage is one which is agreed to by the parties or constitute by the will of the owner of the property on which it is created. What is legal mortgage? A legal mortgage is one created operation of law, wherein the creditor is given a mortgage on the property of his debtor, without the necessity of the parties actually stipulating on it. It may also be defined as one required by express provisions of law to be executed in favor of certain persons to secure the performance of the principal obligation. For instance, claims of laborers engaged in construction of a building are to be considered as mortgages upon said building by operations of Art.2243 in relation to Art.2242 of the NCC. What is judicial mortgage? Judicial mortgage is one resulting from a judgment. For instance a plain deed of sale may be declared to be a mortgage by the court. What is equitable mortgage? In equitable mortgage is one that is not a mortgage in form but in substance a mere security for a debt or obligation. This commonly occurs in "pacto de retro." When is a contract presumed to be an equitable mortgage?

The price of sale, with right to repurchase, is unusually inadequate; The vendor remains in possession as lessee or otherwise; Upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period is executed; The purchaser retains for himself a part of the purchase price; The vendor binds himself to pay the taxes of the thing sold; and In any other case where it may fairly be inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

What are the subject matters of the real estate mortgage?

Immovables Alienable real rights imposed by law on immovables, such as usufruct, ace right, right of redemption Real properties and real rights, such as the right in voluntary mortgage

What are the similarities between mortgage and pledge?

Both subjects the property to the fulfillment of the obligation as security Both guarantee the performance of a principal obligation; Both are indivisible as securities; In both cases, the creditor cannot appropriate the property to himself; When the obligation is not paid, the property must be sold and the proceeds applied to the payment of the debt.

What are the differences between mortgage and pledge?

Mortgage is constituted on real property, pledge is on personal property. Mortgagor retains the possession and use of the property, while the thing pledge must be delivered to the creditor. Mortgages must be registered, pledge may be oral. In mortgage, deficiency judgment may occur, while in pledge, the thing pledged is sufficient to pay the debt. The mortgage, if foreclosed, mortgagor has equity of redemption, while in pledge, no redemption after closure sale.

What is the difference between mortgage and antichresis?

As to possession: In mortgage, debtor surrenders possession of the property to the creditor, while in antichresis, mortgagor retains possession of the property. As to fruits: In mortgage, the creditor does not receive the fruits, while in antichresis, the creditor generally receives fruits. As to taxes: In mortgage, debtor-mortgagor usually pays the taxes, creditor is obliged to pay the taxes.

What is the difference between mortgage and "pacto de retro?"

As to nature: Mortgage is an accessory contract, while pacto de retro is principal and independent contract As to title: In mortgage, title is retained by the mortgagor, while in pacto de retro, title passes to the vendee. As to possession: In mortgage, possession is retained by the mortgagor, while in pacto de retro, possession is delivered to the vendee. As right to appropriate: In mortgage, creditor cannot appropriate property himself, while in pacto de retro, property may dispose of the same as absolute owner. As to pay of taxes: Mortgagor is obliged to pay taxes, while in pacto de retro, the vendee is obliged to pay taxes. As to loss of interest in the property: Mortgagor does not loss his interest in the property if he fails to pay. It is the duty of the mortgagee to foreclose the mortgage and before foreclosure, the mortgagor may still redeem the property. In pacto de retro, if the seller does not repurchase the property on the day named in the contract, he loses all his interest therein. As to retention of money in consideration: Mortgagee may retain part of the money loaned to be applied to payment of interest in advance, while in pacto de retro, purchaser cannot retain for himself any part of the purchase price. As to extension of period of redemption: In mortgage, extension of the period of redemption may be granted any number of times and obligation is indivisible. In pacto de retro, extension of the period of redemption is not allowed but partial redemption permissible. As to object: In mortgage, only immovable properties are allowed, while in pacto de retro, the object may either movable or immovable.

What is the effect of a forged power of attorney? The mortgage is void. The mortgagee is duty bound to verify the validity of the power of attorney. What are the legal implications of a real estate mortgage?

A mortgage subjects as real estate property whoever the possessor of the same, to the fulfillment of the principal obligation The owner may alienate the property subject of the mortgage and any stipulation to the contrary shall be null and void The mortgage credit maybe alienated or assigned to third persons in whole or in part, with the formalities required by law The parties cannot stipulate a "tipo" or offset price at which the property will be sold at the foreclosure proceedings]

Is the mortgagor always the debtor in a contract of mortgage? No. A third person who is not a debtor or party to the principal obligation may secure the said obligation by mortgaging his own property. What is the difference between "pactum comisorium" and "pactum de non-aliendo?"

"Pactum comisorium" is a stipulation in a contract of mortgage which authorizes the mortgagee to appropriate the property as his own upon failure of the debtor to fulfill the principal obligation. On the other hand, a "pactum de non-aliendo" is stipulation which prohibits the mortgagor from alienating or selling the property within the period of mortgage. What is the difference between an open mortgage and a closed mortgage? An open mortgage can be paid off at any time before the maturity date while a closed mortgage cannot be paid off before the expiration of the date unless the mortgagee, is willing to accept payment. When a mortgage without marital consent is allowed? For the wife:

paraphernal property administration: as guardian of her husband; when she asks for the declaration of his absence; in case of civil interdiction of the husband complete separation of property

For the husband:

capital property wife was declared non compos mentis or a spend thrift; is under civil interdiction; is confined in a leprosarium; refuses unreasonably to give her consent, in which case the court compels her to grant the same

May an alien accept a mortgage of land to secure in his favor? Yes. The prohibition applies only to acquisition of land by aliens. In a contract of mortgage, however, the mortgagee does not acquire ownership of the property. Who is entitled to possession of the mortgaged property? The mortgagor In the absence of any agreement to the effect, is it necessary for the mortgagor to secure authorization from the mortgagee for the purpose of mortgaging the land for the second time? No. To seek previous consent of the first mortgagee, in the absence of any agreement to that effect, is to ask what the mortgagor is already permitted by law to do, even without any authorization. If the contract of mortgage prohibits the constitution of a second mortgage with the penalty of foreclosure and the mortgagee nevertheless mortgaged the property again, can the mortgagee treat the second mortgage as void? What is the remedy of the mortgagee? No. The mortgagee What will happen if one failed The land shall automatically belong to the mortgagee. Is the stipulation a "pactum commisorium?" This is not a pactum commisorium for it does not authorize the mortgagee to appropriate the mortgaged property; it constitue only a promise to assign said property in payment of the obligation. In other words, the property does not automatically become the property of the creditor; the mortgagor still has to convey it. What is the difference between a real estate mortgage and a chattel mortgage? As to Subject Matter can to immediately foreclose the obligation on the the agreed mortgage. date?

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In a real estate mortgage, the subject matter is real property or real rights on real property, while in chattel mortgage, the subject matter is personal property. A real estate mortgage may secure future obligations, while a chattel mortgage cannot secure future obligation

As to Form A real estate mortgage must be constituted in a public document, while a chattel mortgage may be executed in a private document provided it is accompanied by an affidavit of good faith. As to Requirement of Registration In real estate mortgage, the requirement of registration is merely for the purpose of binding third person, while in chattel mortgage, the requirement of registration is essential for its validity. As to Procedure for Foreclosure The procedure for foreclosure of a real estate mortgage is different from that of chattel mortgage. As to Deficiency Judgment In judicial foreclosure of a real estate mortgage, the creditor is entitled to a deficiency judgment, but not, in extrajudicial foreclosure; in chattel mortgage, the creditor is, likewise, entitled to a deficiency judgment, except in cases provided for by law. What is junior mortgage? It is a mortgage subordinate to an earlier mortgage on the same property, where the subsequent leaders claim against the owners right must respect the claim of the first mortgage. For example, John mortgaged his property to Peter which he registered. Then John mortgaged the same property to Joseph, which was also registered. In this case, the mortgage to Joseph is the junior mortgage. What is foreclosure? Foreclosure is a process instituted by a mortgaged by which property subject of the mortgage is sold at the public auction to satisfy the principal obligation which the debtor failed to fulfill. What are the kinds of foreclosure?

Judicial- through the courts Extrajudicial- when there is a special power to sell

Where is the venue of action for foreclosure? Regional Trial Court of the province where the land lies or as agreed by the parties. When may the mortgagee resort to judicial foreclosure and when may he resort to extrajudicial foreclosure? The mortgagee may resort to extrajudicial foreclosure if the contract of mortgage contains a stipulation appointing him, in case the principal obligation is not fulfilled on the due date as attorney-in-fact of the mortgagor to sell the property at public auction. In the absence of such stipulation, the mortgagee must resort to judicial foreclosure. What is the nature of judicial foreclosure? In judicial foreclosure, the mortgagee files a petition or complaint in court with competent jurisdiction, in which petition or complaint he is the plaintiff and the mortgagor, the defendant. He must prove the existence of the mortgage, the amount thereof, the existence of the principal obligation and the non-payment or non-fulfillment thereof. If the court is satisfied, it orders the debtor to pay the debt within (90) days, otherwise, the property will be sold at public auction. What is the nature of extrajudicial foreclosure? In extrajudicial foreclosure, the creditor or the mortgage controls the details of the sale. After the posting and publication of the notice of sale, the sale itself is conducted under the direction of the sheriff, a judge of the municipal or metropolitan trial court, or a notary public of the municipality or city where the property is located. What is the difference between right of redemption and equity of redemption?

In general, the right of redemption is available only in extrajudicial foreclosure of mortgage, where the mortgagor may redeem the property within the term of one (1) year from and after registration of the auction sale. In judicial foreclosure of mortgage, there is no right of redemption reserved the debtor or mortgagor, unless expressly permitted by law, such as the General Banking Act, which mandates banks, banking or credit institutions, to give the right to the mortgagor, to redeem the property sold in foreclosure proceedings, whether judicial or extrajudicial, within one (1) year from and after registration of such sale. While in general, the debtor or mortgagor in judicial foreclosure of mortgage has not right of redemption, he has what is known as equity of redemption, in which the debtor or mortgagor may redeem the property within (90) days from the order of foreclosure, or even thereafter, but before the judicial confirmation of the sale. What are the rights of the second mortgagee in a judicial foreclosure of real estate mortgage?

Right to be joined as a party dependent together with the mortgagor. Right to participate in public bidding of the mortgaged property held under the judicial foreclosure. Right to be paid to the extent available out of the excess of the proceeds of the foreclosure sale less claims of the first mortgagee and less the incidental expenses.

What is the obligation of the second mortgagee? Respect the priority to the first mortgagee What is redemption? Redemption is a transaction through which a mortgagor re-acquires or buys back the value of the title which may have passed under the mortgage, or divest the mortgaged premises of the lien which the mortgage may have created. What are the different kinds of Redemption?

Equity of redemption- the right to redeem after his default but before the foreclosure sale is confirmed by the court Right of redemption- the right of to repurchase within a certain period after the foreclosure sale Conventional redemption- takes place when a mortgagor reserves the right to repurchase the thing sold with the obligation to comply with the provision of Article 1616 of the Civil Code and other stipulations agreed upon. Legal redemption- the right to be subrogated upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment or by any other transaction whereby ownership is transmitted by onerous title.

May a real estate mortgage include the machinery place upon and used in connection with the mortgaged land? Yes. A mortgage of the land is deemed to include the machinery place upon and used in connection with the mortgaged land, if placed by the owner himself. May a real estate mortgage include the growing fruits on mortgaged land? Yes, but only those fruits not yet gathered when the obligation falls due. May a real estate mortgage include the rent of the mortgaged property? Yes, but only rents not yet collected when the obligation falls due and all rents payable until the credit is fully satisfied. If the mortgaged property lies between two provinces, where should the mortgage be registered? What portion of the registration fee shall be paid to each register of deeds?

The mortgage shall be registered in the Register of Deeds of both provinces Each Register of Deeds shall charge the amount obtained for the properties lying within their respective jurisdiction apportioning the total amount of the mortgage in accordance with the current assessed value of the property

May an alien (individual, corporation or association) be a mortgagee of real estate property? Yes, RA No.133 provides that aliens may be mortgagees or lessees of real estate up to a period of five (5) years.

Mortgage to alien is allowed but the mortgagee shall not take possession or enjoy the fruits of the mortgaged real property and shall not bid or take part in any sale of such real property in case foreclosure. How do you compute the registration fees for a deed of sale with mortgage to secure the balance of the purchase price?

The selling price plus the full amount of the mortgage The selling price plus the unpaid balance of the mortgage if the latter is stated in the mortgage contract

Example: A property is mortgaged for P10, 000.00 said property was then sold for P30,000.00, on condition that the vendee will pay P20, 000.00 cash, and assume the mortgage of P10, 000.00. What is the basis of the registration fees? The cash paid by the vendee plus the amount of the mortgage assumed by him, which in this case is P30, 000.00 (P20, 000.00 plus P10, 000.00).