REAL ESTATE MORTGAGE Definition 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 of the contract: Real Accessory Subsidiary Unilateral it creates only an obligation on the part of the creditor who must free the property from the encumbrance once the obligation is fulfilled. CASE Dilag vs. Heirs of Resurrecion, 76 Phil. 650 A deed of sale or mortgage is usually a unilateral contract in the sense that only the vendor or mortgagor signs it. Likewise a promissory note is a unilateral contract in the sense that only the promisor or maker signs it. But these do not mean that the signer is the only party to that contract and the only one entitled to sue thereon. The obligee is as much a part to the contract as the obligor, for there can be no obligor without an obligee; and as a matter of course it is the obligee who has the right to sue on and enforce the obligation. What is the consideration of mortgage? As mortgage is an accessory contract, its consideration is the same as of the principal contract from which it receives its life, and without which it cannot exist as an independent contract, although the obligation thereby secured is incurred by a third person and, therefore, it will be valid if the principal obligation is valid, and cannot be avoided on the ground of lack of consideration.

What are the kinds of mortgage? 1. Voluntary agreed to by the parties or constituted by the will of the owner of the property on which it is created 2. Legal one required by law to be executed in favour of certain persons a. The persons in whose favour 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 (Art 2125 par 2) 3. Equitable one which, although lacking the formalities of a mortgage, shows the intention of the parties to make the property a security for a debt

What is the object of mortgage? 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.

fruits to the interest then to the principal of the credit, for then it would be an antichresis.

Note: Future property cannot be the object of mortgage because the mortgagor could not legally mortgage any property he did not yet own. A mortgage does not involve a transfer, cession or conveyance of property but only constitutes a lien thereon. Until discharged, it follows the property wherever it goes and subsists notwithstanding changes of ownership. A mortgage gives the mortgagee no right or claim to the possession of the property, and therefore, a mere mortgagee has no right to eject an occupant of the property mortgaged unless the mortgage should contain some provision to that effect. The only right of a mortgagee in case of nonpayment of a debt secured by mortgage would be to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness. If the possession is transferred to the mortgagee, it must not expressly be for purpose of applying the

What are the requisites to the contract of mortgage? The following requisites are essential to the contracts of pledge and mortgage 1. That they be constituted to secure the fulfillment of a principal obligation; 2. That the mortgagor be the absolute owner of the thing mortgaged; 3. That the persons constituting the mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. 4. It can cover only immovable property and alienable real rights imposed upon immovables (Art 2124); 5. It must appear in a public instrument (Art. 2125); and 6. Registration in the registry of property is necessary to bind third persons, but not for the validity of the contract between the parties (Art 2125). a. An order for foreclosure cannot be refused on the ground that the mortgage had not been registered provided no innocent third parties are involved.

Where the mortgage is in a private document, no valid mortgage is constituted in which case the creditor may recover the loan.

What is the doctrine of mortgagee in good faith? It is the reliance in good faith on certificate of title of mortgagor. A mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not the rightful owner of, or does not have a valid title to, the mortgaged property, the mortgagee in good faith is nonetheless entitled to protection. Basis: All persons dealing with the property covered by a Torrens Certicate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. Exception: Duty of mortgagee to look beyond certificate of title. 1. Where the purchaser or mortgagee has knowledge of a defect or lack of title in the vendor, or 2. the mortgagee does not directly deal with the registered owner of real property. 3. he was aware of sufficient facts to induce a reasonably prudent man to inquire into the status of a property in litigation.

4. When the purchaser or mortgagee is a bank or financing institution a. The due diligence required of banks extends even to persons regularly engaged in the business of lending money secured by real estate mortgages.

Effect of invalidity of Mortgage on Principal Obligation 1. Where a mortgage is not valid or false, the principal obligation which it guarantees is not rendered null and void. It remains valid. a. What is lost only is the right to foreclose the mortgage as a special remedy for satisfying or settling the indebtedness which is the principal obligation. 2. The mortgage deed remains as evidence or proof of a personal obligation of the debtor and the amount due to the creditor may be enforced in an ordinary personal action.

Distinguish Mortgage from Pledge PLEDGE

1. Constituted on movables 2. Property is delivered to pledgee or by common consent

REAL MORTGAGE
1. Constituted on immovables 2. Delivery is not necessary

to a third person 3. Not valid against third persons unless a description of the thing pledged and date of pledge appear in a public instrument

3. Not valid against third persons unless registered

e. to the proceeds of insurance should the property be destroyed, or f. 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. Mortgage with dragnet clauses to secure advancements. It is a mortgage given to secure advancements. future future

Art. 2126. Effect of mortgage. 1. Creates real right. 2. Create merely an encumbrance a. By mortgaging his property, a debtor merely subject it to a lien but ownership thereof is not parted with. b. The only right of a mortgagee in case of nonpayment of a debt secured by mortgage would be to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness. Art. 2127 Extent of Mortgage. A real estate mortgage constituted on immovable property is not limited to the property itself but also extends to all its a. accessions, b. improvements, c. growing fruits and d. rents or income (see Art. 2102.) as well as

General Rule: an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage. Exception: Dragnet Clauses But the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgaged may stand as security, if from the four corners of the instrument the intent to secure future loans or advancements and other indebtedness can be gathered. Such stipulation is valid and binding between the parties. Usefulness of mortgage with dragnet clause 1. It enables the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and 2. they avoid the expense and inconvenience of executing a new security on each new transaction

3. A dragnet clause operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera. Notes: Such dragnet clauses are carefully scrutinized and strictly construed particularly where the mortgage contract is one of adhesion, that is, it was prepared solely by the mortgagee and the only participation of the mortgagor was the af xing of his signature or adhesion thereto, in order to shield the wary or weaker party from deceptive schemes contained in ready-made convenants.

is the owner of said right and the assignee may foreclose the mortgage in case of nonpayment of the mortgage indebtedness. (Santiago vs. Pioneer Saving and Loan Bank, 157 SCRA 100 [1988].) The alienation or assignment is valid even if it is not registered. Registration is necessary only to affect third persons

Art. 2129 Right of Creditor against Transferee of Mortgaged Property The mortgage on the property may still be foreclosed despite the fact that the mortgagor has transferred the mortgaged property to a third person.

When shall mortgage become a continuing security? A mortgage (or pledge) given to secure future advancements is a continuing security and is not discharged by the repayment of the amount named in the mortgage, until the full amount of the advancements are paid.

Art. 2128 Such real right may be alienated or assigned to third person, in whole or in part, by the mortgagee who

Art. 2130. Stipulation forbidding the owner from alienating the mortgaged property shall be void. Such a prohibition would be contrary to the public good inasmuch as the transmission of property should not be unduly impeded. The mortgagee can simply withhold his consent and thereby prevent the mortgagor from selling 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. (Art. 2126.) Stipulation granting right of first refusal.

There is nothing wrong in a stipulation granting the mortgagee the right of rst refusal over the mortgaged property in the event the mortgagor decides to sell the same.

Special Rights: 1. Mortgagor - To alienate the mortgaged property but the mortgage shall remain attached to the property. NOTE: A stipulation forbidding the owner from alienating the immovable mortgage shall be void (Art 2130) being contrary to public policy inasmuch as the transmission of property should not be unduly impeded. 2. Mortgagee - To claim from a 3rd person in possession of the mortgaged property the payment of the part of the credit secured by the which said third person possesses (Art 2129) NOTE: It is necessary that prior demand for payment must have been made on the debtor and the latter failed to pay (BPI vs Concepcion & Hijos, Inc., 53 Phil 906)

It 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 nonpayment of a mortgage indebtedness. As a rule, the mortgage can be foreclosed only when the debt remains unpaid at the time it is due. In a real estate mortgage, when the principal obligation is not paid when due, the mortgagee has the right to foreclose the mortgage and to have the property seized and sold with a view to applying the proceeds to the payment of the principal obligation. (Commodity Financing Co., Inc. vs. Jimenez, 91 SCRA 57 [1979].)

Kinds of Foreclosure: 1. Judicial ordinary action for foreclosure under Rule 68 of the Rules of Court 2. Extrajudicial when mortgagee is given a special power of attorney to sell the mortgaged property by public auction, under Act No. 3135

Art. 2131. Foreclosure: