The contract of real estate mortgage is probably one of the least understood contracts in the Philippines. One of the reasons for this is a transaction usually entered into by most people in this part of the country. A person delivers the possession of a real property to another in exchange of money and upon the payment of the said money, the property will be returned to the owner. If the owner fails to pay the amount on the agreed date or time, the real property will be permanently owned by the one whom the property was delivered. This kind of transaction might be what people refer to as “salda iloco”. In our civil law and jurisprudence, it does not have an exact equivalent but some lawyers suggest that the transaction may be equivalent to a deed of sale with the right to repurchase or a conditional deed of sale but definitely not mortgage since the latter does not involve the surrender of possession of the land and the contract is only a secondary to the contract of loan or indebtedness. Mortgage is a security to the indebtedness of a person wherein the lender of the money is certain that debtor will definitely pay his indebtedness otherwise his property will be sold to satisfy the debt. The sale of the property to satisfy the indebtedness is however, regulated by law such as Act 3135 as amended by Act 4118. The property can be sold through judicial or extrajudicial foreclosure and the mortgagee cannot just appropriate the property to himself without following the procedure on foreclosure.
SPA of the Mortgagee
Judicial foreclosure of a mortgage can take some time since it will have to be filed before the proper court, but the law provides another option which is the extrajudicial foreclosure. In this option, the clerk of court or a notary public can undertake the foreclosure after due notice. The question is, when can the mortgagee avail of the option of extrajudicial foreclosure? This is the subject in case of Baysa vs. Plantilla, (G.R. No. 159271, July 13, 2015). The mortgagees in this case instituted the extrajudicial foreclosure of the mortgaged property and collected the amount due to them from the proceeds of the sale. The mortgagor filed a case before the RTC questioning the legality of the foreclosure saying the mortgagees did not have the property authority to initiate the extra judicial foreclosure. The RTC and the CA upheld the validity of the extrajudicial foreclosure and the mortgagors elevated the case to the Supreme Court on the question of the validity of the procedure adopted.
Foreclosure is Invalid
The Supreme Court favored the mortgagors. The foreclosure was invalid because the procedure followed was incorrect. Instead of extra judicial foreclosure, it should have been a judicial foreclosure. If the mortgagee has not been authorized through a special power of attorney integrated in the deed of mortgage or attached to it, the only recourse of the mortgagee is to proceed against the mortgaged property through judicial foreclosure. The SC clarified that “to enable the extrajudicial foreclosure of the REM of the petitioners, the special power to sell should have been either inserted in the REM itself or embodied in a separate instrument attached to the REM.” The Deed contains the phrase: “the mortgagors expressly and specifically agree to the extra-judicial foreclosure of the mortgaged property”. It is this provision that was relied upon by the trial court and the CA in holding the procedure undertaken by the mortgagees is valid. This does not suffice. The provisions of act 3135 as Amended by Act 4118 specifies that a special power of attorney has to be integrated or attached to the Deed of Mortgage. In the absence of such, the procedure to be undertaken should be judicial foreclosure of mortgage and not extrajudicial foreclosure.
