Extrajudicial foreclosure by banks; legal effects - March 2013 Philippine Supreme Court Decisions on Civil Law | LEXOTERICA: A PHILIPPINE BLAWG

see - March 2013 Philippine Supreme Court Decisions on Civil Law | LEXOTERICA: A PHILIPPINE BLAWG

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General Banking Law and Act No. 3135; right of redemption; period; juridical entities; General Banking Law of 2000 merely modified the time for the exercise of such right by reducing the one-year period originally provided in Act No. 3135; right of redemption, being statutory, it must be exercised in the manner prescribed by the statute, and within the prescribed time limit to make it effective. The law governing cases of extrajudicial foreclosure of mortgage is Act No. 3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages), as amended by Act No. 4118 (An Act to Amend Act No. 3135). Section 6 thereof provides:

SEC. 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.

The one-year period of redemption is counted from the date of the registration of the certificate of sale. In this case, the parties provided in their real estate mortgage contract that upon petitioner’s default and the latter’s entire loan obligation becoming due, respondent may immediately foreclose the mortgage judicially in accordance with the Rules of Court, or extrajudicially in accordance with Act No. 3135, as amended (An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages).

However, Section 47 of R.A. No. 8791 otherwise known as “The General Banking Law of 2000” which took effect on June 13, 2000, amended Act No. 3135. Said provision reads:

SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage deed, with interest thereon at the rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. However, the purchaser at the auction sale concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure saleprior to the effectivity of this Act shall retain their redemption rights until their expiration. (Emphasis supplied.)

Under the new law, an exception is thus made in the case of juridical persons which 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 (3) months after foreclosure, whichever comes first.

Section 47 (of the General Banking Law of 2000) did not divest juridical persons of the right to redeem their foreclosed properties but only modified the time for the exercise of such right by reducing the one-year period originally provided in Act No. 3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages). The new redemption period commences from the date of foreclosure sale, and expires upon registration of the certificate of sale or three months after foreclosure, whichever is earlier. There is likewise no retroactive application of the new redemption period because Section 47 (of the General Banking Law of 2000) exempts from its operation those properties foreclosed prior to its effectivity and whose owners shall retain their redemption rights under Act No. 3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages).

The right of redemption being statutory, it must be exercised in the manner prescribed by the statute, and within the prescribed time limit, to make it effective. Furthermore, as with other individual rights to contract and to property, it has to give way to police power exercised for public welfare. Goldenway Merchandising Corporation vs. Equitable PCI Bank; G.R. No. 195540. March 13, 2013

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