Another mortgage on a mortgaged property

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Persida Acosta

Dear PAO,
My cousin is borrowing money from me. He is offering his property in the province to secure the loan. Upon checking the title of the property, I noticed that there is an annotation on it stating that it is already mortgaged to a cooperative. Can there be another mortgage on my cousin’s property? If yes, how does this first mortgage affect me if I lend money to my cousin secured by such property?
Maya

Dear Maya,
It must be pointed out that a mortgage does not divest the owner of his ownership right over the property. As succinctly explained by the Supreme Court in the case of Lee vs Bangkok Bank Public Company, Ltd.,(GR No.173349, February 9, 2011) penned by Associate Justice Presbitero J. Velasco Jr.:

“A mortgage does not contemplate a transfer or an absolute conveyance of a real property. It is an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt. When a debtor mortgages his property, he merely subjects it to a lien but ownership thereof is not parted with.”

As such, the owner may still freely exercise his rights over the property including jus disponendi or right to dispose, which includes the right to alienate, encumber, transform and even destroy the thing owned. The right to constitute a second or subsequent mortgage on a property is also recognized by the Supreme Court in the case of Philippine Industrial Co. vs El Hogar Filipino (GR No. L-20482, October 25, 1923), when it declared that such right may be waived voluntarily. The decision penned by the former Associate Justice Ignacio B. Villamor states:


“It is evident that the mortgagor may obtain subsequent loans by means of subsequent and successive mortgages of his property, but when the debtor voluntarily binds himself not to make any second mortgage without the consent of the mortgagee, we see no reason whatsoever why said debtor should not be bound to comply with all the conditions of the contract.”

Please take note, however, that a second mortgage is inferior to a prior lien or encumbrance. As declared by the Supreme Court in the case of Ramirez vs Court of Appeals (GR No. 98147, March 5, 1993), penned by former Associate Justice Teodoro R. Padilla, “[t]he rule is well settled that a second mortgagee merely takes what is called an equity of redemption and thus a second mortgagee has to wait until after the debtor’s obligation to the first mortgagee has been fully settled. The rights of a second mortgagee are strictly subordinate to the superior lien of the first mortgagee.” Thus, if the mortgaged property will be held to answer for payment of the loans it secured, the loan with first or earlier mortgage will be satisfied first, before the loan with the second or subsequent mortgage is paid.

Applied to your case, your cousin may still constitute a mortgage on his property that is already mortgaged, unless such right is supressed under the earlier mortgage contract he executed. However, if you proceed with the transaction, your right as second mortgagee will be inferior to the right of the holder of the earlier mortgagee.

We hope that we were able to answer your queries. Please be reminded that this advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net

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