Creditor can seek mortgage foreclosure if debt is not paid

Persida Acosta

Persida Acosta

Dear PAO,
I wish to buy a house and lot, but I don’t have enough money to pay it in cash. I need to secure a loan from the bank for the deficit, but I was told that a real estate mortgage must be constituted on the house and lot that I am buying. What is the nature of a real estate mortgage?

Under Act 3135, which is the better remedy for breach of contract of mutuum with real estate mortgage, an ordinary action for sum of money or an extra-judicial foreclosure of mortgage?

Dear Vangie,
A mortgage is a real right constituted primarily to secure an obligation upon real property or rights therein to satisfy with the proceeds of the sale thereof such obligation when the same becomes due and has not been paid or fulfilled. It is in general an accessory undertaking for the convenience and security of the creditor (Peña, Registration of Land Titles and Deeds, 1994 Revised Edition, p. 253).

The contract of real estate mortgage is governed by Articles 2085-2131 under Title XVI of Book IV of the New Civil Code. Article 2085 and 2125 thus state:

“Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfilment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property.

“Art. 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that a mortgage may be validly constituted, that the document in which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties.”

From the foregoing provisions, it is clear that the nature of a mortgage contract is primarily to secure the fulfilment of an obligation. The essence of this contract, by law, is that when the principal obligation becomes due, the things in which the mortgage consists may be alienated for the payment to the creditor (Art. 2087, Ibid.). The reason why the creditor requires the constitution of a mortgage on the property of the debtor is to protect himself in case of the breach of the principal obligation which is the loan of money.

In case of breach of the obligation, the creditor may opt to file an ordinary action for recovery of sum of money or may file an extra-judicial foreclosure of mortgage under Act 3135 or judicial foreclosure under Rule 68 of the Rules of Court.

Anent your query of the better remedy, it is of our opinion that foreclosure proceeding is more likely the better remedy. What the creditor wants is to get back his money that he loaned to the debtor and obviously if the debtor was not able to pay his obligation to pay the sum of money loaned by him, he may not have enough money in his hands to pay off his obligation. For the creditor to collect, he has to alienate or appropriate the property mortgaged to him to satisfy the obligation. The obligation may be satisfied after the creditor has complied with the appropriate procedures as laid down by the rules or law in action for foreclosure of mortgage. That is precisely the reason why a mortgage was constituted. It serves as a security for the payment of the loan.

An ordinary action for collection of sum of money is availed of as a remedy more often in cases where the loan is not secured by a mortgage, but when a mortgage has been constituted on a property of the debtor, the possibility that the creditor can collect is higher.

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


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