I am interested in purchasing a certain piece of property but the owner is not willing to sell it. A friend of mine who knows this introduced me to a person to whom the owner mortgaged the property. Now, this person told me that the owner failed to pay the loan secured by the property and he is planning to foreclose the property at the soonest possible time. According to him, the process won’t take much time because the foreclosure will be done extra-judicially so I should prepare the money if I am interested in buying the property. I am not familiar with foreclosure proceedings, especially the extra-judicial way. Can you please enlighten me on the process? Also, what will be my rights if I buy the property at the auction?
Extra-judicial foreclosure is a remedy provided under Act No. 3135 where the creditor-mortgagee directly goes after the mortgaged property to exact payment of the outstanding obligation of the debtor-mortgagor. It is initiated by merely filing a petition with the executive judge, through the clerk of court, who is also the ex-officio sheriff. The clerk of court would then docket the application, collect the necessary filing fee, and examine whether the requirements of the law is complied with (A.M. No. 99-10-05-0, August 7, 2001).
Thereafter, the property is auctioned off under the direction of the sheriff or a notary public upon compliance with the requirements set by law, particularly on the posting of notices of the sale for not less than 20 days in at least three public places of the municipality or city where the property is situated, and publication of such notice once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city (Sections 3 & 4, Act No. 3135). In case of a successful sale, the sheriff shall issue a certificate of sale which shall be filed with the Register of Deeds who shall then enter a brief memorandum thereof on the certificate of title of the mortgagor (Property Registration and Related Law, 2006, Agcaoili, p. 494).
However, the sale is not yet absolute. The debtor, his assigns or judicial creditors, or any person having interest subsequent to the mortgage under which the property was sold has the right to redeem the property at any time within a period of one year from the date of the sale (Section 6, Act No. 3135 as amended by Act. No. 4118). In a long line of cases, our Supreme Court has categorically declared that the one-year redemption period actually starts from the date of registration of the sale as the registration serves as notice of the sale to all persons.
During the redemption period, the buyer at the foreclosure sale is not yet entitled to take possession of the property as a rule. However, the buyer may petition the court to give him possession of the property during the redemption period furnishing a bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements set by law(Sec. 7, Id.)
If the property is redeemed, the buyer is entitled to receive not only the purchase price he paid for the property but also any assessments or taxes which the buyer may have paid on the property after the purchase, with interest of one percent (1%) per month in accordance with Section 30, Rule 39 of the Rules of Court. (PNB vs. Court of Appeals, 140 SCRA 360). On the other hand, if the property is not redeemed during the redemption period, a final deed of sale will be executed in favor of the buyer to signify that his title to the property is now complete. The final deed of sale will then be filed with the Register of Deeds for cancellation of the mortgagor’s title and issuance of a new title in the name of the buyer (Property Registration and Related Law, 2006, Agcaoili, p. 494).
We hope we were able to sufficiently address your concern. Please bear in mind that the opinion given above is strictly based on the information you have provided and our appreciation of the same. Our opinion may vary if 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 email@example.com