I obtained a loan from a private individual secured by a mortgage on my house. At present, I am still paying my loan, but I am in dire need of additional cash. My friend told me that he knows someone who can lend me the money I need, but that I need to have some collateral. May I know if I can still offer my mortgaged house as collateral?
Based on your narration, you wish to constitute a subsequent mortgage on your house while the first mortgage is still in effect, which is perfectly legal under our laws.
As a special type of contract, the validity of a mortgage agreement is determined by the concurrence of the requisites provided by law, to wit: 1) it must secure fulfilment of a principal obligation; 2) the mortgagor must be the absolute owner of the property; 3) he must have free disposal of the property; and 4) the mortgage must be recorded. Nevertheless, an unrecorded mortgage is still binding between the parties (Article 2085 & 2125, Civil Code). If these requisites are present, then a valid mortgage may be constituted.
In your case, these requisites can concur. First, you wish to use the mortgaged property to secure payment of a subsequent loan you plan to contract. This means that the property will be used to secure a principal loan obligation, satisfying the first requisite.
Moreover, you mentioned that the house is yours. To us, such statement means that you are the absolute owner of the property fulfilling the second requisite. This holds true even if there is an existing real estate mortgage on the house. It must be pointed out that a mortgage does not involve transfer or conveyance of a real property. It is merely an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt. It simply subjects the property to a lien, which neither creates title nor an estate. The ownership of the property is not parted with (Lee vs. Bangkok Bank Public Company, Ltd.,G.R. No. 173349, February 9, 2011). Thus, the existence of a mortgage on your house does not affect your absolute ownership over the house as you are still considered its owner.
In as much as a mortgagor remains the absolute owner of the mortgaged property, he still enjoys the right to exercise the attributes of ownership including jus disponendi or right to dispose. Such right includes the right to alienate, encumber, transform and even destroy the thing owned (Godofredo vs. Court of Appeals, G.R. No. 146997. April 26, 2005). Although, if there is a stipulation in the contract prohibiting a subsequent mortgage, then the same would be considered valid and will impair the right of the mortgagor to execute a subsequent mortgage (see Tambunting vs. Rehabilitation Finance Corporation, G.R. Nos. L-54224-25, August 16, 1989). In your case, there is no mention of any stipulation in the first mortgage suppressing the right to encumber. Hence, we assume there is none, which means that you still have free disposal of the mortgaged property; therefore, the third requisite is present.
Finally, such mortgage can definitely be recorded. Still, even if the mortgage will not be recorded, the law states that an unrecorded mortgage is still valid between the parties.
Considering that all the requisites of a mortgage can concur, we see no legal reason to prevent you from executing a subsequent mortgage on your house. Still, caution must be made in making representation to the subsequent mortgagee. In one case, the Supreme Court ruled that a false warranty that the mortgaged land is “free from all liens and encumbrances”, when in fact the property is already mortgaged to another, constitutes false representation or deceit that may give rise to the crime of estafa (People vs.Galsim,G.R. No. L-14577, February 29, 1960).
We hope we were able to shed light on the matter. Please bear in mind that our opinion is based on the facts you presented 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 firstname.lastname@example.org