Under unregistered mortgage, creditor can still collect from borrower

Persida Acosta

Persida Acosta

Dear PAO,
Will the creditor of my father succeed in taking over our house? It was not long ago when my father obtained a loan from an ac–quaintance secured by the title of our house and lot as collateral. In the real-estate mortgage, which was duly notarized, it was stated that if my father neglects his duty to pay the entire loan on time, the ownership of our house is transferred to the creditor. My mother gave her consent to the contract. Also, during the signing of the contract, my father gave the title to the creditor. When I inquired with the Register of Deeds, the mortgage is not registered. Is the contract valid?

Dear Max,
Based on your narration, your father entered into a contract of mortgage, placing the house and lot mentioned in your letter as collateral to ensure the ful–fillment of your father’s obligation to his creditor. Since the said contract was not registered with the Register of Deeds of the place where the house and lot are located, it has no effect on third parties. Nevertheless, it is binding between your father and his creditor. This is explicitly provided by Article 2125 of the New Civil Code of the Philippines, which states:

“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. xxx”

But the stipulation in the real-estate mortgage mentioned in your letter that the ownership of the mortgaged property shall be transferred to the creditor/mortgagee the moment your father fails to pay his loan is null and void. The provision of Article 2088 of the New Civil Code of the Philippines provides clearly that such a condition in the contract of mortgage is null and void, to wit:

“Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void.”

Be that as it may, your father cannot renege on his obligation to pay his creditor. Since only the stipulation on automatic transfer of ownership is null and void, not the entire-real estate mortgage, the creditor/mortgagee may still foreclose the mortgage and thereafter, the sale of the house and lot in a public auction, the proceeds of which shall be applied to your father’s loan.

Again, we find it necessary to mention that this opinion is solely based on the facts you have narrated and our appre–ciation of the same. The opinion may vary when the facts are changed or elaborated.

We hope that we were able to enlighten you on the matter.

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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