RULE 68- FORECLOSURE OF REAL ESTATE MORTGAGE

n. the system by which a party who has loaned money secured by a mortgage or deed of trust
on real property (or has an unpaid judgment), requires sale of the real property to recover the
money due, unpaid interest, plus the costs offoreclosure, when the debtor fails to make payme
nt.
I. Nature
* What is contemplated in the Rules is a JUDICIAL foreclosure of real estate mortgage.
II. Chattel Mortgage
* This Rule has nothing to do with foreclosure of Chattel Mortgage.
* QUERY: How does a mortgagee foreclose chattel mortgage?
The recourse is to file a complaint for replevin. Once the possession of personal property is recovered, then
foreclosure may commence.
III. Extra-judicial Foreclosure
* Extra-judicial foreclosure of real estate mortgage is allowed ONLY if the mortgagee is given a SPECIAL
POWER OF ATTORNEY to foreclose the mortgage extra-judicially in the Deed of real estate mortgage.
* A mortgage can never be a principal contract. A mortgage is ALWAYS an ACCESSORY contract.
IV. Jurisdiction
* It is settled that regardless of the amount sought to be recovered, a judicial foreclosure of mortgage is
always cognizable by the RTC EXCLUSIVELY.
- REASON: The first issue that will always be resolved when it comes to judicial foreclosure of mortgage is
this: Does the plaintiff have the right to foreclose the mortgage? By itself alone, that question is not
capable of pecuniary estimation.
(MAST: What can defeat the right of the mortgagee to foreclose?)
V. Three Stages:
- 1st: determination by the court of whether the plaintiff has right to foreclose;
- 2nd: foreclosure itself of mortgage;
- 3rd: concerned with recovery of deficiency, IF there is any; (It is obvious that there could be a case
where there will be two stages only, if there is no deficiency.)
* The court can render three final decisions:
A. on the right to foreclose,
B. propriety or regularity of the foreclosure itself, and
C. the recovery of deficiency if there is any after the sale of the property;
* This is one action which admits of multiple appeals.
* The rule is the same as in expropriation on multiple appeals. The court can render three final decisions.
The special civil action of judicial foreclosure of real estate mortgage is MULTI-STAGED.
VI. Parties
* This is one of the few civil actions where the rules themselves tell the petitioner who should be sued in
court.
However, the only indispensable parties are the mortgagee, who is of course the plaintiff in the case, the
debtor and the mortgagor. The other parties identified in the Rules are only necessary parties.
A. Indispensable parties: The SC held that the indispensable parties are: the borrowers, mortgagor and of
course the mortgagee (plaintiff).
B. Necessary Party: But the persons having or claiming an interest in the property subordinate in right to
that of the holder of the mortgage, they are only necessary parties. (SEE Rule 68 Sec 1)
NOTE:
If the mortgagee is ordered to implead a necessary party, there will only be a waiver of rights of the
plaintiff of any claim against a necessary party not impleaded. (SEE Rule 3 Sec 9)
C. Important: Mortgage 1, 2 and 3:
* If the owner of the piece of land was able to mortgage his property to three different mortgagees that
simply means that he is able to obtain a loan three times from three creditors.
Usually, the rule is mortgage 1 is superior to mortgage 2 and 3. However there is nothing wrong if
mortgagee 3 will foreclose ahead of mortgagee 1 and 2. As long as the obligation secured by mortgage 3
matures ahead of 1 and 2. The rule is that all these mortgages are valid being merely a lien or
encumbrance upon property.
* The debtor in a contract of loan could be different from the mortgagor of the property.
* The only reason why the law requires that mortgagees 2 and 3 should be impleaded is for them to loose
their right of redemption. (Is it important to determine whether or not the principal obligation has become
due?)
* If one mortgages his car, a second or several times it is a criminal act. But if one mortgages real property
several times it is just fine, as can be implied from Sec 1 on the concept of inferior lien holders.
* If Mortgagee 3 commences a special civil action for foreclosure he need not implead Mortgagees 1 and 2.
This is so, since each mortgage is independent from each other. The interests of Mortgagees 1 and 2 are
superior (being prior liens). Even if the property is sold in public auction and the sale subsequently

confirmed, Mortgagee 1 and 2's interests or lien on the property have to be annotated in the certificate of
sale. That is the reason why there is no need to implead them. (Since they are sufficiently protected.)
VII. Equity of Redemption
* The court will order to pay within a fixed period of time mentioned in the Rules. This period is referred to
in substantive law as the equity of redemption.
* The equity of redemption continues to exist even if there is already a public auction sale, it runs until
confirmation of the sale.
* Resort to judicial foreclosure is avoided because of the possible increase in period within which an equity
of redemption may be exercised. This is in view of the multiple appeals that are allowed. The entry of
judgment is the reckoning point of the 90-120 day period. (SEE Sec 2)
* As long as there is an appeal in the 1st and 2nd judgment (judgment on right of foreclosure and order on
confirmation of sale respectively), equity of redemption exists. Until the issuance of the order of
confirmation of public auction sale, the equity of redemption still exists. There is no fixed term as long as
there is an appeal pending. The third stage, which is the recovery of deficiency, may or may not exist.
(MAST: Caveat: I cannot personally understand what is meant by this paragraph.)
NOTE:
* In extra-judicial foreclosure there is such a thing as the right of redemption. The right of redemption is
the one given at Rule 39, for mortgagors who are natural persons: within a period of one year from the
registration of the deed of sale.
* There is no right of redemption in Rule 68, even if we follow the procedure on levy on execution of real
estate sale in Rule 39.
*RIGHT OF REDEMPTION VS. EQUITY OF REDEMPTION
Right of Redemption is the right which is specifically granted by law to the mortgagor. Equity of
Redemption, however, is merely being recognized by law as there is no law covering the same.
Equity of Redemption is the right of the defendant mortgagor to extinguish and retain ownership of the
property by paying the amount fixed in the decision of the court within ninety (90) days to one hundred
twenty (120) days after entry of judgment or even after the sale but prior to its confirmation.
In other words, Equity of Redemption is the right to extinguish the mortgage and retain ownership of the
property by paying the debt. The equity of redemption may be exercised even after the foreclosure sale
provided it is made before the sale is confirmed by order of the court. Right of Redemption, however, is a
right granted to a mortgagor to repurchase the property even after the confirmation of the sale and even
after the registration of the certificate of sale.
*IN JUDICIAL FORECLOSURE OF MORTGAGE:
General Rule: Under Rule 68 of the Rules of Court, there is no right of redemption in a judicial foreclosure of
mortgage. There is only here an Equity of Redemption which is exercisable within the period stipulated in
the mortgage deed and subsists after the sale and before it is confirmed by the court. This means that
after the foreclosure sale but before its confirmation, the mortgagor may exercise his right to pay the
proceeds of the sale and prevent the confirmation of the sale.
Exception (Here, there is Right of Redemption): When the judicial foreclosure of mortgage is in favor of a
banking institution (as mortgagees), in which case they shall be given a period of one year after the sale
of the real estate. Such period, however, has been construed to be one year from the sate of registration
of the certificate of sale in the Registry of Property.
*There is no right of redemption in judicial foreclosure of mortgage, except only if the mortgagee is the
Philippine National Bank or any banking institution. Thus, in judicial foreclosure of mortgage where the
mortgagee is the Philippine National Bank or any banking institution, there exist both equity of redemption
and right of redemption. (HUERTA ALBA RESORT V. CA, GR NO. 128567, SEPTEMBER 1, 2000).
VIII. Deficiency
* After the sale is confirmed then the court will determine whether or not there is a deficiency. If there is,
the court will order the debtor to pay the deficiency which can be enforced under Rule 39.
* The mortgagor may use Rule 39 to levy on execution of other properties belonging to mortgagor to get
the deficiency.
* What the Civil Code refers to when it says that the deficiency is not recoverable, is when there is chattel
mortgage and the subject loan is payable in installments.(SEE Recto Law: Art. 1484 NCC)
(MAST: It is reasonable to conclude that in case of loans not payable in installments which are secured by
chattel mortgage, deficiencies are recoverable. Only a chattel mortgage securing a loan payable in
installments that recovery of deficiency is impossible.)
IX. Judicial Intervention in Extra-judicial Foreclosure
* In extra-judicial foreclosure, there is no court intervention AT THE OUTSET. Everything is done through the
sheriff of the court or the clerk of court although under our present system, there should be an application
for extra-judicial foreclosure to be filed with the court.
* Even if the foreclosure is extra-judicial, there will be a court intervention when it comes to the recovery of
the foreclosed property. Thus the highest bidder will file a motion for the issuance of the writ of possession.
X. Provisional Remedy
* Provisional remedy: receivership of the collateral. SEE Rule 59 Sec 1 (b).
* The mortgagee can move for writ of preliminary attachment. The rules do not exclude this possibility as
long as the requirements in Rule 57 are complied with. Not over the collateral but over the other properties
of the mortgagor, remember that one of the allegations in the application for writ of preliminary
attachment is that there is no sufficient collateral. SEE Sec 3 of Rule 57

* A complaint for foreclosure with the prayer for receivership (SEE Rule 59 Sec 1 b) and writ of preliminary
attachment is possible.
XI. Judgment by Default
* If the parties did not answer, follow the ordinary procedure. Thus there could be a judgment by default
ultimately.