The Supreme Court clarified that a registered real estate mortgage creates a real right or lien that binds subsequent purchasers of the property. This means that whoever owns the property is obligated to fulfill the mortgage obligation until it is discharged. Even if a property is sold, the new owners must respect the existing mortgage, ensuring that the bank’s claim remains valid. This ruling emphasizes the importance of registering property transactions to protect the rights of mortgagees and provides clarity on the obligations of property owners regarding pre-existing liens. It reinforces the principle that a mortgage follows the property, regardless of changes in ownership, thus safeguarding the interests of lending institutions.

Foreclosed Dreams: Can New Owners Overcome a Bank’s Prior Mortgage Claim?

This case involves a dispute over foreclosed properties originally mortgaged by Manila International Construction Corporation (MICC) to Banco Filipino Savings and Mortgage Bank. Spouses Rodrigo and Sonia Paderes, and Spouses Isabelo and Juana Bergado, petitioners, purchased properties from MICC that were already mortgaged to the bank. When MICC failed to settle its obligations, Banco Filipino foreclosed on the mortgage, leading to a legal battle over the possession of these properties. The petitioners argued that their rights as good-faith purchasers were superior to the bank’s mortgage claim and that they were entitled to redeem the properties. They also contested the inclusion of their houses in the auction sale and the validity of the writ of possession issued by the Regional Trial Court (RTC). The central legal question is whether subsequent buyers of mortgaged properties can assert rights superior to those of the mortgagee bank.

The Supreme Court firmly rejected the petitioners’ arguments, emphasizing the binding nature of a registered real estate mortgage. The Court cited Article 2125 of the Civil Code, which requires that a mortgage be recorded in the Registry of Property to be validly constituted. Once registered, the mortgage creates a real right that attaches to the property, regardless of who possesses it. This principle is further reinforced by Articles 1312 and 2126 of the Civil Code, which state that third persons who come into possession of the object of the contract are bound by the real rights created therein, and that the mortgage directly and immediately subjects the property to the fulfillment of the obligation, whoever the possessor may be.

Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing 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 of this Act. Such petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately.

The Court underscored that the petitioners’ purchases occurred after the mortgage was registered, making them bound by its terms. As transferees of MICC, the mortgagor, the petitioners merely stepped into MICC’s shoes and were obligated to respect the existing mortgage. The Court referred to Philippine National Bank v. Mallorca, where it was held that a recorded real estate mortgage is a right in rem, a lien on the property regardless of ownership changes. This means subsequent purchasers must respect the mortgage until it is discharged, irrespective of whether they knew about it.

By Article 2126 of the Civil Code, a “mortgage directly and immediately subjects the property on which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted.” Sale or transfer cannot affect or release the mortgage. A purchaser is necessarily bound to acknowledge and respect the encumbrance to which is subjected the purchased thing and which is at the disposal of the creditor “in order that he, under the terms of the contract, may recover the amount of his credit therefrom.” For, a recorded real estate mortgage is a right in rem, a lien on the property whoever its owner may be.

Regarding the petitioners’ claim of entitlement to redeem the foreclosed properties, the Court clarified that under Act No. 3135, the debtor or their successor-in-interest has one year from the registration of the Certificate of Sale to redeem the mortgage. Since the Certificate of Sale was registered on July 29, 1985, the petitioners had until July 29, 1986, to redeem the properties, which they failed to do. Consequently, ownership was consolidated in favor of Banco Filipino, and new Transfer Certificates of Title (TCTs) were issued in its name. The Court cited F. David Enterprises v. Insular Bank of Asia and America, reiterating that the buyer in a foreclosure sale becomes the absolute owner if the property is not redeemed within one year.

It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the possession of the said property and can demand it at any time following the consolidation of ownership in his name and the issuance to him of a new transfer certificate of title. The buyer can in fact demand possession of the land even during the redemption period except that he has to post a bond in accordance with Section 7 of Act No. 3135 as amended. No such bond is required after the redemption period if the property is not redeemed. Possession of the land then becomes an absolute right of the purchaser as confirmed owner. Upon proper application and proof of title, the issuance of the writ of possession becomes a ministerial duty of the court.

The petitioners also argued that a binding agreement for the repurchase of the properties had been reached with Banco Filipino, supported by an exchange of communications. The Court, however, found no evidence of a perfected contract due to the absence of a definite offer and an absolute acceptance. Under Article 1318 of the Civil Code, a contract requires consent, a definite object, and a valid cause. The Court noted that the correspondence lacked the essential elements of offer and acceptance as defined in Article 1319. The letters from the petitioners’ counsel proposed redemption and requested a price but did not commit to accepting whatever value the bank proposed. Banco Filipino’s response merely invited further negotiations without making a definite offer to sell.

Concerning the petitioners’ claim that their houses should not have been included in the auction sale, the Court clarified that Article 448 of the Civil Code, which applies to builders in good faith who mistakenly build on another’s land, was inapplicable. The petitioners purchased their houses from MICC, the mortgagor, making the houses improvements covered by the real estate mortgage. Article 2127 of the Civil Code explicitly states that a mortgage extends to improvements on the property. The Court cited Cu Unjieng e Hijos v. Mabalacat Sugar Co., confirming that a mortgage on a property includes not only the land but also the buildings, machinery, and accessories installed at the time the mortgage was constituted.

The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person.

Lastly, the Court addressed the petitioners’ argument that the writ of possession issued on November 5, 1996, was invalid due to the lapse of more than eight years since the RTC Order granting the petition. The Court referenced Rodil vs. Benedicto, which established that the right to request the issuance of a writ of possession never prescribes. The Court clarified that the rule in Section 6, Rule 39 of the Rules of Court, concerning the execution of judgments, applies to civil actions, not to special proceedings like land registration cases. In land registration cases, once ownership is judicially declared, no further proceeding is needed to enforce said ownership, except when the adverse party is in possession. Therefore, the issuance of the writ of possession was a ministerial function, and the delay did not invalidate it.

FAQs

What was the key issue in this case?	The key issue was whether subsequent buyers of mortgaged properties could assert rights superior to the mortgagee bank when the original mortgagor failed to settle their obligations. The court determined that the bank’s rights prevailed.
What is a real right or lien?	A real right or lien is a right that attaches directly to a property. It binds whoever possesses the property to fulfill the obligation it secures, such as a mortgage, regardless of changes in ownership.
What happens when a mortgagor fails to pay their debt?	When a mortgagor fails to pay, the mortgagee bank can foreclose on the mortgage. This involves selling the property at a public auction to recover the outstanding debt, subject to the mortgagor’s right of redemption.
What is the period for redeeming a foreclosed property?	Under Act No. 3135, the debtor or their successor-in-interest has one year from the registration of the Certificate of Sale to redeem the foreclosed mortgage by paying the outstanding debt and associated costs.
What are the essential requisites of a contract?	According to Article 1318 of the Civil Code, a valid contract requires consent of the contracting parties, a definite object which is the subject matter, and a valid cause or consideration. The consent must involve a clear offer and acceptance.
Can improvements on a mortgaged property be included in a foreclosure sale?	Yes, under Article 2127 of the Civil Code, a mortgage extends to the natural accessions and improvements on the property, including buildings and structures, unless otherwise stipulated in the mortgage agreement.
What is a writ of possession?	A writ of possession is a court order directing the sheriff to place a person in possession of a property. In foreclosure cases, it is typically issued to the purchaser of the property after the redemption period has expired.
Is there a time limit to file a writ of possession?	No, the Supreme Court has ruled that the right to request the issuance of a writ of possession does not prescribe. This means there is no time limit to file for the issuance of a writ of possession.

This case underscores the importance of due diligence in property transactions, particularly regarding existing encumbrances like mortgages. Potential buyers should always verify the property’s title and any annotations with the Registry of Deeds before making a purchase. By confirming the property’s status, buyers can avoid unexpected legal challenges and financial losses. This decision serves as a reminder that registered mortgages create enforceable real rights that bind subsequent owners, ensuring that financial institutions’ claims are protected.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Spouses Rodrigo Paderes and Sonia Paderes vs. Court of Appeals, G.R. No. 147074, July 15, 2005