In Metropolitan Bank and Trust Company v. Spouses Tan, the Supreme Court clarified that filing a lawsuit to annul a foreclosure sale does not automatically extend the one-year period for redeeming the foreclosed property. The Court emphasized that to validly exercise the right of redemption, the debtor must make an actual tender of payment within the one-year period from the registration of the certificate of sale. This ruling underscores the importance of timely action in protecting one’s rights in foreclosure proceedings.

Mortgage Default and Foreclosure: Did a Lawsuit Freeze the Redemption Clock?

The case originated from loans obtained by Ylang-Ylang Merchandising Company, later known as Ajax Marketing Company, secured by real estate mortgages over a property owned by spouses Marcial See and Lilian Tan. Over time, these loans were restructured and consolidated. When Ajax Marketing failed to meet its obligations under Promissory Note (PN) No. BDS-3605, Metrobank foreclosed on the mortgaged property, purchasing it at a public auction on June 19, 1984. Subsequently, Ajax Marketing and the Tan spouses filed Civil Case No. 85-33933 seeking to annul the foreclosure sale, arguing that the original mortgages had been novated by the execution of the promissory note.

The heart of the legal dispute revolved around the effect of this annulment case on the one-year redemption period. Spouses Tan argued that the filing of the lawsuit effectively suspended the running of the redemption period, allowing them to exercise their right to redeem the property even after the one-year period had lapsed. Metrobank, on the other hand, contended that the lawsuit did not toll the redemption period and that the spouses had failed to make a valid tender of payment within the prescribed timeframe.

The Supreme Court sided with Metrobank, emphasizing that the filing of a case to annul a foreclosure sale does not, by itself, interrupt the running of the redemption period. The Court pointed out that settled jurisprudence dictates that the period for redeeming property sold at a sheriff’s sale is not suspended by the institution of an action to annul the sale. In effect, the Supreme Court upheld Metrobank’s actions.

The Court reasoned that Civil Case No. 85-33933 focused on the validity of the foreclosure itself, alleging that the underlying mortgage had been extinguished. The Supreme Court emphasized the necessity of actual tender of payment within the one-year redemption period. A mere expression of intent to redeem is insufficient; the debtor must demonstrate a clear and unconditional offer to pay the full redemption price. This principle underscores the importance of demonstrating a genuine intention and ability to redeem the property within the statutory timeframe.

Sec. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; x x x.

Furthermore, the Court clarified what constitutes a valid redemption price, referencing Republic Act No. 3135. It emphasized that an offer to redeem the property by paying in installments is not a valid exercise of the right to redeem. The debtor must be prepared to tender the full redemption price, comprising the purchase price at the auction, interest, and any assessments or taxes paid by the purchaser. This strict interpretation aims to prevent the indefinite extension of the redemption period.

The Court distinguished the case from instances where a complaint to enforce a repurchase is filed within the redemption period. In such cases, the filing of the complaint can be considered an offer to redeem, preserving the right of redemption. However, in this case, the complaint for specific performance was filed well beyond the one-year period. Consequently, the Court found that the spouses Tan had failed to exercise their right of redemption within the time allowed by law.

The Supreme Court clarified that the Deed of Redemption and Reconveyance entered into by spouses Marcial See and Lilian Tan with Metrobank was, in substance, a sale. Since Metrobank had already consolidated its ownership of the property due to the failure of spouses Elisa and Antonio Tan to properly exercise their right of redemption, it was free to dispose of the property as it saw fit.

FAQs

What was the key issue in this case?	The main issue was whether the filing of a lawsuit to annul a foreclosure sale suspends the one-year period for redeeming the property.
Did the Supreme Court rule in favor of extending the redemption period?	No, the Supreme Court ruled that filing a lawsuit to annul the foreclosure sale does not automatically extend the one-year redemption period.
What is required to validly exercise the right of redemption?	To validly exercise the right of redemption, the debtor must make an actual tender of payment of the full redemption price within one year from the registration of the certificate of sale.
What does the redemption price include?	The redemption price includes the purchase price at auction, interest, and any assessments or taxes paid by the purchaser.
Is an offer to redeem the property by paying in installments considered a valid exercise of the right of redemption?	No, an offer to redeem the property by paying in installments is not a valid exercise of the right of redemption, unless the purchaser agrees to such an arrangement.
When does the one-year redemption period begin?	The one-year redemption period begins from the date of registration of the certificate of sale with the Registry of Deeds.
What happens if the debtor fails to redeem the property within the one-year period?	If the debtor fails to redeem the property within the one-year period, the buyer of the foreclosed property becomes its absolute owner.
Does filing a complaint to enforce a repurchase within the redemption period preserve the right of redemption?	Yes, filing a complaint to enforce a repurchase within the redemption period can be considered an offer to redeem and may preserve the right of redemption.

The Metrobank v. Spouses Tan decision highlights the strict adherence to timelines and procedures in exercising the right of redemption in foreclosure cases. The decision serves as a reminder that the right of redemption is not self-executing and requires diligent action on the part of the debtor.

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: Metropolitan Bank and Trust Company, G.R. No. 178449, October 17, 2008