The Supreme Court has clarified that while courts generally have a ministerial duty to issue a writ of possession to a buyer who acquires property through foreclosure, this duty ceases when the property is in the possession of a third party who is claiming ownership adversely to the debtor-mortgagor. This ruling reinforces the principle that a buyer must file a separate action for ejectment or recovery of possession to dislodge adverse claimants, ensuring that the rights of all parties are duly considered.

Equitable Mortgage or Absolute Sale? Gallents’ Fight for Possession After Foreclosure

This case revolves around a property in Muntinlupa City initially owned by Spouses George and Mercedes Gallent (Spouses Gallent), which they mortgaged to Allied Banking Corporation (Allied Bank). After failing to pay their loan, the property was foreclosed, and Allied Bank became the owner. Subsequently, Allied Bank agreed to sell the property back to the Spouses Gallent, who then sought the help of Juan Velasquez (Velasquez) to settle the remaining amortizations. As security, they executed a Deed of Assignment of Rights in favor of Velasquez, intending to have the property registered under his name until they repaid him. However, disputes arose when Velasquez sought to evict the Spouses Gallent, leading to a legal battle over the issuance of a writ of possession.

The central issue is whether the Regional Trial Court (RTC) could validly issue an ex parte writ of possession to Velasquez, who acquired the property from Allied Bank after it had consolidated its ownership. The Spouses Gallent argued that Velasquez should have filed a separate action for ejectment or recovery of ownership, as they were in possession of the property under a claim of ownership. This claim stemmed from their assertion that the Deed of Assignment was, in reality, an equitable mortgage.

The Supreme Court, in resolving the conflicting decisions of the Court of Appeals (CA), emphasized the general rule in extrajudicial foreclosure of mortgage. It reiterated that after the consolidation of title over the foreclosed property in the buyer, the court has a ministerial duty to issue a writ of possession upon an ex parte petition by the new owner. This duty arises from the purchaser’s absolute ownership of the property after the redemption period has expired. As the Court stated,

The general rule in extrajudicial foreclosure of mortgage is that after the consolidation of the title over the foreclosed property in the buyer, it is the ministerial duty of the court to issue a writ of possession upon an ex parte petition by the new owner as a matter of right.

The Court also clarified that the right to possession, along with all other rights of ownership, follows the thing sold to its new owner when the thing purchased at a foreclosure sale is in turn sold or transferred. This principle ensures that the transferee steps into the shoes of the original purchaser, inheriting their rights and entitlements. However, this general rule is subject to an important exception.

Building on this principle, the Court outlined an exception: the ministerial duty of the court to issue an ex parte writ of possession ceases once it appears that a third party, not the debtor-mortgagor, is in possession of the property under a claim of title adverse to that of the applicant. This exception is rooted in Section 33 of Rule 39 of the Rules of Court, which provides that the possession of the property shall be given to the purchaser or last redemptioner, unless a third party is actually holding the property adversely to the judgment obligor. As emphasized in China Banking Corporation v. Spouses Lozada,

Where a parcel levied upon on execution is occupied by a party other than a judgment debtor, the procedure is for the court to order a hearing to determine the nature of said adverse possession. Similarly, in an extrajudicial foreclosure of real property, when the foreclosed property is in the possession of a third party holding the same adversely to the defaulting debtor/mortgagor, the issuance by the RTC of a writ of possession in favor of the purchaser of the said real property ceases to be ministerial and may no longer be done ex parte.

In this case, the Spouses Gallent argued that their Deed of Assignment in favor of Velasquez was, in essence, an equitable mortgage. An equitable mortgage is a transaction that, despite lacking the formal requisites of a conventional mortgage, reveals the parties’ intention to charge real property as security for a debt. The Court considered the fact that the Spouses Gallent remained in possession of the property and had made substantial payments towards its repurchase, leading to the presumption that the assignment was indeed an equitable mortgage. If the agreement was an equitable mortgage, the Spouses Gallent possessed a superior right to retain the property.

The Supreme Court ultimately ruled that the Spouses Gallent could be considered as adverse possessors in their own right, given the circumstances surrounding the Deed of Assignment. The Court emphasized that the controversy had shifted from being an offshoot of the extrajudicial foreclosure proceedings to a dispute arising from a subsequent personal transaction between the Spouses Gallent and Velasquez. Therefore, the Spouses Gallent’s defense of equitable mortgage was upheld, entitling them to retain possession of the property. To illustrate the key differences, the following table provides a comparison:

Writ of Possession (General Rule)	Exception: Adverse Possession
Issued as a ministerial duty of the court after consolidation of title.	Court’s duty ceases when a third party possesses the property under an adverse claim.
Applies when the purchaser seeks possession from the debtor-mortgagor.	Applies when a third party claims ownership or a right superior to the debtor’s.
An ex parte proceeding is typically sufficient.	Requires a hearing to determine the nature of the adverse possession.

The decision underscores the importance of due process in property disputes and protects the rights of individuals claiming ownership or possession of property, even against those who have acquired title through foreclosure. The Court, without pre-empting the trial court’s decision in Civil Case No. 10-102, determined that the Spouses Gallent’s circumstances warranted their consideration as adverse claimant-occupants against whom an ex parte writ of possession should not be issued.

FAQs

What was the key issue in this case?	The central issue was whether the RTC could issue an ex parte writ of possession to Juan Velasquez, who bought the property from the bank after foreclosure, given the Spouses Gallent’s claim of equitable mortgage and their continued possession.
What is a writ of possession?	A writ of possession is a court order directing the sheriff to place someone in possession of a property. It is typically issued to the purchaser of a property after a foreclosure sale, allowing them to take control of the property.
What does “ministerial duty” mean in this context?	“Ministerial duty” means that the court is obligated to perform a certain act, like issuing a writ of possession, without exercising discretion, provided the legal requirements are met. However, this duty ceases when there are adverse claims on the property.
What is an equitable mortgage?	An equitable mortgage is a transaction that lacks the formal requirements of a legal mortgage but reveals the parties’ intention to use real property as security for a debt. It is often inferred from circumstances like continued possession by the seller or inadequate sale price.
Who is considered an “adverse possessor” in this case?	The Spouses Gallent were considered adverse possessors because they claimed that their assignment of rights to Velasquez was actually an equitable mortgage, and they had remained in possession of the property. This claim was adverse to Velasquez’s claim of ownership.
Why did the Supreme Court side with the Spouses Gallent?	The Supreme Court sided with the Spouses Gallent because they presented a valid claim of equitable mortgage and were in possession of the property, making them adverse possessors. The court determined that an ex parte writ of possession was not appropriate in this situation.
What is the significance of the Spouses Gallent remaining in possession of the property?	The fact that the Spouses Gallent remained in possession of the property, even after the assignment of rights, was a key factor in determining that the transaction was an equitable mortgage. This indicated their intent to retain ownership while using the property as security.
What should Juan Velasquez do to gain possession of the property?	To gain possession of the property, Juan Velasquez would need to file a separate action for ejectment or recovery of ownership against the Spouses Gallent. This would allow the court to fully examine the merits of both parties’ claims.
Can a pending annulment case stop the issuance of a writ of possession?	According to the case, a pending action for annulment of mortgage or foreclosure sale generally does not stop the issuance of a writ of possession. However, this is only if there are no third parties holding the property adversely to the debtor/mortgagor.

In conclusion, this case provides valuable insight into the limits of the ministerial duty of courts to issue writs of possession in foreclosure cases. It reinforces the principle that the rights of adverse claimants must be considered and protected through proper judicial proceedings.

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 George A. Gallent, Sr. and Mercedes M. Gallent vs. Juan G. Velasquez, G.R. No. 203949 & 205071, April 6, 2016