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CHAPTER 16: REAL ESTATE MORTGAGE

Definition of Mortgage:

- Real right constituted to secure anobligation upon real property to satisfy

with the proceeds of sale. (Sanchez

Roman)

- Right granted to the creditor over theproperty of the debtor for the security

of his debt

- The owner who constitutes a mortgageretains title over property and does not

lose attributes as owners. He only

creates lien upon his property

Kinds of Mortgage:

A. Conventional/ Voluntary Mortgage

- One created by agreement of partiesB. Legal Mortgage

- One required by express provision of

law to be executed in favor of certain persons

to secure the performance of a principalobligation

C. Judicial Mortgage

- One resulting from judgment. A plain

deed of sale may be declared to be a mortgage

D. Equitable Mortgage

- Not a mortgage in form, but in

substance a mere security for a debt orobligation.

Essential Requisites of Mortgage

Article 2085 of Civil Code of Phil:

(a) That it be constituted to secure the

fulfillment of a principal obligation

(b) That the mortgagor be the absolute owner

of the thing mortgaged

(c)That the person constituting the mortgage

has the free disposal of the property; and in the

absence thereof, that he be legally authorized

for the purpose

- A Third person who is not a debtor or party to

the principal obligation may secure the latter by

mortgaging his own property

Art. 2125 of Civil Code:

- In order that a mortgage may be validly

constituted, it is indispensable that the

document in which it appears be registered in

the Office of the Registry of Deeds concerned.

- When a principal obligation becomes due,

property must be sold at public auction in

accordance with law

Mortgage in Good Faith

- Bank is not a mortgagee in good faith. Due

diligence required by banks extend even to

persons regularly engaged in the business of

lending money secured by REM.

- It should not simply rely on face of COT, since

greater diligence is required.

- Thus, a person who ignores a significant fact

that would create suspicion in an otherwise

reasonable person is not an innocent purchaser

for value

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- Unless duly registered, a mortgage does not

affect third parties (Sec. 51 PD1529).

- An excerpt of Sec. 51 states that:

But no deed, mortgage, lease, or other

voluntary instrument except a will, purporting

to convey or affect registered land, shall take

effect as a conveyance or bind the land, but

shall operate only as a contract between the

parties and as evidence of authority to the clerk

or register of deeds to make registration.

- Act of registration is NOT the operative act for

a mortgage to be binding between parties

- Mortgagees failure to register the real estate

mortgage prior to annotations, resulted in themortgage being binding only between it and the

mortgagor. Third parties are not bound by it.

Who may constitute a Mortgage?

- ONLY the absolute owner of the property can

constitute a valid mortgage.

- In case of foreclosure, a sale would only result

in the transmission of whatever rights had over

the property sold.

- If property is sold twice, yet sales contract is

simulated, they are null and void. No

conveyance occurs that could ripen into valid

titles.

- Mortgage cannot be considered either as a

mortgage or a purchaser of good faith

Who is Mortgagee in Good Faith?