Real Estate Mortgage

Question 1

What are the requisites to a contract of mortgage?

Answer 1

Art. 2805. The following requisites are essential to the contracts of … mortgage:

1. That they be constituted to secure the fulfillment of a principal obligation;
2. That the … mortgagor be the absolute owner of the thing… mortgaged;
3. That the persons constituting the … mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

Question 2

What is the essence of a real estate mortgage?

Answer 2

Art. 2807. If it also of the essence of these contracts that when the principal obligation becomes due, the things in which the … mortgage consists may be alienated for the payment to the creditor.

Question 3

What properties may be the object of a contract of mortgage?

Answer 3

Art. 2124. Only the following property may be the object of a contract of mortgage:

1. Immovables;
2. Alienable real rights in accordance with the laws, imposed upon immovables…

Question 4

What is a real estate mortgage?

Answer 4

A real estate mortgage or real mortgage is a real security transaction constituted to secure the fulfillment of a principal obligation by the absolute owner (the mortgagor) of immovables or alienable real rights, which has free disposal of the property, and in the absence thereof, is legally authorized for the purpose; recorded in the Registry of Property; and subjecting the mortgaged property (or collateral) to the conditions that when the principal obligation becomes due, the collateral may be alienated for payment to the creditor (the mortgagee).

Question 5

Is there a formal requirement to a real estate mortgage?

Answer 5

Yes. Art. 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that a mortgage may be validly constituted, that the document in which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties. The person in whose favor the law establishes a mortgage have no other right than to demand the execution and the recording of the document in which the mortgage is formalized.

Question 6

What is a dragnet or blanket mortgage clause?

Answer 6

A dragnet or blanket mortgage clause is a stipulation in real estate mortgage which contain a stipulation specifically phrased to subsume all debts, whether pats or future.

Question 7

What is the reliance on the security test?

Answer 7

The reliance of the security test states, “[I]n the absence of clear, supportive evidence of a contrary intention, a mortgage containing a ‘dragnet clause’ will not be extended to cover future advances unless the document evidencing the subsequent advance refers to the mortgage as providing security therefor.” [Prudential Bank v. Alviar & Alviar, G.R. No. 150197]

Question 8

What may the object of a contract of mortgage?

Answer 8

Art. 2124. Only the following property may be the object of a contract of mortgage:

1. Immovables;
2. Alienable real rights in accordance with the laws imposed upon immovables…

Question 9

What are alienable real rights?

Answer 9

The rights, title and interest in a contract of lease of an immovable, such as a building, as well as the rights, title and interest acquired in the land on which the building was constructed, are alienable real rights.

Question 10

May an assignment by way of guaranty constitute a real estate mortgage?

Answer 10

Yes. An assignment by way of guaranty of alienable real rights is a real estate mortgage, inasmuch as it is executed to guarantee or secure a principal obligation.

Question 11

What is the rule on “after acquired properties”?

Answer 11

A stipulation in a registered (or recorded) real estate mortgage that all property taken in exchange or replacement by the mortgage (after acquired property) shall become subject to the mortgage is binding, with the result that the real estate mortgage need not be registered a second time in order to bind the after acquired properties and affect third parties.

Question 12

What is the effect of a real estate mortgage (or mortgage in general)?

Answer 12

Art. 2126. The mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted.

Question 13

What is the extent of the real estate mortgage?

Answer 13

Art. 2127. 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.

Question 14

Is a real estate mortgage a right in personam or a right in rem? What are the implications?

Answer 14

Under Art. 2126, a registered (or recorded) real estate mortgage is a right in rem,alienor legal right or interest that a creditor has in another’s property whoever its owner may be. It is inseparable from the collateral and until discharged,follows the property. Thus although the mortgagor retains the right to dispose of the collateral as owner thereof, its sale or transfer cannot affect or release the mortgage.

The purchaser of the collateral is necessarily bound to acknowledge and respect the encumbrance to which the property is subjected. Because the personality of the owner is disregarded, the real estate mortgage subsists notwithstanding changes of ownership. All subsequent purchasers must espect the real estate mortgage.

Question 15

May the mortgage credit be alienated?

Answer 15

Yes. Art. 2128. The mortgage credit may be alienated or assigned to a third person, in whole or in part, with the formalities required by law.

Question 16

Will an assignment of a credit, right or action affect third persons?

Answer 16

Generally no unless recorded. Art. 1625. An assignment of a credit, right or action shall produce no effect as against third person, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property.

Question 17

What shall the assignment of credit include?

Answer 17

Art .1627. The assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge or preference.

Question 18

What is the implication of the mortgagee’s right to alienate the real estate mortgage credit?

Answer 18

The right to alienate the real estate mortgage credit is the right of the mortgagee to assign its rights under the principal obligation secured by the real estate mortgage. Although the mortgagee does not become the owner of the collateral by virtue of the contract of real estate mortgage, it owns the real estate mortgage credit and may alienate or assign the same to a third person.

Question 19

Must the mortgagor be the absolute owner of the thing mortgaged?

Answer 19

Yes. Under Art. 2805 (2). The following requisite are essential to the contracts of… mortgage… (2) That the … mortgagor be the absolute owner of the thing… mortgaged…

Question 20

May the real estate mortgage contract contain a provision to prohibit the owner from alienating the immovable mortgaged?

Answer 20

No. Under Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be void.

Question 21

Does the creditor have a right against the third person in possession of the mortgaged property?

Answer 21

Yes. Art. 2129. The creditor may claim from a third person in possession of the mortgaged property, the payment of the part of the credit secured by the property which said third person possesses, in the terms and with the formalities which the law establishes.

Question 22

What is a pactum de non alienando?

Answer 22

Pactum de non alienando (or pacto de non aliendo) is:

1. Stipulations forbidding the mortgagor from selling the collateral; and
2. Stipulations forbidding the mortgagor from selling the collateral without the consent of the mortgagee.

They are forbidden under Art. 2130 NCC.

Question 23

While Art. 2130 prohibits pactum de non alienando, may stipulations prohibiting second or subsequent mortgages be valid?

Answer 23

Yes. A stipulation prohibiting the mortgagor from entering into second or subsequent mortgages is valid since there is no law forbidding it.

Question 24

May a mortgagee have a right of first refusal?

Answer 24

Yes. A grant of a right of first refusal in favor of the mortgagee over the collateral in the event the mortgagor decides to sell the same, that is, the grant of a right to the mortgagee to match the offered purchase price and to buy the collateral at the price, is valid.