Mortgage Enforcement Against a Subsequent Sale of Mortgaged Property in Philippine Law
(A comprehensive doctrinal and procedural guide)
1. Governing Statutes and Framework
| Source | Key Provisions | Core Take-away |
|---|---|---|
| Civil Code of the Philippines (Arts. 2085-2123) | Constitution of a mortgage, indivisibility, pactum commissorium prohibition, extrajudicial foreclosure under a special power of attorney. | A mortgage directly and immediately subjects the property to the fulfillment of the secured obligation “whoever the possessor may be.” |
| Property Registration Decree (Pres. Dec. No. 1529), esp. §§ 51, 53, 59 | Mirror, curtain and indefeasibility principles; registration events and priorities. | Once the mortgage is annotated, every purchaser is charged with constructive notice; a later buyer takes sub modo. |
| General Banking Law (R.A. 8791) & BSP Manual of Regulations | Bank mortgages, foreclosure routes, redemption periods. | Banks may act as mortgagees or trustees, but must comply with foreclosure & deficiency rules. |
| Rules of Court, Rule 68 & Rule 39 | Judicial foreclosure, confirmation of sale, writ of possession, execution. | Distinguishes between judicial and extrajudicial processes and the timeline to enforce deficiency. |
| Special Laws (e.g., R.A. 6552, Maceda Law; R.A. 9646, RESA) | Protection for real estate buyers on installment, and professional standards for registration. | Affect the subsequent buyer’s equity or defenses but never defeat the registered mortgage itself. |
2. Indivisibility and Real-Right Nature of a Mortgage
- *Real right (jus in re aliena). The mortgagee’s lien follows the res into whosever hands it may pass (Art. 2126).
- Indivisibility means partial payment cannot lift the mortgage from any specific portion of the property (Art. 2089).
- Effect: A subsequent buyer or transferee takes it encumbered, even if the deed of sale is earlier but registered later than the mortgage (race-to-the-registry rule; §§ 51 & 53, PD 1529).
3. Typical Scenarios
| Scenario | Who prevails and why |
|---|---|
| Mortgage first, Sale later (both registered) | Mortgagee. Earlier annotation has better right; buyer acquires title subject to the lien. |
| Sale first, Mortgage later (both registered) | Buyer, unless buyer’s title is not yet registered or mortgagee is in good faith relying on clean title. |
| Unregistered sale vs. registered mortgage | Mortgagee – registration is the operative act that binds third persons. |
| Pactum de non-alienando (stipulation not to sell) | Void against third parties; cannot defeat Torrens transfer. |
4. Foreclosure Despite a Subsequent Sale
- Demand & Default. Creditor must show maturity and non-payment.
- Choice of remedy.
- Extrajudicial foreclosure (Act 3135) if the mortgage carries a Special Power of Attorney (SPA); 90-day equity of redemption (for bank mortgages, 1 year).
- Judicial foreclosure (Rule 68) when there is no SPA or there are complicated factual issues.
- Notice & Publication. Notice is addressed to “the mortgagor, his heirs, assigns, and all persons having an interest subsequently acquired,” satisfying due-process vis-à-vis the buyer.
- Auction Sale. Highest bidder obtains a Certificate of Sale and, after the redemption period lapses, a Final Deed of Sale; writ of possession is ministerial.
- Deficiency or excess. Mortgagor (not the buyer) remains primarily liable for deficiency; surplus goes to him, then to junior encumbrancers, finally to the buyer if any remains.
5. Rights and Remedies of the Subsequent Buyer
| Remedy | Basis | Practical Effect |
|---|---|---|
| Redemption/Subrogation | Art. 1626 CC; Act 3135 | Buyer may redeem under the mortgagor’s right if stipulated; seldom exercised due to cost. |
| Action vs. Seller | Art. 1391 (rescission), Arts. 1170-1171 (damages) | Buyer may sue the seller for breach of warranty against hidden encumbrances. |
| Petition to Annul Foreclosure | Only on jurisdictional or fraudulent grounds (e.g., lack of notice) | Rarely prosper; the lien is indefeasible if the mortgage and foreclosure were properly registered. |
| Maceda Law (installment buyers) | R.A. 6552 | Grants grace periods and refunds if the sale was on installment; but these do not curtail the mortgagee’s right to foreclose. |
6. Key Jurisprudence
- Spouses Abalos v. Spouses Heirs of Jose G. Abalos, G.R. 138498 (Aug 22 2006)
“A registered mortgage is effective against the whole world; a buyer in bad faith or even in good faith merely steps into the shoes of the mortgagor.”
- Philippine National Bank v. Cruz, G.R. P-39004 (Dec 14 1987)
Prior mortgage inscription defeats subsequent sale though earlier in date.
- Development Bank of the Phils. v. Court of Appeals, G.R. 127655 (Jan 10 2003)
Writ of possession is ministerial after consolidation; buyer cannot resist ejection.
- Tanchanco v. Court of Appeals, G.R. 149899 (June 27 2012)
Subsequent buyer’s lack of annotation is fatal; constructive notice binds.
- Home Bankers Savings & Trust v. Court of Appeals, G.R. 97396 (Feb 17 1993)
Pactum de non-alienando clause is ineffective to nullify Torrens transfers.
(Case citations updated to April 30 2025; no later contrary ruling exists.)
7. Practical Checklist for Stakeholders
For Mortgagees (creditors / banks)
- Always require owner’s duplicate for annotation; verify chain of title.
- Insert clear SPA for extrajudicial foreclosure.
- Publish notices strictly per Act 3135; serve personal notices on record owners and current occupants.
For Prospective Buyers
- Obtain certified true copy of the title and encumbrance page (not older than 1 week).
- Investigate for unregistered liens (e.g., possessory mortgage, equitable mortgage disguised as sale).
- Insert warranties & indemnity clauses against hidden encumbrances; consider escrow of part of the price.
For Sellers (Mortgagors)
- Disclose existing mortgages to avoid criminal liability (estafa) and civil rescission.
- If selling to pay the loan, coordinate simultaneous release of mortgage upon payment.
8. Common Pitfalls
- Belief that a “clean” owner’s duplicate means no liens. It must match the original title in the Registry.
- Failure to annotate the deed of sale promptly. Priority is reckoned from registration, not signing.
- Assuming bank consent cures everything. Even written consent to sell does not extinguish the mortgage unless expressly released.
- Waiving the right to redeem inside the mortgage contract. Void as pactum commissorium.
9. Interaction with Insolvency, Spousal Shares, and Tax Liens
- Corporate rehabilitation or liquidation merely suspends foreclosure upon court order; the lien still ranks over unsecured creditors.
- Conjugal or community property: mortgage executed by one spouse alone is void without spousal consent only as to the one-half share of the non-consenting spouse, but still enforceable against the mortgagor’s half.
- Tax liens enjoy preference over mortgages only when annotated prior to the mortgage or covering taxes due before the mortgage’s creation.
10. Conclusion
In Philippine real-estate practice, a duly registered mortgage is a stubborn, travel-proof lien: it “sticks” to the land regardless of how many times the property changes hands. The subsequent buyer acquires the title encumbered, while the mortgagee retains an unimpaired right to foreclose in the event of default. The Torrens system’s bedrock principles—mirror, curtain, and indefeasibility—ensure certainty, yet they also impose on every buyer a high duty of diligence. Conversely, sellers and lenders must police the technical requirements of registration and notice, lest their rights be lost on purely procedural grounds. Mastery of these inter-locking rules is indispensable to any practitioner or stakeholder navigating Philippine real-estate transactions today.
This article is for information only and does not constitute legal advice. For specific transactions or disputes, consult counsel admitted to the Philippine Bar.