Extrajudicial foreclosure, governed by Act No. 3135 (as amended), allows a mortgagee to foreclose a real estate mortgage and sell the property at public auction without filing a court case, provided the mortgage contains a special power of sale authorizing it. The process requires notice and publication of the sale (posting and newspaper publication where required), a public auction conducted by the sheriff or notary public, and a certificate of sale to the winning bidder. After the sale, the mortgagor generally has a right of redemption — the period depends on the mortgagee and the property (for example, a one-year period from registration of the sale in many cases, with shorter periods for certain mortgagees like banks foreclosing on juridical persons). If not redeemed, ownership consolidates in the buyer, who may obtain a writ of possession.
When a borrower defaults on a real estate mortgage, the lender does not always need to sue. If the mortgage allows it, the lender can foreclose out of court — that is extrajudicial foreclosure.
What It Is
Extrajudicial foreclosure, governed by Act No. 3135 (as amended), lets a mortgagee (lender) foreclose a real estate mortgage and sell the property at public auction without a court case. It is faster and cheaper than judicial foreclosure.
The Power of Sale Requirement
The key condition: the mortgage must contain a special power of sale — a stipulation authorizing the mortgagee to sell the property upon default. Without this power of sale in the mortgage document, extrajudicial foreclosure is not available, and the lender must go the judicial route.
Notice and Publication
The law protects the mortgagor through notice requirements:
- Posting of the notice of sale in public places for the required period; and
- Publication in a newspaper of general circulation, where the property's value requires it.
Defective notice or publication can invalidate the foreclosure sale — these steps are strictly observed.
The Public Auction
The property is sold at a public auction conducted by the sheriff or a notary public. The highest bidder wins and receives a certificate of sale, which is registered. The proceeds are applied to the debt; any surplus goes to the mortgagor, and a deficiency may be pursued in proper cases.
The Right of Redemption
After the sale, the mortgagor generally has a right of redemption — the right to buy back the property by paying the required amount:
- In many cases, a one-year period from registration of the certificate of sale; but
- For certain mortgagees (such as banks foreclosing against juridical persons), a shorter period applies.
The exact redemption period depends on the mortgagee and the mortgagor's nature, so it must be checked.
Consolidation and Writ of Possession
If the property is not redeemed within the period, ownership consolidates in the buyer, who may then obtain a writ of possession to take physical possession of the property.
Practical Takeaways
- Extrajudicial foreclosure (Act 3135) needs a power of sale in the mortgage and lets the lender sell at auction without a court case;
- Notice and publication are strict — defects can void the sale;
- The mortgagor has a right of redemption (often one year, shorter for some mortgagees); if not redeemed, ownership consolidates and a writ of possession may issue.
Frequently Asked Questions
What is extrajudicial foreclosure? Under Act 3135, it is the foreclosure and sale of a mortgaged property at public auction without a court case, available when the mortgage contains a special power of sale authorizing the mortgagee to sell upon default.
When can a lender foreclose extrajudicially? Only if the real estate mortgage contains a special power of sale. Without it, the lender must foreclose judicially through a court case.
Is there a redemption period after an extrajudicial foreclosure? Yes, generally. In many cases the mortgagor has one year from registration of the certificate of sale to redeem, though a shorter period applies to certain mortgagees like banks foreclosing against juridical persons.
What happens if the property is not redeemed? Ownership consolidates in the winning bidder, who may then obtain a writ of possession to take physical possession of the property.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.