Dear Attorney,

I am writing to seek legal advice regarding a housing loan that has been foreclosed. What are the legal rights and possible steps I can take to address this issue? I would appreciate any guidance on what remedies might be available to me under Philippine law.

Sincerely,
Concerned Borrower

Insights

In the Philippines, foreclosure is the legal process where a creditor or mortgagee takes possession of a property due to the borrower’s failure to meet the terms of the mortgage contract. The process is governed by laws that outline the rights and obligations of both lenders and borrowers.

There are two types of foreclosure recognized in the country: judicial and extrajudicial foreclosure.

Judicial Foreclosure
In a judicial foreclosure, the creditor must file a case in court to recover the outstanding debt. The court then decides whether the property should be sold to satisfy the unpaid mortgage. The borrower has a right of redemption, which allows them to repurchase the property within one year after the sale by paying the sale price, including interest and other charges. The judicial route typically takes longer due to court proceedings but offers greater protection to the borrower.

Extrajudicial Foreclosure
Extrajudicial foreclosure, on the other hand, is conducted outside of court. If the loan agreement contains a special power of attorney authorizing the lender to sell the property in case of default, the creditor can proceed with an auction of the property through a notary public or a sheriff. The lender is required to follow specific legal steps, including sending notices to the borrower and advertising the sale in a newspaper. In some cases, a borrower can request an extension or file for injunctive relief to stop the auction, especially if there are irregularities in the process.

Legal Remedies
A borrower who has lost their property to foreclosure can explore several legal remedies, such as:

Exercising the right of redemption – For judicial foreclosures, the borrower has one year to redeem the property by paying the total amount, including all expenses and fees incurred by the lender.
Injunction – Borrowers can file for injunctive relief to halt an extrajudicial foreclosure if there are legal issues or irregularities, such as failure to provide proper notice.
Loan restructuring or refinancing – Some banks or financial institutions may offer borrowers the opportunity to renegotiate the terms of the loan to avoid foreclosure altogether.

Foreclosure laws in the Philippines aim to balance the rights of both lenders and borrowers. Borrowers facing potential foreclosure should consult a lawyer to explore all available options and ensure that proper procedures have been followed.