How to Avoid Foreclosure?

By: Atty. Kristopher A. Navales

Home Guaranty Corporation


Foreclosure is the legal process by which a mortgagee, or other lien holder, usually a lender, obtains a court ordered termination of a mortgagor's equitable right of redemption. In Montillano vs. San Juan, Adm. Matter No. P-91-547, 17 February 2013, the Supreme Court defined foreclosure as “termination of all rights of the mortgagor in the property covered by the mortgage; it denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself.” The primary objective of foreclosure is to have the property seized and sold with a view to applying the proceeds to the payment of the principal obligation.

Judicial and Extrajudicial Foreclosure

There are two modes of foreclosing a real estate mortgage in the Philippines; to wit: (a) judicial foreclosure; and (b) extrajudicial foreclosure. Judicial foreclosure is governed by Rule 68 of the 1997 Revised Rules of Civil Procedure while extrajudicial foreclosure is governed by the provisions of Act. No. 3135, as amended.

A judicial foreclosure is done by filing a complaint in the Regional Trial Court of the place where the property is located. The judge renders judgment, ordering the mortgagor to pay the debt within a period of 90–120 days. If the debt is not paid within the said period, a foreclosure sale is held to satisfy the judgment.

In an extrajudicial foreclosure, the mortgagee need not initiate an action in court but may simply file an application before the Clerk of Court to secure the attendance of the Sheriff who conducts the public sale. This is done pursuant to a power of sale.

In judicial foreclosure, there is no right of redemption, except when allowed by law. While in extrajudicial foreclosure, the mortgagor has the right of redemption within one (1) year from the registration of sale in the office of the register of deeds.

Foreclosures both impact the mortgagor and the mortgagee. The dilemma is not solely borne by the mortgagor who is afraid of losing his/ her home but also by the mortgagee or the lender, considering that foreclosure proceedings entail significant costs like attorney’s fees and eviction costs.

Helpful Tips

Here are helpful tips on how a mortgagor can avoid foreclosure of his/ her home:

First: Communicate with the Mortgagee or Lender
Keep an open communication with the mortgagee or the lender. As a mortgagor, you must show that you are sincere in the fulfillment of your obligations. If you cannot meet your obligations on time because of financial setbacks, it is better to communicate with the mortgagee or the lender by meeting with them personally, by calling or by writing a letter to explain your financial circumstances. This will only show that you are negotiating with them in good faith and, thus, they are more likely to work out on possible arrangements with you.

Second: Restructure your loan
Ask the mortgagee or the lender if you can restructure your loan. Here, you can ask for longer payment terms. The longer the payment terms, the lower the monthly amortization. Loan restructuring is a common program set up by the lenders to help the borrowers. In fact, it is more beneficial to the mortgagee or the lender than foreclosing the property.

Third: Refinance your loan
Refinancing simply means that you are getting a new loan to replace the old loan. The benefit of refinancing is that you will have an opportunity to get favorable terms such as lower interest rates or smaller monthly payments. Considering that real estate appreciates over a period of time, you may take advantage of its increasing value when applying for refinancing with another lending institution. Aside from that, you may use the extra lump sum cash for another investment. However, refinancing is not available once you defaulted on your payments.

Fourth: Sell the house
Remember that once you defaulted, the entire loan becomes due and demandable. One solution is to sell the house and pay the entire loan out of the proceeds thereof. By agreement, the buyer may shoulder the loan and have it deducted from the purchase price.

Fifth: Return the house
If the mortgagee or the lender is willing to take back the house, offer them that instead of paying your debt. However, you will be returning the house.

Remember that you are not without options whenever foreclosure looms. Ponder on your options well and ensure that the decision you make would lessen the burdens caused by your financial woes.


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