Dear PAO,

I recently discovered that my property, which I used as collateral for a loan, was extrajudicially foreclosed by the bank without any personal notice. The bank told me that under our contract, in case of default, they may exercise all legal remedies without need of notice or demand, including the extrajudicial foreclosure of the property. Was it correct for them to foreclose my property even without my knowledge?

Eizsha

Dear Eizsha,

Foreclosure of property is a remedy used to satisfy an obligation in case the debtor defaults on his or her obligation. Foreclosure can be judicial or extrajudicial, the latter being governed by Act 3135, as amended by Act 4118, or “An act to regulate the sale of property under special powers inserted in or annexed to real estate mortgages.” A careful reading of this law shows that the only notice required is found in Section 3 thereof, which provides:

“SEC. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city.”

Notably, and as consistently ruled in the past by the Supreme Court, personal notice to the mortgagor is not required as the only notice required under this law is a notice of sale to the public. However, in the recent case of Philippine Savings Bank v. Josephine Co (GR 232004, Oct. 6, 2021, Ponente: Associate Justice Marvic M.V.F Leonen), the Supreme Court revisited this interpretation, stating:

“Notwithstanding the absence of an express directive under Act No. 3135, principles of due process and the utmost diligence of banks require that mortgagors be personally notified of extrajudicial foreclosures of their mortgages prior to public auctions.

“Due process requires that a mortgagor be notified, to afford him or her an opportunity to safeguard his or her rights prior to the extrajudicial foreclosure of his or her mortgage, and the sale of his or her property. The current reading of Act No. 3135 affords no safeguards whatsoever for the mortgagor. The publication requirement under Act No. 3135 is not intended as a notification for the mortgagor, but rather for the public, to enable participation in the auction sale of the foreclosed property.”

Applying the foregoing to your case, the extrajudicial foreclosure made without your knowledge or personal notice may be held null and void as it violates your right to due process. Such action amounts to a deprivation on your part of any opportunity to exhaust all possible legal remedies to protect your interest.

We hope that we are able to answer your queries. This advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Thank you for your continued trust and support.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to [email protected]