The Supreme Court has affirmed that while a purchaser in an extrajudicial foreclosure sale is entitled to a writ of possession, the mortgagor retains the right to claim any excess or surplus proceeds from the sale. The ruling clarifies that even after ownership is consolidated in favor of the purchaser due to the mortgagor’s failure to redeem the property, the mortgagee cannot unilaterally apply the surplus to the mortgagor’s other unsecured debts. Instead, the mortgagor is entitled to receive the surplus, and the mortgagee must pursue a separate action to collect on any remaining unsecured obligations. This ensures that the foreclosure sale only covers the secured debt, protecting the mortgagor’s right to the surplus.

The Unclaimed Millions: Saguan vs. PBCom and the Foreclosure Fiasco

Spouses Ruben and Violeta Saguan obtained a P3 million loan from the Philippine Bank of Communications (PBCom), securing it with a mortgage on five land parcels. When the spouses defaulted, PBCom extrajudicially foreclosed the mortgage, emerging as the highest bidder at P6,008,026.74. After the Saguans failed to redeem the properties within the one-year period, PBCom consolidated ownership and sought a writ of possession. The Saguans opposed, arguing that PBCom failed to return the surplus proceeds from the foreclosure sale. PBCom countered that it applied the surplus to the Saguans’ other unsecured obligations.

The Regional Trial Court (RTC) admitted PBCom’s evidence and granted the writ of possession. The Court of Appeals (CA) affirmed, stating that the writ’s issuance was a ministerial function since PBCom had consolidated ownership. The core issue before the Supreme Court was whether the RTC should have issued a writ of possession when PBCom hadn’t remitted the excess proceeds, and whether PBCom could unilaterally apply the surplus to the Saguans’ unsecured debts. This case highlights the balance between a mortgagee’s right to possess foreclosed property and a mortgagor’s entitlement to surplus proceeds.

The Supreme Court emphasized that a writ of possession is an order enforcing a judgment to allow the recovery of property. Under Act No. 3135, as amended, it may be issued within the one-year redemption period upon filing a bond or after the period without a bond. After the redemption period lapses and ownership is consolidated, the issuance of the writ becomes a ministerial function of the court. The Court stated that this duty becomes mandatory, not discretionary, provided the purchaser demonstrates clear title over the foreclosed property.

Section 6. Redemption. – In all cases in which an extrajudicial sale is made under the special power herein before referred to, the debtor, his successors-in-interest or any judicial creditor or judgment creditor of said debtor or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at anytime within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of section four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act.

The Court also addressed the Saguans’ reliance on Sulit v. Court of Appeals, clarifying that it involved a plea for a writ of possession during the redemption period. In Saguan, the redemption period had already lapsed, and PBCom had consolidated its ownership. The Court reiterated that proceedings for a writ of possession are ex parte and summary. The mortgagor, however, has remedies under Section 8 of Act No. 3135 to question the sale’s validity. Here, the Saguans didn’t challenge the foreclosure’s validity but focused on the surplus proceeds.

Despite affirming the writ’s propriety, the Supreme Court addressed the crucial issue of the surplus proceeds. While Article 2126 of the Civil Code states that a mortgage secures a specific obligation, PBCom argued it could unilaterally apply the surplus to the Saguans’ other unsecured debts. The Court firmly rejected this, citing Sulit which clarified that surplus money stands in place of the land regarding liens and rights. Given PBCom’s stance, the Court asserted that PBCom had no right to the surplus.

Art. 2126. The mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted.

The Court explicitly stated that the foreclosure was only meant to answer the secured obligation. Therefore, even if the Saguans had remaining unsecured debts, these were not collateralized by the foreclosed properties. While PBCom couldn’t unilaterally apply the surplus, the Court stated that the Saguans’ remedy lies in a separate civil action for collection of a sum of money. The Supreme Court therefore suggested that both parties can establish their rights in a civil case. Additionally, it can lead to a liquidation of expenses, interest, and claims chargeable to the foreclosed property’s purchase price.

Lastly, the Court touched on procedural matters. They acknowledged the CA’s liberality in allowing PBCom to present its evidence, emphasizing the absence of grave abuse of discretion. They further highlighted that the Saguans should have filed an ordinary appeal instead of a certiorari petition. This procedural misstep was, however, overlooked to resolve the core issues. Overall, this case clarifies the procedural rules that govern petitions for possession as well as a mortgagor’s right to the surplus proceeds after an extrajudicial sale.

FAQs

What was the key issue in this case?	The key issue was whether a writ of possession should be issued to the purchaser in a foreclosure sale when the surplus proceeds haven’t been remitted, and whether the purchaser can apply the surplus to other unsecured debts of the mortgagor.
What is a writ of possession?	A writ of possession is a court order that allows someone to recover possession of real or personal property. In foreclosure cases, it enables the purchaser to take possession of the foreclosed property.
When can a writ of possession be issued?	A writ can be issued within the one-year redemption period by posting a bond, or after the redemption period has lapsed without needing a bond.
What happens if the foreclosure sale generates excess proceeds?	The excess proceeds belong to the mortgagor, and the mortgagee cannot unilaterally apply it to other unsecured debts.
Can the mortgagee apply the surplus to the mortgagor’s other debts?	No, the mortgagee cannot unilaterally apply the surplus to the mortgagor’s unsecured debts. A separate action is needed to collect those debts.
What recourse does a mortgagor have if the mortgagee doesn’t remit the surplus?	The mortgagor can file a separate civil action to recover the excess or surplus proceeds from the foreclosure sale.
What did the Supreme Court rule about the writ of possession in this case?	The Supreme Court affirmed the writ of possession, but clarified it doesn’t prejudice the mortgagor’s right to recover the excess proceeds.
What is the significance of this ruling?	It clarifies the rights and obligations of both the mortgagor and mortgagee in a foreclosure sale, particularly regarding surplus proceeds. It also highlights the specific procedural requirements when obtaining a writ of possession.

In summary, the Supreme Court’s decision in Spouses Saguan v. PBCom safeguards a mortgagor’s right to surplus proceeds, ensuring that foreclosure sales are limited to securing only the originally mortgaged debt. By preventing the unilateral application of surplus funds to unsecured debts, the Court protects borrowers from potential overreach by lenders. This decision highlights the importance of understanding the scope and limits of security agreements.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Spouses Saguan v. PBCom, G.R. No. 159882, November 23, 2007