In a petition for a writ of possession following a foreclosure sale, the Supreme Court clarified that courts should not delve into the issue of excess purchase price. The primary issue is the purchaser’s right to possess the property. Any claim for surplus funds should be pursued in a separate legal action, especially if the validity of the foreclosure itself is being challenged. This distinction ensures that the summary nature of a writ of possession proceeding is maintained, while still protecting the mortgagor’s right to claim any excess funds from the sale.

Foreclosure Fallout: Can a Writ of Possession Case Settle Surplus Disputes?

The case revolves around a loan obtained by respondent Lamb Construction Consortium Corporation from petitioner Metropolitan Bank & Trust Co. (Metrobank). When the corporation failed to meet its obligations, Metrobank initiated extra-judicial foreclosure proceedings on the mortgaged properties. At the auction sale, Metrobank emerged as the highest bidder. Subsequently, Metrobank filed a petition for a writ of possession to gain control of the foreclosed properties. However, the Regional Trial Court (RTC) denied the petition, citing Metrobank’s failure to deposit the alleged surplus proceeds from the foreclosure sale. The Court of Appeals (CA) reversed the RTC’s decision, granting the writ of possession but ordering Metrobank to pay the respondent the excess of the bid price, along with legal interest. Metrobank contested the CA’s ruling, arguing that the issue of surplus funds is beyond the scope of a writ of possession proceeding.

The core legal question is whether a court, in a petition for a writ of possession, can rule on the matter of surplus or excess in the purchase price. The Supreme Court addressed this by clarifying the nature and scope of a writ of possession. Generally, the issuance of a writ of possession is a ministerial duty of the court, especially after an extrajudicial foreclosure. This means the court’s role is primarily to ensure that the purchaser is placed in possession of the property, provided that the procedural requirements have been met. This is rooted in Act 3135, which governs extrajudicial foreclosures, and emphasizes the purchaser’s right to possess the property during the redemption period.

However, the Supreme Court has recognized exceptions to this general rule. In Sulit v. Court of Appeals, the Court withheld the issuance of a writ of possession because the mortgagee had failed to deliver a substantial surplus from the foreclosure sale. This was an exception based on equitable considerations, aimed at preventing injustice. The Court clarified that the exception made in Sulit does not apply when the period to redeem has already expired or when ownership over the property has already been consolidated in favor of the mortgagee-purchaser. Thus, following the ruling in Saguan, the issuance of a writ of possession in favor of the petitioner is in order.

Building on this principle, the Court emphasized that the failure of the mortgagee to deliver the surplus proceeds does not invalidate the foreclosure sale itself. Instead, it creates a separate cause of action for the mortgagor to recover the surplus. The Supreme Court also pointed out that the cadastral court lacks the jurisdiction to order the mortgagee to deliver any surplus. The sole issue is the purchaser’s entitlement to possession, based on the foreclosure sale. This ruling reinforced the principle that a petition for a writ of possession is a summary proceeding, not meant to resolve complex issues such as accounting or the determination of surplus funds.

Furthermore, the Court noted a critical distinction: the mortgagor in this case had filed a separate action for the nullification of the foreclosure proceedings. The Court deemed it improper to pursue a claim for surplus funds while simultaneously challenging the validity of the foreclosure itself. Such an action is inconsistent, because claiming a surplus implies acknowledging the validity of the sale, while seeking annulment rejects it. This aspect of the ruling aims to prevent contradictory legal positions and streamline litigation. The court should first determine the validity of the sale.

To provide a more efficient resolution, the Court suggested that the mortgagor could file a case for annulment of foreclosure with an alternative cause of action for the return of the surplus, if any. This approach allows for a comprehensive resolution in a single proceeding, avoiding a multiplicity of suits. In its complaint for nullification of foreclosure proceedings and damages pending before Branch 194 of the RTC of Parañaque City, it alleged, among others, that “the payments made by the [respondent] on the interest and principal were misapplied and therefore a re-computation is necessary to determine the amount of the obligation.” Consequently, there is no need for respondent to file a separate case for collection of surplus in case the court affirms the validity of the foreclosure sale. Once the foreclosure is declared valid and a re-computation of the total amount of obligation is made, the court in the same case may order petitioner to return the surplus, if any, pursuant to the legal maxim, Nemo cum alterius detrimento locupletari potest — no person shall be allowed to enrich himself unjustly at the expense of others.

FAQs

What is a writ of possession?	A writ of possession is a court order directing the sheriff to place someone in possession of a property. It’s often used after a foreclosure sale to allow the purchaser to take control of the property.
What is the main issue in a petition for a writ of possession?	The main issue is whether the purchaser is entitled to possess the property under the law, particularly Act 3135 for extrajudicial foreclosures. The court primarily determines if the procedural requirements for the sale have been met.
Can a court determine the excess purchase price in a writ of possession case?	No, the Supreme Court clarified that determining the excess purchase price is beyond the scope of a writ of possession proceeding. Any claim for surplus funds should be brought in a separate legal action.
What should a mortgagor do if they believe there was a surplus after the foreclosure sale?	The mortgagor can file a separate civil action to recover the surplus funds. However, the mortgagor cannot collect the surplus in the main foreclosure sale as this must be litigated in a separate case.
What happens if the mortgagor is also challenging the validity of the foreclosure?	The Supreme Court suggests that the mortgagor file a case for annulment of foreclosure with an alternative cause of action for the return of the surplus, if any. This combines the issues in one proceeding.
Does the failure to return the surplus invalidate the foreclosure sale?	No, the failure to return the surplus does not invalidate the foreclosure sale. It simply gives rise to a cause of action for the mortgagor to recover the surplus.
What was the exception in the Sulit v. Court of Appeals case?	The Sulit case was an exception where the Court withheld the issuance of a writ of possession because the mortgagee had failed to deliver a substantial surplus from the foreclosure sale. The Court clarified that the exception made in Sulit does not apply when the period to redeem has already expired.
What legal principle justifies the return of any surplus funds?	The legal maxim Nemo cum alterius detrimento locupletari potest—no person shall be allowed to enrich himself unjustly at the expense of others—supports the return of surplus funds.

In conclusion, the Supreme Court’s decision underscores the limited scope of a writ of possession proceeding. While the purchaser is generally entitled to the writ, issues regarding surplus funds must be addressed through separate legal avenues. This approach ensures fairness and prevents the summary proceeding from becoming entangled in complex accounting or valuation disputes. In doing so, the mortgagor should file a case for annulment of foreclosure with an alternative cause of action for the return of the surplus, if any, in order to settle all issues in one action.

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: Metropolitan Bank & Trust Co. v. Santos, G.R. No. 170906, November 27, 2009