Strict Compliance is Key: Understanding Publication Requirements in Philippine Extrajudicial Foreclosure

In the Philippines, extrajudicial foreclosure is a common legal remedy for lenders when borrowers default on mortgage obligations. However, this process is governed by strict rules, particularly concerning the publication of auction notices. The case of Tagunicar v. Lorna Express Credit Corp. underscores the critical importance of adhering to these publication requirements and clarifies the role of notaries public in conducting foreclosure sales. This case serves as a crucial reminder for both borrowers and lenders about the intricacies of extrajudicial foreclosure and the necessity of ensuring full legal compliance to avoid costly disputes and potential invalidation of foreclosure proceedings.

G.R. NO. 138592, February 28, 2006

INTRODUCTION

Imagine facing the prospect of losing your property due to loan default. This is the stark reality for many Filipinos who enter into mortgage agreements. When financial difficulties arise, lenders often resort to extrajudicial foreclosure, a process conducted outside of court, to recover their losses. However, this remedy is not without its legal boundaries. The law meticulously outlines the steps lenders must take, especially concerning public notice of the foreclosure sale.

In Elsa Tagunicar and Emerson Tagunicar v. Lorna Express Credit Corp., the Supreme Court addressed a critical question: Was an extrajudicial foreclosure valid when the borrowers claimed insufficient publication of the auction notice and questioned the authority of a notary public to conduct the sale? The Tagunicars had mortgaged their properties to Lorna Express Credit Corp. to secure a loan. Upon defaulting, they faced foreclosure. Their challenge hinged on alleged defects in the publication of the notice of sale and the legality of a notary public overseeing the auction. This case provides essential insights into the stringent requirements of extrajudicial foreclosure in the Philippines, particularly regarding notice and authorized personnel.

LEGAL CONTEXT: ACT NO. 3135 AND EXTRAJUDICIAL FORECLOSURE

The legal framework for extrajudicial foreclosure in the Philippines is primarily governed by Act No. 3135, also known as “An Act to Regulate the Sale of Property Under Special Powers Inserted in or Annexed to Real-Estate Mortgages.” This law provides a streamlined process for lenders to foreclose on mortgaged properties without needing to go through lengthy court proceedings. However, to protect borrowers, Act No. 3135 sets forth specific procedural safeguards, with notice and publication being paramount.

Section 3 of Act No. 3135 is at the heart of the Tagunicar case. It mandates the following for notice of sale:

“Section 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.”

This section clearly lays out two key notice requirements: posting in public places and publication in a newspaper of general circulation. The law requires both if the property value exceeds PHP 400, which is almost always the case with real estate today. A “newspaper of general circulation” is generally understood as a publication that is widely read by the public in the relevant locality, containing news and information of general interest. This ensures that the auction notice reaches a broad audience, maximizing the chances of attracting bidders and achieving a fair price for the property.

Furthermore, Section 4 of Act No. 3135 addresses who is authorized to conduct the foreclosure sale:

“Section 4. The sale shall be made at public auction, between the hours of nine in the morning and four in the afternoon; and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of the peace (now municipal or auxiliary municipal judge) of the municipality in which such sale has to be made, or a notary public of said municipality…”

This provision explicitly includes a notary public among those authorized to direct and oversee the public auction. Despite this clear provision, questions sometimes arise regarding the scope of a notary public’s authority in foreclosure proceedings. Adding clarity, the Supreme Court issued Administrative Matter No. 99-10-05-0, which outlines the procedure for extrajudicial foreclosure and explicitly mentions that applications can be filed whether the foreclosure is under a sheriff or a notary public.

CASE BREAKDOWN: TAGUNICAR VS. LORNA EXPRESS CREDIT CORP.

The Tagunicar saga began when spouses Elsa and Emerson Tagunicar obtained a PHP 60,000 loan from Lorna Express Credit Corp. in 1994. As security, they mortgaged two unregistered lots in Taguig. When they defaulted on their payments, the corporation initiated extrajudicial foreclosure proceedings.

Here’s a step-by-step breakdown of the events:

1. Loan and Mortgage: The Tagunicars secured a loan and mortgaged their properties.
2. Default and Restructuring Attempt: They failed to keep up with payments and proposed a restructuring, which was initially agreed upon.
3. Offer to Pay and Rejection: The Tagunicars later offered PHP 100,000 to settle the debt, but Lorna Express Credit Corp. refused.
4. Civil Case for Sum of Money: Instead, the corporation filed a collection case in Makati RTC, seeking PHP 223,057.34. This case was eventually dismissed due to the corporation’s failure to prosecute.
5. Extrajudicial Foreclosure Application: Simultaneously, due to the mounting debt (now claimed to be PHP 740,254.87), Lorna Express Credit Corp. applied for extrajudicial foreclosure in Taguig.
6. Notice of Auction Sale: A notice was issued, posted in public places, and published in “Bongga,” a newspaper, for three consecutive weeks in October 1997. The auction was set for October 24, 1997.
7. Petition for Prohibition: The Tagunicars immediately filed a petition in the Pasig RTC to stop the auction, arguing that “Bongga” was not a newspaper of general circulation and that the auction was set prematurely after the first, not the third, publication.
8. RTC Decision: The RTC initially issued a TRO but eventually denied the petition for prohibition, upholding the foreclosure’s validity.
9. Court of Appeals Appeal: The Tagunicars appealed to the Court of Appeals, which affirmed the RTC decision, finding “Bongga” to be a newspaper of general circulation and the publication sufficient.
10. Supreme Court Petition: Undeterred, the Tagunicars elevated the case to the Supreme Court, reiterating their arguments.

The Supreme Court, in its decision penned by Justice Sandoval-Gutierrez, firmly rejected the Tagunicars’ petition. The Court emphasized the clarity of Section 3 of Act No. 3135, stating: “The language of the above law is clear, explicit and unequivocal. It admits no room for interpretation. This is a basic legal precept.”

The Court found that the notice was indeed posted in public places and published in “Bongga” for three consecutive weeks, satisfying the legal requirements. Regarding the timing argument, the Court implied that as long as the 20-day posting and three-week publication requirements were met prior to the sale, the date of the auction itself was valid. The petitioners’ argument that the auction should be *after* the third publication was not explicitly addressed as legally mandated, but the court’s affirmation of the CA decision suggests substantial compliance was sufficient.

Addressing the second error, the Supreme Court unequivocally affirmed the authority of a notary public to conduct extrajudicial foreclosure sales, citing Section 4 of Act No. 3135 and Administrative Matter No. 99-10-05-0. The Court stated, “Clearly, the Notary Public is authorized to direct or conduct a public auction.” This decisively settled any doubts about a notary public’s competence in such proceedings.

PRACTICAL IMPLICATIONS: ENSURING VALID EXTRAJUDICIAL FORECLOSURE

The Tagunicar case offers crucial practical takeaways for both lenders and borrowers involved in mortgage agreements and potential foreclosure scenarios.

For Lenders:

• Strict Compliance is Non-Negotiable: Adhere meticulously to the notice and publication requirements of Act No. 3135. Any deviation can be grounds for legal challenge and potential invalidation of the foreclosure sale.
• Choose a Newspaper of General Circulation Wisely: Ensure the chosen newspaper truly qualifies as one of general circulation in the relevant municipality or city. Document its circulation and general readership to preempt any challenges.
• Proper Documentation: Maintain impeccable records of posting notices in public places and publication in the newspaper, including dates and locations. Affidavits of posting and publication are essential.
• Notary Public Authority is Clear: Utilizing a notary public to conduct the sale is legally sound, but ensure proper procedure is followed.
• Seek Legal Counsel: Consult with lawyers specializing in foreclosure to ensure every step complies with the law and to minimize the risk of legal challenges.

For Borrowers:

• Understand Your Rights: Familiarize yourself with Act No. 3135 and the requirements for extrajudicial foreclosure. Knowledge is your first line of defense.
• Monitor Foreclosure Notices: If you are in default, be vigilant for foreclosure notices. Check for postings in public places and publications in local newspapers.
• Challenge Irregularities Promptly: If you believe there are procedural defects in the foreclosure process, such as improper publication, seek legal advice immediately and file a petition for prohibition in court to halt the sale.
• Attempt to Negotiate: Even if facing foreclosure, explore options for negotiation with the lender, such as loan restructuring or payment plans, to avoid losing your property.
• Seek Legal Assistance: Consult with a lawyer to understand your options and protect your rights throughout the foreclosure process.

Key Lessons from Tagunicar v. Lorna Express Credit Corp.:

• Publication and Posting are Mandatory: Strict compliance with the notice requirements of Act No. 3135 is essential for a valid extrajudicial foreclosure.
• Newspaper of General Circulation is Crucial: Publication must be in a legitimate newspaper widely read in the locality.
• Notary Publics Can Conduct Sales: Philippine law clearly authorizes notaries public to direct extrajudicial foreclosure auctions.
• Timely Legal Action is Key: Both lenders and borrowers must act promptly to address any legal issues in foreclosure proceedings.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q: What is extrajudicial foreclosure?

A: Extrajudicial foreclosure is a process where a lender can foreclose on a mortgaged property outside of court proceedings, based on a special power of attorney included in the mortgage contract. It is governed by Act No. 3135.

Q: What are the publication requirements for extrajudicial foreclosure?

A: Act No. 3135 requires posting notices of sale for at least 20 days in three public places and publication once a week for three consecutive weeks in a newspaper of general circulation in the city or municipality where the property is located.

Q: What is considered a “newspaper of general circulation”?

A: It’s a newspaper that is widely circulated and read by the public in the relevant area, containing news and information of general interest. It’s not limited to major national newspapers; local newspapers can qualify if they meet this criterion.

Q: Can a notary public legally conduct an extrajudicial foreclosure sale?

A: Yes, Section 4 of Act No. 3135 explicitly authorizes notaries public, along with sheriffs and judges, to direct and conduct extrajudicial foreclosure sales.

Q: What happens if the publication requirements are not strictly followed?

A: Failure to strictly comply with publication and notice requirements can render the extrajudicial foreclosure sale invalid. Borrowers can challenge the sale in court and seek to have it nullified.

Q: What should I do if I receive a notice of extrajudicial foreclosure?

A: Act quickly. Review the notice for accuracy and compliance with legal requirements. Consult with a lawyer immediately to understand your rights and options, which may include negotiating with the lender, filing a petition to stop the sale if there are grounds for challenge, or exploring redemption options.

Q: How can I find out if a newspaper is considered a newspaper of general circulation?

A: Check if the newspaper is regularly published, sold to the public, and contains news of general interest. Court decisions and legal precedents have further defined this term. If in doubt, consult with a legal professional.

Q: Is posting notices in public places still important even with online publications today?

A: Yes, posting in public places remains a mandatory requirement under Act No. 3135. Even with digital advancements, physical posting ensures broader reach, particularly to those who may not have regular access to newspapers or online platforms.

ASG Law specializes in Real Estate Law and Foreclosure matters. Contact us or email hello@asglawpartners.com to schedule a consultation.