The Supreme Court ruled that the appraised value of a mortgaged property is not a critical factor in determining the validity of extrajudicial foreclosure proceedings. This means that even if a bank’s appraisal is lower than the property’s actual value, it does not automatically invalidate the foreclosure. The decision underscores that the primary concern in foreclosure is whether the borrower defaulted on their loan obligations, not the accuracy of the property’s appraisal. This protects the lender’s right to recover the debt and clarifies that borrowers cannot use valuation disagreements to halt foreclosure if they’ve failed to meet their payment obligations.

Debtors’ Delay: Does Property Appraisal Affect Foreclosure Validity?

Sycamore Ventures Corporation and Spouses Simon and Leng Leng Paz sought to challenge the foreclosure of their mortgaged properties by Metropolitan Bank and Trust Company (Metrobank). The core of their challenge revolved around Metrobank’s alleged unilateral reduction of the properties’ appraisal value. The petitioners argued that this reduction constituted a prejudicial question that needed resolution before the foreclosure could proceed. They sought the appointment of independent commissioners to determine the true valuation of the mortgaged properties, contending that Metrobank’s lower appraisal was unfair and would result in a deficiency judgment against them. The central question was whether the determination of the mortgaged properties’ appraisal value constitutes a prejudicial question that warrants the suspension of the foreclosure proceedings. In essence, is the appraisal value of the mortgaged properties material in the mortgage foreclosure’s validity?

The Supreme Court addressed the available remedies for a secured creditor when a debtor defaults. Citing Bachrach Motor Co., Inc. v. Icarangal, the Court reiterated that a mortgage creditor can pursue either a personal action for debt or a real action to foreclose the mortgage, but not both. Metrobank chose the extrajudicial foreclosure of the real estate mortgage. Extrajudicial foreclosure is governed by Act No. 3135, as amended by Act No. 4118. This law outlines the process for selling mortgaged property when a borrower fails to fulfill their obligations, emphasizing the creditor’s right to recover the debt through the sale of the property.

Act No. 3135 provides specific requirements that must be met for a valid extrajudicial foreclosure. These include proper notice and publication of the sale. The Court underscored that the law contains no requirement for determining the mortgaged properties’ appraisal value. There is no indication that the mortgagee-creditor’s appraisal value should be the basis for the bid price, nor is there any rule prescribing a minimum bid amount or requiring the bid to equal the properties’ current appraised value. Act No. 3135 focuses on the procedure, venue, and the mortgagor’s right to redeem the property, without mentioning valuation. The Court stated that when the law does not provide for the determination of the property’s valuation, neither should the courts.

Building on this, the Court addressed the concept of a **prejudicial question**, which is an issue that must be resolved by another tribunal before the current case can proceed. It is a prior issue whose resolution rests with another tribunal, but at the same time is necessary in the resolution of another issue in the same case. For example, there is a prejudicial question where there is a civil action involving an issue similar or intimately related to the issue raised in a criminal action, and the resolution of the issue in the civil action is determinative of the outcome of the criminal action. The Court found that the motion for the appointment of independent commissioners did not constitute a prejudicial question. It was not a main action but a mere incident of the main proceedings, and its resolution was not determinative of the foreclosure’s outcome.

Even if Metrobank’s reduced appraised value were lower than the mortgaged properties’ current valuation, the petition would still fail. The Court highlighted that Sycamore and the spouses Paz failed to settle their loan obligations to Metrobank. The petitioners also acknowledged Metrobank’s right to foreclose when they requested postponements of the sale. In these requests, they stipulated that, in consideration of the mortgagee’s having acceded and agreed to this postponement, he/she/they hereby waive(s), forego(es), quitclaim(s) and set(s) over unto the said mortgagee any and all his/her/their cause or causes of action, claims or demands arising out of or necessarily connected with the Promissory Note(s), Real Estate Mortgage Contract(s). Therefore, the Court determined that the determination of mortgaged properties’ appraisal value is not material to the foreclosure’s validity.

Moreover, the Court addressed the issue of inadequacy of price at foreclosure sales. The Supreme Court has consistently held that mere inadequacy of price per se will not invalidate a judicial sale of real property. The Court cited Bank of the Philippine Islands v. Reyes, where the winning bid price was significantly lower than the alleged current appraisal value of the property. The Court ruled that the inadequacy of the price at which the mortgaged property was sold does not invalidate the foreclosure sale. Also citing Hulst v. PR Builders, Inc., the Court explained that when there is a right of redemption, the inadequacy of the price becomes immaterial because the judgment debtor may still re-acquire the property or even sell his right to redeem. These rulings emphasize that the right of redemption mitigates the impact of a low sale price.

FAQs

What was the main legal question in this case?	The central question was whether the determination of the mortgaged properties’ appraisal value constitutes a prejudicial question that warrants the suspension of foreclosure proceedings.
What did the Court rule regarding the appraisal value?	The Court ruled that the determination of the mortgaged properties’ appraisal value is not material to the foreclosure’s validity.
What law governs extrajudicial foreclosure in the Philippines?	Extrajudicial foreclosure is governed by Act No. 3135, as amended by Act No. 4118, which outlines the process and requirements for such sales.
What is a prejudicial question?	A prejudicial question is a prior issue whose resolution rests with another tribunal, but at the same time is necessary in the resolution of another issue in the same case.
Can a low bid price invalidate a foreclosure sale?	Generally, mere inadequacy of price alone will not invalidate a judicial sale, especially when the right of redemption is available.
What remedies are available to a secured creditor when a borrower defaults?	A secured creditor may institute against the mortgage debtor either a personal action for the collection of the debt, a real action to judicially foreclose the real estate mortgage, or an extrajudicial judicial foreclosure of the mortgage.
Did the borrowers in this case have any other recourse?	The borrowers had the right of redemption, allowing them to reacquire the property within a specified period after the foreclosure sale.
What was the consequence for the petitioners in this case?	The petition was denied, and the Court affirmed the Court of Appeals’ decision. Triple costs were assessed against the petitioners.

In conclusion, this case reinforces the principle that borrowers cannot use disputes over property valuation to avoid foreclosure when they have defaulted on their loan obligations. The Supreme Court’s decision ensures that secured creditors can efficiently recover their debts through extrajudicial foreclosure, provided they comply with the procedural requirements of Act No. 3135. This ruling serves as a deterrent against delaying tactics and emphasizes the importance of fulfilling contractual obligations.

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: SYCAMORE VENTURES CORPORATION VS. METROPOLITAN BANK AND TRUST COMPANY, G.R. No. 173183, November 18, 2013