2) If the deficiency is embodied in a judgment, it is referred to as deficiency judgment. 3) Action for recovery of deficiency may be filed even during redemption period.
4) Action to recover prescribes after 10 years from the time the right of action accrues. EFFECT OF INADEQUACY OF PRICE IN FORECLOSURE SALE
1. Where there is right to redeem
GR: Inadequacy of price is immaterial because the judgment debtor may redeem the
property
Exception: the price is so inadequate as to shock the conscience of the court taking
into consideration the peculiar circumstances
2. Property may be sold for less than its fair market value upon the theory that the lesser the price the easier for the owner to redeem
3. The value of the mortgaged property has no bearing on the bid price at the public auction, provided that the public auction was regularly and honestly conducted
Note: If the judgment obligor redeems he must make the same payments as are required to effect a redemption by a redemptioner, whereupon, no further redemption shall be allowed and he is restored to his estate. The person to whom the redemption payment is made must execute and deliver to him a certificate of redemption acknowledged before a notary public or other officer authorized to take acknowledgments of conveyances of real property. Such certificate must be filed and recorded in the registry of deeds of the place in which the property is situated and the registrar of deeds must note the record thereof on the margin of the record of the certificate of sale. The payments mentioned in this and the last preceding sections may be made to the purchaser or redemptioner, or for him to the officer who made the sale. [Section 29, Rule 39 of ROC]
PNB v. CA, 1999
If the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of the mortgage, the mortgagee is entitled to claim the deficiency from the debtor. For when the legislature intends to deny the right of a creditor to sue for any deficiency resulting from foreclosure of security given to guarantee an obligation it expressly provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages of a thing sold on installment basis [Civil Code, Art. 1484(3)]. Act No. 3135, which governs the extrajudicial foreclosure of mortgages, while silent as to the mortgagee's right to recover, does not, on the other hand, prohibit recovery of deficiency. Accordingly, it has been held that a deficiency claim arising from the extrajudicial foreclosure is allowed.
Respondent spouses were benefited rather than harmed by the substantially lower reappraised value of their properties. As held in Velasquez v. Coronel: . . . "When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale." Indeed, as pointed out by petitioner bank, respondents had several options. They could have participated in the public bidding or exercised their right of redemption or sold such right to redeem or simply settled their debt. However, they did none of these things despite due notice to them. Respondents are thus to blame for their predicament. Their claim of financial distress is not an excuse to evade their clear obligation to the bank.
Prudential Bank v. Martinez, 1990
We have already ruled in several cases that in extrajudicial foreclosure of mortgage, where the proceeds of the sale insufficient to pay the debt, the mortgagee has the right recover the deficiency from the debtor.
Moreover, the fact the mortgaged property is sold at an amount less than its actual market value should not militate against the right to such recovery. We fail to see any disadvantage going for the mortgagor. On the contrary, a mortgagor stands to gain with a reduced price because he possesses the right of redemption. When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by the reason of the price obtained at the auction sale. Generally, in forced sales, low prices are usually offered and the mere inadequacy of the price obtained at the sheriff's sale unless shocking to the conscience will not be sufficient to set aside a sale if there is no showing that in the event of a regular sale, a better price can be obtained.
The award of attorney's fees is proper. It cannot be disputed that the proceedings in the extrajudicial foreclosure and the deficiency suit are altogether different. The first is extrajudicial and summary in nature while the second is a court action. Hence, the efforts
exerted by the lawyer in these two separate courses of action should be recognized. Besides, the basis of the extrajudicial foreclosure proceeding was the Deed of Real Estate Mortgage, particularly condition No. 7 thereof, where the parties stipulated for a ten percent (10%) attorney's fees to be collected in the event that the mortgage is foreclosed or a legal action is taken to foreclose the mortgage (Appellee's Brief, Rollo, p. 9, italics supplied). However, the proceeds in that sale were insufficient to pay the debt contained in the appellant's promissory note. The appellee was, therefore, constrained to file a deficiency suit, an eventuality not covered by the Deed of Real Estate Mortgage. Necessarily, the basis of this case is the promissory note executed by the appellants. We find that the note itself shows that appellants obligated themselves to pay the sum of ten percent as attorney's fees whether incurred or not, exclusive of cost and other expenses of collection (Records, p. 7). Clearly, the trial court's award of attorney's fees was not without basis. The amount of P2,500.00 awarded as attorney's fees being less than ten percent (10%) of the deficiency sued for is just and proper in the premises.