Creditor's Options Upon the Death of the Mortgagor

A creditor lends money to the debtor and secures such debt with a collateral - a mortgaged real property. However, the debtor died intestate (without a will) after the debt has become due and demandable and which gave the creditor the right to foreclose the mortgaged property. What is the creditor to do?

Under our jurisprudence based on Section 7, Rule 86 of the Rules of Court, the secured creditor has three options that he may alternatively pursue for the satisfaction of the obligation in his favor. He may EITHER choose to : (1) waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim; (2) foreclose the mortgage judicially and prove the deficiency as an ordinary claim; or (3) rely on the mortgage exclusively, or other security and foreclose the same before it is barred by prescription, without the right to file a claim for any deficiency. The third remedy includes the option of extra-judicially foreclosing the mortgage under Act No. 3135 which governs extrajudicial foreclosures.

It must be emphasized that according to the Supreme Court, the said remedies are distinct, independent and mutually exclusive from each other. Therefore, when the creditor makes his choice, he waves his right to exercise the other choices. When the creditor chooses, for example, extra-judicial foreclosure under Act No. 3135, the creditor waives his right to recover any deficiency from the estate.

Again, case law now holds that this rule grants to the mortgagee (creditor) three distinct, independent and mutually exclusive remedies that can be alternatively pursued by the mortgage creditor for the satisfaction of his credit in case the mortgagor dies, among them:

(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim;

(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and

(3) to rely on the mortgage exclusively, foreclosing the same at anytime before it is barred by prescription without right to file a claim for any deficiency.

Thus, in the case of Heirs of Sps. Maglasang vs. Manila Banking Corporation [G.R. No. 171206, September 23, 2013], the creditor having chosen to extra-judicially foreclosure the mortgage, he is now barred from recovering any deficiency amount from the sale of the foreclosed property.


Reference: Heirs of Sps. Maglasang vs. Manila Banking Corporation [G.R. No. 171206, September 23, 2013]