What is a Mortgage?

Mortgage, “sangla” as we call it, is the agreement by which a creditor (the mortgagee) lends money at interest to the debtor (the mortgagor) in exchange for the property’s title, accompanied with the condition that the transfer of the title absolves itself after completely paying off the debt. To simply put, it is a security loan transferred to the creditor from the debtor due to debt.

It is legally defined underArticle 2085 of the New Civil Code of the Philippines, as a right in rem; a right that rests on an object or good – where regardless of changing ownership, the security right remains on the property itself, whether movable or immovable.

“Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1)That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property.” (Art. 2085, NCC)

When do you cancel Mortgage?

Under our New Civil Code, pursuant toArticle 2087, follows the general rule of mortgage contracts – 

“Art. 2087. It is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor.” (Art. 2087, NCC)

Extracting the essence of the general rule, once the obligation ceases to exist or loses its purposes by means of its fulfillment, the creditor may now proceed with its cancellation. 

A cancellation of mortgage declares the property free or to be absolved of its obligation as a security loan for a debt; consequently, it is the mortgagee’s declaration executed in his favor over the property mortgaged. Once the obligation is extinguished, the mortgagee may now proceed to declare its cancellation in the Registry of Property.

The Declaration of Cancellation is issued when the obligation of paying the debt is fully exhausted by the debtor – where the function of the security lapses and is either fulfilled, replaced, expired, or needs not to exist given the agreement set forth by the parties involved.

The mortgagee may also declare a cancellation of mortgage by reason of replacement. This happens when both parties reach an agreement of replacing the current property labeled as security with another property from the debtor. Hence, by reason of replacement, the previous mortgage contract must be rescinded in order for a new one to begin.

Security Agreement 

Pursuant toRepublic Act 11057, also known as the “Personal Property Security Act” of the Philippines, underSections 5 to 6, provides that agreements pertaining to properties considered as security should be furnished in writing. This is prescribed by law to fully protect security interests incurred during the period of fulfillment of the obligation entered into by the necessary parties. 

“Section 5. Creation of a Security Interest.—

(a) A security interest shall be created by a security agreement,

(b) A security agreement may provide for the creation of a security interest in a future property, but the security interest in that property is created only when the grantor acquires rights in it or the power to encumber it.

Section 6. Security Agreement.— A security agreement must be contained in a written contract signed by the parties. It may consist of one or more writings that, taken together, establish the intent of the parties to create a security interest.

The security agreement shall likewise provide for the language to be used in agreements and notices. The grantor shall be given the option to have the agreement and notices in Filipino. The Department of Finance (DOF) shall prepare model agreements in plain English and Filipino.” (Secs 5-6, R.A. 11057)

Requirements when filing for Cancellation of Mortgage

For filing for a cancellation of mortgage, the following documents are required:

Full Cancellation/Release of Mortgage between parties–

• Cancellation/Release of Mortgage Contract (Main Document)
• Owner’s Duplicate copy of Transfer Certificate of Title or Condominium Certificate of Title (Supporting Document)

Partial Cancellation/Release of Mortgage between parties–

• Release of Mortgage Contract (Main Document)
• Owner’s Duplicate copy of Transfer Certificate of Title or Condominium Certificate of Title (Supporting Document)
• Certified Copy of Tax Declaration (Supporting Document)

In instances where the cancellation of mortgage was brought up to court due to major disagreements, the following documents are required:

Cancellation of Mortgage by Court–

• Court Order (Main Document)
• Certificate of Finality (Supporting Document)
• Owner’s Duplicate copy of Title (Supporting Document)

The aforementioned documents above must be presented at the Land Registration Authority for validation and issuance purposes.

Where to file for the Cancellation of Mortgage Property?

Bring all the requirements mentioned above at the Land Registration Authority (LRA) Registry of Deeds – a government organization that mainly handles Property Registration. 

Should you need help or assistance in the processing of the necessary requirements for Mortgage Cancellation with the lien being annotated on your transfer certificate of title or condominium certificate of title. We are a Transfer of Title Service Provider in the Philippines.  You may contact us at info@filedocsphil.com or ++63 917 149 2337.