Dear Atty. Duran-Schulze,
I recently took out a loan to purchase a land, and I’m concerned about the lender’s rights regarding the property. Can the lender hold or claim the property as collateral if I haven’t fully paid the loan? What will happen if I fail to pay my mortgage payments?
Dear Writer,
An accessory contract, such as a mortgage, must be executed to document that a real property has been made as collateral. Without this accessory contract, the agreement will remain as a simple loan. The lender must file a civil suit to collect from the borrower. An accessory contract is usually executed at the time the main contract (loan) is executed. This protects the lender by ensuring an asset can be used to pay the loan. If there is no accessory contract, the real property cannot be automatically considered as collateral.
In your letter, though, you already mentioned “mortgage payments.” Likely, there is already a mortgage document that you have executed if you consider your payments to be as such. In which case, then yes, the property tied to the mortgage will be used to pay the loan if there is inability to pay. There is an extra step though before the borrower can possess the property-this is either judicial or extrajudicial foreclosure. This means the property will be put on auction to pay the loan. It does not necessarily mean that the property is owned by the borrower unless he participates in the auction or no one participates in the auction.
Do you have any further questions that need to be addressed? Talk to our team at Duran & Duran-Schulze Law to know more. You may reach us at (+632) 8478 5826 or +63 917 194 0482 email info@duranschulze.com for more information.
