Calculating Redemption Price in Extrajudicial Foreclosures: BPI v. LCL Capital Explained

The redemption price in an extrajudicial foreclosure can determine whether a borrower reclaims the property or loses it permanently. When a bank is the mortgagee, Philippine law applies a specific formula that often surprises borrowers: the price is based on the mortgage deed, not the auction bid. The Supreme Court clarified this in Bank of the Philippine Islands v. LCL Capital, Inc., a ruling with practical consequences for any property owner facing foreclosure.

The Dispute: What Should the Redemption Price Include?

LCL Capital, Inc. obtained a ₱3,000,000 loan from Far East Bank & Trust Co. (FEBTC) in 1997, secured by a mortgage on two condominium units. After LCL defaulted, BPI—which had merged with FEBTC—foreclosed extrajudicially and won the auction with a bid of ₱2,380,287.07.

BPI then consolidated ownership before the one-year redemption period expired. LCL sued, arguing the consolidation was premature. The Regional Trial Court agreed, voiding the consolidation and setting the redemption price at ₱2,513,583.15 based on the bid price plus 6% interest. BPI appealed, insisting the price should follow the mortgage deed with a 17% interest rate. The Court of Appeals partially granted BPI's appeal—affirming the exclusion of real estate taxes but remanding for recomputation at 17%. Both parties elevated the case to the Supreme Court.

The Governing Law: General Banking Act vs. Act No. 3135

The key legal question was which statute controls. Act No. 3135 governs extrajudicial foreclosure sales generally but does not specifically address bank mortgagees. The General Banking Act (Republic Act No. 337), however, contains a special provision on redemption when the mortgagee is a bank.

The Supreme Court has consistently held that RA No. 337, being both special and subsequent to Act No. 3135, prevails in cases involving banks. Under this provision, the mortgagor may redeem within one year after the foreclosure sale by paying:

• the amount due under the mortgage deed,
• interest at the rate specified in the mortgage,
• all costs and judicial and other expenses incurred by the bank from the execution and sale, and
• expenses from the custody of the property, less any income received from it.

The Court quoted the provision in full, emphasizing that the redemption price is anchored on the mortgage deed—not the auction bid.

The Supreme Court's Ruling: Correcting Both Lower Courts

The Supreme Court found that both the RTC and the CA erred in their computations.

First, the redemption price must be based on the principal obligation stated in the mortgage deed—₱3,000,000—not the bid price of ₱2,380,287.07. The statutory language is explicit: "the amount due under the mortgage deed."

Second, real estate taxes paid by BPI must be included in the redemption price. Because LCL retained possession of the property during the redemption period, the taxes were an expense incurred by the bank as a result of the foreclosure and custody. The CA's exclusion of these taxes was therefore reversed.

Third, the Court affirmed the 17% interest rate stipulated in the mortgage contract. The rate agreed upon by the parties governs, regardless of what the lower courts had applied.

The Court also reiterated that BPI's premature consolidation of ownership was void, though this did not affect the redemption price computation.

Practical Takeaways

• The bid price is not the basis. In bank foreclosures, the redemption price starts from the principal obligation in the mortgage deed, not the auction bid. Borrowers who assume they can redeem at the bid price may face a significantly higher amount.
• Read the mortgage contract carefully. The stipulated interest rate and the definition of "amount due" directly determine the redemption price. Ambiguities in the deed can be costly.
• Real estate taxes may be added. If the borrower retains possession during the redemption period, taxes paid by the bank on the property are recoverable as part of the redemption price.
• The one-year period is strict. Redemption must occur within one year from the foreclosure sale. A bank that consolidates ownership prematurely acts in vain—the consolidation is void—but borrowers should not delay in asserting their rights.
• Seek legal advice early. Foreclosure involves overlapping statutes and technical computations. Consulting counsel before the sale, or immediately after, protects the borrower's ability to redeem.

Frequently Asked Questions

What is the redemption period for a foreclosed property? One year from the date of the foreclosure sale.

How is the redemption price computed when a bank is the mortgagee? Based on the amount due under the mortgage deed, plus interest at the stipulated rate, and all costs and expenses incurred by the bank from the foreclosure sale and custody of the property, less income received from the property.

Can real estate taxes be excluded? No. If the borrower retains possession, taxes paid by the bank are included in the redemption price.

Is the bid price ever the basis? No. For bank mortgagees, the mortgage deed governs. The bid price is relevant only in non-bank foreclosures under Act No. 3135.

What if the bank consolidates ownership before the redemption period ends? The consolidation is premature and void. The borrower may still redeem within the one-year period.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.