Filing an Annulment Case Does Not Stop the Redemption Period in Foreclosure Sales

The Supreme Court has clarified an important point for property owners facing foreclosure: filing a case to annul a foreclosure sale will not stop the clock on the one-year redemption period. In Mahinay v. Dura Tire & Rubber Industries, Inc. (G.R. No. 194152, June 5, 2017), the Court ruled that the statutory period to redeem a foreclosed property is fixed and non-extendible, regardless of pending litigation.

This ruling matters because many property owners assume that questioning the validity of a foreclosure sale through court action effectively "freezes" their right to redeem. The Court rejected this view, noting that allowing such tolling would encourage frivolous lawsuits designed merely to give the mortgagor more time to redeem.

The Facts of the Case

Makilito Mahinay purchased a parcel of land in Cebu City from A&A Swiss International Commercial, Inc. He knew at the time of purchase that the property was mortgaged to Dura Tire & Rubber Industries, Inc. to secure the credit purchases of Move Overland Venture and Exploring, Inc. Mahinay even assumed liability for any claims Dura Tire might have against Move Overland.

When Move Overland failed to pay its obligations, Dura Tire extrajudicially foreclosed the property on January 6, 1995. The Certificate of Sale was issued to Dura Tire as the highest bidder and registered on February 20, 1995.

Mahinay filed a complaint for annulment of the auction sale on March 23, 1995. That case went through several courts and appeals, eventually becoming final and executory on August 8, 2007. Only after that did Mahinay file a complaint for judicial declaration of his right to redeem, arguing that his earlier case should have tolled the redemption period.

The Legal Issue

The sole question before the Supreme Court was whether the one-year redemption period under Act No. 3135 was tolled when Mahinay filed his complaint to annul the foreclosure sale.

Mahinay argued that the period should be counted from the time the earlier case became final, not from the registration of the Certificate of Sale. He also cited the earlier case of Consolidated Bank & Trust Corp. v. Intermediate Appellate Court to support his position.

The Court's Ruling

The Supreme Court denied Mahinay's petition, affirming the dismissal of his complaint. The Court held that his right to redeem arose by operation of law when the property was extrajudicially foreclosed and sold at public auction, not from any judicial declaration.

Act No. 3135, which regulates the sale of property under special powers in real-estate mortgages, provides for the right of redemption. The Court explained that under this law, the debtor, successors-in-interest, or any person with a lien on the property subsequent to the mortgage may redeem the property within one year from the date of the sale. The Court clarified that the "date of the sale" refers to the date the Certificate of Sale is registered with the Register of Deeds.

The Court emphasized that the redemption period is fixed and non-extendible. Filing an action to annul the foreclosure sale or to enforce the right of redemption does not interrupt or suspend this period. To rule otherwise, the Court warned, would create a dangerous precedent encouraging frivolous suits for annulment intended merely to give the mortgagor more time to redeem.

Distinguishing Prior Cases

The Court distinguished Consolidated Bank, which Mahinay relied upon. In that case, the petitioner was a victim of fraud and had its right of redemption actively denied by the respondents. No such fraud existed in Mahinay's situation.

The Court also noted that later cases—CMS Stock Brokerage, Inc. v. Court of Appeals (1997) and Spouses Pahang v. Judge Vestil (2004)—had already established the controlling doctrine that pending actions do not toll the redemption period.

Practical Takeaways

• The redemption period runs from registration. For extrajudicial foreclosure sales under Act No. 3135, the one-year redemption period starts from the date the Certificate of Sale is registered with the Register of Deeds.
• Litigation does not pause the clock. Filing an action to annul a foreclosure sale or to enforce a right of redemption will not suspend the running of the redemption period.
• Act promptly. A property owner who wishes to redeem must act within the one-year period, even if they are also questioning the validity of the foreclosure in court.
• Tender payment properly. To redeem, the property owner should tender payment to the sheriff who conducted the foreclosure sale, not insist on alternative payment arrangements with the mortgagee.
• Be aware of the risk. Waiting for a court decision before attempting to redeem could result in losing the right entirely.

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