Blurb: A successful loan payment is one's ticket to financial security.
Blurb: A successful loan payment is one's ticket to financial security.
In a country where 17.7 million Filipinos are living in poverty (https://psa.gov.ph/poverty-press-releases), being creative and resourceful to augment the income of the family is imperative. Based on the data released by the Philippine Statistics Authority in April 2020, there are presently 33.8 million employed persons in the Philippines (https://psa.gov.ph/content/employment-situation-april-2020) receiving daily pay ranging from P282.00 to P537.00 depending on the region where the person is employed (https://nwpc.dole.gov.ph/stats/summary-of-current-regional-daily-minimum-wage-rates-by-region-non-agriculture-and-agriculture/). These are the realities of surviving – not necessarily living – in the Philippines.
With the low minimum wage, it will be very hard to make ends meet especially if you are the head of a growing family. You will need money for basic necessities like food, clothing, shelter, transportation, education, and medical needs. The Filipinos, being family centered, will always try to find ways such as looking for another job, managing a business on the side, working overtime, or working in a foreign country (even if it results in physical separation from loved ones) to increase his take home pay to supply the needs of his family.
An option available to those in need of ready cash is to mortgage the family home, an inherited piece of land, or real property. The common pitfall of some mortgagors/borrowers is to entrust their land title to the mortgagee/lender without any written instrument as evidence of the receipt of the title and the mortgage agreement. Sometimes, the mortgagee/lender exploits this situation by requiring the mortgagor/borrower to sign a blank piece of paper where the mortgage agreement terms and conditions will supposedly be reproduced. This crafty mortgagee/lender will then supply the terms and conditions in the signed blank piece of paper to reflect not a mortgage but a sale of real property.
There are also instances when the mortgagee/lender releases the funds and receives the title to the land without charging interest and having no written agreement. This is usually the practice when the mortgagor/borrower is a friend or confidant. However, the problem arises when the mortgagor/borrower dies and the heirs, believing without validating that the title to the land has been lost or destroyed, file a petition for a new title in court. This extra-legal means is not recommended since it is illegal and intended solely to mislead the court. The petitioner, by pursuing the action and knowingly asserting a falsehood, may be held liable for perjury or false testimony.
The most common institutional lender in the Philippines is a bank. The bank, before it extends a loan, will have to determine the financial capacity and credit history of the borrower by conducting an extensive background check. If the loan is to be secured by a mortgage, then the collateral will be inspected and appraised separately. Usually, the financial profiling of the borrower by the bank will take at least a month to conclude. Hence, if the borrower is in dire need of money, he may obtain it through faster secondary sources with higher interest charges, like taking cash advances from credit card companies or borrowing from lending companies.
Once the bank approves the loan application, the loan agreement, promissory note and the mortgage agreement will be forwarded to the borrower. The borrower will then have the chance to review the terms of the agreements. In truth, however, the borrower will not be able to recommend changes in its wording since the contracts are in the nature of contracts of adhesion. The concept often arises in the context of standard-form printed contracts prepared by one party and submitted to the other on a “take it or leave it” basis (Barron’s Law Dictionary). This is not the case if the subject of the loan is purposely for business development projects or loan syndication agreements to fund oil, fuel, gas, power, water or energy projects, among others.
While you may not be able to revise the draft agreements, you may still haggle on interest rates, the mortgage redemptive insurance and fire insurance premiums, and reduce documentation and notarization fees. It is highly recommended that you take note of the events of default and date of the interest re-pricing since it will have an impact on your monthly amortizations for the succeeding year. If allowed by the bank, the borrower should apply to lock the interest for at least two (2) years to allow him to program his finances.
It is ideal for the borrower to pay the loan amortizations religiously until the finance term is completed. However, there are times when people suffer unforeseen financial reverses that result in their being declared in default. After repeated reminders to pay, this will push the bank to foreclose on the collateral or security of the loan. The banks prefer extrajudicial foreclosure to judicial foreclosure since the process is simpler and faster, unlike judicial foreclosure which has to undergo the process of an ordinary court case, which includes filing of pleadings/motions, attendance in pre-trial and trial and use of the modes of appeal if the decision is adverse.
In extrajudicial foreclosure, the mortgagee/lender has only to file an application with the Executive Judge through the Clerk of Court who is also the Ex-Officio Sheriff. It shall be the duty of the Clerk of Court to receive the application and collect the filing fees. Thereafter, the Clerk of Court will examine whether the applicant has complied with all the requirements before the public auction is conducted (A.M. No. 99-10-05-0; Circular No. 1-00). The public or auction sale shall be conducted no earlier than twenty days from the date of the posting of the notices and publication (Section 3, Act 3135). Any interested person including the lender or his representative may participate in the public bidding (Section 5, Act 3135).
The mortgagor/borrower, his successors-in-interest or any judicial creditor or judgment creditor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale (Section 6, Act 3135). The right to redeem within a period of one year is given to mortgagors/borrowers or lien holders to allow them to buy back the foreclosed property. However, under the General Banking Law of 2000, the one-year redemption period applies only to individual mortgagors/borrowers of the bank; if the mortgagor/borrower is a corporation or juridical person, then the redemption period is until the registration of the certificate of foreclosure sale which in no case should be more than three months after the foreclosure, whichever is earlier (Section 47, Republic Act 8791).
ҬFor those who only need small amounts of money to tide them over until the next payday, pawning some personal properties like jewelry, appliances, computers, laptops and gadgets to a pawnshop will be the fastest solution. The pawners are given a 90-day grace period to redeem the pledged personal properties before the public sale (430P.1, Pawnshop Regulation Act). The downside of pawning personal properties is that the items are left with the pawnshop and if not used, may deteriorate. Unlike foreclosure wherein the mortgagor/borrower is given the right to redeem after the public sale, no such option is given to the pawner once the public sale is concluded.
Borrowers should always remember that the funds they receive from a loan are not their money so they have to use it wisely. In fact, a responsible borrower should see to it that the funds are used solely for the purpose indicated in the loan application. The problem with some borrowers is that when they receive the funds they forget about their commitment to pay; they treat the funds released not as a loan but as personal profit or cash inflow that may be used for a different purpose. Let us always remember that a successful loan payment is one's ticket to financial security.
