Sep 6, 2020 @ 19:21

Consult with Atty Claire: My mom died before paying off her bank loan. What happens to the property?

Good morning po, attorney. Thank you for your Youtube channel, “Ito ang Batas with Atty. Claire Castro.” My concern is about my deceased mother’s debt with the bank. She died while the title of her property was still in the bank’s possession. Will her debt continue to incur interest and penalties considering that the bank knows that she is already dead? What I know is that she left the title with the bank but she never signed any document allowing the bank to use the property as payment for her debts. Looking forward to receive your reply.

Dennis

Mr. Dennis,

I just want to know if this property is an exclusive property of your mother or part of the conjugal partnership or absolute community of properties of your parents. We have to determine this first so that I could have a full grasp of your scenario and the appropriate legal advice can be given to you.

Anyway, assuming that it was only registered in the name of your mother and that we accept that she owned it exclusively (i.e. she inherited it from her parents), she could, therefore use, enjoy, dispose or mortgage it without others’ permission but hers alone. She could deal with the bank without your consent nor of her husband’s.

Now that she is dead and it appears that there is no existing Mortgage Redemption Insurance, the loan’s interests and penalties will continue to run until the whole obligation or indebtedness is fully settled. Moreover, even if you (children) are all her compulsory heirs, the said property will not be transferred to you until and unless all her creditors are paid out of her “remaining assets”.

Assuming, however, that it is part of the assets of your parents but your mother managed to mortgage it by herself, you have the already the right and legal interest to question the validity of the said contract of loan and real estate mortgage because the share of your father (if already deceased) will be inherited by your mother and their children, hence, you are now considered as co-owner of the property.

If ever you are sure that your mother never signed any Real Estate Mortgage but only a Contract of Loan and that she did not use the title of the property as collateral but just left it with the bank as a guarantee of payment, the bank can not freely use the property as payment for her debts but it needs to file a complaint in court for “collection of sum of money”. Once given a favorable decision by the court, the sheriff who is enforcing the judgment or decision can have it levied purposely for an auction sale. Proceeds thereof will be used as payment for your mother’s debts.

If the property was indeed mortgaged, the bank can file a foreclosure proceedings (extrajudicial or judicial, depending on the contract), to have it sold thru auction. If there is no highest bidder , the bank will be considered as the bidder. One year redemption period will be given allowing you to settle with the bank within that period. The lapse of the said given time will make the “bidder” its new owner.

So, if you have the capacity to pay for the loan of your mother , better settle her obligations instead of losing the property which may be of greater value than the amount of the obligation she left with the bank.

If you have other questions, please send your email to attorneyclaire@gmail.com or give us a call at 8922 0245. Please subscribe to my youtube channel Ito ang Batas with Atty. Claire Castro.

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