Demand Before Foreclosing On A Mortgage

One common mistake committed by creditors in dealing with their debtors is the failure to send a demand letter. For some, it is sufficient that the loan has reached the maturity date, and without sending any demand, they soon commence to file collection suits, including foreclosure of mortgage if the loan is secured.

That is not correct. You must bear in mind that unless there is demand, your debtor is not yet technically in default. Your right to foreclose on the mortgage or collateral did not accrue on the maturity dates stated in the loan agreement. It is only when demand to pay is made and subsequently refused that your debtor can be considered in default and you obtain the right to file an action to collect the debt or foreclose the mortgage.

The rule in the Philippines is that since a cause of action requires, as essential elements, not only a legal right of the creditor and a correlative duty of the debtor but also "an act or omission of the [debtor] in violation of said legal right," the cause of action does not accrue until the debtor refuses, expressly or impliedly, to comply with his duty.

Thus, the following must be present before a collection suit or foreclosure of mortgage can be validly initiated:

1. a right in favor of the creditor to receive payment;
2. an obligation on the part of the debtor to pay; and
3. an act or omission on the part of the debtor violative of the right of the creditor or constituting a breach of the obligation of the debtor to the creditor.

It is only when the last element occurs that a cause of action arises. Accordingly, a cause of action on a written contract accrues only when an actual breach or violation occurs.

Hence, without a demand sent to the debtor, your foreclosure of mortgage may be annulled by the courts for being illegal.