G.R. No. 101083 , July 30, 1993
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs. COURT OF APPEALS AND SPOUSES FORTUNATO AND VIRGINIA VENERACION, Respondents.

FACTS

Spouses Fortunato and Virginia Veneracion obtained a loan from Metropolitan Bank and Trust Company (Metrobank) secured by a real estate mortgage over their property. They defaulted. Metrobank extrajudicially foreclosed the mortgage, and the property was sold at a public auction where Metrobank was the highest bidder. A certificate of sale was issued. Before the expiration of the one-year redemption period, the Veneracions filed a complaint for annulment of the foreclosure sale, alleging irregularities. The trial court issued a writ of preliminary injunction enjoining Metrobank from consolidating its ownership over the property. The redemption period expired without the Veneracions redeeming the property. Metrobank then filed a motion to dismiss the complaint, arguing that the Veneracions lost their standing to sue because they failed to redeem the property within the statutory period, and their right to challenge the foreclosure was thereby extinguished.

ISSUE

Whether the failure of a mortgagor to redeem the foreclosed property within the one-year redemption period deprives them of the legal standing to file or maintain an action to annul the foreclosure sale and recover the property.

RULING

No. The Supreme Court held that the failure to redeem within the statutory period does not bar the mortgagor from instituting an action to annul the foreclosure sale if such sale is void or voidable. The right to redeem and the right to annul a void foreclosure sale are separate and distinct remedies. The one-year redemption period applies only when the foreclosure sale is valid. If the sale is void, as when there are fundamental defects like a failure to comply with statutory requirements, no right of redemption arises, and the mortgagor can directly attack the sale’s validity even after the lapse of the redemption period. The mortgagor’s standing to sue is based on their retained equitable title or interest in the property, which is not automatically extinguished by a void sale. The Court reinstated the complaint and remanded the case for trial on the merits to determine the validity of the foreclosure sale.