The Supreme Court (SC) has nullified a bank’s foreclosure of a mortgaged property after finding that the bank failed to properly account for the borrowers’ loan payments.
In a decision written by Associate Justice Mario Lopez, the SC’s Second Division ruled in favor of business owners Carmelita Cruz and Vilma Low Tay, who had taken out several loans from Metropolitan Bank and Trust Company (Metrobank) and used a property in Pasig as collateral.
The borrowers argued that while they had paid a total of P32.6 million for their loans, Metrobank only recorded P20.5 million – leaving an unaccounted P12.14 million.
They filed a case before the Regional Trial Court of Marikina City, demanding a full accounting of their payments. The Marikina RTC ruled in their favor, and this decision was later upheld by the Court of Appeals (CA) and the SC, becoming final and executory.
But while the accounting case was still ongoing at the Marikina RTC, Metrobank moved forward with the foreclosure of the property at the Pasig City RTC. It took ownership of the property after the borrowers failed to redeem it.
When the borrowers contested the foreclosure sale, the Pasig RTC ruled in their favor, stating that the borrowers could not be considered in default without a full accounting from Metrobank. However, the CA reversed this decision, prompting the borrowers to seek relief from the SC.
The SC found the foreclosure sale premature. Since there was no categorical finding that the borrowers had defaulted, there was no valid reason to proceed with the foreclosure.
A mortgage serves as a security for a loan, and once the debt is fully paid, the mortgage is automatically terminated. Foreclosure is only justified when a loan remains unpaid at its due date, the SC Office of the Spokesperson said in a press release Feb. 26.
The SC clarified that ordinarily, a lender’s failure to provide an accounting of loan payments is not a ground for annulling a foreclosure.
However, in this case, the SC had already issued a final and executory ruling requiring Metrobank to provide a complete and accurate accounting of the borrowers’ payments. Until this is resolved, foreclosure cannot proceed, as doing so would contradict the SC’s prior ruling. Hence, the SC annulled the foreclosure sale.
The SC emphasized that banks must exercise extraordinary diligence in commercial transactions. “Guided by principles of fairness, diligence in banking practices, and the fiduciary duty owed by banks to their clients, the Court cannot sanction Metrobank’s foreclosure considering the proven deficiencies in its records and its clear nonfulfillment of the obligation to provide a complete and accurate accounting to its bank clients.” ||
