The Supreme Court (SC) has ruled that foreign banks may not own land in the country but can possess foreclosed and mortgaged properties, subject to certain limitations.
This was the gist of the SC decision dated March 13, 2023, but only made public last October 11, denying the consolidated petitions for certiorari filed by 4E Steel Builders Cor. and spouses Filomino and Virginia Ecraela against Maybank Philippines Inc.
The petitions assailed the issuances of the Court of Appeals (CA) which had annuled the foreclosure sale and cancelled the registration of parcels of land in favor of Maybank and ordered the Ecraela couple to pay the bank their total loan obligation.
Court records showed that in 1999, Maybank, a foreign banking corporation operating in the country, executed a credit agreement in favor of 4E Steel represented by the Ecraela couple as president and corporate secretary to secure a loan worth P4.8 million from the bank using five parcels of land as collaterals.
In 2003, Maybank reminded the Ecraela couple to settle their outstanding obligation, which the latter acknowledged but requested for reconciliation of account records and restructuring of loans for immediate settlement and payment.
In response, Maybank issued a statement of account breaking down the computation of the total loan obligations.
However, 4E Steel contested the figures, prompting Maybank to lodge a complaint before the Caloocan City regional trial court (RTC).
Maybank then proceeded to file a petition for extrajudicial foreclosure of the mortgaged properties, causing 4E Steel and the Ecraela couple to ask for the issuance of a temporary restraining order to stop the extrajudicial foreclosure.
They argued that Maybank, being a corporation controlled and owned by foreign nationals, is disqualified from acquiring lands in the country.
However, the RTC denied their request for injunction leading to the foreclosure sale of the mortgaged properties on Nov 21, 2003, with Maybank as the highest bidder.
The RTC decision was contested by 4E Steel and the Ecraela couple but the trial denied their motion. Thus, they elevated the case to the CA.
On appeal, the appellate court declared that Maybank is disqualified from taking part in the extrajudicial foreclosure sale of the properties since majority of its capital stocks is owned and controlled by foreign nationals.
The adverse CA ruling led Maybank to bring the case to the SC.
But the SC held that while Maybank “may possess mortgaged property for five years after default, it may not bid or take part in any foreclosure sale of the real property under Republic Act 4882” which, it added, is the applicable law at the time of the foreclosure proceedings.
“During the material period, Maybank, as a foreign bank, was a mortgagee disqualified to acquire lands in the Philippines. Therefore, it may possess the mortgaged property after default and solely for foreclosure, but it cannot bid or take part in any foreclosure sale. Therefore the sale to Maybank was void,” the SC ruling penned by Associate Justice Jhosep Lopez.
The SC said even the 1994 Foreign Bank Liberation Act was silent on whether foreign banks can foreclose mortgages and acquire mortgaged properties.
