SC voids bank's foreclosure due to incomplete loan records

The Supreme Court (SC) has reminded banks to exercise diligence in transactions as it nullified a bank's foreclosure of mortgaged property after finding that it failed to properly account for the borrower's loan payments.

In a 12-page decision, the SC Second Division granted the petition of two borrowers who had taken several loans out of a bank and used property in Pasig City as collateral.

"[T]he Court cannot sanction [the bank's] foreclosure considering the proven deficiencies in its record and its clear nonfulfillment of the obligation to provide a complete and accurate  accounting to its bank clients," the SC said.

According to the SC, the borrowers said they paid a total of P32.6 million for their loans but the bank only recorded P20.5 million.

Due to this, they filed a case before the Marikina regional trial court (RTC). The RTC, the Court of Appeals (CA), and the SC later ruled in their favor.

However, the bank moved forward with the foreclosure before a Pasig regional trial court (RTC) while the accounting case was still ongoing with the Marikina RTC.

When the borrowers brought their case before the Pasig RTC, it ruled in their favor, saying that they could not be considered at fault without full accounting from the bank.

The CA, however, reversed this decision and granted the bank's petition for the issuance of a writ of possession.

This led to the present petition before the High Court.

For its part, the SC found the foreclosure sale premature.

It clarified that a lender's failure to provide an accounting of loan payments is not a ground for annulling a foreclosure.

However, the court said that since it already issued a ruling requiring the bank to provide a complete accounting of the borrower's payments, the foreclosure cannot proceed until it is resolved.

"[P]ayment of loans is a general ground to annul the foreclosure sale. To allow the foreclosure proceedings without first resolving the discrepancies in petitioners' account would dilute the essence of payment and would undermine the immutable finding that the respondent bank was remiss in its fiduciary duty," it said.

The SC reinstated the case before the Pasig RTC and ordered the parties to wait for the final outcome of the accounting case before the Marikina RTC.

The decision, penned by Associate Justice Mario Lopez, was promulgated in July 2024 and made public in February 2025. — VDV, GMA Integrated News