In the recently decided case of 4E Steel Builders Corporation v. Maybank Philippines Inc. (G.R. Nos. 230013 and 230100, 13 March 2023), penned by Associate Justice Jhosep Y. Lopez, the Supreme Court denied petitions challenging the annulment of a foreclosure sale where a foreign bank emerged as the highest bidder. The SC ruled that foreign banks may foreclose and acquire mortgaged properties, subject to limitations as provided in RA 10641.

In 1999, Maybank, a foreign banking corporation operating in the Philippines, executed a Credit Agreement favoring 4E Steel, represented by Spouses Ecraela. To secure the payment of drawdowns on the credit line, Spouses Ecraela mortgaged five parcels of land.

In 2003, when the drawdowns became due and demandable, Maybank reminded 4E Steel and Spouses Ecraela to settle their outstanding obligation. 4E Steel acknowledged the loan but requested a reconciliation of its account records and restructuring of its loan for immediate settlement.

In response, Maybank issued a statement of account. However, 4E Steel contested the figures and filed a Complaint for Accounting and Reapplication of Payments before the Regional Trial Court.

Meanwhile, Maybank filed a Petition for Extrajudicial Foreclosure of the Mortgaged Properties. In this regard, 4E Steel filed its Amended Complainant to seek additional reliefs, which were: (a) Declaration of Nullity of the Petition for Extrajudicial Foreclosure; and (b) Issuance of a Preliminary Injunction and Temporary Restraining Order.

In resolving the issue of whether Maybank may foreclose and acquire mortgaged properties, the Supreme Court reviewed the laws governing foreign banks operating in the Philippines.

RA 4882, which took effect in 1967, provides that a mortgagee prohibited from acquiring lands may nevertheless possess the property for five years after default and the purpose of foreclosure. Such mortgagee, though, may not bid or take part in any foreclosure sale of the real property.

In 1994, RA 7721, or the Foreign Bank Liberalization Act, was enacted, allowing the entry of foreign banks either through ownership of up to 60 percent of the voting stock of an existing domestic bank or a new banking subsidiary or establishment of branches with full banking authority.

In 2014, RA 10641 was enacted, allowing foreigners to own up to 100 percent of domestic banks and facilitating the entry of established, reputable, and financially sound foreign banks in the Philippines.

Significantly, the Court took note of the significant addition of "Section 9. Participation in Foreclosure Proceedings," which provides that foreign banks shall be allowed to bid and take part in foreclosure sales of real property mortgaged to them and, accordingly, take possession of the mortgaged property, for a period not exceeding five years from actual possession.

The SC, however, laid down the limitations provided in Section 9, which are the following: (a) the foreign bank's possession is limited to five years; (b) the title of the property shall not be transferred to the foreign bank; and (c) the foreign bank must transfer its right to a qualified Philippine national within the five-year period.

The SC also emphasized the last limitation, that failure to comply with the previous condition shall make the foreign bank liable to pay half of 1 percent per annum of the foreclosure price until it transfers the property to a qualified Philippine national.

The Court, however, noted that RA 10641 does not contain a retroactivity clause. Thus, the law applies prospectively.

In the instant case, the assailed foreclosure occurred in 2003, making RA 4882 the applicable law, not RA 10641.  Thus, while Maybank may possess a mortgaged property for five years after default, it may not bid or participate in any real property foreclosure sale under RA 4882.

Consequently, the SC ruled that the sale to Maybank was void.

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