Dear Atty. Gab,

Musta Atty! I’m writing to you because I’m in a really stressful situation. My family runs a small bakery, and we took out a loan from a local bank to expand our operations. We’ve been struggling to keep up with the payments lately due to increased ingredient costs and lower sales. We approached the bank and started discussing restructuring our loan to make it more manageable.

However, while we were still in the middle of negotiations with the bank’s loan officer, we received a notice that the bank is proceeding with foreclosure on our property! I’m so confused. Can they do this when we are actively discussing a solution? We’ve invested everything we have into this business, and losing it would be devastating. I thought that as long as we are negotiating, they wouldn’t take such drastic action.

What are our rights in this situation? Is there anything we can do to stop the foreclosure? Any advice you can give would be greatly appreciated.

Sincerely,
Fernando Lopez

Dear Fernando,

I understand your distress, Fernando. It’s certainly unsettling to face foreclosure while you believe loan restructuring is being discussed. Generally, a bank’s willingness to negotiate doesn’t automatically prevent them from pursuing foreclosure if you’ve defaulted on your loan obligations. However, certain circumstances might provide grounds for legal recourse.

Protecting Your Assets: Understanding Foreclosure and Your Rights

When you obtain a loan, particularly one secured by a mortgage, you enter into a contract with the lending institution. This agreement outlines your responsibilities, including the repayment schedule. If you fail to meet these obligations, you are considered in default, which gives the lender certain rights, including the right to initiate foreclosure proceedings.

Even if discussions about loan restructuring are ongoing, the bank may still proceed with foreclosure. Unless there is a clear, binding agreement to restructure the loan, the original terms of the loan agreement remain in effect. This is because of the principle of contract law, which dictates that parties are bound by the terms they agree to.

In the Philippines, Presidential Decree No. 385 governs the foreclosure of loans by government financial institutions. This decree mandates foreclosure under certain conditions, but the presence of negotiations is not a definitive bar to this foreclosure. The courts have clarified that, even with ongoing discussions, a government financial institution can proceed with foreclosure if no concrete restructuring agreement has been signed.

“It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this Decree, to foreclose the collaterals and/or securities for any loan, credit, accommodation, and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations…”

This excerpt from P.D. 385 emphasizes the obligation of government financial institutions to act when loans are significantly in arrears. It highlights the legal responsibility placed on these institutions to recover outstanding debts.

However, the borrower is not without recourse. One potential avenue is to argue that the bank acted in bad faith or engaged in promissory estoppel. Promissory estoppel arises when a party makes a clear and unambiguous promise, upon which another party reasonably relies to their detriment. For example, if a bank officer explicitly assured you that foreclosure would be suspended pending restructuring, and you relied on that promise to your detriment, you might have a claim for promissory estoppel.

“No restraining order, temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties, except after due hearing in which it is established by the borrower and admitted by the government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after the filing of foreclosure proceedings.”

This section of P.D. 385 illustrates the difficulty in obtaining an injunction against a government financial institution’s foreclosure proceedings. You would need to demonstrate, and the bank would need to admit, that you have paid a significant portion of the arrearages after the foreclosure was initiated.

Moreover, to successfully challenge the foreclosure, you must show a clear violation of your rights. As the Supreme Court has stated, a party seeking an injunction must prove that they possess a right in esse, meaning a clear and existing right, not merely a potential or abstract one.

“For an injunction to issue, the following essential requisites must be present: (1) there must be a right in esse or the existence of a right to be protected; and (2) the act against which the injunction is directed to constitute a violation of such right.”

Without a concrete restructuring agreement, it’s difficult to establish a right to prevent foreclosure. If there is no such existing agreement, the creditor has a right to foreclose as per their contract.

The records show that if the act sought to be stopped has been completed, such as in instances of foreclosure sales, the act becomes moot and academic.

“An injunction suit becomes moot and academic after the act sought to be enjoined had already been consummated.”

Therefore, time is of the essence when seeking legal remedies to foreclosure cases.

Practical Advice for Your Situation

• Review Your Loan Agreement: Carefully examine the terms and conditions of your loan agreement to understand your obligations and the bank’s rights in case of default.
• Document All Communications: Preserve all correspondence and records of your negotiations with the bank, including emails, letters, and meeting minutes. These documents can serve as evidence of the ongoing discussions.
• Assess Promissory Estoppel: Determine if there were any explicit promises made by the bank that led you to believe the foreclosure would be suspended. If so, gather any evidence to support your claim.
• Explore Payment Options: If possible, try to make a partial payment to reduce the arrearages. This could potentially strengthen your position if you seek an injunction.
• Seek Legal Counsel Immediately: Consult with a qualified lawyer experienced in foreclosure and banking law. A lawyer can evaluate your situation, advise you on your legal options, and represent you in court if necessary.
• Consider Alternative Dispute Resolution: Explore mediation or arbitration as a means to resolve the dispute with the bank and reach a mutually agreeable solution.

Hope this helps!

Sincerely,
Atty. Gabriel Ablola

For more specific legal assistance related to your situation, please contact me through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.