Legal Steps When a Loan Is Fully Paid but Not Closed in the Philippines
— everything you need to know, in one article (updated May 2025)
1. The Problem Defined
“Fully paid” means the debtor has already satisfied the principal, interest, penalties, and every charge validly due under the loan contract. “Not closed” (or “still open”) means the lender has not released or cancelled the security, not updated internal ledgers and credit-bureau feeds, and/or not issued the mandatory documents that legally extinguish the obligation.
A loan that remains open after payment can keep your collateral encumbered, impair your credit score, and expose you to accidental re-billing. The Civil Code (Arts. 1232 – 1251) declares that an obligation is extinguished by payment; the lender’s delay in reflecting that fact is therefore a breach of its correlative obligation to “do what is necessary to extinguish the juridical tie” (Art. 1168).
2. Governing Law & Regulations
| Area | Key Provisions | Practical Effect |
|---|---|---|
| Civil Code | Art. 1167 (specific performance), Art. 1170–1173 (damages for negligence/ delay) | Lets you sue to compel closure and claim damages |
| Mortgage Law (Act No. 3135) & Property Registration Decree (PD 1529) | Secs. 7, 71 | Spell out how a Register of Deeds cancels a real-estate mortgage upon presentation of a notarised release |
| Chattel Mortgage Law (Act 1508) | Sec. 12 | Affidavit of Release must be recorded to cancel the chattel mortgage |
| General Banking Law of 2000 (RA 8791) & BSP Circulars (949 s. 2017, 1048 s. 2019) | Sec. 55.1(b) & circular-level rules | Banks must release collateral/ encumbrance within 30 calendar days from full payment and return original titles/ORCRs |
| Financial Products and Services Consumer Protection Act (RA 11765, 2022) | Sec. 4(a)(2) & Sec. 56 | Unreasonable refusal to release collateral is now an administrative violation subject to hefty fines |
| Truth in Lending Act (RA 3765) & Consumer Act (RA 7394) | Disclosure & unfair practice provisions | Support a complaint before DTI/BSP/SEC for deceptive or abusive acts |
| Pag-IBIG Fund Charter (RA 9679) & HDMF Circulars | HDMF Circular 460-B | Pag-IBIG must issue a Deed of Release of Real Estate Mortgage (DRREM) within 15 days |
(Add-on statutes: Anti-Red Tape Authority Act (ARTA), Alternative Dispute Resolution Act (RA 9285), and the Small Claims Rules (A.M. No. 08-8-7-SC as amended).)
3. Lender’s Mandatory Deliverables After Full Payment
- Certificate of Full Payment (CFP) – written, dated, notarised.
- Deed of Release/ Cancellation of Mortgage (real estate) or Affidavit of Release of Chattel Mortgage (movables).
- Return of Original Collateral – owner’s duplicate TCT/ CCT, OR/CR, share certificates, or other pledged property.
- Accounting Statement showing ₱0.00 outstanding balance.
- Notice to Credit Information Corporation (CIC) and private bureaus (TransUnion, CRIF, etc.) reporting the loan as closed/ fully paid—required within 30 days under Sec. 9, RA 9510.
4. Step-by-Step Procedures to Perfect Closure
A. Real-Estate Mortgage (REM)
| Step | What to Do | Where | Typical Cost* |
|---|---|---|---|
| 1 | Secure CFP and Deed of Release (bank provides and notarises) | Lender branch/ head office | Usually free |
| 2 | Pay any real-property tax arrears (needed for cert. of no arrears) | LGU Treasurer | Varies |
| 3 | Present Deed + owner’s duplicate title + photocopies to Registry of Deeds (RD) where the property is located | RD | ₱ 20 entry fee + ₱ 50-₱ 150 annotation fee per page |
| 4 | Obtain certified true copy (CTC) of the title now bearing the notation “Mortgage cancelled per Doc. __, Page __, Book , Series of 20” | RD | ₱ 350-₱ 600 |
| 5 | Submit the CTC to the lender for records (some banks require it to close internal ledger) | Lender | – |
*Fees are fixed by DOF-LRA Schedule of Fees; check latest rates in your province/ city.
B. Chattel Mortgage (Vehicle, Equipment)
- Ask the lender for an Affidavit of Release of Chattel Mortgage (ARCM) + original Chattel Mortgage (CM) document.
- Register the ARCM with the Registry of Deeds that recorded the CM.
- If the collateral is a motor vehicle, present the ARCM to the Land Transportation Office (LTO) to remove the “ENCUMBRANCE” flag on the OR/CR.
- Get a new OR/CR with “encumbrance: none” and keep the LTO Certification of Mortgage Release.
C. Unsecured Loans / Credit Cards
- CFP and Account Closure Letter must be issued.
- Bank must send an “Account Closed” feed to CIC and private bureaus.
- Retain proof because stale card accounts sometimes reappear during bureau migration.
5. If the Lender Drags Its Feet
Formal Demand Letter
- Cite Arts. 1232 & 1168 Civil Code and BSP Circular 1048.
- Give a reasonable period (10-15 calendar days) to comply.
- Send via registered mail with return card or personal service with receipt stamp.
Regulatory Complaint (cheaper & faster than court)
| Lender Type | Where to File | Authority | Filing Mode |
|---|---|---|---|
| Bank, pawnshop, e-money issuer | Bangko Sentral ng Pilipinas Consumer Protection and Market Conduct Office | BSP Charter & RA 11765 | Online portal, e-mail, or walk-in |
| Financing/ Lending Company | Securities and Exchange Commission - Financing & Lending Division | RA 8556 / RA 9474 | Online complaint form |
| Microfinance NGO | Microfinance NGO Regulatory Council | RA 10693 | |
| Cooperatives | Cooperative Development Authority (CDA) | RA 9520 | CDA regional office |
| Pag-IBIG / GSIS / SSS | Their own grievance and legal affairs units | Charter laws | Walk-in/portal |
BSP and SEC processes are free, paperless, and normally conclude in 15-30 days with a directive to release the collateral.
- Court Action
| Remedy | Rule/ Article | Court | Notes |
|---|---|---|---|
| Specific Performance + Damages | Art. 1167, 1170, 1173; Rule 2 & 3 ROC | RTC (≥ ₱400k) / MTC (≤ ₱400k) | Ask for: (a) execution of release deed; (b) cancellation of lien; (c) moral & exemplary damages; (d) costs; (e) attorney’s fees. |
| Petition to Cancel Encumbrance | Sec. 108, PD 1529 | RTC acting as Land Registration Court | Often uncontested; court order is presented to RD in lieu of lender’s deed. |
| Quiet Title | Art. 476 Civil Code | RTC | Useful if lender is defunct or cannot be located. |
| Small Claims | A.M. 08-8-7-SC (≤ ₱1 M, no lawyer required) | MTC | Limited to money claims, but can still demand release as consequential relief. |
- Criminal Angle (rare, but strategic)
- Falsification (Art. 171 RPC) – if the lender inserts a false unpaid balance.
- Estafa (Art. 315 par. 2-a) – if title/ORCR is kept and fraudulently pledged again.
- Violation of RA 11765 – administrative fines up to ₱ 2 million per offense plus daily penalties.
6. Prescription & Deadlines
| Cause of Action | Prescriptive Period | Counting From |
|---|---|---|
| Enforce written loan contract | 10 years (Art. 1144 (1)) | Date of full payment or lender’s refusal, whichever is later |
| Action to quiet title | Imprescriptible if owner in possession | N/A |
| Administrative complaint to BSP/SEC | None stated; file within a “reasonable time” (BSP says 2 years is presumptively reasonable) | Date of last follow-up/demand |
7. Key Supreme Court Decisions (abridged)
| Case | G.R. No. / Date | Holding |
|---|---|---|
| Spouses Abalos v. Philippine National Bank | 158989, Feb 26 2003 | Bank that delays release of title after payment is liable for damages; payment extinguishes mortgage by operation of law. |
| BPI Family Savings Bank v. Yu | 175490, Jun 20 2012 | Lender may be compelled by specific performance to sign a deed of release; refusal is actionable under Art. 1167. |
| Land Bank v. CA & Santos | 118262, Jan 10 2002 | Register of Deeds must cancel mortgage upon court order even if lender appeals; cancellation is ministerial once release is proven. |
| DBP v. Luzon Surety | L-18169, Feb 28 1963 | Once debt is paid, mortgage exists only as a “cloud” that equity may remove. |
8. Practical Checklist for Borrowers
- Collect and keep every official receipt—scan and back up.
- Request a running statement before the last payment; settle minor charges (e.g., courier fees) to avoid “₱0.03” leftovers.
- Pay in traceable form (manager’s check or fund transfer) and tag “FINAL PAYMENT.”
- Ask for the CFP and release deed immediately; do not leave the branch without a release schedule in writing.
- Diary the 30-day statutory deadline; follow up on Day 20.
- Once the lien is cancelled, secure certified copies and update your estate file—clean titles speed up future sales and refinancing.
- Check your credit report (CIC, CIBI, CRIF) after 60 days; dispute if the account still shows “open” or “charged-off.”
9. Best Practices for Lenders (to avoid liability)
- Automate “release packets” triggered by loan-management-system zeroing-out.
- Assign a Release Officer and post the standard process on premises and website (ARTA compliance).
- File a Board Resolution authorising any senior officer to sign releases—prevents corporate bottlenecks.
- For defunct or merged banks, the receiver (PDIC) or surviving entity should publish contact points for lien release requests.
10. Conclusion
In Philippine law, payment ipso facto kills the loan. What remains—an unreleased mortgage or encumbrance—is merely an administrative trace the creditor is duty-bound to erase. The borrower’s toolkit ranges from a simple demand letter to a full-blown civil action, but the path of least resistance is almost always a well-documented regulatory complaint. Keep receipts, know the 30-day rule, and escalate promptly; doing so turns “fully paid” into “fully free” of any lingering legal shackle.
This article is for educational purposes only and does not constitute formal legal advice. Consult a Philippine lawyer for advice specific to your situation.