Question & AnswerQ&A (CIRCULAR NO. 306, S. 2002)
Properties acquired in settlement of loans through foreclosure or dation in payment shall be recorded at the balance of the loan (principal plus booked accrued interest receivable for time loans, or principal less unamortized income for bills discounted) or bid/purchase price, whichever is lower.
Yes, non-refundable capital gains tax and documentary stamp tax paid in connection with foreclosure/purchase may be included in the book value of the acquired real estate, provided that the total book value does not exceed the appraised value of the acquired real estate.
An independent appraisal acceptable to the Bangko Sentral ng Pilipinas must be conducted if the amount to be booked as Real and Other Properties Owned or Acquired (ROPOA) exceeds P5 million.
An allowance for probable losses equivalent to the excess of the amount booked over the appraised value shall be set up.
Claims arising from deficiency judgments rendered in connection with foreclosure are lodged under the real account 'Deficiency Judgment Receivable.' Probable claims against the borrower-debtor are lodged under the contingent account 'Deficiency Claims Receivable.'
Banks/NBQBs accepting non-cash payments for interest must defer income recognition until the property is sold. The 'Real and Other Properties Owned or Acquired' account is debited for the non-cash payment, accrued interest already booked is reversed, and 'Other Deferred Credits' may be credited for interest not yet accrued.
An in-house appraisal of such property shall be made at least every other year, with immediate reappraisal conducted on ROPOAs which materially decline in value.
Foreclosure expenses and other charges are debited to the 'Litigation/Assets Acquired Expenses' account.
Any excess of the loan balance over the amount booked or bid price shall be debited to a 'Miscellaneous Income/Loss' account.
ROPOA represents real and other properties, other than those used for banking purposes or held in the investment portfolio, acquired by the bank in settlement of loans through foreclosure or dation in payment or for other reasons.