Assumption of Mortgage in the Philippines: A Comprehensive Legal Guide

1. What Is an “Assumption of Mortgage”?

An assumption of mortgage occurs when a third person—typically the buyer of mortgaged real property—agrees to take over the outstanding loan obligations secured by that mortgage. It is fundamentally a species of novation by substitution of debtor under Article 1291 (1) of the Civil Code, but its enforceability depends on whether (a) the mortgagee-creditor gives express consent (resulting in a perfect novation that releases the original debtor) or (b) merely acquiesces or is simply notified (in which case the original debtor remains solidarily liable).

2. Core Statutory Foundations

Provision	Key Points
Civil Code, Arts. 1291-1304	General rules on novation, consent, extinction, and substitution of debtors
Civil Code, Arts. 1625-1635	Assignment of credit; distinction from assumption (assignment ≠ transfer of debtor’s liability)
Act No. 3135 (as amended)	Extrajudicial foreclosure; the assuming debtor becomes the “mortgagor” for foreclosure purposes once the assumption is perfected
Presidential Decree No. 1529 (Property Registration Decree)	Registration and annotation requirements on Torrens titles
National Internal Revenue Code, Sec. 196	Documentary Stamp Tax (DST) on “conveyances of real property” including deeds of assumption
BSP‐MORB (for banks)	Bangko Sentral rules on transfer of real‐estate collateral and assumption of bank loans

Special statutes (e.g., Pag-IBIG Fund circulars) supplement these rules for government housing loans.

3. Parties and Their Legal Relationships

Original Debtor/Mortgagor – the borrower of record; liable until a consenting novation is perfected.
Assuming Debtor – the party who undertakes to pay; can be a buyer, heir, corporate affiliate, or even a guarantor elevated to debtor status.
Mortgagee-Creditor – usually a bank or Pag-IBIG; its written consent determines whether the substitution is absolute.
Registrar of Deeds (RD) – registers the deed and annotates the assumption on both the mortgage and the title.
BIR/LGU – collect taxes and fees incident to the conveyance.

4. Forms of Assumption in Practice

Form	Instrument Title	Usual Context
Deed of Absolute Sale with Assumption of Mortgage	One document combining sale and assumption; common in secondary market sales of subdivision houses
Deed of Assignment and Assumption of Mortgage	Used when only the mortgage liability (not the land) is transferred, e.g., intra-corporate restructuring
Novation Agreement / Transfer and Assumption	Standard template of major banks; always requires bank signature
Spousal or Heir’s Assumption	Incorporated in an Extrajudicial Settlement or Partition instrument

5. Essential Clauses of the Deed

Recitals – describe the original loan, date, amount, and mortgage details (Doc. No., Page, Book, Series; RD location).
Assumption Undertaking – “The Assuming Debtor hereby binds himself solidarily/jointly…”
Consent Clause – acknowledgment by the creditor bank (“conforme”) if novation is intended.
Release Clause – explicit discharge of original debtor (optional, but critical).
Taxes and Expenses – allocation of DST, transfer taxes, RD fees.
Representations & Warranties – no default, no prior liens, truthful statements.
Default & Remedies – cross-default provisions, foreclosure waiver notices.
Notarial Acknowledgment – must follow the 2020 Rules on Notarial Practice.

6. Documentary Requirements Checklist

Stage	Document	Common Tips
Before signing	• Loan Statement of Account • Certified copy of Mortgage & Title	Ascertain exact outstanding balance and arrears
Execution	• Deed of Assumption (original + 3 copies) • Bank’s Conforme Page	Use legal-size paper; sign every page
Taxes	• BIR Form 2000-OT (DST) • BIR CAR (for title transfer, if sale) • LGU Tax Clearance	DST base = total agreed consideration + assumed loan balance; file within 5 days
Registration	• RD Entry Sheet • Original Owner’s Duplicate Title	Pay RD entry, annotation, and registration fees
Post-registration	• Updated Tax Decs • Updated Statement from Bank	Ensure new debtor’s name appears in bank’s amortization schedule

7. Effect of Creditor Consent

Scenario	Legal Consequence
Express Written Consent (Bank signs the deed)	Perfect novation: original debtor is released; creditor can sue only the new debtor (Spouses Abundo v. PNB, G.R. 121097, April 12 2000)
Implied or No Consent	Original debtor remains solidarily liable (Art. 1293); creditor may sue both. The assuming debtor is liable only to the original debtor unless creditor later ratifies.
Refusal of Consent	No novation; sale may still proceed, but buyer effectively takes the property subject to the mortgage without personal liability, and bank may still foreclose.

8. Tax Treatment

Documentary Stamp Tax (DST) Rate: ₱15.00 for every ₱1,000 of the higher between (a) consideration plus assumed mortgage or (b) fair market value (FMV). Basis: BIR Zonal Value or LGU FMV; include outstanding interest capitalized into principal.
Capital Gains Tax (CGT) / Creditable Withholding Tax (CWT) CGT (6 %) applies if the mortgaged property is a capital asset; CWT if an ordinary asset. Computed on: Selling price + assumed loan balance.
Local Transfer Tax LGU-set rate (0.5 %–0.75 %), likewise computed on the higher of consideration or FMV.
VAT Rarely implicated unless seller is habitually engaged in real-estate business and property is an ordinary asset.

9. Procedural Road-Map

Due Diligence – verify title, loan status, arrears, foreclosure notices; obtain bank clearance.
Draft and Negotiate Deed – include consent page for bank; fix tax allocation.
Secure Bank Approval – submit buyer’s credit documents; bank issues Conforme or a new Loan Agreement.
Execute and Notarize – all parties sign before a notary within the territorial jurisdiction of the property or any place of execution allowed by notarial rules.
Pay Taxes – DST first (BIR), then CGT/CWT, then Transfer Tax (LGU).
Register with RD – within 30 days of notarization to avoid penalties (Sec. 56, PD 1529).
Secure New Bank Records – bank updates its loan ledger and issues new amortization schedule.
Update Tax Declarations – present new title and CAR to Assessor’s Office.

10. Foreclosure and Default Scenarios

If default occurs after consented assumption The bank proceeds against the new debtor only; foreclosure will cite the assuming debtor as the mortgagor.
If default occurs without consent Both old and new debtors are sued; original debtor can seek reimbursement under Art. 1236.
Redemption Rights After extrajudicial foreclosure under Act No. 3135, the assuming debtor enjoys the same one-year redemption window (if property is not covered by a bank’s special rules shortening the period).

11. Special Contexts & Variations

Pag-IBIG Housing Loans – require a Loan Take-Out Check and an Assignment of CTS (Contract to Sell) rather than a traditional mortgage at the pre-title stage.
Condominium Units – Condominium Corporation must issue a Certificate of No Arrears; assumption must be annotated on the Condominium Certificate of Title (CCT).
Corporate Transfers – Board resolution and Secretary’s Certificate are prerequisite exhibits; SEC approval needed if it involves a quasi-reorganization (SEC Memorandum Circular 17-2019).
Spouses & Property Regimes – If property is conjugal/community, consent of both spouses is mandatory under Art. 124 of the Family Code; lack thereof renders the deed void.

12. Jurisprudence Snapshot

Case	G.R. No.	Ratio Decidendi
Spouses Abundo v. PNB	121097 (2000)	Bank’s written consent released the original debtor; foreclosure limited to new debtor
Monte de Piedad v. Court of Appeals	114636 (1997)	Bank’s silence ≠ consent; original debtor still liable
Rural Bank of Davao City v. CA	110454 (1995)	Annotation of assumption on title is indispensable as notice to the world
F.F. Cruz & Co. v. HRB	77630 (1990)	Assumption price + loan balance form the “selling price” for tax purposes

13. Common Risks and Mitigation

Risk	Mitigation
Undisclosed arrears or penalties	Require bank updated statement and demand letter clearance
Hidden junior liens	Perform RD certified title search up to date of registration
Failure to register within 30 days	Stiff RD surcharges; diarize deadlines
Non-release of original debtor despite consent	Insist on a bank-signed Deed of Release or bank’s own Novation Agreement
Due-on-Sale Clauses	Review original loan terms; some banks call the loan due if property is sold without written permission

14. Practical Drafting Tips

Use clear party designations: “Original Borrower,” “Assuming Borrower,” “Mortgagee Bank.”
Insert a condition precedent: “This Deed shall take effect only upon written conforme of the Mortgagee.”
Provide for automatic return of collateral documents to the new debtor upon full payment.
Add an arbitration clause if desired, but ensure it does not conflict with bank’s forum selection provisions.
Notary page must reflect Competent Evidence of Identity and Notarial ID numbers to avoid later nullity.

15. Sample Outline of a Deed of Sale with Assumption of Mortgage

Title & Introductory Paragraph
Recitals (A-E)
Sale Clause
Assumption Clause
Consent/Conforme Clause
Release of Original Debtor
Taxes & Expenses
Representations & Warranties
Default & Acceleration
Miscellaneous (Separability, Governing Law, Notices)
Signature Blocks
Notarial Acknowledgment

16. Conclusion

While the concept of assumption of mortgage seems straightforward—simply “taking over” someone else’s housing loan—its legal anatomy is complex. One must reconcile civil-law novation rules, banking regulations, registration statutes, and tax laws. The transaction is safe only when (1) creditor consent is unequivocal and in writing, (2) all taxes are paid, (3) the deed is promptly registered, and (4) parties fully grasp their continuing liabilities. Given the stakes—including possible foreclosure and personal judgments—professional legal and tax advice is indispensable before signing.

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. Consult a qualified Philippine lawyer for advice tailored to your specific situation.