Introduction

In the Philippine legal system, the assumption of a mortgage is a common practice in real estate transactions where a buyer takes over the existing mortgage obligations of the seller. This arrangement allows the buyer to acquire property without securing a new loan, while the seller is relieved of the debt. However, complications arise when the buyer, after assuming the mortgage, refuses to make payments, particularly in scenarios involving redemption rights. Redemption typically refers to the mortgagor's right to reclaim the property after foreclosure by paying the outstanding debt within a specified period.

This article explores the concept of mortgage assumption under Philippine law, the rights of the parties involved (mortgagee, mortgagor-seller, and assuming buyer), and the remedies available when the buyer defaults on payments post-redemption. The discussion is grounded in the Civil Code of the Philippines (Republic Act No. 386), relevant jurisprudence from the Supreme Court, and ancillary laws such as Act No. 3135 (governing extrajudicial foreclosure of real estate mortgages) and Republic Act No. 8791 (General Banking Law). It covers procedural aspects, legal implications, and practical considerations for enforcement.

Legal Framework for Assumption of Mortgage

Definition and Nature

An assumption of mortgage occurs when a buyer agrees to take over the seller's mortgage debt, making the buyer primarily liable to the mortgagee (lender). This is distinct from a mere "subject to" mortgage, where the buyer acquires the property but the seller remains primarily liable. In an assumption, the buyer steps into the shoes of the original mortgagor.

Under Article 1291 of the Civil Code, obligations may be modified by substituting the debtor, but this requires the creditor's consent for novation to occur (Article 1293). Without the mortgagee's express approval, the assumption does not release the original mortgagor from liability; it merely creates a delegated obligation where the buyer becomes a co-debtor or surety.

In practice, banks and financial institutions in the Philippines often require formal approval for mortgage assumptions to ensure the buyer's creditworthiness. This is typically documented through a Deed of Assumption of Mortgage, which must be notarized and registered with the Registry of Deeds to bind third parties (Article 2125, Civil Code, on mortgage publicity).

Requirements for Valid Assumption

Consent of Parties: The seller (original mortgagor), buyer (assumptor), and mortgagee must agree. The mortgagee's consent is crucial to avoid subsidiary liability for the original debtor.
Documentation: A written agreement, often integrated into the Deed of Sale with Assumption of Mortgage. This document should specify the outstanding balance, interest rates, payment terms, and any adjustments.
Registration: To constitute a real right over the immovable property, the mortgage and its assumption must be recorded in the Registry of Deeds (Article 2125, Civil Code). Failure to register may render the assumption ineffective against third parties.
Compliance with Banking Regulations: If the mortgagee is a bank, the assumption must adhere to Bangko Sentral ng Pilipinas (BSP) guidelines, including anti-money laundering checks and credit evaluations.

Relation to Redemption

Redemption in the context of mortgages refers to the right to repurchase the foreclosed property. Under Act No. 3135, as amended, for extrajudicial foreclosures:

Juridical persons have no right of redemption.
Natural persons have a one-year redemption period from the registration of the sale certificate.

If the mortgage is foreclosed due to default (by either the original mortgagor or the assumptor), the redemption right belongs to the mortgagor or their successors-in-interest. In an assumption scenario, if the buyer assumes and defaults, the original seller may retain redemption rights unless fully released.

Post-redemption, the redeemed property reverts to the redeemer, but any assumed obligations may persist or shift. The critical issue arises when the buyer, having assumed the mortgage, refuses to pay after a redemption event—e.g., if the seller redeems to protect their interest, and the buyer then balks at reimbursing or continuing payments.

Rights of the Parties

Rights of the Mortgagee (Lender)

Enforcement of Payment: The mortgagee can demand payment from either the original mortgagor or the assumptor if novation is incomplete. Upon default, the mortgagee may foreclose the property judicially (under Rule 68, Rules of Court) or extrajudicially (Act No. 3135).
Post-Redemption Rights: After redemption, the mortgagee retains the right to recover any deficiency if the foreclosure sale did not cover the full debt (Article 2131, Civil Code). If the buyer refuses to pay, the mortgagee can pursue collection actions against the assumptor.
Subrogation: If the mortgagee consents to the assumption, they may subrogate the buyer in all rights and obligations.

Rights of the Original Mortgagor (Seller)

Release from Liability: With mortgagee consent, the seller is fully released. Without it, the seller remains subsidiarily liable and can seek reimbursement from the buyer under principles of unjust enrichment (Article 2154, Civil Code) or indemnity.
Redemption Rights: The seller can redeem the property within the one-year period if they are a natural person. Post-redemption, if the buyer refuses to pay, the seller can treat the assumption as breached and reclaim possession or seek damages.
Right to Reimbursement: If the seller redeems to prevent loss, they can demand repayment from the buyer, including interest and costs, as a subrogated creditor (Article 1303, Civil Code).

Rights of the Assuming Buyer

Ownership Subject to Mortgage: The buyer acquires equitable title but must fulfill the assumed obligations to gain full ownership.
Defenses: The buyer can raise defenses like payment, prescription (10 years for written contracts under Article 1144, Civil Code), or force majeure.
Post-Redemption: If the seller redeems, the buyer may lose possession but retains rights to contest if they contributed to payments. However, refusal to pay post-redemption exposes them to eviction or damages claims.

Remedies When Buyer Refuses to Pay After Redemption

When the buyer assumes the mortgage but refuses to pay after a redemption (e.g., seller redeems post-foreclosure due to buyer's default), several remedies are available. The choice depends on whether novation occurred and the parties' agreements.

1. Action for Reimbursement and Indemnity (Seller vs. Buyer)

If the seller redeems, they can file a civil action for sum of money to recover the redemption amount, plus interest (legal rate of 6% per annum under BSP Circular No. 799, Series of 2013) and expenses.
Basis: Subrogation (Article 1303) or quasi-contract (Article 2154). Prescription: 10 years from redemption date.
Jurisdiction: Regional Trial Court (RTC) if amount exceeds P400,000 (outside Metro Manila) or P500,000 (Metro Manila); otherwise, Municipal Trial Court (MTC).

2. Foreclosure Proceedings (Mortgagee vs. Buyer/Seller)

If debt remains unpaid post-redemption, the mortgagee can re-foreclose. Redemption does not extinguish the mortgage; it merely restores the property (Supreme Court in Bank of the Philippine Islands v. CA, G.R. No. 142177, 2003).
Extrajudicial: Faster, under Act No. 3135; requires special power in mortgage contract.
Judicial: Under Rule 68, allows for deficiency judgment.

3. Ejectment or Unlawful Detainer (Seller vs. Buyer)

If the buyer refuses to pay and vacate post-redemption, the seller (now owner via redemption) can file for unlawful detainer (Rule 70, Rules of Court).
Grounds: Breach of assumption agreement implying possession conditional on payment.
MTC jurisdiction; summary procedure.

4. Damages and Specific Performance

Parties can sue for breach of contract (Article 1191, Civil Code) seeking specific performance (continued payments) or rescission with damages.
Actual, moral, exemplary damages if bad faith proven (Article 2200 et seq.).
In Heirs of Dela Cruz v. Lindo, G.R. No. 210299 (2016), the Court upheld damages for default in assumed mortgages.

5. Criminal Remedies

If refusal involves fraud (e.g., estafa under Article 315, Revised Penal Code), criminal charges may apply if deceit and damage are established.
Bouncing checks for payments could trigger B.P. 22 violations.
However, purely civil defaults are not criminalized to avoid imprisonment for debt (Article III, Section 20, 1987 Constitution).

6. Alternative Dispute Resolution

Parties may opt for mediation or arbitration if stipulated in the assumption deed, under Republic Act No. 9285 (Alternative Dispute Resolution Act).
BSP encourages amicable settlements for banking-related mortgages.

Practical Considerations and Jurisprudence

Risks and Precautions

Due Diligence: Buyers should verify mortgage status via Registry of Deeds annotations. Sellers should secure mortgagee release.
Escrow Arrangements: Use escrow for payments to ensure compliance.
Tax Implications: Assumption may trigger documentary stamp tax (Section 196, Tax Code) and capital gains tax for seller.

Key Supreme Court Rulings

Medida v. CA (G.R. No. 98334, 1993): Assumption without creditor consent does not novate; original debtor liable.
PNB v. CA (G.R. No. 108630, 1994): Redemption period strictly enforced; post-redemption defaults allow new actions.
Union Bank v. Spouses Dimayuga (G.R. No. 191464, 2010): Buyer assumptor's default entitles mortgagee to foreclose against both parties.
DBP v. Licuanan (G.R. No. 150922, 2007): Emphasizes registration for enforceability.

Limitations and Exceptions

Prescription: Actions on mortgage prescribe in 10 years (Article 1142).
Pacto de Retro Sales: Distinguished from mortgages; if disguised as sale with right to repurchase, different rules apply (Article 1602).
COVID-19 Moratoriums: Past BAYANIHAN Acts provided grace periods; check current regulations.

Conclusion

The assumption of mortgage in the Philippines facilitates property transfers but carries risks, especially when defaults occur post-redemption. Parties must ensure clear agreements and registrations to protect rights. When a buyer refuses to pay after redemption, remedies range from civil actions for reimbursement to foreclosure and ejectment, supported by a robust legal framework. Consulting a lawyer is essential to navigate specific circumstances, as outcomes depend on contractual terms and evidence. This mechanism balances creditor protection with debtor equity, reflecting the Civil Code's emphasis on pacta sunt servanda (agreements must be kept).