Validity of the “Sale” and Risks When the Original Owner Still Has an Unpaid Balance

1) The typical situation this topic covers

You are buying real property (land, house-and-lot, condo, or rights in a subdivision/condo project) from someone who is also a buyer—they are still paying the original owner/developer on installment. In practice, this is called any of the following:

Pasalo (assumption/transfer of an installment purchase)
Sale/assignment of rights (you buy the buyer’s rights, not necessarily the property itself yet)
Assumption of mortgage/assumption of balance (you take over the remaining obligation)

The core legal question is always the same:

What exactly does the installment buyer own at the time they “sell” to you—and what can they legally transfer?

2) Key Philippine-law concepts that control the answer

A. Sale is consensual, but land transfers are documentation-heavy

Under Philippine civil law, a contract of sale is generally perfected by mere consent on the object and price. However:

Contracts involving sale of real property must generally be in writing to be enforceable under the Statute of Frauds when executory (i.e., when important obligations are still to be performed).
Even when valid between the parties, registration and proper documentation are crucial to protect against third parties and competing claims.
A public instrument (notarized deed) is important for real property transactions and for registrability.

B. “Nemo dat” principle: you can’t sell what you don’t own (but you can sell your rights)

A person cannot transfer ownership of a property they do not own—but they can transfer whatever rights they actually have (e.g., contractual rights under a contract to sell, rights as buyer in a subdivision project, possessory rights, etc.).

So the deal may be valid as a sale/assignment of rights even if it is not yet a valid transfer of ownership.

C. The difference between “Contract to Sell” and “Deed of Absolute Sale” changes everything

This is the most important practical divider:

Contract to Sell (CTS)
- Common in installment deals, especially developer sales.
- Ownership is typically reserved by the seller until full payment.
- The buyer has no ownership yet, only contractual rights and often the right to possess/use.
- If the buyer defaults, the seller may cancel under the contract and applicable law (including RA 6552 in many cases).
Deed of Absolute Sale (DOAS) (with unpaid balance secured by mortgage, vendor’s lien, or other security)
- Ownership may already be deemed transferred (subject to registration and other requirements), but the seller remains protected by security rights.
- If there’s a mortgage or other encumbrance, a subsequent buyer faces the risk of foreclosure or enforcement if the debt is not paid.

In many “installment” situations, what the buyer really has is a CTS, not a DOAS—meaning they do not own the property yet.

3) What you are really buying: property vs. rights (and why wording matters)

Scenario 1: The installment buyer has only a Contract to Sell (common “pasalo”)

What they can transfer: usually only their buyer’s rights (and possibly possession), not ownership. Your transaction with them is typically valid as an “assignment of rights,” but not as a completed sale of the property itself—because the seller still owns the property.

Legal consequence:

If the original owner/developer cancels the contract due to non-payment or violation, your “purchase” can collapse unless the owner recognizes and accepts you as the substituted buyer.

Practical truth:

Without the original owner’s consent/recognition (or a clear contractual right to assign), you are exposed.

Scenario 2: The installment buyer already has a Deed of Sale, but title is not yet transferred and/or the property is encumbered

What they can transfer: potentially ownership (or at least the right to obtain registration), but subject to encumbrances (e.g., mortgage, unpaid price, annotated liens, adverse claims).

Your risk is mainly encumbrance enforcement:

Foreclosure if there is a mortgage and payments fail
Seller’s remedies if the price remains unpaid and the seller has security or rescission rights
Competing claims if documents are messy and registration is not done properly

Scenario 3: The property is still titled in the original owner and the buyer’s “sale” to you is framed as a Deed of Absolute Sale

This is a red-flag structure. If the “seller” (the installment buyer) does not yet own the property, a DOAS that pretends they do is legally and practically dangerous. What they can actually deliver may only be rights—not ownership—unless a proper tripartite arrangement is executed and the owner later transfers title.

4) The unpaid balance problem: why it is the biggest risk

When the original owner (or developer) is still owed money, the risk is not merely financial; it is title risk.

Main risks to the second buyer (you)

Cancellation / forfeiture / loss of rights (Contract to Sell situations)
- If the original seller cancels the CTS due to default, the installment buyer’s rights can be extinguished.
- If your claim depends on those rights, your claim can fall with it—especially if the seller never recognized you.
Foreclosure (if there is a mortgage)
- If the property is mortgaged (bank financing or seller financing with mortgage), non-payment can lead to foreclosure.
- Buying without settling/assuming the loan properly exposes you to losing the property even if you paid the installment buyer.
You pay the installment buyer, but the owner is not paid
- This is the classic “double-payment trap”: you give money to the installment buyer, but the real party with control over transfer (the owner/developer or mortgagee bank) remains unpaid and can enforce rights against the property.
No clean title transfer
- Even if you occupy the property, you may be unable to register the transaction or obtain a new title if the owner will not execute the final deed.
Competing transfers / double sale dynamics
- In property disputes, registration and good faith matter heavily. A later buyer who registers properly (or a buyer dealing directly with the titled owner) may defeat an earlier unregistered buyer, depending on the facts and the governing rules on priority and good faith.
Developer restrictions and consent requirements
- Many developer CTS/agreements contain anti-assignment clauses, transfer fees, documentary requirements, and mandatory approval processes.
- A “pasalo” done outside that process can be treated as ineffective against the developer.

5) The Maceda Law (RA 6552) and why it matters in installment transfers

The Realty Installment Buyer Protection Act (RA 6552) often applies to installment purchases of real estate (commonly residential) and provides the buyer certain protections—especially on cancellation and refund depending on how long payments have been made.

Why it matters in a “pasalo”:

If the original buyer has already built up rights (e.g., paid installments over time), cancellation may require compliance with statutory notice and may trigger refund obligations, depending on the situation.
But your protection depends on your legal status: if you are not properly substituted/recognized as buyer, enforcing those protections becomes harder in practice.

Also note: subdivision/condo sales can involve overlapping protections (and compliance regimes) depending on the project and the governing contracts.

6) Validity checklist: when the second buyer’s acquisition is legally “solid”

A purchase from an installment buyer becomes far more secure if the transaction is structured so that the party who controls title transfer and cancellation risk (the original owner/developer and/or mortgagee bank) is part of the arrangement.

The strongest structures are:

A. Tripartite agreement (preferred)

A written agreement among:

Original owner/developer (or bank/mortgagee when relevant)
Installment buyer (assignor)
New buyer (assignee)

It typically covers:

Consent to assignment/substitution
Exact remaining balance and payment schedule
Treatment of past payments
Turnover/possession
Issuance of final deed and transfer of title upon full payment
Allocation of taxes/fees and transfer costs
Waivers and releases (with safeguards)

B. Recognized substitution / official transfer process (developer “assumption”)

For developer accounts, use the developer’s formal process:

Account transfer request
Updated contracts in your name
Issuance of statements of account
Payment of transfer fees, if any
Clear deliverables for deed and title transfer

C. Direct-to-owner payment controls

If you must pay consideration to the installment buyer (e.g., for their equity), risk drops significantly when:

Remaining balance is paid directly to the owner/developer/bank
Equity portion is paid through escrow or conditional release tied to owner recognition and document completion
You obtain official receipts, updated statements, and written acknowledgments

7) Due diligence: what to verify before paying anything significant

A. Verify the status of ownership and title

Is there an existing Transfer Certificate of Title (TCT) / Condominium Certificate of Title (CCT)?
Whose name is on the title now? (Original owner? Developer? Installment buyer?)
Are there annotations: mortgage, adverse claim, lis pendens, liens, restrictions?

A buyer should not rely only on photocopies or verbal assurances. Title status drives legal risk.

B. Verify the installment buyer’s contract and compliance

Obtain the complete contract (CTS/DOAS/loan documents) and all annexes
Confirm payment history via:
- Official receipts
- Statement of account issued by the owner/developer/bank
- Written confirmation of balance and standing (current vs delinquent)
Confirm there are no pending notices of cancellation, default letters, or disputes

C. Verify transferability

Does the contract allow assignment?
Does it require prior written consent?
Are there transfer fees, documentary requirements, or blacklisted accounts?

D. Verify taxes and local compliance

Real property tax (RPT) status
Association dues (condo/HOA), utilities arrears
Building/occupancy issues if house improvements exist

8) Documentation you typically need (and what each one accomplishes)

Deed of Assignment of Rights (from installment buyer to you)
- Transfers the buyer’s contractual rights (and sometimes possession).
- Must clearly state it is an assignment of rights, not necessarily ownership, unless ownership is actually transferable.
Owner/Developer Consent to Assignment (or a tripartite agreement)
- This is the document that reduces the “cancellation wipes you out” risk.
- It should confirm you are recognized as the buyer going forward.
Acknowledgment of Remaining Balance and Payment Mechanics
- Amount, due dates, where to pay, consequences of default, and how official receipts will be issued.
Possession/Turnover Agreement (if you will occupy immediately)
- Protects against disputes on occupancy, improvements, rentals, and responsibility for dues/taxes.
Escrow or Conditional Payment Arrangement (highly recommended when equity is large)
- Releases funds only when required documents are completed and verified.
Final Deed and Title Transfer Plan
- Conditions for the final deed (e.g., full payment)
- Who pays capital gains tax/withholding tax (as applicable), documentary stamp tax, transfer tax, registration fees
- Timeline and responsibilities for registration and issuance of title

9) Common “pasalo” pitfalls (Philippine reality checklist)

Only a private “kasulatan” with the installment buyer

Valid between you two, but weak against the original owner/developer and third parties.

You pay “equity” up front, but the account is already in default

The original seller cancels; you fight the installment buyer for a refund while losing the property.

Fake or incomplete receipts

Always validate with the owner/developer/bank.

Anti-assignment clause ignored

Transfer may be rejected; you may be treated as a mere occupant without enforceable buyer status.

Title has a mortgage annotation

You “buy” but do not actually settle/assume the loan; foreclosure risk remains.

Multiple “pasalo” layers

Rights become messy; verifying who has a valid claim becomes harder.

10) Risk allocation: who should pay what (and why it matters legally)

A clean structure typically separates:

Equity payment (paid to installment buyer for what they already put in / value of possession/improvements)
Remaining balance (paid to owner/developer/bank)

If you pay the remaining balance to the installment buyer instead of the creditor/owner, you create avoidable exposure. The safest principle is:

Pay the party who can issue the official receipt and control title transfer.

11) Practical standards for a “safe” transaction (best practices)

A cautious Philippine-market standard for safer “pasalo” deals looks like this:

Confirm title/encumbrances and contract type (CTS vs DOAS)
Obtain written owner/developer/bank confirmation of the account standing and balance
Execute notarized assignment and obtain written consent/substitution
Pay the remaining balance directly to the owner/developer/bank
Use escrow/conditional release for equity money
Document possession and responsibility for taxes/dues
Plan the final deed and registration steps with specific deliverables

12) Bottom-line legal framing

Buying from an installment buyer is not automatically invalid in the Philippines, but the “validity” depends on what is being transferred:

If the installment buyer does not yet own the property (common under a Contract to Sell), then what you can safely buy is rights, not ownership—unless the original owner/developer formally recognizes the transfer and later conveys title.
The single biggest risk driver is the unpaid owner balance: it can trigger cancellation, enforcement, or foreclosure that can defeat your position if you are not properly substituted and protected through documentation, consent, and direct-to-owner payment controls.