In the Philippine real estate market, a common but legally precarious practice is the "unofficial sale" of properties under mortgage with the Home Development Mutual Fund (Pag-IBIG). This often occurs through a "Deed of Sale with Assumption of Mortgage" or a "Contract to Sell" without the prior written consent of Pag-IBIG.

When the new "owner" (the buyer) fails to keep up with the monthly amortizations, the original borrower (the seller) remains legally tethered to a debt that is spiraling into delinquency. This situation creates a complex web of legal liabilities and limited remedies.

1. The Legal Reality: The "Pactum de Non Alienando" Clause

Almost all Pag-IBIG housing loan contracts contain a provision prohibiting the sale, transfer, or encumbrance of the mortgaged property without the express written consent of the Fund.

Non-Binding on Pag-IBIG: An unofficial sale is perfectly valid between the buyer and the seller, but it is not binding on Pag-IBIG.
The Registered Owner Rule: As far as Pag-IBIG is concerned, the original borrower is still the debtor. The Fund does not recognize the buyer as the new owner until a formal "Substitution of Borrower" process is completed.

2. Consequences of Non-Payment

When the buyer stops paying, Pag-IBIG will direct its collection efforts against the original borrower. If the delinquency exceeds three months, the following actions typically occur:

Account Foreclosure: Pag-IBIG initiates extrajudicial foreclosure proceedings under Act No. 3135. The property is sold at public auction to satisfy the debt.
Credit Rating Damage: The original borrower’s credit record is tarnished, making it difficult to secure future loans or credit cards.
Loss of Equity: Any payments previously made by the buyer or the seller are forfeited if the property is not redeemed within the one-year redemption period.

3. Legal Remedies for the Seller (Original Borrower)

If you are the seller and your buyer has defaulted, your remedies are primarily directed against the buyer, not Pag-IBIG.

A. Rescission of Contract (Art. 1191, Civil Code)

Since the buyer breached the terms of your private agreement (to assume the mortgage payments), you have the right to rescind the contract.

Effect: The parties are returned to their original status. You take back the property, and the buyer vacates.
Mutual Restitution: Generally, you must return what the buyer paid, minus reasonable "rent" for the period they occupied the property and any damages incurred.

B. Collection of Sum of Money with Damages

If the property has already been foreclosed and you were forced to pay the deficiency, or if you simply want the money owed, you can sue the buyer for the unpaid amortizations plus interests and liquidated damages as stipulated in your private deed of sale.

C. Writ of Repossession/Ejectment

If the buyer refuses to leave the property after the contract is rescinded, you must file an Unlawful Detainer or Forcible Entry case in court to legally evict them. You cannot take the law into your own hands by physically forcing them out.

4. Legal Remedies for the Buyer (Innocent Purchaser)

If you are the buyer and you discovered the seller is not remitting your payments to Pag-IBIG, or if you want to save the property from foreclosure:

A. Formal Assumption of Mortgage

The best remedy is to approach Pag-IBIG and apply for a Substitution of Borrower.

Requirements: You must meet Pag-IBIG’s eligibility criteria, pay a transfer fee, and settle any arrears.
Outcome: The loan is transferred to your name, and you become the official owner/debtor.

B. Redemption

If the property has already been foreclosed, the buyer (acting as a successor-in-interest) can exercise the Right of Redemption within one year from the registration of the Certificate of Sale. This requires paying the full auction price plus interest and taxes.

C. Criminal Action (Estafa)

If the seller sold the property representing it as "cleared" or pocketed the buyer’s payments intended for Pag-IBIG, the buyer may file a criminal complaint for Estafa (Article 315 of the Revised Penal Code).

5. Preventive Measures and Best Practices

To avoid these legal entanglements, parties should adhere to the following:

Written Consent: Never proceed with an "Assumption of Mortgage" without the written approval of Pag-IBIG.
Escrow or Direct Payment: Buyers should never give amortization money to the seller. Payments should be made directly to Pag-IBIG using the original borrower's account number until the transfer is official.
Notarization and Documentation: Ensure all private agreements are notarized, though keep in mind this does not override Pag-IBIG’s primary lien.
Due Diligence: Check the Statement of Account (SOA) from Pag-IBIG frequently to ensure payments are updated.

Summary of Liability

In the eyes of the law, the Seller remains the debtor to the Bank, while the Buyer is a debtor to the Seller. The "unofficial" nature of the sale means the parties must settle their disputes in civil court, while Pag-IBIG proceeds with foreclosure regardless of who is currently living in the house.