(Philippine legal context; general information, not legal advice.)

1) What people mean by “assuming a mortgage” (and why banks care)

In the Philippines, informal “assumption” arrangements are commonly called pasalo, “assume balance,” or “take over payments.” Typically:

The borrower/registered owner (Seller) has an existing housing loan secured by a real estate mortgage over the property.
A buyer (Buyer) agrees to (a) pay the Seller some amount (often “equity”), and (b) continue paying the loan monthly to the bank.
The Buyer and Seller sign a private agreement—sometimes notarized—without securing the bank’s written approval.

From the bank’s perspective, the loan is a credit decision based on the original borrower’s identity, capacity to pay, and risk profile. Changing who is “really” paying is not automatically recognized. Most loan and mortgage documents also contain transfer restrictions and default/acceleration clauses triggered by unauthorized sale/assignment.

2) The legal backbone: why creditor consent is central

A. Substitution of debtor generally requires creditor consent (novation)

Under the Civil Code’s rules on novation, replacing the debtor (the person obliged to pay) is not effective against the creditor without the creditor’s consent. In practical terms:

Even if Buyer promises to pay, the bank can still treat the Seller as the borrower.
The Seller often remains legally liable for the full loan until the bank formally approves a transfer/assumption.

B. The mortgage “follows the property”

A real estate mortgage is a lien that attaches to the property, and the property remains subject to the mortgage whoever possesses it. If the loan is not paid, the bank can foreclose, even if the property has been “sold” informally.

C. Contract vs. enforceability against third parties

A Buyer–Seller agreement may be valid between them, but it may be:

Not enforceable against the bank (a third party not bound by the private contract), and/or
Risky against other third parties (e.g., other buyers, attaching creditors) depending on registration and the state of the title.

3) The biggest risks—organized by who gets hurt

A) Risks to the Buyer (the one “assuming”)

1) Foreclosure risk even if you pay “faithfully”

Because the bank did not approve you as borrower:

The bank may treat unauthorized transfer as a breach of loan covenants.
The bank may accelerate the loan (declare the whole balance due) under the contract’s terms.
If the loan becomes past due or accelerated and unpaid, the bank may proceed with extrajudicial foreclosure (common for mortgages), and you can lose the property.

Even worse: you could be paying regularly but still have no direct contractual standing with the bank to negotiate remedies (restructuring, condonation, interest adjustments, payment holidays), because the bank’s client is still the Seller.

2) You may pay for years and still not get clean ownership

Common pasalo scenarios:

Title stays in the Seller’s name “until fully paid.”
The bank keeps the owner’s duplicate title and loan documents; release happens only after full payment.

If relations sour (Seller disappears, dies, or refuses to sign transfer documents later), you may end up with:

A paid or partly paid loan but no transfer,
The need for litigation (specific performance, estate settlement issues, etc.),
Exposure to Seller’s heirs/creditors.

3) If you’re not registered, you’re exposed to double sale and third-party claims

If the transaction is not properly documented and registered (and the title remains with the Seller):

The Seller might sell again to another buyer.
The property could be levied/attached for the Seller’s personal debts (because public records still show the Seller as owner).
A later buyer who acts in good faith and registers first can create a major legal mess.

4) Paying “through the Seller” creates practical and legal traps

Often the Buyer pays by:

Depositing into Seller’s bank account,
Giving cash and letting Seller pay,
Using Seller’s online banking access.

This creates evidence problems:

If Seller later claims “you didn’t pay me,” or “those were rentals,” you need strong proof that payments were for the loan and under the purchase agreement.
If the Seller stops forwarding payments, the loan becomes delinquent and you bear the consequences without being recognized by the bank.

5) Insurance, taxes, and association dues may not protect you

Property insurance tied to the loan may name the Seller/Bank as insured/mortgagee; claims can be complicated if the person in possession is different.
Real property taxes, HOA/condo dues, and utilities may remain in Seller’s name; arrears or disputes can block later transfer.

6) You may not be able to refinance or restructure

Without bank consent, you typically cannot:

Refinance in your own name,
Restructure terms,
Request official statements and bank certifications as the borrower,
Obtain bank-issued payoff figures addressed to you.

7) Risk of being treated as a “lessee” in practice

If your documents are weak, your possession may be characterized as:

A lease,
A conditional arrangement,
Or a loan/advance to Seller—depending on evidence.

That affects your remedies if Seller disputes your rights.

B) Risks to the Seller (the original borrower/owner)

1) You remain primarily liable to the bank

If the bank never consented, the Seller remains:

The borrower of record,
The person the bank can sue,
The person whose credit history is hit by delinquency.

If Buyer stops paying, the bank will go after you, not the Buyer.

2) You may face acceleration, default charges, and foreclosure reputational damage

Even if Buyer pays, unauthorized transfer may:

Trigger default/acceleration clauses,
Create the risk of foreclosure proceedings in your name,
Complicate your ability to borrow in the future.

3) Civil lawsuits from the Buyer

If the Seller later refuses to transfer title after Buyer has paid:

Buyer may sue for specific performance, damages, rescission, reimbursement, or other relief depending on the contract.
If the Seller sells to another person, the Seller could face multiple claims.

4) Estate complications if Seller dies or becomes incapacitated

If the Seller dies before transfer:

The property becomes part of the estate.
Buyer must deal with heirs, estate settlement, possible disputes, and delays—sometimes years.

C) Risks to both (transaction-wide risks)

1) The bank’s remedies are usually stronger than the parties’ private deal

Mortgage contracts are typically drafted to give the bank broad remedies:

Acceleration,
Collection,
Foreclosure,
Application of payments,
Control of title release.

Your private agreement doesn’t bind the bank unless it has written consent or a formal assumption/transfer.

2) The transaction may violate contract covenants

Even if Philippine law allows sale of mortgaged property (subject to the mortgage), the loan contract may prohibit:

Sale/transfer without consent,
Assignment of rights,
Leasing beyond a term,
Allowing third parties to occupy, etc.

Violation doesn’t automatically void the sale, but it can create:

Default,
Acceleration,
Denial of future requests (restructure, condonation).

3) Tax and documentation exposures

Poor documentation can lead to:

Problems paying or proving payment of capital gains tax (for certain sales), documentary stamp tax, transfer tax, and registration fees,
Issues with notarization, authority to sign, or special power of attorney,
Disputes about what exactly was sold (equity? rights? property?).

4) Consumer/housing law overlays (developer financing, condos, subdivisions)

If the property is under:

Developer financing,
A condominium corporation/HOA regime,
Subdivision development rules,

there may be additional restrictions or required approvals, and the “assumption” might be administratively blocked even if privately agreed.

4) “Is the pasalo sale void?”—a careful, practical answer

Usually, a sale of mortgaged property is not automatically void just because it is mortgaged. What changes is:

The mortgage remains and the bank’s rights remain superior.
The bank is not obliged to recognize the Buyer as borrower.
If the loan documents prohibit transfer without consent, the bank may enforce contractual remedies (default/acceleration/foreclosure) against the borrower and the property.

So, the Buyer may “own” something in theory (rights against Seller), but still lose the property through foreclosure, or be unable to perfect ownership through registration.

5) Foreclosure: the risk people underestimate

A. Extrajudicial foreclosure is common

Most Philippine mortgage foreclosures are extrajudicial when the mortgage document contains a power of sale. That process can move without a full-blown trial, subject to notice/publication requirements and later redemption rights.

B. Redemption and possession issues

Depending on the situation (and whether the foreclosing creditor is a bank), there may be:

Redemption periods,
Court processes to obtain possession after sale,
Practical displacement risk for whoever is occupying the home.

A Buyer in possession under an unapproved assumption can be evicted after foreclosure, and recovery against the Seller may be difficult.

6) Criminal exposure: when the facts get ugly

Not every bad pasalo becomes criminal. But criminal complaints can arise when there is:

Fraud or deceit: e.g., Seller sells the property knowing it’s about to be foreclosed, or hides key facts.
Misrepresentation to bank or third parties: fake documents, forged signatures, fabricated receipts.
Multiple sale with intent to defraud.

Criminal liability depends heavily on intent and specific acts; it’s not automatic. Still, the risk increases sharply when parties “paper over” the bank’s rights with forged or misleading paperwork.

7) High-risk fact patterns (common in the Philippines)

1) Buyer pays equity, then Seller vanishes

Buyer has receipts for monthly amortizations but no transfer documents.

2) Seller dies midstream

Buyer must deal with heirs and estate settlement before title transfer—often while still paying the loan.

3) Title is still with the bank, and Seller has other debts

Creditors attach Seller’s properties; Buyer’s unregistered interest is vulnerable.

4) Informal agreements with weak proof

No notarized deed, no clear payment schedule, no clause requiring Seller cooperation, no authority/SPA, no escrow.

5) “Assume balance” with Pag-IBIG / government-related housing loans

These often have specific requirements for transfer/assumption; informal takeovers are especially risky if the agency later disallows the transfer.

8) Practical red flags (if you see these, assume the risk is high)

“Bank approval later—promise.”
Seller refuses to give you full copies of the loan and mortgage documents.
Payments are made only through Seller with no paper trail.
Seller won’t sign a deed of sale or deed of assignment of rights in notarized form.
Seller is behind on amortizations, taxes, or association dues.
Title has annotations you don’t understand (liens, notices of levy, lis pendens).
Seller says: “Don’t register yet, it’s expensive.”
Seller is abroad with no SPA, or signatures are “to follow.”

9) How to do it safely (lawful pathways that reduce risk)

A. Bank-approved assumption / transfer of loan (best option)

The cleanest route is a formal assumption recognized by the lender, typically involving:

Buyer credit evaluation,
New loan documents or an approved assumption agreement,
Updated mortgage documents if needed,
Bank’s written consent and clear process for title release/transfer after payment.

This aligns with Civil Code principles (creditor consent for debtor substitution) and eliminates the “not recognized by the bank” problem.

B. Full payoff then transfer

If feasible:

Buyer pays off the loan (often using financing),
Bank issues release of mortgage and releases the title,
Parties transfer title through normal conveyancing and registration.

C. Escrowed payments and enforceable documentation (risk mitigation if bank approval is not possible)

If parties insist on proceeding without bank approval (still risky), minimum protections typically include:

A notarized contract (clear purchase price, assumption terms, remedies, deadlines),
Direct payment proof (e.g., Buyer pays the bank directly, with documentation),
Irrevocable authority or safeguards for future transfer (careful: enforceability varies; must be drafted properly),
Provisions on what happens if the bank accelerates or refuses recognition,
Clear allocation of taxes/dues/insurance responsibilities,
Strong exit clauses (refund/penalties) and dispute-resolution terms.

Even with these, the bank’s power remains, and you may still lose the property to foreclosure or acceleration. These measures mainly improve your case against the Seller, not against the bank.

10) What documents matter most (Philippine conveyancing reality)

For a safer transaction, the paper trail usually needs to be very clear about:

What is being sold: the property itself vs. the Seller’s rights/equity vs. a conditional sale.
Who pays what: equity, arrears, taxes, dues, bank charges.
Proof of payment: receipts, bank deposit slips, official statements.
Authority to sign: spouses’ consent (if applicable), co-owners, heirs, corporate authority.
Registration plan: when and how transfer will be registered and mortgage released/annotated.

11) Bottom line

Assuming a mortgage without bank approval in the Philippines is risky because:

The bank is not bound by your private agreement and can still treat the original borrower as liable.
The mortgage stays on the property, and the bank can foreclose regardless of your payments to the Seller.
The Buyer can pay substantial money yet end up with no clean title, no recognized borrower status, and limited leverage with the bank.
The Seller remains exposed to full liability, credit damage, and lawsuits—especially if things go wrong.

If you’re currently in a pasalo or considering one, the most risk-reducing move is always some form of bank-recognized transfer/assumption or payoff-and-transfer, backed by properly notarized and (when appropriate) registered documentation.

If you want, paste a typical pasalo agreement you’re seeing (remove personal details), and I’ll point out the clauses that usually fail in real disputes—and the protections that are commonly missing.