1) What “pasalo” commonly means in practice

In everyday Philippine real-estate practice, “pasalo” typically refers to an informal arrangement where:

A seller (original borrower) has a property that is mortgaged to a bank (or other lender) and is still paying monthly amortizations.
A buyer takes over possession and agrees to:
- pay the seller some amount (often the seller’s “equity” or cash-out), and
- continue paying the monthly amortizations directly to the bank, usually under the seller’s loan account/name.

This is different from a formal assumption of mortgage approved by the lender. Most disputes arise because many “pasalo” deals are private arrangements that do not change the bank’s legal relationship with the original borrower.

2) The core rule: the bank recognizes the borrower on record

A. The bank’s contract is with the seller (original borrower)

A housing loan is a contract between:

the bank (creditor), and
the borrower (debtor) — typically the registered owner/borrower.

If the seller privately “transfers” the burden of paying to the buyer without the bank’s consent, the bank can generally say:

“Our borrower is still the seller. If amortizations stop, we collect from the seller.”

B. “Pasalo” is usually an internal agreement only

A private “pasalo” agreement may be enforceable between seller and buyer, but it usually does not bind the bank unless the bank becomes a party (or formally consents in a manner required by the loan documents).

C. Many loan contracts have a “due-on-sale” / no-transfer-without-consent clause

Most bank housing loans include stipulations that:

prohibit sale/transfer of the mortgaged property without prior written bank approval, and/or
allow the bank to accelerate the loan (declare the entire balance due) if an unauthorized transfer occurs.

So the seller faces risk even if the buyer keeps paying—because the bank may treat the unauthorized transfer as a violation.

3) Why the seller remains liable when the buyer stops paying

A. No novation, no release

Under Philippine civil law principles on obligations, a debtor is not discharged just because another person promises to pay, unless there is a valid novation (i.e., substitution of the debtor) that the creditor accepts.

Expromisión / Delegación concepts (debtor substitution) require creditor consent for the original debtor to be released.
Without creditor acceptance, the original debtor remains liable.

Practical effect: if the buyer defaults, the bank can pursue the seller for:

unpaid amortizations,
penalties and interest,
the accelerated total obligation (if the bank accelerates),
collection costs, and
foreclosure expenses.

B. The mortgage “follows” the loan

A real estate mortgage is an accessory contract securing the loan. Even if possession changes hands, the mortgage remains annotated on the title and the bank’s rights remain intact.

4) What the bank can do if payments stop (and why this hits the seller)

When the buyer stops paying, the bank typically has several remedies (often cumulative):

A. Demand, acceleration, and collection actions

Demand letters to the borrower of record (the seller).
Acceleration (entire outstanding balance becomes due).
Endorsement to collections or legal.

B. Foreclosure (extrajudicial is common)

Most bank mortgages are drafted to allow extrajudicial foreclosure (often faster than judicial foreclosure), subject to the requirements of Philippine law and the mortgage terms.

Foreclosure consequences relevant to the seller:

The property may be sold at public auction.
The seller’s name is typically associated with the default and foreclosure history.

C. Deficiency liability (the “deficiency judgment” risk)

If the foreclosure sale proceeds are not enough to cover the total obligation, the bank may pursue the borrower for the deficiency (the remaining unpaid balance), depending on the circumstances and applicable rules.

Key risk: even if the buyer already paid the seller “equity,” the seller can still end up owing the bank money after foreclosure.

D. Credit standing and practical penalties

Even outside court:

Default records can affect future credit applications.
Collection pressure is directed to the seller (calls, demands, possible litigation).
Potential exposure of other assets of the seller to enforcement if judgment is obtained.

5) Seller’s specific liability exposures in a “pasalo” default

A. Being treated as the primary debtor (not just a guarantor)

In an informal “pasalo,” the seller usually remains the principal debtor. That is worse than being a guarantor because the creditor does not need to exhaust the buyer’s assets first; the bank can go straight against the seller.

B. Exposure of wages, bank accounts, and other assets (after judgment)

If a case proceeds and the bank obtains a favorable judgment, enforcement mechanisms may reach:

bank deposits (subject to legal processes and exemptions),
personal property, and
other non-exempt assets.

(Exact reach depends on the case posture, court orders, and applicable exemptions.)

C. Marital property complications

If the property and/or loan involves spouses, issues arise under the Family Code on:

spousal consent for sale/encumbrance of conjugal/community property, and
validity/enforceability of dispositions made without required consent.

A “pasalo” done without proper spousal consent can create layers of invalidity and later litigation—while still leaving the bank’s claim intact against the borrower-spouses.

6) Buyer-side default triggers additional “pasalo” risks beyond the bank’s claim

Even if the bank proceeds primarily against the seller, the seller’s private problems multiply:

A. Possession risk: buyer may refuse to vacate

If the buyer stops paying and also refuses to leave, the seller may face:

ejectment / unlawful detainer litigation (depending on facts),
practical delays and costs,
risk of property deterioration.

B. Title risk: property may still be in seller’s name

Often the title remains with the seller because:

the bank holds the owner’s duplicate title while mortgaged, and/or
no registrable deed of sale was completed/registered.

This can lead to:

disputes over who “really owns” the property,
difficulty unwinding the transaction, and
risk of double sale scenarios if documents are messy.

C. Payment traceability disputes

If payments were made informally (cash, no receipts, unclear ledgers), conflict is common over:

how much the buyer actually paid,
whether payments were applied to the loan,
whether “equity” should be refunded,
penalties for late payment, etc.

7) What documents (and steps) determine whether the seller is truly released

A. The gold standard: bank-approved assumption with release (true novation)

The lowest-risk structure is a tripartite arrangement where:

the bank evaluates the buyer,
the buyer becomes the new borrower,
the seller is expressly released from liability, and
the mortgage/security documentation is updated accordingly.

Without an explicit written release/novation recognized by the bank, the seller should assume they remain liable.

B. Middle ground: bank consent to transfer but no release

Sometimes banks allow certain arrangements (e.g., recognition of a new payor, or consent to a transfer of rights) but do not fully release the seller. This still leaves seller exposure.

C. Purely private “pasalo” (highest risk for seller)

This is the typical “buyer pays the bank using seller’s account” setup. Seller remains exposed, and the bank is not bound by the private agreement.

8) If the buyer stops paying: what rights does the seller have against the buyer?

Even if the bank can collect from the seller, the seller may still have claims against the buyer under their private contract, typically:

A. Action for specific performance / collection of sum of money

If the buyer promised to pay amortizations and failed, seller may sue to recover:

missed amortizations paid by seller,
penalties/interest the seller incurred because of buyer’s delay,
other agreed damages.

B. Rescission (cancellation) of the “pasalo” agreement

If the arrangement is structured as a conditional sale or has a resolutory condition, rescission may be invoked, subject to:

the contract terms,
equity considerations, and
how the deal is characterized (sale, lease-to-own, assignment, etc.).

C. Damages and attorney’s fees (if stipulated and reasonable)

Courts scrutinize penalty clauses and attorney’s fees; they must be supported by law/contract and not be unconscionable.

D. Practical problem: winning against the buyer does not stop the bank

A judgment against the buyer does not automatically:

reinstate the loan,
stop foreclosure, or
release the seller.

It may only give the seller a claim for reimbursement—useful only if the buyer has collectible assets.

9) Criminal angles people often assume—what usually applies (and what usually doesn’t)

A. “Estafa” claims are not automatic

A buyer’s failure to pay is often treated as breach of contract, not a crime, unless there is clear evidence of deceit or fraudulent acts meeting criminal elements.

B. B.P. Blg. 22 (Bouncing Checks Law)

If the “pasalo” involves issued checks that bounce, B.P. 22 exposure may arise depending on:

how the checks were issued,
notice of dishonor,
compliance with procedural requirements.

C. Falsification / fraud risks

If parties falsify documents (e.g., simulated deeds, forged signatures, fake bank consents), criminal liability risk increases significantly.

10) Special notes for government housing finance and developer accounts

Some “pasalo” deals involve:

a developer account (installment to developer), or
government financing programs.

For example, Pag-IBIG Fund commonly allows certain forms of assumption/transfer subject to approval and documentary requirements. Without approval, the original borrower commonly remains on the hook, similar to bank practice—though the precise processes and requirements differ by program and contract.

Developer-side installment sales can also implicate statutory protections (e.g., for buyers under installment schemes), but those depend heavily on whether the transaction is truly a developer installment sale or already a bank-financed mortgage, and on the exact structure and payments.

11) Due diligence checklist before entering a “pasalo” (seller-focused)

A. Confirm the loan status and bank policy

Outstanding principal, interest, penalties
Any arrears
Whether the loan is assumable
Required documents for assumption/novation
Transfer restrictions and acceleration triggers

B. Insist on a structure that matches your risk tolerance

From safest to riskiest:

Bank-approved assumption + express release of seller
Bank-approved arrangement but seller not released (still risky)
Purely private “pasalo” (seller bears most risk)

C. If doing private “pasalo” anyway, add protective layers (imperfect but helpful)

Common protections sellers try to build (enforceability varies with drafting and facts):

Notarized written contract clearly defining:
- obligation to pay the bank on/before due dates,
- penalties for delay,
- automatic default triggers,
- reimbursement obligations for any seller payments made,
- who pays taxes, association dues, insurance, repairs.
Security for the seller’s reimbursement claim, such as:
- a separate promissory note,
- collateral arrangements (case-specific),
- escrow structures (e.g., documents held by a neutral party).
Access/visibility to payments, such as:
- requiring the buyer to pay through channels where the seller can verify,
- sending proof of payment immediately,
- authorizing the seller to obtain loan status updates if the bank permits.
Possession safeguards
- clear rules on eviction/turnover upon default,
- inventory/condition reports,
- restrictions on subleasing and alterations.

These measures do not bind the bank but can improve the seller’s ability to recover from the buyer.

D. Don’t ignore registration and form requirements

Sales of real property and related agreements implicate:

writing requirements (Statute of Frauds issues),
notarization for registrability,
proper tax treatment if/when transferring title.

Informal, unsigned, or poorly drafted “pasalo” papers are a common reason sellers lose leverage.

12) What sellers should expect if default happens (typical sequence)

Buyer misses payment.
Bank contacts seller (borrower of record).
Penalties accrue; bank may accelerate.
Seller scrambles to pay to prevent foreclosure (often paying out-of-pocket).
Seller demands reimbursement from buyer; buyer may ignore.
Bank proceeds to foreclosure if arrears persist.
Seller sues buyer (collection/rescission), but lawsuit timeline may not match bank’s foreclosure timeline.
If foreclosure sale proceeds are insufficient, bank may pursue deficiency (case-dependent).
Seller’s credit and finances suffer—even if seller later wins against buyer.

13) Practical takeaways distilled

In a typical informal “pasalo,” the seller remains legally liable to the bank because the bank did not agree to substitute the debtor.
If the buyer stops paying, the bank can:
- demand payment from the seller,
- accelerate the loan,
- foreclose the mortgage,
- and in many cases pursue deficiency.
The seller’s remedy against the buyer is usually contract-based reimbursement and/or rescission, which may be slow and collectible only if the buyer has assets.
The safest way to avoid seller liability is a bank-approved assumption with an express written release of the seller.

14) General information notice

This article is for general educational discussion of common Philippine “pasalo” risk patterns and does not substitute for advice tailored to specific documents, bank policies, and facts.