For many Filipino homeowners, the Pag-IBIG Fund (Home Development Mutual Fund) is the primary gateway to property ownership. However, unforeseen financial hardships—such as job loss, medical emergencies, or economic shifts—can lead to missed monthly amortizations. Under Philippine law and Pag-IBIG’s internal policies, several legal avenues exist to prevent foreclosure and regularize a housing loan.
1. Understanding Arrears and Default
A loan is considered in arrears when a borrower fails to pay the monthly amortization on the due date. In the context of Pag-IBIG:
- Late Payment Penalty: A penalty of 1/20 of 1% of the amount due is typically charged for every day of delay.
- Account in Default: A housing loan is generally considered in default when the borrower fails to pay three (3) consecutive monthly amortizations. At this stage, the Pag-IBIG Fund may initiate foreclosure proceedings on the mortgaged property.
2. Loan Restructuring and Recovery Programs
The Pag-IBIG Fund provides several mechanisms for borrowers to settle their delinquency without losing their homes. These are primarily governed by circulars issued by the Fund’s Board of Trustees.
A. The Housing Loan Restructuring Program
This is a formal agreement where the terms of the original loan are modified to make the monthly payments more manageable.
- Purpose: To update a delinquent account by spreading the total outstanding obligation (principal + interest + penalties) over a new or remaining term.
- Extension of Term: Borrowers may request to extend the loan term (up to a maximum of 30 years, provided the borrower does not exceed age 70 at maturity) to lower the monthly dues.
- Capitalization of Arrears: The unpaid interest and penalties are often added back to the principal balance, creating a new "restructured principal."
B. Penalty Condonation Programs
Periodically, the Pag-IBIG Fund offers Special Condonation Programs through Board Resolutions.
- Mechanism: If a borrower pays the full principal and interest of the arrears, the Fund "waives" or condones the accumulated penalties.
- Eligibility: Usually offered to borrowers whose accounts are nearing foreclosure or have already been endorsed for legal action but not yet auctioned.
3. Legal Options for Debt Settlement
If a borrower cannot meet the full restructuring requirements, they may explore other legal arrangements:
| Option | Description | Legal Effect |
|---|---|---|
| Plan of Payment | A short-term informal agreement to pay arrears in installments alongside current dues. | Prevents the account from being endorsed to the Legal Department. |
| Dacion en Pago | "Payment in kind." The borrower voluntarily surrenders the property to Pag-IBIG to extinguish the debt. | The debt is cancelled, but the borrower loses ownership and equity. |
| Equity Subsidy | Applying any excess monthly savings (Pag-IBIG I or MP2) to cover the housing loan arrears. | Reduces the outstanding balance using the borrower's own assets. |
4. The Foreclosure Process
If no restructuring occurs, the Fund proceeds with Extrajudicial Foreclosure under Act No. 3135.
- Notice of Delinquency: The borrower receives final demand letters.
- Petition for Foreclosure: Pag-IBIG files a petition with the Office of the Clerk of Court.
- Public Auction: The property is sold to the highest bidder.
- Right of Redemption: Under Philippine law, the borrower has one (1) year from the date of the registration of the Certificate of Sale to "redeem" the property by paying the full bid price plus interest and costs.
5. Remedies for Non-Restructurable Loans
If the loan is too far in arrears to restructure, borrowers may look into:
- Loan Assignment (Transfer of Rights): With Pag-IBIG’s consent, a borrower may sell their rights to the property to a third party who will assume the remaining debt.
- Refinancing: Moving the debt to a private bank, though this is difficult if the borrower's credit score is already affected by Pag-IBIG arrears.
Legal Note: All restructuring applications require the submission of an updated Proof of Income and the execution of a New Promissory Note with a Restructured Loan Agreement. Failure to comply with the terms of a restructured loan often results in immediate foreclosure without further notice.