In the Philippines, it is a common practice for a member of the Pag-IBIG Fund (HDMF) to transfer their housing loan obligations to another person—often a relative—when they can no longer maintain monthly amortizations or wish to sell the property. Legally, this is known as an Assumption of Mortgage.
1. Understanding Assumption of Mortgage
An Assumption of Mortgage is a legal arrangement where the buyer (the relative) takes over the seller's (the original borrower) outstanding debt with Pag-IBIG. This process does not just happen between the two parties; for it to be legally binding and for the title to eventually transfer to the relative, Pag-IBIG must formally approve the assumption.
The Two Methods of Transfer:
- Formal Assumption: Processed directly through Pag-IBIG. The relative undergoes a credit background check, and the loan is restructured in their name.
- Informal "Pasalo": An internal agreement where the relative pays the original borrower and continues the monthly payments under the original borrower's name.
Warning: Informal transfers are risky. Pag-IBIG does not recognize the relative as the owner, and the original borrower remains legally liable for the loan.
2. Requirements for the Relative (The Assumer)
To qualify for the assumption, the relative must meet the same criteria as any new housing loan applicant:
- Active Membership: Must have at least 24 months of Pag-IBIG contributions (lump-sum payment is usually allowed).
- Age Limit: Must not be more than 65 years old at the date of application and not more than 70 years old at loan maturity.
- Capacity to Pay: Must provide proof of income (ITR, Payslips, or Employment Contract) to ensure they can handle the monthly amortizations.
- Legal Relationship: While the "relative" aspect simplifies the trust factor, the legal process remains the same as a sale to a third party.
3. Necessary Legal Documents
To formalize the transfer, the following documents are typically required:
| Document | Purpose |
|---|---|
| Deed of Sale with Assumption of Mortgage | The primary legal contract stating the relative is buying the property and assuming the debt. |
| Transfer of Rights | A Pag-IBIG specific form where the original borrower relinquishes their rights. |
| Updated Tax Declaration | To prove real property taxes are current. |
| Proof of Income | To verify the relative’s financial capability. |
| Valid IDs | Both the original borrower and the relative. |
4. The Step-by-Step Process
- Agreement and Documentation: Both parties sign a Deed of Sale with Assumption of Mortgage. This document must be notarized.
- Application for Assumption: Visit the Pag-IBIG branch where the property is registered. Submit the deed along with the relative's proof of income and membership status.
- Credit Evaluation: Pag-IBIG will conduct a background check on the relative to ensure they are "creditworthy."
- Approval and Signing: Once approved, the relative will sign a new Promissory Note and Disclosure Statement.
- Updating Records: The loan account is transferred to the relative’s name. Future payments will now be credited to the relative's Pag-IBIG ID.
5. Key Legal Considerations and Risks
The "No-Transfer" Clause
Most Pag-IBIG loan contracts contain a "prohibition against alienation" clause. This means you cannot sell or transfer the property without Pag-IBIG’s written consent. Violating this can technically trigger a Default, making the entire loan balance due and demandable immediately.
Foreclosure Risks
If the relative fails to pay the monthly amortizations under an informal "pasalo" arrangement, Pag-IBIG will foreclose on the property. Since the loan is still in the original borrower's name, the original borrower’s credit score will be ruined, and they may be barred from future Pag-IBIG loans.
Successional Rights
If the original borrower dies during an informal arrangement, the property technically becomes part of their estate. Even if the relative paid for it, other legal heirs might claim a right to the property unless a formal transfer was executed.
6. Financial Obligations
Aside from the remaining loan balance, the parties must settle:
- Capital Gains Tax (CGT): Usually 6% of the selling price or zonal value (whichever is higher).
- Documentary Stamp Tax (DST): Usually 1.5%.
- Transfer Fees: Paid to the Registry of Deeds.
- Processing Fees: Paid to Pag-IBIG for the assumption application.
Summary Note
While passing a loan to a relative is a practical solution to financial hurdles, formalizing the assumption through Pag-IBIG is the only way to ensure the relative's investment is legally protected and that the original borrower is fully released from the debt.