Overview

“Pasalo” is the colloquial term for assumption of mortgage on a Pag-IBIG (HDMF) housing loan. Legally, it means a new party (the Assumer/Buyer) takes over the obligations of the Original Borrower/Seller on the same loan and property, with Pag-IBIG’s consent. Done correctly, it can transfer both possession and loan obligations—and, if fully processed, ownership/title—from Seller to Buyer. Done informally, it leaves the parties exposed to foreclosure and claims.

This article explains how the process legally works, the required documents, fees and taxes, risk controls, and typical pitfalls—in plain but precise terms.

Legal Bases and Core Concepts

Pag-IBIG Charter: Home Development Mutual Fund (HDMF) Law (R.A. 9679) and implementing rules authorize Pag-IBIG to grant, service, and approve loan assumptions subject to credit evaluation and fund policies.
Civil Code on Assumption/Novation: An assumption of mortgage may occur with or without novation:
- Assumption without novation (no release): Buyer promises to pay, but Seller remains liable to Pag-IBIG until Pag-IBIG formally releases the Seller.
- Assumption with novation (substitution of debtor): Pag-IBIG approves the Buyer as the new borrower and releases the Seller. This is the safer route and what you should aim for.
Family Code Spousal Consent: If the property or rights are conjugal/community, both spouses must sign dispositions/assumptions. Lack of spousal consent can void or impair the transaction.
Due-on-Sale/Consent: Mortgage contracts typically prohibit assignment without lender consent. Pag-IBIG approval is indispensable; a private pasalo alone does not bind Pag-IBIG.

Transaction Modes You’ll Encounter

Deed of Sale with Assumption of Mortgage (DSAOM):
- Conveys the Seller’s ownership (or rights) to the Buyer and the Buyer assumes the Pag-IBIG loan.
- Works best when paired with Pag-IBIG’s formal approval (credit check + substitution of borrower).
- Leads to title transfer to Buyer, with the existing mortgage retained and re-annotated under Buyer.
Assignment/Transfer of Rights (pre-title cases):
- Used for developer CTS (Contract-to-Sell) accounts or properties not yet titled to Seller.
- Buyer steps into Seller’s shoes under the CTS; Pag-IBIG still needs to approve the assumption.
Private “Pasalo” Only (not advised):
- Parties sign a private contract and exchange keys/payments without Pag-IBIG approval.
- High risk: Seller remains liable; Pag-IBIG can foreclose if Buyer defaults; Buyer may have no path to title.

Who Must Consent and Approve

Pag-IBIG Fund: Must evaluate and approve the Buyer (new debtor) before novation.
Seller and Spouse (if married): Must execute the conveyance/assumption documents and waive rights as needed.
Buyer and Spouse (if married): Must apply as new borrower, sign loan documents, and accept mortgage terms.
Developer/HOA (when applicable): May need clearances/consents for transfer and dues.

Eligibility and Credit Evaluation (Buyer)

Pag-IBIG typically checks that the Buyer:

Is a Pag-IBIG member in good standing (contributions updated; age, residency, and membership requirements met).
Meets income and creditworthiness standards for the outstanding balance and tenor assumed.
Has no serious Pag-IBIG delinquencies and stays within Pag-IBIG’s maximum loan exposure rules.
Submits verifiable income documents (e.g., COE & payslips; ITR/Audited FS for self-employed; remittance docs for OFWs).

Tip: If the Buyer cannot meet Pag-IBIG’s metrics, ask the branch about co-borrowers/co-makers or loan term reconfiguration (if policy allows).

Documents Checklist

A. Core Conveyance/Loan Documents

Pag-IBIG forms for Assumption/Substitution of Borrower and Housing Loan Application (Buyer).
Deed of Sale with Assumption of Mortgage (DSAOM) or Deed of Assignment/Transfer of Rights, duly notarized.
Mortgage documents for re-annotation (Pag-IBIG will provide updated/assumption riders).
Conforme/Consent from Pag-IBIG (issued after approval).

B. Identification & Civil Status

Valid government IDs of Seller and Buyer (and spouses, if any).
Marriage Certificate (if married); Affidavit or proof for annulment/separation/death where relevant.
SPA (Special Power of Attorney) if a party is abroad or represented; for OFWs, consularized/apostilled.

C. Property & Account Papers

Owner’s copy of Title (TCT/CCT) and latest Tax Declaration of land/improvements.
Real Property Tax (RPT) receipts and tax clearance (no arrears).
Updated SOA/ledger from Pag-IBIG; statement of arrears (if any) and agreed settlement plan.
HOA/Condo admin clearance (dues updated).
For CTS accounts: the CTS, developer clearances, and project permits.

D. Financial/Income Proofs (Buyer)

COE with salary and latest payslips; or ITR/Audited FS/Barangay & Mayor’s permits for self-employed;
Remittance proofs/employment contract for OFWs;
Bank statements (if requested);
Pag-IBIG contribution records.

Branch practices vary on exact lists; bring more than less.

Step-by-Step Legal Process

Pre-Due Diligence
- Verify title (TCT/CCT) and encumbrances at the Registry of Deeds.
- Match property boundaries (tax dec, lot plan, on-site).
- Pull Pag-IBIG statement to confirm balance, arrears, interest rate, remaining term, and insurance.
- Check HOA dues, utilities, and real property taxes.
Deal Terms & Drafting
- Agree on assumption price (equity) + outstanding loan balance and who pays taxes/fees.
- Draft DSAOM (or deed of assignment) with clear novation intent and Pag-IBIG approval condition.
- Include arrears settlement, possession/turnover timing, risk allocation, and default remedies.
Pag-IBIG Application & Credit Evaluation
- Buyer files Assumption/Substitution request with full docs; Seller signs required consents.
- Pag-IBIG conducts credit/income evaluation and may require co-borrower or adjustments.
Approval & Loan Paperwork
- Upon approval, sign assumption riders and Pag-IBIG loan documents; update MRI/Fire insurance endorsements to Buyer.
Tax Payments & Title Work (if DSAOM with title transfer)
- Settle Capital Gains Tax (seller) or Creditable Withholding Tax (if applicable), DST, Transfer Tax, and Registration Fees.
- File at BIR then Registry of Deeds for title transfer to Buyer;
- Re-annotate the mortgage to reflect the Buyer as mortgagor and Pag-IBIG as mortgagee.
HOA/Condo & LGU Updates
- Update HOA/condo admin and city assessor/treasurer records to Buyer.
Turnover & Post-Closing
- Turn over keys, warranties/manuals, and utility accounts.
- Buyer monitors auto-debit or payment schedules and keeps receipts.

Fees, Taxes, and Typical Cost Items

Allocation of who pays what is negotiable, but the law designates certain statutory liabilities.

Capital Gains Tax (CGT): 6% of the higher of gross selling price or zonal/fair market value; usually Seller’s burden.
Documentary Stamp Tax (DST) on Sale: 1.5% of selling price or FMV, whichever is higher.
DST on Mortgage/Assumption: Based on principal/loan balance assumed (check current Pag-IBIG/BIR computation basis).
Transfer Tax: Usually 0.5%–0.75% of the tax base (varies by LGU).
Registration Fees (ROD): Sliding scale under LRA schedule.
Pag-IBIG Fees: Processing/assumption fee, updating MRI/Fire insurance premiums, and any arrears/penalties.
Notarial & Professional Fees: For deeds, SPAs, and legal assistance.
HOA/Condo Transfer Fees: If applicable.
Incidental Costs: CENOMAR (if required), birth/marriage certs, photocopies, courier/legalization.

Always compute two tax bases—the sale price and the BIR zonal/assessed value—and pay on the higher.

Risk Management & Practical Safeguards

Never rely on a private pasalo alone. Without Pag-IBIG approval, Seller remains liable and can be chased for deficiencies after foreclosure.
Make Pag-IBIG approval a condition precedent. In the DSAOM/assignment, state that closing and possession depend on Pag-IBIG’s written approval of the substitution.
Escrow sensitive payments. Keep the Buyer’s equity and any arrears settlement in escrow until Pag-IBIG approval issues.
Spousal signatures. Ensure both spouses of Seller and Buyer sign or formally consent, unless there’s a valid separation of property shown by marriage settlement/court decree.
HOA and RPT clearances. Unpaid dues and taxes can block title transfer or trigger liens.
Utilities and move-in. Put Meralco/Water/Assoc dues under the Buyer’s name post-closing; meter deposits may need assignment.
Insurance endorsements. Ensure MRI/Fire policies are endorsed to the Buyer with correct ages/beneficiaries.

Special Case Notes

OFW Sellers/Buyers: Use consularized/apostilled SPAs; some branches accept videoconference notarization if compliant.
Developer CTS Accounts: Use Assignment/Transfer of Rights route; coordinate with developer for their internal clearances before going to Pag-IBIG.
Properties with Building/Improvement Variances: Unpermitted additions can affect appraisal and insurability; disclose and regularize if needed.
Delinquent Loans: Pag-IBIG may require arrears curing before or at closing; chronic delinquency can derail approval.
Co-Borrowers: Adding/removing co-borrowers is a material change; Pag-IBIG must approve the new borrower set.

Model Clause Ideas (to discuss with counsel)

Approval Condition: “This Deed shall be effective only upon Pag-IBIG Fund’s written approval of Buyer’s substitution as borrower and the execution of assumption documents. Prior thereto, possession and risk remain with Seller, and payments shall be held in escrow.”
Release of Seller (Novation): “Upon effectivity, Seller is fully released and discharged from all obligations under the loan, and Buyer assumes and agrees to pay the outstanding balance and all terms of the mortgage.”
Arrears Handling: “Identified arrears of ₱____ shall be paid from escrow at closing to bring the account current as of the assumption date.”
Spousal Consent: “Spouse of Seller/Buyer hereby consents to the sale/assumption and waives any claim inconsistent with this conveyance.”

Frequently Asked Questions

1) Can we do pasalo without going to Pag-IBIG? You can sign a private contract, but Pag-IBIG is not bound. The Seller stays liable, and you risk foreclosure. Always secure Pag-IBIG approval.

2) When is the Seller fully released? Only upon formal novation approved by Pag-IBIG and execution of assumption/substitution documents. A DSAOM alone is not enough.

3) Will the interest rate/tenor change? Pag-IBIG may keep the existing terms or re-price per policy. Any reconfiguration must be approved.

4) Who pays taxes and fees? By default, CGT is on the Seller and DST/Transfer/Registration Fees are on the Buyer, but parties can re-allocate by contract (except where the law fixes liability). What matters: ensure everything is paid so the title and mortgage are properly recorded.

5) What if the Buyer later defaults? Pag-IBIG may foreclose. If the assumption was without novation, Pag-IBIG may still go after the Seller for deficiency.

6) Can a property under CTS be assumed? Yes, typically via Assignment/Transfer of Rights, subject to developer and Pag-IBIG consent and Buyer’s credit approval.

Closing Checklist (Quick Reference)

Identity & status docs of all signatories (with spouses).
DSAOM or Assignment of Rights, notarized, with approval condition.
Pag-IBIG assumption/substitution forms filed; credit approval obtained.
Arrears cured; MRI/Fire endorsements updated.
BIR taxes paid; Transfer Tax and ROD registration completed; mortgage re-annotated.
HOA/condo and LGU records updated.
Keys/Utilities turned over; receipts kept.

Practical Takeaway

A Pag-IBIG pasalo is safe and effective only when it results in a Pag-IBIG–approved substitution of borrower and, where applicable, a properly registered title transfer and mortgage re-annotation. Build your deal around that approval, escrow payments until it’s issued, and insist on complete clearances. That’s how you protect both sides—and make the “pasalo” work as intended.