In the Philippine real estate market, a "delinquent" Pag-IBIG (Home Development Mutual Fund) loan is often viewed as a liability. However, for some, it presents an opportunity for a "pasalo" (loan assumption) arrangement. Transferring a loan that is in arrears—meaning the original borrower has failed to make several monthly amortizations—is a complex legal process governed by the guidelines of the HDMF and the Civil Code of the Philippines.

1. Understanding the Legal Nature of the Transfer

Transferring a delinquent loan is essentially a Novation under the Civil Code (Article 1291). It involves replacing the original debtor with a new one. In the context of Pag-IBIG, this is technically referred to as a Transfer of Rights with Assumption of Liability.

Crucially, a borrower cannot simply hand over the keys and walk away. For a transfer to be legally binding against Pag-IBIG, the Fund must give its express consent. Without this consent, the original borrower remains legally liable for the debt, regardless of any private contract signed between the buyer and seller.

2. Prerequisites for Transferring a Delinquent Account

Before a transfer can be processed, the "delinquency" status must be addressed. Pag-IBIG generally does not allow the transfer of an account that is currently in the process of foreclosure.

Remediation of Arrears

The account must usually be updated or restructured. The parties must decide who will settle the:

Unpaid Principal and Interest: The accumulated monthly dues.
Penalties: Usually 1/20 of 1% of the amount due for every day of delay.
Foreclosure Expenses: If the account has already been referred to the Legal Department or a notary public for foreclosure proceedings.

3. The Procedure for Assumption of Liability

The formal process involves several stakeholders: the Seller (Original Borrower), the Buyer (Successor-in-Interest), and the Pag-IBIG Fund.

Step 1: Preliminary Verification

The parties should visit the Pag-IBIG branch where the mortgage is registered to request a Statement of Account (SOA). This document outlines the total outstanding balance, the degree of delinquency, and whether the account is still "active" or "under litigation."

Step 2: Execution of Legal Documents

The parties must execute a Deed of Assignment and Transfer of Rights with Assumption of Obligations. This document must:

Clearly identify the property and the original Loan Reference Number.
State that the Buyer assumes the remaining balance and all future obligations.
Be duly notarized.

Step 3: Application for Loan Assumption

The Buyer must undergo the same qualification process as a new loan applicant. The Buyer must submit:

Proof of Income: To ensure they can afford the monthly amortizations.
Pag-IBIG Membership: The buyer must be an active member with at least 24 months of contributions (or pay the lump sum equivalent).
Updated Tax Declaration and Real Estate Tax Receipt: Proof that local property taxes are paid.

Step 4: Approval and New Documentation

Once Pag-IBIG approves the transfer, a new Loan and Mortgage Agreement (LMA) or an Amendment to the original LMA is signed. The account is then officially transferred to the Buyer’s name.

4. Risks and Red Flags: The "Pasalo" Trap

Many Filipinos engage in "informal transfers" where the buyer pays the seller a "downpayment" and continues the monthly payments without informing Pag-IBIG. This is legally precarious for several reasons:

The "No-Transfer" Clause: Most Pag-IBIG loan contracts contain a clause prohibiting the sale or lease of the property without prior written consent. Violating this can trigger a "Default," allowing Pag-IBIG to accelerate the loan (demand full payment immediately).
Death of the Original Borrower: If the seller dies, the Mortgage Redemption Insurance (MRI) will cover the loan, but the property will legally transition to the seller’s heirs, not the informal buyer.
Death of the Buyer: If the buyer dies, they are not covered by the MRI because the loan is not in their name.

5. Summary of Costs

The transfer is not free. The parties must account for:

Processing Fees: Paid to Pag-IBIG for the assumption of mortgage.
Transfer Taxes: Including Documentary Stamp Tax (DST) and Transfer Tax at the Bureau of Internal Revenue (BIR) and the Treasurer’s Office.
Capital Gains Tax (CGT): Generally 6% of the selling price or zonal value, whichever is higher, though in "assumption of mortgage," the computation can be nuanced.
Notarial Fees: Usually 1-2% of the property value.

6. Conclusion

Transferring a delinquent Pag-IBIG loan is a viable way for a distressed borrower to save their credit rating and for a buyer to acquire property at a potential discount. However, to ensure the security of the investment, the process must be formalized through Pag-IBIG's official channels. Relying on side-agreements without the Fund's intervention leaves both parties vulnerable to litigation and loss of property.