Rights of a Buyer of a PAG-IBIG Foreclosed House Sold ‘Pasalo’ After Public Auction in the Philippines

(Philippine Legal Context)

I. Introduction

In the Philippines, many buyers acquire homes not through direct purchase from a bank or developer, but via “pasalo” – taking over someone else’s rights or obligations over a property. This is common with PAG-IBIG-acquired (foreclosed) assets that have already gone through public auction.

This article explains, in Philippine legal context, the rights, obligations, risks, and remedies of a buyer who acquires a PAG-IBIG foreclosed house via pasalo after public auction, whether:

  • The seller is the original borrower, or
  • The seller is the winning bidder in the auction who “passes on” the property before or after full payment.

II. Legal Framework

Several laws and rules are relevant:

  • Civil Code of the Philippines

    • On sales (perfection of contract, obligations of seller and buyer, warranties)
    • On assignment of rights and credits
    • On novation and assumption of debt

  • Act No. 3135 (Extrajudicial Foreclosure of Real Estate Mortgages)

  • Property Registration Decree (P.D. 1529) – rules on land registration, transfer and annotation

  • Rules of Court – ejectment/possession cases (unlawful detainer, forcible entry), quieting of title

  • Tax laws – on Capital Gains Tax/withholding, Documentary Stamp Tax, and transfer taxes

  • PAG-IBIG’s own internal guidelines (not laws but very important for practical recognition of the buyer)

The Home Development Mutual Fund (HDMF/PAG-IBIG) usually forecloses on defaulted housing loans via extrajudicial foreclosure (Act 3135), becomes the owner, then disposes of the property via public bidding. The winning bidder may pay in cash or via installment/financing, and it is common for that buyer to later sell “pasalo” to a new person.

III. What “Pasalo” Usually Means in Law

“Pasalo” is not a technical legal term but a colloquial label for any of the following legal arrangements:

  1. Assignment of Rights

    • The seller transfers to the buyer his/her rights over the property or contract, e.g. rights under a PAG-IBIG Contract-to-Sell or award.
    • Governed by the Civil Code provisions on assignment of credits and rights.

  2. Assumption of Mortgage / Loan

    • The buyer agrees to assume the obligation to pay the remaining loan/installments, sometimes with the lender’s (PAG-IBIG’s) consent, sometimes only between seller and buyer.
    • In strict law, to fully bind the lender and substitute the debtor, there must be a novation or creditor’s consent.

  3. Regular Sale (Deed of Absolute Sale or Contract to Sell)

    • Where the seller already owns the property (often title is already in their name) and sells it to the buyer.
    • Buyer’s rights arise under ordinary sale and become a real right upon registration.

“Pasalo” is therefore not magical; it must be examined based on what documents were signed and whether PAG-IBIG consented or annotated the transfer.

IV. Typical Timeline Involving a PAG-IBIG Foreclosed Property

  1. Original borrower defaults on PAG-IBIG housing loan.

  2. PAG-IBIG forecloses the mortgage under Act 3135.

  3. Property is auctioned; PAG-IBIG may itself become owner, then sells the property as an acquired asset via public bidding.

  4. A Winning Bidder (Buyer A) signs documents with PAG-IBIG:

    • Notice of award
    • Contract-to-Sell / Deed of Sale (depending on payment scheme)
    • Pays cash or installments.

  5. Buyer A then sells the property “pasalo” to Buyer B:

    • Either by assignment of rights (if title still with PAG-IBIG and Buyer A is not fully paid), or
    • By Deed of Sale (if title is already transferred to Buyer A and they are now the registered owner).

This article focuses on Buyer B’s rights.

V. Buyer’s Rights Depend on the Stage of the Property and the Documentation

There are three main scenarios:

Scenario 1: Pag-IBIG Auction Buyer Fully Paid, Title Already in His/Her Name

  • Buyer A (the auction winner) has:

    • A Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT) in his/her name.
    • Possibly tax declaration already in his/her name.

  • Buyer B buys via:

    • Deed of Absolute Sale (not just a private “pasalo” note).

Rights of Buyer B in this scenario:

  1. Right to become the registered owner

    • Once the Deed of Sale is notarized and registered with the Registry of Deeds, Buyer B acquires a real right enforceable against the world.

    • Buyer B can have the title transferred to his/her name, subject to payment of:

      • Capital Gains Tax/Creditable Withholding Tax (as applicable)
      • Documentary Stamp Tax
      • Transfer Tax, Registration Fees

  2. Right to possession

    • Ownership generally carries the right to possess and to eject unlawful occupants.
    • If the property is occupied, Buyer B can file unlawful detainer (if possession was lawful at first but later became illegal) or forcible entry (if possession was taken illegally from the start).

  3. Right to demand delivery of title and documents from Seller

    • Buyer B can compel Buyer A to:

      • Turn over original title and tax documents
      • Sign any remaining documents needed for transfer.

  4. Protection as Buyer in Good Faith

    • If Buyer B:

      • Relied on a clean title,
      • Paid a fair price,
      • Had no knowledge of defects,
      • Registered the sale, then Buyer B is generally protected against prior unregistered adverse claims.

  5. Right to bring actions to protect title

    • Quieting of title if there are spurious annotations or claims.
    • Cancellation of adverse claim that no longer has basis.

In this scenario, the transaction is legally “cleanest”: it is essentially a normal private sale of a property that just happens to have once been a PAG-IBIG foreclosed house.

Scenario 2: Auction Buyer on Installment / Contract-to-Sell, Not Fully Paid, With PAG-IBIG Consent

Here, Buyer A bought the acquired asset on installment from PAG-IBIG and signed:

  • Contract-to-Sell / Deed of Conditional Sale with PAG-IBIG
  • PAG-IBIG still holds the title and will transfer only upon full payment.

If Buyer B comes in “pasalo” and PAG-IBIG expressly consents, usually via:

  • PAG-IBIG-approved Deed of Assignment of Rights and/or
  • Approval of assumption of obligation / loan in Buyer B’s name,

then:

Rights of Buyer B:

  1. Right to stand in the shoes of Buyer A vis-à-vis PAG-IBIG

    • Buyer B takes over all contractual rights and obligations under the Contract-to-Sell or award:

      • Right to continue paying installments.
      • Right to demand issuance of title upon full payment.
      • Subject to same penalties, interest, and forfeiture conditions.

  2. Right to eventual title

    • After full compliance, Buyer B can demand that PAG-IBIG:

      • Execute Deed of Absolute Sale in Buyer B’s name (or equivalent document),
      • Cause the transfer of title.

  3. Right to be recognized as buyer by Pag-IBIG

    • Because PAG-IBIG consented and documented the assumption/assignment, Buyer B is no longer a mere stranger:

      • Notices of payment, statements, demands, etc. should ideally be addressed to Buyer B.

  4. Rights against Buyer A (the pasalo giver)

    • If Buyer A:

      • Misrepresented the account status (e.g., concealed arrears),
      • Collected more than what is due,

    • Buyer B can sue Buyer A for:

      • Rescission of their own pasalo agreement,
      • Refund of payments,
      • Damages, depending on proof.

  5. Possible Protection Under Installment Sale Laws (depending on structure)

    • If the transaction takes the shape of a sale of real property on installment, certain laws like the Maceda Law (RA 6552) may be argued, especially if:

      • PAG-IBIG’s contract is structured similarly to a developer’s contract-to-sell.

    • Application is not automatic and depends on circumstances and jurisprudence, so this is a grey area, but Buyer B may invoke equitable protection from forfeiture.

Scenario 3: Auction Buyer on Installment, Pasalo Without PAG-IBIG Consent

This is very common in practice and also very risky.

Buyer A sells “pasalo” to Buyer B by private document (or even notarized Deed of Assignment), but:

  • PAG-IBIG has not been informed, or
  • PAG-IBIG refuses to recognize the transfer until its requirements are met.

In this case:

What rights does Buyer B really have?

  1. Rights against Buyer A (Personal Rights)

    • Between Buyer A and Buyer B, the pasalo agreement is binding:

      • Buyer B can demand that Buyer A:

        • Turn over documents,
        • Cooperate in dealing with PAG-IBIG,
        • Eventually execute needed documents once PAG-IBIG allows a transfer.

    • Buyer B can:

      • Seek rescission of their agreement if Buyer A cannot or will not comply with conditions (e.g., hiding arrears, refusal to cooperate).
      • Seek refund of amounts paid, plus damages.

  2. Very limited rights against PAG-IBIG without its consent

    • As to PAG-IBIG:

      • PAG-IBIG’s contract remains with Buyer A.
      • PAG-IBIG may accept payments made in Buyer A’s name, but Buyer B has no automatic right to insist on becoming the recognized buyer.

    • PAG-IBIG can:

      • Declare the account in default if payments lapse,
      • Cancel the award or Contract-to-Sell in accordance with its policies,
      • Dispose of the property to someone else.

  3. Risk of losing the property despite having paid Buyer A

    • If Buyer A:

      • Stops cooperating, or
      • Accumulates unpaid charges, or
      • Has other issues with PAG-IBIG,

    • PAG-IBIG can cancel the contract or forfeit payments as against Buyer A, which indirectly deprives Buyer B of the property.

  4. Buyer B’s primary remedies

    • Buyer B mainly has:

      • Contractual remedies against Buyer A, not against PAG-IBIG.

    • That means:

      • Suing Buyer A to compel him/her to obtain PAG-IBIG approval or to return payments.
      • However, litigation takes time and does not guarantee that PAG-IBIG will keep the property reserved.

Key takeaway: Without PAG-IBIG’s consent or recognition, Buyer B’s rights are mainly personal, not real, and the property remains at serious risk.

VI. Rights Against the Original Borrower and Other Occupants

Sometimes, even after foreclosure and auction, the property is still occupied by:

  • The original borrower, or
  • The borrower’s family, tenants, or other occupants.

As a buyer of a foreclosed property (whether directly from PAG-IBIG or via pasalo), your rights include:

  1. Right to possess the property

    • Ownership (or contractual right to become owner) includes the right to actual possession.

    • If the occupants refuse to vacate, the buyer can file:

      • Unlawful detainer (if they initially had permission but no longer have the right to stay), or
      • Forcible entry (if they entered without permission).

  2. Obligation to respect registered leases

    • If there is a lease annotated on title or otherwise binding (e.g., long-term lease known to buyer), the buyer may have to respect it until expiry, unless invalid.

  3. Right to collect rent

    • If the buyer allows tenants to stay, they can:

      • Demand rent,
      • Treat non-paying occupants as unlawful detainers.

  4. Protection as buyer in good faith

    • If the buyer relied on a clean title, properly foreclosed and consolidated, and had no knowledge of any defects, they have strong protection even if the original borrower later questions the foreclosure.
    • However, if the foreclosure is later annulled by court, the situation can become complex; the buyer can seek reimbursement and damages from the party who sold to them (and possibly from PAG-IBIG, depending on facts and rulings).

VII. Documentation That Strengthens a Pasalo Buyer’s Rights

To minimize risk, a pasalo buyer should insist on:

  1. From the Seller (Pasalo Giver):

    • PAG-IBIG Notice of Award, Contract-to-Sell, Deed of Sale, or other official documents;
    • Official receipts of payments to PAG-IBIG;
    • Copy of the foreclosure documents and auction award (for reference);
    • Copy of the title (TCT/CCT) and latest Tax Declaration;
    • Latest Real Property Tax (RPT) receipts and clearance;
    • Homeowners’ Association / Condominium dues ledger (to check arrears).

  2. From / With PAG-IBIG:

    • Written confirmation of:

      • Account status (balance, arrears, penalties),
      • Whether assignment/assumption is allowed,
      • Requirements to recognize Buyer B.

    • PAG-IBIG-approved:

      • Deed of Assignment of Rights, and/or
      • Assumption of Loan/Obligation documents.

  3. For the Pasalo Agreement Itself:

    • Notarized agreement:

      • Deed of Assignment of Rights,
      • Deed of Absolute Sale,
      • Assumption of Mortgage Agreement,

    • Clear schedule of payments and what is covered:

      • Payments made to seller vs payments to PAG-IBIG,
      • Penalties and arrears, who shoulders what,
      • What happens if PAG-IBIG refuses recognition.

  4. Registration / Annotation (if possible):

    • Annotate the Deed of Assignment/Contract on the title (if the Registry allows and PAG-IBIG consents).
    • This helps transform personal rights into opposable rights against third persons.

VIII. Financial and Tax Aspects Affecting Rights

Although these are mostly fiscal issues, they directly affect a buyer’s ability to complete transfer and secure title, thereby affecting legal rights:

  1. Capital Gains Tax (CGT) / Creditable Withholding Tax (CWT)

    • Usually owed by the seller in a private sale.
    • If not paid, the BIR will not issue clearance for transfer.

  2. Documentary Stamp Tax (DST)

    • Payable on the Deed of Sale and possibly on any loan or mortgage documents (if there is a new mortgage).

  3. Transfer Tax and Registration Fees

    • Local transfer tax must be paid before registering the transfer with the Registry of Deeds.

  4. Real Property Tax (RPT)

    • Unpaid RPT can result in tax delinquency and even tax sale.
    • The buyer should clarify who pays prior years’ RPT (usually the seller).

Failure to settle these can indefinitely delay the transfer of title, leaving the buyer with only equitable or contractual rights but no registered ownership.

IX. Key Risks Unique to PAG-IBIG Foreclosed Properties Sold Pasalo

  1. Unrecognized Assumption

    • Biggest risk: PAG-IBIG does not recognize Buyer B, only sees Buyer A (or the original borrower) as its debtor.

  2. Account Already in Arrears

    • Buyer B discovers that:

      • There are large arrears and penalties,
      • Foreclosure or cancellation proceedings are underway.

  3. Double Sale

    • Seller “pasalo” to more than one buyer.
    • Priority usually goes to the buyer who first registers the sale/assignment in good faith.

  4. Defects in Foreclosure

    • Original borrower challenges the foreclosure proceedings (e.g., defective notice).
    • If court later annuls foreclosure, title chain may be affected; buyer then has to rely on warranties/damages from seller and possibly PAG-IBIG.

  5. Hidden Liens

    • Unannotated but enforceable obligations (e.g., unpaid association dues, utilities, RPT) that the buyer ends up shouldering to avoid disconnection or legal issues.

  6. PAG-IBIG Policy Changes

    • PAG-IBIG may change procedures or guidelines for:

      • Assumption of loans,
      • Assignment of contractual rights,
      • Computation of penalties.

    • This can affect the feasibility of regularizing a pasalo arrangement.

X. Remedies of the Pasalo Buyer

If things go wrong, the pasalo buyer (Buyer B) may resort to:

  1. Against the Seller (Pasalo Giver):

    • Rescission of contract

      • If the seller cannot deliver what was promised (e.g., cannot secure PAG-IBIG approval, concealed arrears), Buyer B can seek rescission.

    • Specific performance

      • Force the seller to:

        • Execute necessary documents,
        • Cooperate with PAG-IBIG,
        • Pay arrears they promised to shoulder.

    • Damages

      • For expenses, lost opportunities, moral and exemplary damages (if bad faith is proven).

  2. Against PAG-IBIG (Limited)

    • Usually not based on pasalo contract, but on:

      • PAG-IBIG’s own contracts and policies,
      • Principles of equity or quasi-contract (e.g., if PAG-IBIG accepted payments).

    • Buyer B can:

      • Request formal novation/assumption in their favor.
      • Negotiate for restructuring, condonation of penalties, etc. (depending on programs).

    • However, PAG-IBIG is not obliged to recognize a stranger simply because of a private pasalo arrangement.

  3. Against Third Parties / Occupants

    • Ejectment suits to recover possession.
    • Quieting of title / cancellation of adverse claims.
    • Actions against double-selling sellers if multiple sales occurred.

XI. Practical Guidelines / Best Practices for a Pasalo Buyer

  1. Treat the deal as a serious legal transaction, not just a handshake.

  2. Insist on seeing original PAG-IBIG documents and independently verify the account status directly with PAG-IBIG (not only via the seller).

  3. Where possible, secure PAG-IBIG’s written consent and approval of:

    • Assignment of rights,
    • Assumption of mortgage/obligation,
    • Transfer of the account to your name.

  4. Have all agreements notarized and, when allowed, annotate on the title.

  5. Clarify in writing:

    • Who pays arrears, penalties, association dues, taxes, and in what amounts.
    • What happens if PAG-IBIG refuses to recognize the transfer.

  6. Plan for taxes and fees so you can actually complete title transfer later.

  7. Consult a Philippine lawyer experienced in:

    • Real estate,
    • PAG-IBIG-acquired assets,
    • Foreclosure and registration, especially if large amounts are involved or documents look problematic.

XII. Final Note (Non-Lawyer–Client Disclaimer)

This article provides a general legal discussion of the rights of a buyer of a PAG-IBIG foreclosed house sold “pasalo” after public auction, under Philippine law principles. Actual rights and remedies depend heavily on:

  • The exact documents signed,
  • The status of the PAG-IBIG account,
  • Whether PAG-IBIG approved or recognized the transfer,
  • The facts surrounding foreclosure and possession.

For any real transaction, it’s strongly advisable to bring all papers to a Philippine lawyer for a specific opinion and contract drafting before handing over significant money.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

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