I. Introduction

In Philippine practice, many homeowners finance their purchase through a Pag-IBIG Fund (Home Development Mutual Fund or “HDMF”) housing loan. When circumstances change—migration, job loss, separation, or better opportunities—an owner may wish to sell even while the property remains mortgaged to Pag-IBIG. This creates a three-party legal reality: (1) the borrower–seller (registered owner and Pag-IBIG member), (2) the buyer (incoming occupant/payer), and (3) Pag-IBIG as mortgagee (lender holding a real estate mortgage annotated on the title).

Two popular labels often appear in advertisements:

“Pasalo” (literally, “to pass on”), usually meaning the buyer takes over payments and possession.
“Assume balance”, usually meaning the buyer pays a down payment to the seller and then continues the remaining amortizations.

Those labels are not, by themselves, legal mechanisms that automatically transfer ownership or the loan obligation. In a Pag-IBIG-mortgaged sale, the critical legal questions are:

Who owns the property on paper?
Who is liable to Pag-IBIG for the loan?
What documents are required to transfer title and/or the loan?
What are the risks if the parties do “pasalo” informally?

This article explains the common structures, the legal rules that make them work (or fail), and the typical requirements and sequence for a compliant transfer.

II. Basic Legal Framework

A. Ownership vs. Mortgage

A Pag-IBIG housing loan is secured by a Real Estate Mortgage (REM) over the property. In most cases, the title is in the borrower’s name, with the REM annotated. The borrower is still the owner, but Pag-IBIG has a security interest that restricts what the owner can do.

Key consequence: You generally cannot freely sell or transfer a mortgaged property without addressing the mortgagee’s rights. The annotated mortgage puts the world on notice that Pag-IBIG has a lien.

B. Consent of the Mortgagee

In practice, a buyer wants a clean title, and Pag-IBIG wants a borrower it has approved. Most Pag-IBIG loan contracts and mortgage arrangements treat a sale/transfer without consent as a violation that can trigger remedies, including acceleration or foreclosure. Even when the parties privately agree that the buyer will pay, Pag-IBIG can still insist that the original borrower remains liable unless Pag-IBIG formally approves a transfer/assumption/refinancing.

C. Contractual Liability: The Borrower Remains the Borrower Unless Released

Even if the buyer pays the monthly amortizations, the loan remains in the seller’s name unless Pag-IBIG formally transfers/approves assumption and issues the corresponding documents. If the buyer stops paying, Pag-IBIG will run after the original borrower. The seller’s remedy is then against the buyer based on private contracts—which can be slow, costly, and uncertain.

III. Common Transaction Structures (and What They Really Mean)

A. Informal “Pasalo” / Pure Assumption in Practice (High Risk)

Typical setup: Buyer pays the seller a lump sum (often called “equity”), moves in, and pays monthly amortizations (sometimes by giving cash to the seller, or using the seller’s payment channels). Title remains in seller’s name; loan remains in seller’s name.

Legal reality:

Ownership does not transfer by possession or by merely paying amortizations.
The buyer’s interest is usually only contractual (a right to demand transfer later).
The seller remains liable to Pag-IBIG.
The buyer risks losing everything if the seller dies, disappears, sells again, or if heirs contest.

When it fails: It often collapses on death, separation, overseas issues, or when either party refuses to sign final transfer documents.

B. Sale with Pag-IBIG-Approved Assumption of Mortgage (Proper Assumption)

Concept: The buyer becomes the new borrower, subject to Pag-IBIG’s approval. This is closest to what most people intend by “assume balance.”

Effect:

The buyer is evaluated for eligibility, capacity to pay, and compliance.
Upon approval, Pag-IBIG issues/recognizes the assumption/transfer, and internal loan records are updated.
The seller may be released from loan liability only to the extent provided by Pag-IBIG’s approval and documents.

Practical result: This is the cleanest path if the buyer wants to continue the existing loan terms (or a revised set of terms) and eventually obtain a title free from disputes.

C. Sale via Loan Takeout / New Loan / Refinancing (Buyer Gets Their Own Loan)

Concept: Buyer secures their own financing (from Pag-IBIG or a bank). The proceeds pay off the seller’s Pag-IBIG loan, and the mortgage is cancelled. Then title is transferred to buyer, and buyer’s new mortgage is annotated (if any).

Effect:

Seller’s Pag-IBIG loan is fully paid and closed.
Mortgage is released, allowing a cleaner sale and transfer.
Buyer’s financing stands on its own approval and timeline.

D. Sale with Full Settlement (Cash Buyer)

Buyer pays in cash (or through other means), seller fully pays off Pag-IBIG, mortgage is cancelled, then title is transferred.

Most straightforward legally, though not always financially feasible.

IV. Core Legal Documents and Why They Matter

A. Contract to Sell vs. Deed of Absolute Sale

Contract to Sell (CTS) Common when there are conditions to be met first (e.g., buyer must get approved for assumption, or must complete payments). Ownership is reserved until conditions are met.
Deed of Absolute Sale (DOAS) Transfers ownership upon execution/delivery (and registration). If you sign a DOAS while the mortgage is unresolved, you can create conflicts: buyer thinks they own; title can’t be cleanly transferred; Pag-IBIG still has a lien; and the Register of Deeds may not process transfer without requirements/consents.

Practical drafting note: Many Pag-IBIG mortgaged transactions use a CTS first, then execute the DOAS only upon Pag-IBIG approval and satisfaction of prerequisites.

B. Pag-IBIG Forms/Consents/Approval Instruments

The most important “document” is not private—it is Pag-IBIG’s written approval or the official process that results in the buyer being recognized as the new borrower or the loan being paid off and mortgage released.

C. Special Power of Attorney (SPA)

Common when:

Seller is abroad or cannot personally appear.
Buyer needs authority to process assumption, pay-off, or title transfer steps.
The parties want a controlled mechanism for paying and signing.

SPA must be specific about powers (sell, sign DOAS, process Pag-IBIG assumption, pay taxes/fees, receive proceeds, etc.). For overseas SPAs, notarization/consularization (or apostille, depending on jurisdiction and rules applied) is crucial.

D. Acknowledgment of Payments / Official Receipts / Escrow

In “assume balance” deals, disputes often arise about how much equity was paid and what it covered. Paper trails (receipts, bank transfers, schedules, and acknowledged statements) are essential.

Escrow (through a bank, lawyer, or agreed escrow agent) is often the safest way to release money only upon meeting conditions like Pag-IBIG approval.

V. Pag-IBIG Transfer/Assumption: Eligibility and Practical Gatekeepers

Even when both parties agree, Pag-IBIG’s approval is not automatic. The buyer generally must meet eligibility requirements similar to any borrower, which commonly include:

Active Pag-IBIG membership and sufficient contributions (subject to Pag-IBIG rules applicable to the buyer’s status)
Acceptable age and capacity to pay within term limits
Satisfactory credit evaluation and employment/income verification
Compliance with property and loan account status (no problematic arrears or unresolved issues)
Acceptable loan-to-value or remaining balance, depending on the structure

Important: If the account is delinquent, Pag-IBIG may require arrears to be settled before processing assumption or takeout.

VI. Transfer Requirements: The “Clean” Legal Path

While exact procedural steps vary by branch and case, a compliant transaction typically follows this order:

Step 1: Due Diligence (Before Any Money Changes Hands)

For the buyer:

Verify the seller is the registered owner (check the title).
Verify the mortgage annotation and confirm Pag-IBIG is the mortgagee.
Confirm loan status: remaining balance, arrears (if any), penalties, and whether the account is in good standing.
Confirm property taxes are updated and no adverse claims or other liens exist.
Confirm actual occupancy and boundaries; check for HOA dues, utilities, and subdivision restrictions.

For the seller:

Confirm the buyer’s capacity and willingness to undergo Pag-IBIG assumption/takeout.
Decide the structure: assumption vs. takeout vs. payoff.

Step 2: Choose Structure and Execute the Correct Preliminary Contract

Best practice is to sign a Contract to Sell or Memorandum of Agreement with:

Clear purchase price breakdown (equity vs. balance)
Conditions precedent (Pag-IBIG approval, payoff, cancellation of mortgage, issuance of documents)
Possession terms (when buyer can move in; consequences of default)
Who pays arrears, taxes, insurance, HOA dues, transfer taxes, notarial and registration fees
Default provisions (for both buyer and seller)
Specific remedies and timelines
Escrow arrangement (recommended)

Step 3: Pag-IBIG Processing

Depending on structure:

A. Assumption / Transfer of Loan

Submit Pag-IBIG’s required forms and buyer’s eligibility documents.
Pag-IBIG evaluates and, if approved, issues the corresponding approval/transfer documentation and updates the loan account to the buyer (or implements the assumption mechanism).

B. Loan Takeout / New Loan

Buyer applies for a new loan.
Upon approval, proceeds are used to settle seller’s loan.
Mortgage is released; then title is transferred.

C. Full Payoff

Seller (or buyer through controlled payment) pays remaining balance.
Secure release documents for mortgage cancellation.

Step 4: Execution of Deed of Absolute Sale (or equivalent conveyance)

Once conditions are satisfied (approval obtained or mortgage payoff arranged), execute DOAS. Ensure:

Full names match title IDs
Spouses’ participation where required (see marital property discussion below)
Correct technical description
Notarization compliant with Philippine rules
Proper handling of documentary stamps and taxes

Step 5: Taxes, Registration, and Title Transfer

Typical post-sale steps include:

Payment of applicable taxes (often capital gains tax or creditable withholding tax, and documentary stamp tax, depending on classification)
Local transfer tax
Register of Deeds registration of the sale
Issuance of new title to buyer (still subject to any new mortgage, if applicable)
Update tax declaration with the Assessor’s Office

Note: If the property remains mortgaged (because buyer assumed the loan rather than paid it off), the title may still bear the mortgage annotation—only now reflecting the correct borrower relationship as recognized.

VII. Who Must Sign: Marital, Co-Owner, and Heirs Issues

A. Married Seller

If the seller is married, the spouse’s consent/signature may be required depending on:

Whether the property is conjugal/community property (or part of absolute community, depending on marriage regime)
Whether the title indicates marital status
Whether the property was acquired during marriage

Failure to secure the necessary spousal participation is a common cause of invalid or contestable transfers.

B. Co-Ownership

If the title has multiple owners, all co-owners (or duly authorized representatives) must sign the deed, or the sale may only cover the seller’s undivided share, which is usually undesirable for a buyer.

C. Death of Seller or Buyer

Informal “pasalo” becomes extremely risky upon death:

If seller dies, heirs may refuse to honor the arrangement.
Estate settlement and authority to sell become issues.
If buyer dies, the seller still owes Pag-IBIG; buyer’s heirs may dispute payments and possession.

These risks underscore why formal Pag-IBIG-approved transfer and proper documentation are essential.

VIII. Possession and Occupancy Before Full Transfer

Many “pasalo” deals involve the buyer moving in immediately. This is legally sensitive.

A. Lease-to-Own or Temporary Occupancy Agreement

If the buyer occupies before title/loan transfer, parties should address:

Whether occupancy is rent, amortization, or part of purchase price
What happens if Pag-IBIG denies assumption
Who pays utilities, repairs, association dues, real property tax
Eviction/return of possession if conditions fail

B. Risk of Ejectment and Collection Suits

Without clear documents, disputes can escalate into:

Ejectment (unlawful detainer) cases about possession
Civil actions for collection, rescission, damages
Criminal allegations in extreme fact patterns (e.g., double sale issues)

IX. Default Scenarios and Legal Consequences

Scenario 1: Buyer Stops Paying

Pag-IBIG proceeds against the original borrower (seller) if loan not officially transferred.
Seller may face foreclosure.
Seller sues buyer for breach of contract, but the property could already be lost.

Scenario 2: Seller Takes Buyer’s Payments But Does Not Transfer

Buyer may sue for specific performance or rescission/damages.
Buyer risks losing if seller sells to another or encumbers the property further.

Scenario 3: Pag-IBIG Denies Assumption

If deal was conditioned on approval, parties revert per contract: return of payments (less agreed deductions), vacate premises, or shift to payoff/takeout.

Scenario 4: Delinquent Account at Time of “Pasalo”

Penalties accrue; risk of foreclosure rises.
Any private arrangement that doesn’t cure arrears is structurally unstable.

X. Taxes and Fees: Allocation and Common Pitfalls

In Philippine conveyancing, taxes and fees can be substantial, and disputes are common if not clearly allocated. Contracts should specify responsibility for:

Notarial fees
Documentary stamp tax and registration fees
Local transfer tax
Capital gains tax or creditable withholding tax (depending on the nature of seller and property)
Unpaid real property taxes and penalties
Association dues and utility arrears
Pag-IBIG processing fees (if any) and related administrative costs

Pitfall: Parties sometimes agree on a “net to seller” price without understanding which taxes are assumed by whom, leading to delays that can cause missed deadlines, penalties, and failed transfers.

XI. Practical Safeguards for a Legally Sound Transaction

A. Insist on Pag-IBIG Recognition (Assumption or Payoff)

Treat Pag-IBIG approval or payoff as a non-negotiable milestone. Avoid structures where the buyer pays for years while the seller remains borrower on record.

B. Use a Contract That Matches Reality

If transfer is not immediate, use a Contract to Sell with clear conditions and a detailed payment schedule. Avoid prematurely executing a DOAS when you cannot yet deliver registrable title transfer.

C. Control the Money (Escrow and Milestone Releases)

Tie release of equity/down payment to:

Filing/acceptance of assumption application
Approval
Execution of final deed
Registration milestones

D. Document Possession Carefully

If buyer occupies early, document it with explicit terms and default consequences.

E. Avoid Paying Through Informal Channels

Have a transparent payment mechanism, ideally directly recognized and receipted, and ensure traceability.

XII. Frequently Used Terms Clarified

“Pasalo”

A colloquial marketing term. It can refer to anything from informal payment take-over to a proper assumption approved by Pag-IBIG. Legally, it has no fixed meaning unless defined in the parties’ contract and validated by required third-party consents.

“Assume Balance”

Usually indicates the buyer pays the seller’s equity and takes over remaining amortizations. Legally effective only if the lender recognizes the assumption or the loan is taken out/paid off with proper title transfer.

“Transfer of Rights”

Sometimes used when title transfer is not yet possible, or when the seller’s interest is contractual (e.g., where the property is under a developer arrangement). In a titled, mortgaged property, “transfer of rights” can be insufficient if it attempts to bypass necessary lender and registry requirements.

XIII. Special Notes on Developer-Related Properties and Other Variants

Some Pag-IBIG-financed properties originate from developers and subdivisions with their own restrictions, such as:

Required developer clearance
Restrictions on assignment or sale within a certain period
HOA/condominium corporation requirements

These private restrictions can delay or block transfers even if Pag-IBIG is willing. Contracts should account for them and require the seller to deliver necessary clearances.

XIV. A Practical Compliance Checklist (Seller and Buyer)

Buyer’s checklist (minimum)

Copy of title and latest certified true copy verification
Confirmation of Pag-IBIG loan status and remaining balance
Check for arrears, penalties, and foreclosure risk
Draft contract with conditions tied to Pag-IBIG approval or payoff
Proof of seller authority and spouse/co-owner consent
Clear allocation of taxes/fees
Escrow or controlled fund release

Seller’s checklist (minimum)

Updated loan statement / status confirmation
Authority documents (spouse consent, co-owner participation, SPA if needed)
Clear plan for arrears and payoff/assumption pathway
Preparedness to execute registrable deed and support registration
Clear turnover conditions and possession documentation

XV. Conclusion

Selling a Pag-IBIG mortgaged house is legally feasible, but only if the transaction respects the separation between (1) ownership, (2) loan liability, and (3) mortgagee consent. “Pasalo” and “assume balance” are not magic shortcuts; they are labels that must be anchored to enforceable contracts and, crucially, to Pag-IBIG’s formal approval or a full loan payoff. The safest outcomes come from properly structured assumption/takeout/payoff arrangements, documented milestones, controlled payments, and compliant registration—so that the buyer obtains registrable ownership and the seller is truly released from the risks of a loan that remains in the seller’s name.