Safety Considerations When Buying a Pasalo: Seller’s Name vs Bank Title

Safety Considerations When Buying a Pasalo: Seller’s Name vs Bank Title (Philippine Context)

In the Philippines, buying property through a pasalo arrangement can be an attractive option, especially when looking for flexible payment terms or a lower upfront cost. Pasalo typically involves taking over—or “assuming”—the remaining balance and responsibilities on an existing loan or financing contract from the current owner or borrower. Despite its appeal, such an arrangement is not without risks. This article discusses the key safety considerations when the property is still under the bank’s title versus when the property is already in the seller’s name.

1. Understanding Pasalo

1.1 Definition and Common Scenarios

  • Pasalo (sometimes referred to as “assume balance” or “assumption of mortgage”) occurs when a person (“Buyer”) takes over the seller’s outstanding loan obligations for a property. The buyer usually pays the seller for all amounts already paid to the bank or developer, then continues paying the remaining loan directly to the lender or through a new financing agreement.
  • Common scenarios include:
    • A seller who has a loan with a bank (the property title is mortgaged to the bank, or still in the bank’s name).
    • A property purchased from a developer under a Contract to Sell, but not yet fully paid or titled in the seller’s name.

1.2 Why Pasalo Appeals to Buyers and Sellers

  • Buyer’s perspective: Lower upfront costs, immediate possession of the property, and potentially easier-than-normal loan qualifications if the bank or developer consents to the assumption.
  • Seller’s perspective: Enables a quick exit from the property to avoid foreclosure or default. They recoup what they’ve already spent on monthly amortizations or down payments.

2. Seller’s Name on Title vs. Bank Title

The phrase “Seller’s Name vs. Bank Title” alludes to who holds the legal title to the property when you buy via pasalo.

  1. Seller’s Name on the Title

    • This usually means the property has already been transferred to the seller.
    • If the property is still mortgaged, the title will bear an annotation of the mortgage in favor of the bank or financing institution.
    • Even if the seller is the registered owner, you must verify if there is an existing mortgage or any liens/encumbrances.

  2. Bank Name on the Title (Mortgaged Property)

    • In some setups, especially if the loan is new or the property has not been fully paid, the bank remains the registered owner. Alternatively, the bank may hold the seller’s Transfer Certificate of Title (TCT) and have an encumbrance on it.
    • The seller typically only has an equitable interest (the right to eventually get full ownership upon paying off the loan).
    • If the title is in the bank’s name, the buyer cannot complete a traditional sale transfer unless the loan is settled or restructured under the buyer’s name with the bank’s approval.

3. Legal Framework

3.1 Civil Code Provisions (Assignment of Rights)

The Philippine Civil Code allows for the assignment of rights (Article 1624 onwards). In a pasalo, the seller (assignor) transfers his/her rights under the loan or the Contract to Sell to the buyer (assignee). However, the lender (bank or developer) must typically consent in writing; otherwise, the buyer might not be recognized legally if any dispute arises.

3.2 Maceda Law (RA 6552)

For residential real properties under installment (e.g., a Contract to Sell with a developer), the Maceda Law affords certain protections to buyers who have paid at least two years of installments. If you are assuming the seller’s installment payments, it is crucial to confirm the seller’s payment status and the rights you might be stepping into.

3.3 PD 957 / Department of Human Settlements and Urban Development (DHSUD) Rules

For subdivisions and condominiums, Presidential Decree No. 957 and its implementing rules (currently overseen by the DHSUD) apply. If the property is under developer financing, ensure that the developer’s consent to the assignment is secured. This helps protect against losing your payments if the developer refuses to acknowledge the pasalo arrangement.

4. Risks and Pitfalls

  1. Lack of Bank or Developer Consent

    • Many pasalo transactions happen informally, without notifying the bank or developer. This is risky because the original loan might remain in the seller’s name. If the buyer defaults on payments, the seller could still be liable, leading to disputes or possible foreclosure.

  2. Hidden Liabilities and Encumbrances

    • If the seller has other unpaid debts secured by the same property or undisclosed liens (e.g., unpaid property taxes, homeowners’ association dues), these could burden the buyer later.
    • When the property is still in the bank’s name, it’s crucial to ascertain whether the seller is current on all payments.

  3. Difficulty in Title Transfer

    • If the buyer and seller skip the formal process of transferring or updating the loan, the buyer could face problems when trying to formalize ownership down the line.
    • A bank may require a new loan application and credit check for the buyer to assume the mortgage legally.

  4. Potential Breach of Contract

    • If the seller’s contract with the bank or developer explicitly prohibits the assignment of rights without prior consent, an unauthorized pasalo can be a breach. This may lead to contract cancellation, forfeiture of payments, or legal action by the bank or developer.

  5. Possibility of Double Sale

    • Without a secure Deed of Assignment and updated records, an unscrupulous seller might attempt to “sell” the same rights to multiple buyers. Always verify the property’s status at the Registry of Deeds and ensure that any assignment is annotated.

5. Safety Considerations and Best Practices

  1. Verify Ownership and Title Status

    • Obtain a certified true copy of the Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT) from the Registry of Deeds.
    • Check if the title is still in the bank’s name, or if it’s in the seller’s name with a mortgage annotation. Confirm that the property details match what the seller claims.

  2. Obtain a Statement of Account or Loan Balance

    • Request an updated Statement of Account from the bank or financing entity. This lets you see the remaining balance, interest rate, monthly amortization, and if there are arrears or penalties.
    • If the loan is developer-financed, ask for the seller’s payment history and outstanding balance from the developer.

  3. Secure Written Consent from the Bank or Developer

    • If you are assuming the mortgage, seek the lender’s (bank’s) express approval. They will likely conduct a credit check or may ask you to enter into a new loan agreement.
    • For a Contract to Sell with a developer, secure an “Assignment of Contract” or “Deed of Assignment” duly acknowledged by the developer.

  4. Draft a Comprehensive Deed of Assignment/Assumption Agreement

    • Clearly outline the terms of taking over the loan, the total amount you are paying to the seller, and each party’s responsibilities moving forward.
    • Have the document notarized and, if possible, annotated on the property’s title or the relevant records with the bank or developer to prevent double sales or disputes.

  5. Conduct a Due Diligence Check

    • Verify that the seller is not in default. If the loan is already in arrears, the bank or developer could proceed with foreclosure or cancellation.
    • Check local real property tax records to ensure that taxes are paid up to date.
    • Look into homeowners’ association (HOA) dues and utility bills, as any unpaid charges could become your liability.

  6. Consider a Legal Retainer or Consultation

    • It is advisable to consult a lawyer to review documents and identify red flags. The legal fees could save you from a costly mistake down the road.

  7. Plan for the Final Transfer of Title

    • Once the loan is fully paid, you can process the cancellation of the mortgage at the Registry of Deeds (if the title is in the seller’s name) or effect the transfer to your name (if the bank held the title).
    • Ensure all documentary stamps, capital gains tax (if applicable), transfer fees, and other transaction costs are settled.

6. Practical Scenarios

  1. Scenario A: Title Already in Seller’s Name

    • Mortgaged Property: The title says “Transfer Certificate of Title No. 12345” under the seller’s name, with an annotation that there is a mortgage to XYZ Bank.
    • Key Steps:
      • Confirm that you can assume the loan.
      • Execute a Deed of Assignment of Mortgage Rights or a new loan agreement.
      • Once fully paid, cancel the mortgage annotation and keep the title in your name.

  2. Scenario B: Bank/Developer Retains Title

    • Mortgaged Property Without Transfer: The bank or developer still holds the original TCT/CCT.
    • Key Steps:
      • Secure the bank/developer’s written consent to your assumption.
      • Pay the agreed-upon “take-out” fee to the seller for the equity they have built.
      • Update the loan contract under your name (if possible) or have a formal assignment recognized by the bank or developer.
      • Once the loan is fully settled, process the transfer of title to your name.

7. Conclusion

Buying a property pasalo in the Philippines can be a valid and financially beneficial route—but only if done with thorough due diligence and proper documentation. The core issue often revolves around whether the title is genuinely in the seller’s name or still held by the bank. Regardless of how appealing the deal appears, the fundamental safety considerations remain:

  1. Verify actual ownership and outstanding obligations.
  2. Obtain written consent from the lender or developer when assuming a loan.
  3. Execute a legally binding, notarized assignment or assumption agreement.
  4. Protect yourself by ensuring all encumbrances, taxes, and fees are disclosed and settled.

If you consider these steps, you can navigate the complexities of a pasalo transaction more confidently and protect your investment in the long run. Always remember that consulting a qualified real estate lawyer and coordinating with the bank or developer are crucial for a legally compliant and secure transaction.

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. Always consult a lawyer for guidance tailored to your specific circumstances.

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

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