Letter to a Lawyer

Dear Attorney,

I hope this message finds you well. I am seeking your legal advice on a matter involving a PAG-IBIG housing loan. My property, which is under a PAG-IBIG financing arrangement, has not yet been fully paid. I am considering entering into a contract to sell the property to a buyer, but I am unsure if this is legally permissible given the current status of the loan.

Could you please advise me on the legal aspects of this matter? Specifically, I would like to know if it is possible to proceed with the sale, what requirements or restrictions may apply, and how I can ensure compliance with Philippine laws and PAG-IBIG Fund regulations.

Thank you in advance for your guidance.

Sincerely,
A PAG-IBIG Borrower

Legal Considerations in Selling a PAG-IBIG Housing Loan Property Under Contract to Sell

Selling a property financed by PAG-IBIG while the loan is still active raises several legal and practical considerations. Under Philippine law and the PAG-IBIG Fund's terms and conditions, there are specific rules governing the sale of mortgaged properties, particularly when the loan has not yet been fully paid.

1. General Legal Framework

The legal framework for this situation includes the Civil Code of the Philippines, the Property Registration Decree (Presidential Decree No. 1529), and PAG-IBIG Fund’s specific policies. Additionally, basic principles of obligations and contracts, property law, and the rights of creditors and debtors will come into play.

1.1. Mortgaged Properties and Restrictions on Sale

When a PAG-IBIG housing loan is granted, the property is typically mortgaged to PAG-IBIG as collateral for the loan. A mortgage creates a legal encumbrance, which means:

Encumbrance on Title: The title to the property will indicate that it is mortgaged to PAG-IBIG. This serves as public notice that the property is encumbered.
Consent Requirement: The borrower, as the mortgagor, cannot unilaterally sell or transfer ownership of the property without the consent of PAG-IBIG, the mortgagee. This is because the lender’s interest in the property must be protected until the loan is fully repaid.

1.2. Implications of Selling Without PAG-IBIG’s Consent

If a borrower attempts to sell the property without PAG-IBIG’s prior approval, several legal consequences may arise:

Violation of Loan Terms: Such an act may constitute a breach of the loan agreement, leading to possible foreclosure.
Voidable Transaction: The sale might be considered voidable, as it transfers ownership without addressing the encumbrance or the lender’s rights.
Potential Liability: The seller could face legal liability for misrepresentation if the buyer is unaware of the encumbrance.

2. Contract to Sell vs. Deed of Sale

It is important to distinguish between a contract to sell and a deed of sale:

Contract to Sell: This is a preparatory agreement where the seller agrees to transfer the property to the buyer upon fulfillment of certain conditions, such as full payment of the purchase price. Ownership remains with the seller until these conditions are met.
Deed of Sale: This is a definitive agreement that transfers ownership of the property to the buyer. In the context of a PAG-IBIG property, a deed of sale cannot be executed without PAG-IBIG’s consent if the loan is unpaid.

A contract to sell may be used as an interim arrangement to formalize the intention to sell the property, subject to PAG-IBIG’s approval and other conditions.

3. Steps for Selling an Unpaid PAG-IBIG Housing Loan Property

3.1. Notify PAG-IBIG

The first step is to notify PAG-IBIG of your intent to sell the property. This is crucial because PAG-IBIG has the following rights:

To approve or disapprove the sale.
To collect any outstanding balance from the proceeds of the sale.

3.2. Secure PAG-IBIG’s Approval

You must secure PAG-IBIG’s written consent for the sale. PAG-IBIG may require the following:

Full Settlement of Loan: PAG-IBIG may require the loan to be fully paid before the property can be sold. This is typically done by deducting the outstanding balance from the sale proceeds.
Assumption of Mortgage: In some cases, PAG-IBIG may allow the buyer to assume the mortgage. This means the buyer takes over the responsibility of paying the loan, subject to PAG-IBIG’s approval.

3.3. Prepare the Necessary Documents

To formalize the sale, you will need the following documents:

A copy of the Contract to Sell or Deed of Sale, depending on the arrangement.
A Mortgage Clearance or similar document from PAG-IBIG indicating their approval of the transaction.
Other supporting documents, such as the property’s tax declaration, certified true copy of the title, and a statement of account from PAG-IBIG.

4. Practical and Legal Tips

4.1. Full Disclosure to the Buyer

Inform the buyer that the property is under a PAG-IBIG housing loan. This ensures transparency and protects you from potential disputes.

4.2. Use of Escrow Arrangement

Consider using an escrow arrangement for the transaction. The buyer’s payment can be held in escrow until the PAG-IBIG loan is settled, ensuring that both parties’ interests are protected.

4.3. Work with a Lawyer

Given the complexities involved, it is highly advisable to work with a lawyer who can draft and review the necessary documents, liaise with PAG-IBIG, and ensure compliance with legal requirements.

5. Relevant PAG-IBIG Policies

PAG-IBIG’s policies on loan transfers and property sales are guided by its internal rules and regulations. Some key considerations include:

Assumption of Loan Agreement: PAG-IBIG may allow a buyer to assume the loan, provided the buyer meets the Fund’s eligibility criteria.
Restructuring Options: If the buyer prefers, they may restructure the loan under new terms.

6. Examples and Case Scenarios

Scenario 1: Sale with Full Payment

A borrower sells their PAG-IBIG property for PHP 2,000,000, and the outstanding loan balance is PHP 1,500,000. The buyer pays the seller, who then settles the loan with PAG-IBIG. PAG-IBIG releases the mortgage, allowing the sale to proceed.

Scenario 2: Assumption of Mortgage

A borrower finds a buyer willing to assume the loan. The buyer submits documents to PAG-IBIG, including proof of income and identification. PAG-IBIG approves the assumption, and the buyer takes over the loan payments.

7. Potential Challenges

Delays in PAG-IBIG Approval: Processing time for approval may vary.
Buyer Qualification: The buyer must meet PAG-IBIG’s criteria for assuming the loan.
Outstanding Obligations: Any arrears in loan payments or property taxes must be settled before the sale.

Conclusion

Selling a PAG-IBIG-financed property under a contract to sell is possible but requires compliance with legal requirements and PAG-IBIG’s policies. The key steps include securing PAG-IBIG’s consent, fully disclosing the property’s status to the buyer, and working with legal counsel to ensure the transaction is properly documented and executed. By taking these steps, you can navigate the process smoothly and minimize potential risks.