LEGAL CONSULTATION

Client Name: Ms. Bungay

Address:
Contact Number:

FACTUAL ANTECEDENTS:

Ms. Bungay applied for a contract of loan (house financing) with BDO. On December
2020, her amortization payment was due but she was not able to pay due to some
personal reasons. Hence, for failure to pay the amount due, BDO charged her of Php
2,000.00 penalty per day of delay in payment.

Initial loan: Php 1.7M

Current Loan with penalties: Php 3M

ISSUES/QUERIES:
1. Is pasalo allowed?
2. Recourse to pay the property

DOCUMENTS REQUIRED FOR REVIEW:

1. Copy of the Loan Contract with BDO
2. Starting date of payment
3. Date of maturity
4. Period of failure to pay (months covered)
5. Current Market Value of the Property
6. Outstanding Mortgage of the Loan
7. Total amount of the penalties incurred

LEGAL OPINION:

SALE WITH ASSUMPTION OF MORTGAGE

A less conventionalway of buying a property involves a process called loan assumption

or pasalo, as it’s colloquially called. For those who aren’t very familiar, the name literally
means bearing someone else’s debt. Believe it or not, this may actually prove beneficial
for you, especially when you’re looking for a good deal in the property market. On the
flip side, sellers can score some really good financial perks in this transaction. Here’s
what you need to know about loan assumption or pasalo:

How Pasalo Works

When you buy a property through loan assumption, you’re taking on the mortgage
payment from someone else, and at the same time, paying the actual selling price of
the property. For instance, the value of a certain home is P5 million, with an
outstanding mortgage balance of P2 million. Depending on your negotiations with the
seller, you may be able to get the house for only a million pesos or so, as you assume
the responsibility of paying the debt of P2 million to the creditor for the next months or
years. 

Once the title is successfully transferred to you, the former owner will be free from loan
obligations as you assume balance.

Why Choose to Assume Balance

The first reason people choose this route when buying a property was already
mentioned above: better costs. Usually, such homes for assume balance come with a
price lower than the market value for different reasons. In some cases, sellers want to
dispose of property fast, so they tend to be more flexible when it comes to pricing. In
other cases, the asset has simply depreciated in value over time, and therefore isn’t
comparable to other new offerings in the market. 

Another financial benefit in assuming the balance is the promising interest rates. In
most instances, the assumed interest rate is lower than the current rates. Do take note
that the creditor’s permission is still necessary before the transfer, as the law
prescribes. More than abiding by the regulations, involving the creditor is important for
practical reasons. They need to know who holds the title and pays the monthly
obligations after the sale.

The bottom line is, the buyer gets significant savings in pasalo. You can use it
to renovate the property and achieve your dream home or sell it yourself for a more
competitive price.
As for sellers, pasalo is beneficial for dire financial situations, such as when you’re not
able to pay for the current mortgage anymore and you need instant cash. With loan
assumption, you get to be free from obligations and at the same time, pool your
resources.

What Documents Are Necessary for Pasalo?

The Assignment of Contract is one of the important documents in the loan assumption
process. This is a legal document stating that the seller is handing off the contract’s
obligations and benefits to you. Basically, there’s an outline of terms and conditions you
and the seller agree on. It goes without saying that you should have a competent
lawyer drafting or reviewing these kinds of documents to make sure that you’re safe
from any potential risks.

Another document necessary in the process is the Notice of Assignment of Contract.

Since a third-party is involved, namely the creditor, they need to be notified in writing
about your agreement. With this, they should be fully informed that you’re the one
settling obligations and receiving benefits moving forward.

Where to Find ‘Pasalo Homes’

There’s no centralized marketplace for ‘pasalo homes.’ In fact, most of the transactions
happen because of word of mouth. That’s because most buyers and sellers are more
confident in going through the process by virtue of trustworthy referrals. Nonetheless,
there are some sellers who use online platforms to promote their properties. For
instance, if you go to Lamudi, you’ll be able to find houses and lots, as well as condos
that are for pasalo.

How to Have a Smooth-Sailing Transaction

Just like any other purchase deals, be sure to tread this process of assuming balance
carefully. Follow these tips to experience less headaches down the road:
 

o Learn more about the mortgage. Know what type it is. Look into
the terms and conditions. The more that you know, the better you
can prepare for financial obligations ahead.
o Arrange your finances. Just because you’re getting a good deal
doesn’t mean you have to go lax on building up savings. Remember,
you’re going to pay the seller upfront for the equity of the property,
so you need to be prepared for that.
o Partner with professionals. Find good lawyers and brokers who
can help you make good investment decisions.

Are you looking for a good real estate deal in the market? Try the less conventional way
of property ownership. It might be just what you need to achieve that home sweet
home or first-ever income property.