You found a good deal. Someone could no longer keep up with their monthly payments on a house, a lot, or a condominium unit, so they offered it to you at a fraction of what a new one would cost.
You paid them for the “equity,” and you took over the monthly amortization. Maybe you have been paying for two years already. Maybe five.
You have a folder full of receipts. You are living in the house, or your family is. Everyone in the neighbourhood knows it is yours.
Here is the uncomfortable truth: as far as the law and the Registry of Deeds are concerned, that property is not yours. It belongs to the person whose name is on the title, and it will keep belonging to them until a proper transfer is registered.
This is not a technicality. It is the difference between owning a house and holding a stack of paper.
What “Pasalo” Actually Means in Law
Pasalo – also called by some as “pa–assume balance” – is not a legal term. It describes an arrangement where you take over someone else’s obligation to pay for a property, in exchange for the right to eventually own it.
There are two common versions:
Pasalo from a developer. The original buyer signed a Contract to Sell for a subdivision house or a condominium unit and is still paying in instalments. No title has been issued yet.
Pasalo from a bank. The original buyer already took out a housing loan. The bank paid the developer, a title was issued in the original buyer’s name, and the bank annotated a mortgage on that title as security. The buyer now owes the bank, not the developer.
The second version is far more common and far more complicated, because there are three parties involved instead of two.
So is pasalo legal?
Yes. This is the first thing most people get wrong, usually because someone told them it was “illegal” or “bawal.”
A person who mortgages a property is still free to sell their rights over it. The Civil Code is explicit: any clause in a contract that forbids an owner from selling mortgaged property is void. The mortgage simply stays attached to the property – it follows the house wherever it goes and into whoever’s hands it passes.
Even an agreement written on plain paper, without a notary, is valid and binding between you and the seller. Notarisation is required so that a document can be registered and used against other people (e.g., annotating it at the back of the owner’s title) – not to make the sale itself effective.
So pasalo is lawful. Your agreement is real.
The problem is not that pasalo is illegal. The problem is that being right against the seller is not the same as being protected against everyone else.
The Risks Nobody Explains Before You Hand Over the Money
Most pasalo arrangements go fine for years. That is exactly what makes them dangerous – nothing goes wrong until something does, and by then you have paid hundreds of thousands of pesos.
1. The seller can sell it again
The title is still in their name. If they sell the same property to another buyer who registers the sale first, and that buyer did not know about you, the law gives the property to them. Not to you.
Your years of receipts do not defeat a registration. In a contest between paper in a drawer and an entry in the Registry of Deeds, the Registry wins.
2. The seller can die
This is the risk that catches the most people, and the one nobody wants to think about.
When the registered owner dies, the property forms part of their estate. It passes to their heirs. You are no longer dealing with the person you made an agreement with — you are dealing with brothers, sisters, parents, or a spouse who may never have heard of you, and who now legally own the house you have been paying for.
It gets worse. Most housing loans carry mortgage redemption insurance. If the borrower dies, that insurance pays off the remaining loan. The mortgage is cancelled. The heirs inherit a clean, fully paid, unencumbered house — paid for with your money — and they have every financial reason to keep it.
You would then have to file a claim against the estate. That means lawyers, a court, and years.
3. The seller’s creditors can take it
On paper, that property is still an asset belonging to the seller. If they are sued and lose, or if they default on some other debt, a creditor can levy on that title. You would be a stranger to those proceedings.
4. The seller can simply stop cooperating
When the loan is finally paid off, someone still has to sign a Deed of Absolute Sale in your favour. That someone is the seller.
If they cannot be found, have moved abroad, have stopped answering, have changed their mind, or have decided that the property is now worth much more than what you paid them – you cannot transfer anything. A registered owner’s signature cannot be replaced by your receipts.
5. The seller might be married — or might get married
If the property was acquired during a marriage, a sale without the written consent of the spouse is void, not merely defective. Void means it never existed at all.
Sellers do not always volunteer this. Some are separated in fact but still married in law. Some marry after the pasalo. Either way, the problem lands on you.
6. You are not the borrower, no matter how much you pay
Many banks will not allow a transfer of the loan or a substitution of the borrower. When that happens, your monthly payments are paying off someone else’s debt.
Under the Civil Code, a person who pays another’s debt without that debtor’s consent can recover what they paid, but does not automatically step into the creditor’s shoes. Your protection has to come from your contract with the seller — because it will not come from the bank.
There is a further wrinkle. Most loan agreements contain a clause allowing the bank to demand the entire balance immediately if the property is sold or transferred without consent. If the bank discovers the arrangement, it can call in the whole loan.
7. The tax bill grows while you wait
Capital gains tax on the eventual transfer is computed on the zonal value at the time the Deed of Absolute Sale is signed — not the value when you agreed to the pasalo.
Zonal values go up. Every year you delay the transfer, the tax you will eventually pay gets larger. And although capital gains tax is legally the seller’s obligation, in practice the buyer almost always ends up paying it.
8. The Special Power of Attorney that dies with the signer
Many sellers who move abroad leave behind a Special Power of Attorney so that someone can sign the transfer documents later.
Here is what almost nobody knows: an ordinary SPA is automatically extinguished when the person who signed it dies. The Civil Code says so plainly. The document becomes worthless at precisely the moment you need it most.
An SPA can be drafted so that it survives death — but only if it contains specific provisions that a general template will not have. Most do not have them.
9. Someone will suggest backdating the documents
Sooner or later, a broker, an agent, or even a bank employee will suggest simply dating the documents to a period when the seller was still in the country, or before some deadline passed.
Do not do this. A notarised document certifies that the person signed in front of the notary on the date written. Dating it otherwise is falsification of a public document — a criminal offence that exposes not just the notary but everyone who asked for it. It also usually creates tax penalties rather than avoiding them.
There are lawful ways to achieve the same result. They are not difficult. They just require someone who knows them.
If You Are an OFW, You Carry Extra Risk
Overseas Filipino workers are the most common pasalo buyers in the Philippines — and the most exposed.
You have the savings to pay the equity. You want a home waiting for you. But you are ten thousand kilometres away, you cannot walk into the Registry of Deeds yourself, and you are relying on a relative, a friend, or an agent to handle everything.
A few things worth knowing:
A photo of a title proves nothing. Anyone can photograph a title. Anyone can edit one. What matters is a certified true copy issued by the Registry of Deeds — and specifically the back page, where all the annotations are recorded. That page tells you whether there is a mortgage, an adverse claim, a court case, or a notice of levy.
Do not send money before documents exist. The most common pattern in the cases that come to this office is money sent first, documents promised later, and documents that never arrive in usable form.
You do not have to fly home to sign. You can sign before the Philippine Embassy or Consulate, or before a local notary with an apostille. The Philippines has been part of the Apostille Convention since 2019, and apostilled documents are accepted here as public documents. Nobody needs to take unpaid leave and buy a plane ticket.
The person signing for you needs the right authority. A sale of land made through an agent whose authority is not in writing is void. Not weak — void. Many brokers hold an SPA that authorises them to buy or to process papers, but not to sell. A deed signed under that kind of SPA is worth nothing.
What Legal Protection Actually Looks Like
None of the risks above require you to abandon a pasalo. They require you to structure it properly. Here is what proper looks like.
Verification before anything is signed. A certified true copy of the title with its annotations. A PSA certificate confirming the seller’s civil status. The developer’s Contract to Sell or the bank’s loan documents. The actual text of any SPA being used, checked to confirm it authorises a sale.
A properly drafted agreement — not a downloaded template. It should record every peso you have paid, state what happens if the bank refuses the transfer, oblige the seller to sign the final deed without demanding more money later, prohibit them from selling or mortgaging the property to anyone else, require them to tell you of any change in their civil status, and provide for damages if they breach it.
An adverse claim annotated on the title. This is the single most powerful protection available to a pasalo buyer, and the one almost nobody knows about.
An adverse claim is a formal notice registered on the title itself, under the Property Registration Decree, announcing to the world that you have a claim over that property. Once it is there, nobody can buy the property and say they did not know about you. It survives the owner’s death. It defeats a later sale.
It transforms your position from a person with receipts into a person with a registered interest.
A Special Power of Attorney built to survive. Drafted so that it is irrevocable, so that it expressly continues after the seller’s death, and so that it authorises transfer specifically in your favour. These are three distinct provisions, each with a legal basis, and all three must be present.
The written conformity of the seller’s spouse and heirs. So that the people who would otherwise inherit the property have already acknowledged your claim in writing.
Payment discipline. Pay the bank or developer directly, never through the seller or an agent. Keep every official receipt. Get the seller to confirm your running total in writing at least once a year.
“I Already Bought One Without Any of This.” Now What?
Most people reading this have already paid. That is normal, and it is not too late.
Almost everything above can still be done after the fact. A properly drafted agreement can be executed now and given retroactive effect between you and the seller — the Civil Code expressly allows parties to agree that their contract takes effect from an earlier date. An adverse claim can be annotated as soon as a title exists. A proper SPA can be signed abroad and sent home.
What you should do, in order:
- Get a certified true copy of the title today and read the annotations page. Do not rely on what anyone tells you it says.
- Find out whether the seller is alive, findable, and cooperative. Every protection below depends on their signature. The cost of obtaining it rises sharply once they have a reason not to give it.
- Verify their civil status through the PSA.
- Gather every receipt and put them in date order.
- Have the arrangement documented properly, and consider annotating an adverse claim.
- Stop sending money through intermediaries.
The people who lose their homes in these situations are almost never the ones who did something wrong. They are the ones who did everything on trust, for years, and then met a circumstance nobody planned for — a death, a marriage, an heir, a second buyer.
Frequently Asked Questions
Is pasalo legal in the Philippines? Yes. A property owner may validly sell their rights over a mortgaged property, and any contract clause forbidding it is void by law. What pasalo does not automatically give you is ownership, or protection against third parties.
Can I be the owner if the title is still in the seller’s name? No. You hold a right against the seller, which is real and enforceable against them. But ownership of registered land passes through registration. Until a transfer is registered, the registered owner is the owner as against the world.
What happens to a pasalo property if the seller dies? It becomes part of their estate and passes to their heirs. If mortgage redemption insurance pays off the loan, the heirs receive the property free of the mortgage. Your remedy would be a claim against the estate — unless you took protective steps beforehand.
The bank will not let me assume the loan. Is the pasalo still valid? Yes, between you and the seller. The bank’s refusal means you cannot become its borrower of record; it does not invalidate your purchase. But it makes the protective documents far more important, not less.
Can I sign the documents while I am abroad? Yes. You may sign before a Philippine Embassy or Consulate, or before a local notary with an apostille. There is no requirement that both parties appear before the same notary or on the same day.
Someone told me to just backdate the documents. Is that okay? No. It is falsification of a public document, it exposes everyone involved to criminal liability, and it usually creates tax penalties. There are lawful alternatives that achieve the same commercial result.
How much does it cost to have a pasalo properly documented? Far less than losing the property. Costs vary with the complexity of the arrangement and whether a title has already been issued. Most matters of this kind can be assessed in a single consultation.
Talk to a Lawyer Before the Problem Arrives, Not After
Almost every pasalo dispute that reaches a law office could have been prevented by a handful of documents costing a small fraction of what the property is worth.
If you are considering a pasalo, or you have been paying on one for years without any documentation beyond receipts, have it reviewed. Bring whatever you have — receipts, chat messages, a photo of a title, a handwritten agreement. It is usually enough to begin.
Villarosa Law Office advises buyers, sellers and overseas Filipino workers on property acquisition, conveyancing, and the documentation of assumed-balance arrangements. Consultations may be arranged in person in Bacolod City or remotely for clients abroad.
This article is general legal information about Philippine law and is not legal advice for any particular situation. Every property arrangement differs, and the right course of action depends on facts that only a review of your documents can establish. No lawyer–client relationship is created by reading this article.
