Dear Atty. Angela,

My cousin took a housing loan with the Home Development Mutual Fund (HDMF) of Pag-IBIG. However, after two years of payment, he faced financial difficulty and could no longer continue the monthly amortization. He asked for my help to enter a pasalo agreement where I will pay the remaining balance. He said that after full payment, the property will be titled under my name. Since we are cousins, is it safe that I help him without any agreement?

Divine

Dear Divine,

No, it is not safe and advisable that you enter a pasalo arrangement without any proper documentation. Even among close relatives, taking over a housing loan based solely on a verbal understanding carries severe legal and financial risks. Paying the monthly amortizations of someone else’s loan does not automatically grant you ownership of the property.

Under the Civil Code (rules on novation or substitution of debtor), a mortgage assumption requires the explicit written consent of the creditor — in this case, Pag-IBIG. If you merely pay the monthly dues using your cousin’s name or account, Pag-IBIG still views your cousin as the sole owner and borrower.

“Article 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237.”

In the case of Garcia v. Llamas, G.R. No. 154127 (8 December 2003), the Supreme Court explained that novation must be established by clear and convincing evidence and that the creditor’s consent is indispensable when there is a substitution of debtors. Absent such consent, the original obligation remains in force.

One of the legal steps to take is for you and your cousin to execute a Deed of Sale with Assumption of Mortgage/Deed of Assignment wherein the contract will specify the initial equity you paid, the remaining balance obligation, property details, and terms of turnover. Once full payment has been made, you shall be entitled to the transfer of ownership under your name.

Atty. Angela Antonio