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Whether you have experienced buying your own house or just planning for your humble abode, it is best to be well-rounded with the laws protecting your rights as a homebuyer.
Whether you are ready to finally buy that dream house or condominium but would like to be extra secured with your allotments or would already want to settle in a place that you can call home but still lack a few more funds to suffice the big purchase, you are better off exploring payments via installment basis.
This payment option in the Philippines is governed by the Republic Act No. 6552 or the Realty Installment Buyer Protection Act. This is more commonly known as the Maceda Law, named after the main author of this 1972 law, former senator Ernesto Maceda.
This law deals primarily with one’s rights as a real estate investor or a real estate buyer paying in installments. It also describes the rights of a buyer defaulting in payments for such purchases.
In a sample scenario, let’s say you have opted to avail of the initial installment plan offered by a developer and a location of your choice, thinking that you could get a favored house loan for it after two or three years of building equity. Given that the odds were not mostly in your favor and your loan was not approved, you may end up defaulting (meaning, you fail to meet the legal obligations, or conditions, of a loan). This situation is one of the many where Maceda Law can protect your rights, and so you can also be able to stand up and dust yourself off from this dilemma. The following entails more elaboration on the scope of the law.
- How do I know if this law would truly protect my rights in real estate installment purchases?
It is clearly stipulated in Section 2 of the Maceda Law that the protection of buyers of real estate on installment payments against onerous and oppressive conditions is declared a public policy. The law is on the side of the homebuyers should there be any misdemeanor committed on the side of the developer or seller.
- Who is covered by the Maceda Law?
As termed in the law, 2 types of “qualified buyers” are afforded protection:
- one who has paid at least 2 years of installments in all transactions or contracts involving the sale or financing of real estate on installment payments. Properties covered include residential condominiums, apartments, houses, townhouses, and house and lots, among others, but excluding industrial lots, commercial buildings, and sales of properties to existing tenants. (under Section 3)
- one who has purchased any of the properties enumerated above, but who has paid less than two years of installments. (under Section 4)
- What guarantees do I have should I fall behind in making payments or should the contract be canceled?
In simple terms, as it is stated in Section 3, buyers are entitled to a refund, as well as grace periods, so long as they have paid for at least two years.
- buyers who default on their payments of installments are entitled to pay, without additional interest, the unpaid installments due within the total grace period they have earned. This total grace period has been fixed at the rate of a one-month grace period for every one (1) year of installment payments made. However, this right can only be exercised by the buyer once in every five years of the life of the contract and its extensions.
On contract cancellation
- If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property, which is equivalent to 50 percent of the total payments made. After five years of installments, an additional five percent for every year of payments will be added, but not to exceed 90 percent of the total payments made. For this to apply, the actual cancellation of the contract must take place 30 days after receipt by the buyer of the notice of cancellation. This notice of cancellation or a demand for rescission at that must be by a notarial act and upon the full payment of the aforementioned cash surrender value to the buyer.
- What guarantees do I have if I have just paid less than two years of installments?
You are still primarily given the upper hand in this scenario since grace periods and notarized notices should be given to you.
In Section 4, it is highlighted that the buyer is entitled to a grace period of not less than 60 days. This is counted from the date the installment became due.
The seller, on the other hand, is entitled to the cancellation of the contract, if the buyer fails to pay the installments due at the end of the grace period. The seller, however, must first notify the buyer of the cancellation, or of the demand for rescission of the contract. This notice or demand must be by a notarial act and shall only render the cancellation or rescission effective 30 days after such notice or demand has been made.
- Can I sell or assign my rights to the property to another person?
Yes, since this is clearly explained in Section 5 – that those buyers covered by Sections 3 and 4 have the right to sell or assign their rights over the property to another person. They may also reinstate the contract if they so choose by updating the account during the given grace period. This transaction, however, must be made prior to the actual cancellation of the contract. The corresponding deed of sale or assignment must be done by notarial act.
- Can I opt to pay off my balance ahead of the due date? Will I be allowed to do so without incurring the corresponding interests?
Yes, it stipulated in Section 6 that buyers shall have the right to pay in advance any of the installments or the full unpaid balance of the property’s purchase price. This can be done any time without incurring interest. This full payment may also be annotated in the certificate of title over the property.
- What if the contract I entered into are inconsistent with existing laws? Which will have more bearing?
Ordinarily, the Constitution would tell us that no law impairing the obligations of contracts shall be passed, but in this case, the Maceda Law, under Section 7, provides that any stipulation in any contract that is contrary to Sections 3, 4, 5, and 6 are to be deemed null and void. This particular provision serves to protect those who may have overlooked the fine prints of contracts during signing that has been required by real estate contractors or developers.
In relation to this, should the developers be, in any possible way, at fault – in terms of delays, damages, among others – the provisions of the Presidential Decree No. 957 or the Revised Rules and Regulations Implementing the Subdivision and Condominium Buyer’s Protective Decree may instead be explored and applied.
- Does the Maceda Law apply when I pay through a housing loan from a bank?
This is where the common misconception usually lies in terms of the coverage of the Maceda Law.
To provide a quick background, developers nowadays merely require that the buyer pay a down payment, which constitutes a percentage of the purchase price. The remaining balance would then often be shouldered by a financing scheme (usually a housing loan) that may be provided by commercial banks, Pag-IBIG Fund, by the developers themselves through their in-house financing schemes, or by other financing institutions.
If you are taking a housing loan from a bank like most people, this means that the balance that you have to pay the real estate developer has already been paid for in full by the bank through the loan. In other words, you, in essence, have already paid the purchase price in full by availing of the loan. The subsequent monthly payments you now make to the bank are not to pay for the balance of the purchase price, but for the loan itself, the interests accruing on the principal loan, and the charges that may be or may have been incurred.
Hence, having been fully paid insofar as the purchase price is concerned, the only balance you are liable for is that of the loan, and since you are not exactly paying in installments anymore, considering that the property is technically fully paid for, RA 6552 or the Maceda Law would no longer apply.