Published 15 July 2019, The Daily Tribune

With the rise of property development comes issues faced left and right by real estate consumers. The Realty Installment Buyer Act, more commonly known as Maceda Law envisions to give ample protection to buyers of real estate on installment payments against common adverse conditions when purchasing properties. A sale transaction is deemed to be in installment when at least two installments are to be paid in the future at the time of perfection of sale. Because the law pertains to dealings in residential real estate, industrial lots, commercial buildings, as well as real estate sold to tenants under agrarian laws are excluded from its coverage.

For a while now, defaults in payments and amortization of condominium and house and lot have become a common narrative. The cause can be traced to a lot of factors—from the general volatility of economic conditions and inflation, to supervening events personal to each buyer. In some cases, if not most, the financial conditions of the buyer when he or she decides to own a residential property will not be the same financial standing when the residential units near turnover.

Recognizing this, Republic Act No. 6552 was crafted such that one unfortunate default will not automatically mean the forfeiture of the buyer’s hard-earned money.

To get a full picture, let us imagine a person who agreed to buy a condominium on installment payments. During the two years, the buyer will have to build equity and pay 10-20% of the contract price. After this period, the buyer will now be in search of an entity to finance the balance, either bank or in-house. This is the point where buyers are caught on the horns of a dilemma. Apparently, before successfully obtaining a housing loan from a bank, the buyer has to satisfy the financial entity’s requirements which are usually more stringent than when he obtained to purchase the unit. Upon denial of the loan application, will the buyer automatically lose everything he paid for? Maceda Law answers in the negative.

Qualified Buyers

For the protection under Maceda Law to be availed of,  Section 3 of the law provides that the buyer must have paid at least two years of installments. The law affords him the right “to pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made.” However, such right may only be exercised once every five years of the life of the contract, and its extensions, should there be any.

On the other hand, in a case where the contract is cancelled within the first five years, fifty percent of the cash surrender value of the payments made by the buyer shall be refunded by the seller. After five years of installments, an additional five percent every year but not to exceed ninety percent of the total payments made shall also become due.

Jurisprudence on Maceda Law

In one case decided by the Supreme Court, the buyer entered into a contract to sell a lot with the developer payable in monthly installments. The buyer was able to pay down payment and installments and then defaulted in payment of 3 monthly amortizations. The seller sent a notice of cancellation and refused to accept payment from the buyer, and then sold the lot to a third party. The Supreme Court held that in such a case, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of the total payments made provided that the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. (Active Realty v. Daroya, 382 SCRA 152 (2002))

In another case, the seller executed a contract to sell of a piece of land in favor of the buyer. Their contract to sell contained an automatic cancellation clause in case of default. Upon failure by the buyer to make any installment payment, the seller rescinded the contract. Later on, the buyer remitted certain amounts to the seller and they executed a new contract to sell but eventually, the buyer still defaulted in paying the amortizations. In resolving whether the first contract to sell was rescinded, the Supreme Court ruled that there was no valid rescission for failure of the buyers to comply with the requirements of Sec. 4 of the Maceda Law. The Court was firm that in such a case, a mere notice or letter, short of a notarial act, would not suffice. Also, the automatic cancellation clause is void under Section 7 in relation to Section 4 of R.A. 6552. Under Section 4 of RA 6552, the cancellation of the contract is a two-step process. First, the seller should extend the buyer a grace period of at least 60 days from the due date of the installment. Second, at the end of the grace period, the seller shall furnish the buyer a notice of cancellation or demand for rescission through a notarial act, effective 30 days from the buyer’s receipt thereof. (Fabrigas v. San Francisco del Monte, 475 SCRA 247 (2005))

The court puts it amply in the cited case by stating that “the Maceda Law was enacted to remedy the plight of low and middle-income lot buyers, save them from the exacting default clauses in real estate sales, and assure them of a home they can call their own.”

As a final note, despite the many uncertainties, investment in realty remains attractive, lucrative, and perhaps still worth taking the risk even if it usually takes awhile before one can take full ownership of a residential real estate. It’s the reality in realty, and knowing one’s rights could reduce the risk relative thereto.

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