Imagine a buyer who, after putting their heart into purchasing a home or condo, faces an unexpected job loss due to the COVID-19 pandemic. The sudden financial strain makes it impossible to keep up with monthly payments, leaving them anxious about losing their dream home and their hard-earned investment. Thankfully, the Maceda Law, or the “Realty Installment Buyer Protection Act,” steps in to offer crucial relief and protection. This law ensures that buyers struggling with financial hardships are not left without options, providing them with the support they need during these challenging times.
I. MACEDA LAW
What is the Maceda Law?
The Maceda Law, officially known as the "Realty Installment Buyer Protection Act," safeguards buyers of residential properties (such as subdivisions or condominiums) purchased through installment payments. It protects against unfair conditions and outlines the rights of buyers who default on payments. This law only applies to residential real estate transactions and does not cover industrial lots, commercial buildings, or properties sold under agrarian laws. If you are paying for a down payment in installments, you are protected by the Maceda Law.
Case Study: Affordable Townhouse
Imagine you are purchasing a townhouse in Mactan Island, Cebu. Here are the details:
Type: Townhouse
Total Contract Price: Php 3,012,800
Reservation Fee: Php 15,000
Equity/Down Payment: Php 837,800 (payable over 48 months at Php 17,454/month)
Loanable Amount: Php 2,160,000 (payable over 30 years at Php 12,095/month)
While you are still paying for the equity or down payment in installments, you are covered by Maceda Law. However, once you have availed of the housing loan (whether from a bank, Pag-IBIG, or in-house financing) and begin paying the amortization (even if paid monthly), you are no longer covered by the Maceda Law. We will discuss your options below.
Understanding Your Rights
I. If You Have Paid at Least Two Years
If you have been paying for at least two years, you have the following rights:
Grace Period: You are entitled to a 30-day grace period for every year of installment payments made. During this time, you can pay the unpaid installments without additional interest. You can avail of this grace period once every five years.
Right of Refund: If the contract is canceled, the seller must refund you the cash surrender value of your payments. The refund rate is 50% of your payments from the second to the fifth year, increasing by 5% per year beyond five years, up to a maximum of 90%.
Cancellation of Contract: The seller can only cancel the contract after giving you a notarial notice and paying the refund.
Right to Sell or Assign: You can sell or assign your property to another person through a notarized deed of sale or assignment.
Right to Reinstate the Contract: You can reinstate the contract by updating your account during the grace period before the contract is canceled.
II. If You Have Paid Less Than Two Years
If you have been paying for less than two years, you have these rights:
Grace Period: You are entitled to a grace period of at least 60 days from the due date of the installment.
Right to Sell or Assign: You can sell or assign the property to another person through a notarized deed of sale or assignment.
Right to Reinstate the Contract: You can reinstate the contract by updating your account during the grace period before the contract is canceled.
III. Example of Refund Computation
Scenario: Levy has been paying for a residential property on an installment basis. He has made regular payments for 7 years but has now defaulted on his payments.
Details:
Downpayment: ₱100,000
Total Amortization (including penalty): ₱400,000
Penalty: ₱50,000
Years Paid: 7 years
Refund Calculation:
Grace Period Earned: 7 months
Rate of Refund: 60%
Refund Amount: ₱270,000
Computation:
Total Amount Paid:₱100,000 (downpayment) + ₱400,000 (amortization) = ₱500,000
Subtract Penalty:₱500,000 - ₱50,000 = ₱450,000
Calculate Refund:₱450,000 × 60% = ₱270,000
Total Refund: ₱270,000
Case Outcome:
Despite defaulting on his payments, Juan is entitled to a refund of ₱270,000, which reflects 60% of the adjusted total amount he paid. This refund is calculated after deducting the penalty and applying the refund rate as stipulated by the Maceda Law.
II. OPTIONS WHEN NOT COVERED BY MACEDA LAW
Once you avail yourself of a housing loan (whether from a bank, Pag-IBIG, or through in-house financing), you are no longer covered by the Maceda Law. If you default on your monthly amortization and cannot continue repaying the creditor, what are your options?
Two options:
Selling Your Rights: You can sell your rights over the property to another buyer.
Dacion en Pago: If you cannot continue with the payments, you can opt for "dacion en pago," where you transfer the property back to the bank or Pag-IBIG in exchange for the cancellation of your remaining debt.
Note: Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of an existing obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent to the payment of an outstanding debt. Simply put, returning the property to the bank and when accepted, the bank dismisses your mortgage debt. This is better than not paying and running from the bank.
For dacion en pago to exist, the following elements must concur: (a) the existence of a money obligation; (b) the alienation to the creditor of a property by the debtor with the consent of the former; and (c) satisfaction of the money obligation of the debtor.
III. RELEVANT ISSUES
A. Discussion on Real Right and Absolute Ownership
Let us discuss real rights and absolute ownership, as these two concepts are often misunderstood by property buyers.
Once you sign the Contract to Sell or begin paying for the monthly equity of your down payment, your rights over the property begin. If a reservation fee is required, your rights over the property also start.
However, you are not yet the owner of the property.
What is a right? A right is the power or privilege given to a person, which can be demanded from another person. It may also refer to an interest or title in an object or property.
Rights can be classified as personal or real.
Personal rights are enforceable against specific individuals.
Real rights are enforceable against the whole world.
For example, if you buy a house and lot from a developer, after signing the Contract to Sell (or after paying the reservation fee), you have the right to possess (a real right) the house and lot, even if you have not yet paid in full. This means that everyone is bound to respect your right of possession over the specific house and lot. This is why a developer cannot sell your reserved unit to another buyer.
Your monetary obligation to fully pay for the house and lot is a matter between you and the developer. The developer has a right to payment (a personal right) against you and no one else.
You have rights (e.g., to possess) over the property, but you do not have absolute ownership of it. This means you can sell your rights to the property to another buyer through a Deed of Assignment (duly notarized). This process is commonly referred to as an "assumption of rights" over the property, including all obligations.
In a subdivision sale, you only achieve absolute ownership of the house and lot once you sign the Deed of Absolute Sale with the developer, even if the property is not yet registered in your name with the Registry of Deeds. This requires that you have fully paid the 20% down payment and miscellaneous fees (e.g., transfer charges) while the remaining 80% is financed by the bank or Pag-IBIG.
To summarize:
Real Rights vs. Absolute Ownership
When you start paying the monthly equity for your down payment, you gain real rights over the property, but you do not yet have absolute ownership. Real rights are enforceable against anyone, ensuring that no one can claim your property without legal grounds.
Absolute Ownership
You achieve absolute ownership once you fully pay for the property and sign the Deed of Absolute Sale with the developer. Registering the property under your name in the Registry of Deeds is crucial to protect your investment and avoid issues like double sales.
B. Why You Must Register the Title Under Your Name
Why should you register the title under your name? Registering the title serves as a legal notice to the entire world that you are the absolute owner of the property. This means that the sale between you and the seller is now binding on third parties.
Is it okay if you do not register the property under your name right away? While you are not legally obliged to register it immediately and can do so later (though with penalties), there are risks involved. One significant risk is that the seller might sell the property to another buyer. If this new buyer registers the property under their name first, they become the registered owner. This gives them a better legal right to the property because they were the first to register it.
In the case of a double sale, the rightful owner of the property is determined based on the order of priority:
The first person to register the sale in good faith.
The first person to possess the property in good faith.
The buyer who presents the oldest title in good faith.
If you are the first possessor of the property but another claimant was the first to register it, thereby gaining a better right to ownership, what should you do? Investigate the other claimant’s knowledge of the property. If they knew the property was previously sold to you but still proceeded to buy and register it, you may be able to prove that you have a better right to ownership.
Registering the property under your name protects your interests. If the seller remains the registered owner, they could declare the title as lost and request a reconstitution. This would allow them to sell the property to another buyer. The new buyer, acting in good faith and conducting due diligence, might end up buying and registering the property under their name.
Sum Up: Avoiding Risks
Failing to register the property under your name can lead to significant risks, such as the seller reselling the property to another buyer. In case of a double sale, the priority is given to:
The buyer registers the sale with the Registry of Deeds first.
The buyer who first possesses the property.
The buyer with the oldest title provided they acted in good faith.
If you find yourself in a dispute, legal recourse is available to reclaim your payments and seek damages from the seller.
Final Thoughts:
Understanding the Maceda Law is essential for anyone buying real estate on installment in the Philippines. This law provides a safety net, ensuring fair treatment and legal protection. By knowing your rights, you can make informed decisions, protect your investment, and avoid potential pitfalls. Always ensure to register your property to safeguard your ownership and enjoy peace of mind.
This discussion is for educational purposes only. Consult your lawyer for advice on your specific case. For any questions, contact us.
If you’re planning to buy a residential lot, house-and-lot, or condo unit, get in touch with us at 0920 207 6284 or email cebuhousefinder@yahoo.com for free assistance.
What if the developer would require first to have the total contract price of the parcel of the land you pay installments for under Contract To Sell, is cunning/clever, and will at the same time sell the property to another buyer simultaneously. However, in the terms and conditions of the Contract To Sell, the seller demands the total sum (TCP) to be fully paid first before an Absolute Deed of Sale is executed. However, in the course of paying period, the following scenario happens:
The other buyer made amendment to the contract and decided to fully pay the property ahead of me, and then executed the Absolute Deeds of Sale with the buyer without of course my knowledge.
The development…