You already paid for more than 2 years for your down payment scheduled for 48 months. Due to the pandemic, you lost your job and you defaulted your monthly payments for 3 months. The developer canceled the Contract to Sell, forfeited your payments, and sold the property to a third party. What are you remedies under the law?
Questions:
Can the developer cancel your Contract to Sell? Yes, but it has to comply the requirements imposed by law.
Can the developer forfeit your payments? No.
Can the developer sell your property to another buyer? Only after your Contract to Sell is canceled.
What are your remedies under the law? Yes. It is stipulated in the Maceda Law.
THE MACEDA LAW
The Maceda Law (RA 6552) also known as the “The Realty Installment Buyer Act” (1972) has legal remedies for your problem. Briefly, under the Maceda Law, the developer cannot cancel the Contract to Sell, forfeit your payments, and sell the property to another buyer without fulfilling some legal requirements of the law protecting property buyers on installment sales.
THE SUPREME COURT RULING
To illustrate how the Maceda Law works, let us take a look at the Supreme Court ruling in the case “Active Realty v. Daroya, 382 SCRA 152 (2002)”.
The buyer bought a residential lot from the developer on an installment basis. The sale was covered by a Contract to Sell. She regularly paid her monthly amortizations for 4 years and then she defaulted her payment for 3 consecutive months. The developer, after sending (late) notice of cancellation of the Contract to Sell and refused to accept payments from the buyer, sold the residential lot to the third party.
The Supreme Court ruled that the developer failed to comply with the mandatory twin requirements for a valid and effective cancellation of the Contract to Sell under RA 6225: failure to send a notarized notice of cancellation and to refund the cash surrender value.
“Given the circumstances, we find it illegal and iniquitous that petitioner, without complying with the mandatory legal requirements for canceling the contract, forfeited both respondent’s land and hard-earned money after she has paid for, not just the contract price, but more than the consideration stated in the contract to sell,” the Supreme Court said.
“Thus, for failure to cancel the contract in accordance with the procedure provided by law, we hold that the contract to sell between the parties remains valid and subsisting. Following Section 3(a) of R.A. No. 6552, the respondent has the right to offer to pay for the balance of the purchase price, without interest, which she did in this case.”
While the HLURB resolved the case that the developer shall refund to the buyers one half of her total payments per requirement of R 6225, the Supreme Court said that such a decision “is not an equitable solution as it punished the respondent for her delinquent payments but totally disregarded petitioner’s failure to comply with the mandatory requisites for a valid cancellation of the contract to sell.”
In no uncertain term, the Supreme Court said: “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.”
The Maceda law, the Supreme Court said, "seeks to address the acute housing shortage problem in our country that has prompted thousands of middle and lower class buyers of houses, lots and condominium units to enter into all sorts of contracts with private housing developers involving installment schemes." The property buyers are willing to sign these contracts even "without an opportunity to question the onerous provisions" as the contract is offered to them on a "take it or leave it" basis.
The Supreme Court noted that "most of these contracts of adhesion, drawn exclusively by the developers, entrap innocent buyers by requiring cash deposits for reservation agreements which oftentimes include, in fine print, onerous default clauses where all the installment payments made will be forfeited upon failure to pay any installment due even if the buyers had made payments for several years."
Thus, real estate developers "enjoy an unnecessary advantage over lot buyers who they often exploit with iniquitous results. They get to forfeit all the installment payments of defaulting buyers and resell the same lot to another buyer with the same exigent conditions," the Supreme Court explained.
"The legislature enacted R.A. No. 6552 delineating the rights and remedies of lot buyers and protect them from one-sided and pernicious contract stipulations," the Supreme Court further explained.
So, based from the case, we take note of the following:
(1) At the heart of the Maceda Law is the REFUND of the money paid by a property buyer to the developer on the installment sales in the case of default and/or cancellation of the Contract to Sell.
(2) Before the forfeiture of the money or cancellation of the Contract to Sell, the law required certain conditions that must be strictly followed by the developer.
(3) The property buyer has legal remedy as prescribed by the Maceda Law.
This is why the intent of the Maceda law is “to protect buyers of real estate on installment payments against onerous and oppressive conditions.”
SECTION 3 OF RA 6552: PROTECTION OF BUYERS
In Lagandaon vs. CA, 290 SCRA 330 (1998), the Supreme Court said:
"The policy of [Maceda] law, as embodied in its title, is "to provide protection to buyers of real estate on installment payments." As clearly specified in Section 3, the declared public policy espoused by Republic Act No. 6552 is "to protect buyers of real estate on installment payments against onerous and oppressive conditions." In this case, petitioners did nor buy the property on installment; private respondents did. And thus, if the Maceda Law has any relevance at all, it is to protect the said respondents, not the petitioners." "Furthermore, Section 3(b) of the same law does nor grant petitioners any legal ground to cancel the contracts to sell; rather, it prescribes the responsibility of the seller in case the "contract[s are] cancelled." Clearly, Respondent Court was correct in refusing to apply the Maceda Law and in not cancelling the contracts to sell, " the Supreme Court said.
FEATURES OF THE MACEDA LAW
The Maceda Law or Republic Act No. 6552: Realty Installment Buyer Protection Act (1972), aims to protect the real estate buyers on installment payments against onerous and oppressive conditions. Thus, it is often called the Rights of Installment Buyers.
The Maceda Law is a special law that governs installment sales of real property. It is different from the Recto Law (now part of the Civil Code, specifically Article 1484 to Article 1486) which covers sales of personal property on installment basis. I will write a separate blog on Recto Law particularly its relation to the renti-to-own scheme.
Coverage: Applicable to contract to sell of residential real estate (lot, house-and-lot, and condominium). It excludes other real estates, such as, industrial lots, commercial buildings [and/or commercial lots by implication] and sale to tenants under agrarian laws.
Salient Features:
I. Buyer has paid at least two years, he is entitled to:
(a) Grace Period: 30 days. He pay, without additional interest, the unpaid installments due within the total grace period for every one year of installment payments made. This 30-day grace period can be availed once every 5 years.
(b) Right of refund. If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property. Rate of refund: 50% from 2nd year to 5th year plus 5% per year in excess of 5 years, however, aggregate rate should not exceed 90% of the total payments made.
Refund is also called Cash Surrender Value.
Note: Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made. Penalties are not included in the computation.
(c) Cancellation of contract. The seller can cancel the contract only after notarial notice and payment of the refund.
II. Buyer has paid less than 2 years, he is entitled to:
a) Grace Period: Not less than 60 days from the date the installment is due.
(b) Refund. No Refund.
(c) Cancellation of contract. Cancellation of contract can be done only upon consummation of grace period and notarial notice.
III. Assignment and reinstatement
(a) Buyer has the right to sell or to assign the same to other people. The deed of sale or deed of assignment shall be done by notarial act.
(b) Buyer has the right to reinstate the contract by updating the account during the grace period and before the cancelllation of the contract.
Example of Refund computation:
Downpayment: 100,000 Total amortization inclusive of penalty: 400,000
Penalty: 50,000
Years paid: 7 years
How do you compute the refund?
Grace period earned: 7 months
Rate of refund: 60%
Amount of refund: 270,000
Computation: (100,000 + 400,000) less 50,000 = 450,000 multiply it by 60% Total refund is 270,000
CONCLUDING REMARKS
In my real estate blogs, I always wanted to explain real estate laws and practices in simple language for homebuyers to understand. There are complicated cases resolved by the Supreme Court under RA 6225 which I did not discuss here.
The purpose of this blog dealing with the property law is only to give you an idea about your rights as property buyer. For your specific case, you have to visit the HLURB (DHSUD) to seek legal remedies. If not resolved, you hire a competent lawyer for legal resolution of your case.
It is useful to remember that before the developer can cancel the Contract to Sell, there are twin requirements: sending of a notarized notice of cancellation to the buyer and the actual refund the cash surrender value of the total amount paid by the buyer.
Otherwise, the buyer has the right to reinstate the contract and offer to pay for the balance of the purchase price, without interest. He has the right to sell or assign to other buyers the said property.
I hope that this article can help buyers of real estate on installment sales, who are facing the same problem, know their rights and legal remedies under the Maceda Law.
For more information about the topic or any inquiries about buying a property in Cebu, please contact us at 0920-207-5035 or email us at cebuhousefinder@yahoo.com. We help homebuyers find their dream house at the best price and location… for free!