Not everyone can simply purchase a house in cash, it rarely happens. Most of them would rather opt for an installment payment through the bank, PAG-IBIG fund, in-house financing or deferred cash. Especially in the Philippines, it is agreed that installment purchases are more practical and doable, although interests are imposed every time a payment is made.
With this being said, there is a law in the Philippines that was introduced and implemented to protect homebuyers who purchase their homes through an installment plan. Without this law, the people of the Philippines will not be able to do a safe home buying transactions. This law is called Maceda Law or Republic Act No. 6552 or also can be known as the Realty Instalment Buyer Protection Act.
Sometimes we quickly decide to buy a property without thinking of the consequences that might happen. We all have that one moment where we decide to buy things without any second thoughts. This of course, often comes with a good amount of fortune. There are many things you need to consider before buying a new house, for example, the location and how much does it cost.
When we have made the decision to purchase a property, there is a probability of unwanted circumstances that could come our way. You have to plan every decision you do for the long run.
Let’s say you’ve already decided to get a house and currently doing the instalment payments, suddenly you got caught up in a financial constraint or your loan wasn’t approved, do you choose to discontinue and pull yourself out from the contract? How about the payments you made previously? Can you still get your money back or a refund? What is the function of Maceda Law? Can it protect you?
Continue reading this article as we will answer the common questions asked regarding Maceda Law and how this law can protect you:
What is Maceda Law in the Philippines?
Before we further get into details about Maceda Law, first, you need to know what the law is all about. Maceda Law is a right given to the real estate investor or a real estate purchaser who plan to do their house payment on an instalment basis. It holds the rights of a buyer defaulting on payments (fail to meet the legal obligations or conditions of a loan) when purchasing the asset. This law established by Ernesto Maceda, the former senator, which was later officiated as a law on August 26, 1972.
How does Maceda Law protect your rights in real estate instalment purchases?
It is stated in Section 2 of the Maceda Law that the protection of buyers of real estate on instalment payments against onerous and oppressive conditions is declared as a public policy. The law serves its purpose to take the homebuyers’ side. If there happens to be any misconduct committed on the side of the seller or developer, the buyers will be brought to justice.
Who is Covered by the Maceda Law?
Only qualified buyers are qualified for this law. The party must be the:
- one who has paid the instalment in all transactions or contracts for at least 2 years involving the sale or financing of real estate on instalment payments. The properties covered include apartments, houses, condominiums, house and lots and many others. However, this does not include industrial lots, commercial buildings and sales of properties to existing tenants. (under Section 3).
- one who has purchased any of the properties stated above, but who has paid less than two years of instalments. (under Section 4)
Is Maceda Law applicable to contract to sell?
As stated above, the Maceda Law applies to contracts of sale of real estate on instalment payments for residential houses only, not industrial lots, commercial buildings and sales to tenants.
What rights do you have under Section 3 of the Maceda Law?
According to Section 3, buyers who default on their payments of instalments are entitled to pay, without additional interest, the unpaid instalments 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 year of instalment payments made. However, this right is only applicable to the buyer once in every five years of the life of the contract and its extensions.
If the contract is cancelled, the seller must compensate the buyer for the cash default value of the property payments, which is equal to 50% of the total payments received. A further 5% for each year of payments will be applied after five years of instalments, but not to exceed 90% of the total payments made.
To apply the above clause, the actual cancellation of the contract must take place 30 days after the notice of termination has been issued by the buyer. Such cancellation notice or a cancellation request must be rendered by a notarial act and on full payment to the purchaser of the above cash surrender value.
What guarantees do you have if you have just paid less than two years of instalments?
According to Section 4, the buyer is entitled to a grace period of not less than 60 days. This is counted from the date the instalment became due. On the other hand, if the buyer fails to pay the payments due at the end of the grace period, the seller is entitled to cancel the contract. Nonetheless, the seller must first inform the buyer of the cancellation or the rescission order. A notification or request must be made by a notarial act and the cancellation or rescission shall only take effect 30 days after such notice or request has been made.
Can you sell or assign your rights to the property to another person?
Yes, this has been clearly explained in Section 5 where all buyers are protected by Sections 3 and 4 are entitled to sell or transfer to another person their rights over the land. They may also reinstate the contract if, during the specified grace period, they choose to amend the account. However, this exchange must be made before the contract is fully terminated. The subsequent selling or assignment certificate must be rendered through a notarial act.
Is down payment or equity refundable?
As stated above, it depends on which section is applicable to your case and situation. Down payments, deposits or options on the contract shall be included in the computation of the total number of instalment payments made.
Can you choose to pay off your balance ahead of the due date? Will there be any interests charged?
Yes, Section 6 specifies that buyers are entitled to pay any of the instalments or the full unpaid balance of the purchase price of the property in advance. This can be done without any interest at all times. The full payment can also be annotated on the property's title certificate.
What if the contract you registered to clashes with the existing laws? Which will have more bearing?
The Constitution would normally tell us that no law impairing contractual obligations shall be passed, but in this case, the Maceda Law, pursuant to Section 7, provides that any provision in any contract contrary to Sections 3, 4, 5 and 6 shall be deemed null and void. This particular provision is intended to protect those who may have overlooked the fine prints of contracts stipulated by real estate contractors or developers during the signing process.
Does the Maceda Law apply when you pay through a housing loan from a bank?
This is where the common misconception usually lies when it comes to Maceda Law.
Developers nowadays simply require the buyer to pay a down payment, which is a percentage of the purchase price. The remaining balance would then often be shouldered by a financing scheme (usually a housing loan) that commercial banks, the Pag-IBIG Fund, the developers themselves via their in-house financing schemes, or other financing institutions can provide.
When you take a mortgage loan from a bank like most people usually do, that means that the creditor has already paid for the amount you have to pay through the loan to the real estate developer in full. In other words, by taking advantage of the loan, you have already paid the purchase price in full. The subsequent monthly payments you 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.
Therefore, having been paid in full as far as the purchase price is concerned, the only balance for which you are liable is that of the loan, and since you no longer pay exactly in instalments, considering that the property is technically paid in full, RA 6552 or the Maceda Law would no longer apply.
We hope this helps you out in understanding your rights as a homebuyer as well as the seller of real estate properties in the Philippines. In short, Maceda Law protects buyers who are paying for their properties on an instalment basis.