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January 31, 2011

Buying a Condo on Installment? Know the Law on Installment Sales

I’m browsing through my comprehensive notes and reviewer for real estate brokerage and found this law about installment sales. This law is the Republic Act 6552 – Realty Installment Buyer Protection Act or better known as the Maceda Law. I’ve heard about this law many times before when I was attending the lecture series on real estate by Urban Institute but I was not aware that it’s just a one-page law that specifically aims to protect buyers of real estate on installment

The boom of condominium development gave way to putting together many variations on in-house payment schemes offered by different developers and many people are taking advantage of these offers because compared to bank financing, the approval process is much faster and less of a hassle with regards to the requirements. The downside is, the interest rate is much higher and the payment term is shorter than bank financing and Pag-ibig financing. Pag-ibig financing is often not an option because they don’t accept loans for pre-selling projects. You can only use this facility if the condo unit that you’re buying is already RFO (Ready for occupancy).

Please note that Maceda Law does not cover bank financing or Pag-ibig financing because entering into an agreement of this kind is considered a contract of loan and not of a sale. This law was enacted to protect buyers on installment direct from the seller or in our case, the condominium developer or simply what we call in-house financing. The law is quite easy to understand so I am posting its core provisions for you.

Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

(a) 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: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent 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.

Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made.

Sec. 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract 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.

Sec. 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act.

Sec. 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of the purchase price any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property.

So what’s in it for you? Based on the provisions above, here are the things that you need to remember:

  1. You need to have at least 24 installment payments in order to be eligible for the refund upon cancellation of the contract. The down payment, options or deposits should be included therein and therefore it does not necessarily have to be 2 years but as long as you already made 24 payments.
  2. You can only exercise this right once in every five years of the life of the contract. So in a ten year contract, you can only exercise this right twice.
  3. Assuming you are already covered by this law and you defaulted, your total grace period is three months including the 30 days prior to seller’s cancellation provided that a demand letter should be sent to you after the first 60 days grace period. After which, the seller can move to the cancellation of the contract by a notarial act.
  4. The grace period is computed as 1 month for every one year of payments made. Let’s say you have been paying for three years (36 payments) and you defaulted. You have 3 months grace period plus another 1 month after a demand letter was sent to you by the seller after the 3 months.
  5. If you defaulted and you don’t have 24 payments yet, you are given a grace period of 60 days upon when the last payment was due. Plus another 30 days after a demand letter was sent to you by the developer. You can update the payment within the said period with no additional interest. But you are not entitled to any refund in case the cancellation of the contract pushes through.
  6. You have the right to assign the contract or sell your rights to any person without interest in case you really can’t update your payments as long as this assignment is done within the grace period. This is a better option than letting the seller cancel the contract as this can yield to a full return on your equity instead of getting just a fraction of it.
  7. Any stipulation in a contract to sell that violates any provision of this law is considered null and void. This means that even if you sign the said contract, such stipulation is not enforceable. As if it was not written there.

It is always an advantage to be aware of your rights so make sure that you carefully read the fine prints of the contract to sell and consult a lawyer if any provision is not clear to you. I would update this post after we take up this law in detail in our review for the upcoming real estate board examination. You might have additional inputs that you want to share. Feel free to comment below.

Live a beautiful life!

Ryan Rillorta

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4 comments:

  1. Yes under Maceda Law, "You need to have at least 24 installment payments in order to be eligible for the refund upon cancellation of the contract. The down payment, options or deposits should be included therein and therefore it does not necessarily have to be 2 years but as long as you already made 24 payments."

    you will get 50% of the total payments you made minus interests and penalties which is more than the refund money you suppose to get. The total refund?? nothing!! I paid 28 months total of 1.2 million I suppose to get 50% of it but since they have deducted the penalties for months of non payments. It ends up negative. I guess Maceda Law only protects the wealthy developers and not us poor buyers, in my case I am one of the OFW, so known as BAYANI of the Philippine govt. A bayani who's working 12 years abroad and recently loss a job due to global crisis, who loss a house due to default payments, and here comes Maceda Law.. Thank you Philippines, thank you for treating us like trash in the crucial times of our lives.

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  2. I'm sorry to hear your story. I'm not a lawyer to understand the legalities of what the developer has done to you but I hope you consulted a lawyer for it. Maceda law states that you have the right to assign or sell your rights to the property. This could have been the best solution because this way you may recover your full equity. You are a HERO and you'll always be for your family. I'm sure you'll still earn what you've lost and finish your race strong. God bless you!

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  3. Its happening with me too, a former OFW and bought a condo on pre-selling basis. Now that i have lost my job, and have given only 1.5 years of big installments, I cannot have any refund and no right to re-sell only terminate the contract as I defaulted 2 months of payment already to date.Been requesting for a consideration but there's none. I don't even have any capaity to pay a lawyer.

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  4. You should know the law on buing condo on installment with help of the post her. Good pos

    ReplyDelete

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