Maceda Law and its Significance to Homebuyers

18 September 2021
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Before you purchase your dream house and lot or condominium unit and sign-up for payment terms like installment or financial loans, it would be a smart move to know about the law in installment arrangements.


What is Maceda Law Philippines?

Republic Act No. 6552, or the Realty Installment Buyer Protection Act, is named after its primary author Ernesto Maceda. The Maceda Law, as it is known, is an act that protects property owners from unfavorable terms that may occur from sale transactions funded by an installment agreement by describing the rights of the buyers regarding refund entitlement and grace periods.


Maceda Law covers real estate purchasing transactions or financing for residential properties only, including houses, lots, and condominiums under an installment payment arrangement. Meaning, purchases made for industrial lots, commercial lots, sales on tenants, and mortgage sales will not be covered by this law.


Maceda Law is also on the side of the homebuyers in the event that there will be any offenses on the part of the developer or the seller as this law declared the protection of real estate buyers on installment payments as a public policy.


As a whole, it serves as a security defense of low-income and middle-class buyers who would like to purchase their property.


Difference between the Maceda Law and the Recto Law

Both laws regulate the sale of property in an installment arrangement. Recto Law, however, forms as a part of the Civil Code that governs the sales of personal property. Personal property means anything that can be moved and can be subject to ownership except land.


The Maceda Law Philippines, on the other hand, is a special law that rules over real property sales or anything that cannot be moved, which includes land and everything attached to it.


A buyer who has paid at least two years of installments in all transactions or contracts involving the sale or financing of real estate installment payments. The properties covered are residential condominiums, apartments, houses, townhouses, and houses and lots. This excludes industrial lots, commercial buildings, and sales of properties to existing tenants.


Maceda Law Summary


Here are the guarantees you can have once you satisfy this type of qualified buyer:


On defaulting:

Buyers who fall behind on their installment payments are entitled to pay the unpaid installments due within the total grace period they have earned, without additional interest. You can have a one-month grace period for every one (1) year of installment payments made. Buyers should note that this right can only be applied once every five years of the contract life and its extensions.


On contract cancellation:

If the contract is canceled, the seller is required to reimburse the buyer the cash surrender value of the property payments, which is equal to 50% of the total payments made. An additional 5% for each payment year will be added after five years of installment, but this must not exceed 90% of the total payments made. The actual cancellation of the contract is applicable 30 days after the receipt of the notice of cancellation by the buyer. This notice of cancellation or demand for retraction must be in writing and signed by a notary public, and it must be accompanied by full payment of the cash surrender value to the buyer.


On grace periods:

In times of crisis, just like this pandemic, buyers might want to hold on to cash as much as possible. Good thing that the Maceda Law grants two months grace period as long you've already finished two years of installment payments. It's worth taking advantage of this brief reprieve from duties to carefully consider your canceling options. If you've given it some thought and still want to terminate the contract, you can get a refund of 50% of what you spent if you've made two years' worth of installment payments.


On refunds:

Only individuals who have paid at least two years of installments on transactions covered by the Maceda Law are eligible for a refund of the down payment.


A buyer who has purchased residential condominiums, apartments, houses, townhouses, and houses and lots but only paid less than two (2) years of installment.


You can still be entitled to have a grace period of not less than 60 days, which will be counted from the due date of the installment.


Meanwhile, the seller has the right to cancel the contract if the buyer does not pay the payments due before the grace period's conclusion. Despite that, the seller must notify the buyer first about the contract cancellation or the retraction demand. This notice or demand must be in the form of a notarial act and will only be effective 30 days after this has been made.


Selling or assigning property rights to another person. 


Buyers have the option to sell or assign their property rights to someone else. They can also choose to reactivate the contract by updating the account during the grace period if they desire. However, this transaction must be completed before the contract is actually canceled. A notarial act must also be used to execute the relevant sale or assignment deed.


Paying the balance ahead without any additional interests

The buyer's rights include paying any installments in advance or the entire outstanding balance of the property's purchase price. This can be done at any time and will not result in any interests being charged. This entire payment may also be noted on the property's certificate of title.


Signing into inconsistent contracts with the existing laws

The Maceda Law provides protection to those buyers who may have overlooked the fine prints of contracts during the signing required by the real estate contractors or developers by implementing that any terms and conditions conflicting the Sections 3, 4, 5, and 6 of the Maceda Law will be considered null and void.


Should the developers be found to be at fault in any manner – for example, in terms of delays and damages – the provisions of Presidential Decree No. 957 or the Revised Rules and Regulations Implementing the Subdivision and Condominium Buyer's Protective Decree may be investigated and implemented instead.


Maceda Law VS Bank Housing Loans

Nowadays, developers merely require the homebuyers to pay a down payment, representing a percentage of the house purchase price. The remaining balance will then be shouldered by financing schemes such as Pag-IBIG Fund, in-house financing, or commercial banks.


If you take a housing loan from a bank, the bank already fully paid the balance you have to the real estate developer, which means you are now paying your monthly dues to the loan you acquired from the bank and not to the house purchase price.


In this event that the purchase price has been paid in full, the only sum you owe is the loan, and because you are no longer paying in installments, RA 6552 or the Maceda Law no longer applies in this kind of scenario.


Difference between Contract to Sell and Contract of Sale

In a contract to sell, a deed of sale is only executed upon full payment of the property's purchase price. As a result, until the total payment is paid, the seller retains full ownership of the property. After the grace period, if the buyer does not finish the payment or pay the interest, the buyer will be given a 30-day notice of delinquency and cancellation. Only after the 30-day period has passed after the buyer received the notice and the buyer has failed to repay the money, including any accrued interest, would the seller be able to pursue cancellation of the contract to sell. Although a contract to sell is legitimate even if it is not notarized, it must be notarized in order to be recorded in public records.


A contract of sale is a type of agreement in which the seller agrees to transfer ownership of the property in exchange for a payment equal to its value. It is a legal contract that expressly states that the property title will be transferred after the buyer has met his or her payment obligations. A contract of sale can be classified as absolute or conditional. Absolute means that there are no other conditions outside payment of the purchase price and transfer of title, whereas conditional means that certain requirements must be met before the property can be delivered.


In short, a contract to sell means the seller retains property ownership until the buyer meets all of his or her responsibilities and pays the full purchase price. In contrast, the contract of sale is the property turnover and ownership after the full or constructive payment of the buyer to the seller.


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