If you are planning to purchase real estate property, or are in the process of buying real estate such as a house or condominium unit, it is understandable if you are more focused on the financial side of the transaction. On the buyer’s part, obtaining real estate property whether for residential or investment purposes also means knowing the rights of the buyer and the laws that protect said buyer and the properties involved up for sale or already purchased. The Maceda Law in the Philippines is such a law that all buyers and sellers of real estate should be familiar with.
What is Maceda Law?
The Realty Installment Buyer Act, or Maceda Law, is named after former Senator Ernesto Maceda who authored the said law. The act primarily protects real estate buyers from any cruel or unjust conditions especially when it comes to installment payment terms. Sellers also should understand the rights being protected by the Maceda law.
The Maceda law protects special scenarios that may be unique in the real estate market. For instance, the act covers a situation wherein the buyer defaults on a loan or did not meet the obligations covered in the application for a loan that is supposed to cover the installment plan. Another example is when a real estate seller or developer either refuses or is taking too long to process a refund after the contract has been canceled due to severe health reasons. The law also determines what necessary measures are provided in these situations.
Related: Tax Declaration Of Real Property: How To Obtain?
How Does It Work?
It ensures that sellers do not take advantage of buyers. It requires the seller to refund the buyer if certain conditions are met.
If you’ve paid at least two years of installments on the purchase or financing of a residential condominium apartment (not including industrial lots, commercial buildings, and sales to tenants under Republic Act No. 3844, as amended by Republic Act No. 6389) and then default on your payment of succeeding installments, you have certain rights. These include:
- Right to pay, without additional interest, any unpaid installments due within the total grace period granted (1 month per 1 year of installment payments). This right can be used only once every five years of the contract’s lifetime.
- If the contract is canceled, the seller must refund the buyer 50% of all payments made, with an additional 5% for each subsequent year up to 90%.
- Buyer must get 30 days’ notice before contract cancellation and receive full payment on cash surrender value before cancellation occurs.
- Down payments, deposits or options are to be included in the total installment payments calculation
In cases where less than two years of installments have been paid, the seller shall give the buyer a grace period of at least sixty days from the date the installment became due.
- Suppose the buyer fails to pay the installments due at the expiration of this grace period. In that case, the seller may cancel the contract thirty days after receipt by the buyer of notice regarding cancellation or demand for rescission by a notarial act.
- Under Sections 3 and 4, buyers have the right to sell their rights, assign them to another person, or reinstate their contracts by updating their accounts during said grace period before cancellation occurs. A notarial act must do the deed of sale or assignment.
- Furthermore, buyers have the right to pay any installment or total unpaid balance without interest in advance and have this payment annotated on the relevant certificate of title.
Property payments
In Section 3, it states that, if the buyer has paid at least two (2) years of installments, they are entitled to the following:
- Payment of the rest of unpaid installments without additional interest within the total grace period or within 30 days after it’s due. For each year of the installment, the fixed rate has a one-month grace period. This is only once every five years, or during the life of the contract, or any extension.
- In the event the contract is canceled, the seller must surrender the cash value equivalent to 50% of the total payments made. This shall be made 30 days after the receipt by the buyer of the notice of cancellation or demand for a recession by notarial act.
Failure of the buyer to continue payment
Section 4 states that if the buyer fails to pay on the due within the last two years, or accrues unpaid installments, the buyer or seller may cancel the contract after thirty of the grace period. This is followed by a notice of cancellation and a contract by a notarial act.
Grace period
In the event of an unforeseen crisis (whether by natural or human causes), and if the buyer has already paid at least two years of installment payments, the buyer is granted a two-month grace period. The longevity of the grace period also gives enough time for the buyer to consider an actual cancellation of the contract.
Maceda Law Refund
According to the Maceda law refund part, no refunds shall be made to buyers who have only paid for two years. Cancellation of the contract for any valid reason allows the buyer to be refunded 50% of the property payment made to the seller. An additional 5% can be added to the refund if payments have been made for five years, but the total refund should not exceed 90% of the total property payment.
Advance Payments
When paying any installment payment in advance or giving a full payment, no interest is included or paid as specified under Section 6 of the Maceda law.
Bank Housing Loans According to Maceda Law
The basic practice today of real estate developers or contractors is to require buyers to pay a down reservation fee and a down payment representing a percentage of the property’s purchase price. The remaining purchase price balance can then be covered either through PAG-IBIG Fund, in-house financing, or a commercial bank housing loan.
When a buyer obtains a housing loan from a bank, the bank pays the full balance of the purchase price to the real estate developer. Thus, the buyer is now paying off the monthly dues to the housing loan from the bank and not from the purchase price of the developer.
In this scenario, because the buyer is no longer paying in installments to the real estate developer but instead to the bank, the Maceda law no longer applies to the buyer.
Similarities Between Recto Law versus Maceda Law
Purpose
Recto law protects lessees of personal properties, while Maceda Law protects buyers and sellers involved in residential real estate transactions.
Requirements
Recto law requires landlords to give tenants a year-long written notice before they can increase rent prices. In contrast, it does not have any particular requirements for leases or rentals but instead focuses on protecting buyers from unfair practices when buying or selling real estate.
Penalties for Violations
For violations of Recto Law, landlords may be fined up to P20,000 plus three months’ rent in damages; however, there are no specific penalties for violating Maceda Law – it is up to the buyer and seller to negotiate an acceptable settlement.
Difference Between Maceda Law and Recto Law
Properties
The properties protected by Maceda Law are residential real estate, while Recto Law focuses on personal properties.
Purpose
Maceda Law is designed to protect buyers and sellers in residential transactions, while Recto Law protects lessees of personal property.
Protection
Recto Law protects tenants against arbitrary rent increases, whereas the main focus of Maceda law is to protect buyers from unfair practices when buying or selling a property.
How Will You Benefit?
Knowing it helps protect you from potential losses in residential real estate transactions. As a buyer or seller, you will benefit by being aware of your rights as dictated by the law, and having this knowledge can help ensure that you do not get taken advantage of in any transaction.
Additionally, knowing it can provide security and peace of mind when making such large purchases or investments. Finally, understanding it can help you make more informed decisions when buying or selling property and ensure everything goes smoothly throughout the process. Knowing this is essential for anyone involved in residential real estate transactions in the Philippines.
Conclusion
The Maceda law provides an essential layer of protection for buyers and sellers in residential real estate transactions and tenants in agricultural leases. Understanding it can help ensure everyone knows their rights and all parties are treated fairly throughout any transaction. Ultimately, it helps promote fair dealing and protect buyers at risk of exploitation.
Disclaimer: This article was written for informational purposes only and did not constitute legal advice. If you have questions regarding Maceda law, please consult a qualified attorney. It is important to remember that Maceda law is subject to change and interpretation depending on the situation. Hence, it is always best to seek professional counsel when dealing with such matters.
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