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Real Estate Buyer Protection

Romeo thought that luck would always be on his side and that his phenomenal rise to success would have no end.  Now in his 50’s, he owns a multimillion peso hauling business serving Iligan, its nearby provinces, and Cebu, a far cry from his early beginnings as a mere truck driver for a local hauling company.  In the last five years, he was buying properties here and there in Cebu and in Mindanao.  He bought a few lots in well known subdivisions.

As it turned out, he eventually ran out of luck basically brought about by his separation from his wife and the bid of his sons to wrestle ownership of his company, which all turned out to be a very expensive incident.  Much to his dismay, he started to have difficulty in paying for the amortization of his prime lots more than two years since he started paying his monthly dues.   

What are his rights as a buyer?  Is there a way for him to avoid paying penalties for late payment? What if he decides he can no longer continue paying for his lots? Would it mean saying goodbye to the hundreds of thousands of pesos of investment?

The Maceda Law, also known as the “Realty Installment Buyers Protection Act” sheds light on what his rights are as an installment buyer of a real estate property.  This act covers purchases with a “Contract to Sell” and where the buyer has paid more than two years of amortization, whether regular or irregular.  The law is applicable to condominium apartments, house and lots, and lot only purchases. Commercial buildings, industrial lots, and sales to tenants under special laws are not covered by the Maceda Law.

Based on the Maceda Law, Romeo is entitled to a grace period equivalent to one month for every one year of installment payment. If he had paid less than two years amortization, he would have been entitled to a sixty day grace period.  Down payment, deposits or options stated in the contract are included in the computation of the total number of installments made.

During this grace period, Romeo may pay the unpaid installments without additional interest or late payment charges. However, Romeo can avail of this privilege only once every five years of the contract and its extensions, if any. Within this grace period, Romeo has the option to sell or assign his rights to his lot to another person.  In this case, the person to whom he will sell his property to will assume the remaining balance. This should be done by using a notarized written document.  Romeo further has the option of asking compensation to cover up for the installments he has already made for the property. 

He may also opt to reinstate the contract by updating his payables before actual cancellation of the contract. He may pay the full unpaid balance of the purchase price without interest and to have such full payment annotated on the Transfer Certificate Title (TCT) of the property.

Should the developer decide to cancel the sale of the property to Romeo, they are required to send a notarized notice of cancellation or a demand of rescission. Only after 30 days after the receipt of the notice by Romeo can the actual cancellation take place. If successfully cancelled, the developer is required to refund a “cash surrender value” of payment made by Romeo equivalent to 50% of total payments made during the first five years of payment plus another five percent for every year thereafter, but is not to exceed 90% of the total payments made. This is applicable to Romeo because he has paid more than 2 years of amortization already. That is, if Romeo had paid less than two years of his monthly dues, he would not be entitled to a refund of the cash surrender value.

At least for Romeo, all is not completely lost. He has certain options to ensure that some if not all of his investments may still be recovered. His luck has not completely run out, after all. 

One word of caution: Beware of developers who let you sign another document or contract after two years of paying your amortization. This might be their way of working around the Maceda Law, if it is at all possible.

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