Recto Law and Maceda Law(Draft)

Recto Law and Maceda Law The Recto Law, which forms part of the Civil Code, covers installment sales of personal property while the Maceda Law governs installment sales of real property. The Recto Law The Recto Law comprises Articles 1484 to 1486 of the Civil Code. It was added to the Civil Code to prevent abuses in the foreclosure of chattel mortgages, such as when mortgagee-creditors foreclosed mortgaged property, bought them at a low price (on purpose,) then prosecuted the mortgagor-debtors to recover the deficiencies. In the event a buyer of personal property defaults by failing to pay two or more of the agreed installments, the seller can do any of the following: 1. Demand that the buyer pays (a.k.a. specific performance) 2. Cancel or rescind the sale 3. Foreclose the mortgage on the property bought (if there ever was a chattel mortgage) Regarding no. 3, this happens when a person takes a loan to buy something and he mortgages the thing he bought to ensure the creditor that he will pay the loan. Remember: If you choose one remedy, you can’t choose the others. These remedies, believe it or not, are also available to the buyer. You also al so can’t use all or any of them at the same time. The Recto Law also won’t apply  to a straight sale (i.e. a sale where there is a downpayment and the balance is payable in the future in a single payment only.) The seller can also assign his credit to another person, making that person the new creditor. If the buyer refuses to surrender the items to the seller, he becomes a perverse buyermortgagor. When that happens, the seller can recover expenses and attorney’s fees. The Recto Law also covers leases with the option to purchase. The Maceda Law, Ra 6552 Do you want to know your rights as a real estate investor, investor , or simply as a real estate buyer who is making installment payments? The first logical step would be to know what law applies and what that particular law contains, which in this case would be the full text of Republic Act No. 6552. 6552 . More popularly known as the Maceda Law, the RA 6552 follows. The Maceda Law, RA 6552, 6552 , is the real estate equivalent of the Recto Law. Like the Recto Law, it also covers financing of sales of real property (which is why mortgages also come in.) It doesn’t apply,however, to the following sales:

1. Industrial lots 2. Commercial buildings and lots 3. Lands under the CARP Law MACEDA LAW (RA6552) Maceda Law in the Philippines applies to the purchaser of real property by installment payments when the purchase becomes cancelled by a delinquency in payment. It provides the buyer with a right to a refund as a requisite for cancellation of contract due to delinquency when the buyer has paid at least two years. The refund is 50% of total payments; additional 5% per year after 5th year. To qualify for the Maceda Law, the buyer must have already paid at least 2 years of installment payments. 1. The buyer has the right to continue the unpaid installments due without additional interest provided that the buyer must pay within the grace period. The grace period provided is one month for every one year of installments paid. 2. The buyer has the right to opt for a refund of the installment payments being made (This includes the down payments, deposits or options on the contract). The buyer is entitled to 50% refund from his total payments made. An additional of 5% refund per year for every 5 years. If the buyer has paid less than two years installment: The buyer has the right to continue his payments within a grace period of 60 days. FULL TEXT OF MACEDA LAW: REPUBLIC ACT NO. 6552 REALTY INSTALLMENT BUYER PROTECTION ACT  AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS Section 1. This Act shall be known as the “Realty Installment Buyer Act.”  Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. Section 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. Section 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. Section 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. Section 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. Section 7. Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5 and 6, shall be null and void. Section 8. If any provision of this Act is held invalid or unconstitutional, no other provision shall be affected thereby. Section 9. This Act shall take effect upon its approval.

Defaulting Payments – Know Your Rights under Republic Act 6552 (Maceda Law) Posted by: Joanne Almaden in Real Estate Laws On:June 18, 2016 Last updated: February 24, 2017

Knowing your rights as purchaser of a real estate property under the Maceda Law, will mean a huge difference. It can mean losing everything you have put in for your investment, or getting at least 50% of it back,

when for some reason on your part, you cannot continue with your installment purchase. So in this post, we will discuss the most important points in the Maceda Law that are relevant to a distressed real estate buyer. WHAT IS THE MACEDA LAW?

The Maceda Law, also known as The Realty Installment Buyer  Act or Republic Act 6552 is the law that lays out a defaulting buyer’s rights in the Philippines with regards to his purchase of a real estate property, whether it’s a condominium unit or a house-and-lot unit in a subdivision development. This was initiated by lawmaker Ernesto Maceda and has taken into effect on August 26, 1972. WHO IT APPLIES TO

Today, more and more people in the working class, especially OFW’s are buying condominiums or house-and-lots in subdivision projects. But paying them in full in just one payment is just too much. So practically, they opt to pay the equity by installment since developers’ or contractors’ installment equity payment schemes have become increasingly affordable. This is through stretching their equity payment or down payment stage to 20, 30, 40 months or sometimes even longer. Then they just take out a loan from their bank for the remaining balance since banks usually have lower interest rates compared to in-house financing. If you have taken advantage of this convenience in acquiring your property, everything is okay as long as you can keep up with your payments. But times are not always good. There are times when we face difficult situations and times when we just can’t make the payments anymore. If you come into this situation, the Maceda Law was passed to help protect you. It established the rights of a qualified buyer who can’t continue with his payments anymore.

Under the Maceda Law, there are two qualification categories of buyers accorded protection. These buyers are: 1. Under Section 3 of Maceda Law, a buyer with at least 2 years of installments 2. Under Section 4 of Maceda Law, a buyer with less than 2 years of installments

RIGHTS OF A BUYER

Section 3  …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 installment 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 percent of the total payments made… Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made Section 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 30 days from the receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

In other words, Section 3 of Maceda Law indicates that the buyer has a right to a refund and grace periods as long as the buyer has paid at least two years. However, if there’s still less than 2 years of installment payments made, the buyer is only entitled to 60 days grace period as indicated in Section 4. More importantly, there is a section in the Maceda Law that protects the buyers from the fine prints of contracts imposed by the contractors or developers. These fines prints are oftentimes neglected by the buyers to review during the contract signing. Section 7 of the Maceda Law states that:

…Any stipulation in any contract hereafte r entered into contrary to the provisions of Sections 3,4,5, and 6 shall be null and void.

This section emphasizes the overriding power of the Maceda Law against the contract made by the developer and the buyer. FREQUENTLY ASKED QUESTIONS

The following questions have been commonly asked by our readers: •

Does it apply when I’ve been paying to the bank already?  A common practice today is for the developers to require only the equity to be paid in installments. This equity or also called “down payment”, varies

from 10% to 50% (usually 20%), depending on the developer or the particular development project. The remaining balance after the equity, will be shouldered by some financing scheme. This financing scheme may be provided by: o

Banks

o

HDMF (formerly PAG-IBIG)

o

o

 “In-house Financing”, by the developer themselves or other financing institutions

If you opt to pay your remaining balance using bank financing, that means you’ll be taking a housing loan from the bank. When you start paying to the bank, that means you’ve already taken out your housing loan from them. When you took a loan from your bank, you basically borrowed money and then you used that money to pay the developer in full. But this all happened in the background and the money did not go through your hands anymore. The bank gave it straight to the developer. And this is what commonly confuses people. So now, your property has been fully paid as far as the developer/seller is concerned. In fact, as far as the law is concerned, your property has been fully paid already. But your loan from the bank is what’s outstanding. Your debt is now to the bank — the money you borrowed, to pay the developer. So the answer to the question on whether this Maceda Law will still apply, is no, it will not apply anymore. That’s because the property is technically, already paid in full. •

Does it apply when I’ve been paying to PAG-IBIG already? Please refer to the answer to the preceding question above.

•

My developer/seller is very slow or is already late in delivering the property, will Maceda Law apply if I back out from the purchase?  You check first when the developer is supposed to deliver the property to you  — their supposed “deadline”. You may check your contract. Or you may also call your nearest HLURB office and check with them when is the deadline given to the developer, as indicated in their License to Sell  for the specific project where your property is in.  After determining that your developer is at fault, you may file a complaint for rescission of your contract and for total refunds plus damages, as appropriate, at HLURB. But as far as Maceda Law is concerned, it is not the appropriate law to rely on, now. Read carefully the provisions of P.D. 957. This is what applies in cases like this.

•

My developer is for some reason, the one who’s at fault and I want to back out. Will Maceda Law apply? The Maceda Law only assures 50% refund on all the payments you’ve made (or a little more as appropriate). If your developer is at fault, you should not ask for only 50% refund but for the entire amount you’ve already paid. You can even demand for damages as you deem fit. If your developer is at fault, the provisions of P.D. 957 may apply; and/or the appropriate provisions of Book IV of the New Civil Code on Obligations and Contracts.

OTHER LAWS PROTECTING BUYERS OF REAL ESTATE IN THE PHILIPPINES

Further, there are other laws that protect the rights of condominium and subdivision property buyers such as The Condominium Act of the Philippines or RA 4726 and The Subdivision and Condominium Buyers’ Protective Decree or Presidential Decree 957 (more commonly known simply as PD 957).

 Although both basically cover the same issue which is ‘refunds’, both laws cover different situations on how the refunds are supposed to be granted. Depending on your situation, there are laws that protect you as a buyer. Know your rights and you don’t have to loose more money than you have to. You may not know it, but you might even be entitled to receive 100% full refund of all the payments you’ve made.

What Will Happen To a Condominium Investment After 50 Years? Posted by: Joanne Almaden in Condominiums   , Real Estate Investing   , Real Estate Laws On:September 9, 2013 Last updated: February 24, 2017

This is one of the most common concerns raised by condominium buyers. And it is a very relevant question to ask especially since we are talking about millions of money here. In the Philippines, there is a law that protects the interest of the unit owners in a condominium project. This is the Republic Act 4726 or The Condominium Act of the Philippines which was mandated on June 18, 1966. To answer the concern of the condominium owners and the would-be owners, here is an excerpt of the act.

SECTION 8. Where several persons own condominiums in a condominium project, an action may be brought by one or more such persons for partition thereof by sale of the entire project, as if the owners of all of the condominiums in such project were co-owners of the entire project in the same proportion as their interests in the common areas: Provided, however, That a partition shall be made only upon a showing:

a. That three years after damage or destruction to the project which renders material part thereof unit for its use prior thereto, the project has not been rebuilt or repaired substantially to its state prior to its damage or destruction, or b. That damage or destruction to the project has rendered one-half or more of the units therein untenantable and that condominium owners holding in aggregate more than thirty percent interest in the common areas are opposed to repair or restoration of the project; or c. That the project has been in existence in excess of fifty years   , that it is obsolete and uneconomic, and that condominium owners holding in aggregate more than fifty percent interest in the common areas are opposed to repair or restoration or remodeling or modernizing of the project; or d. That the project or a material part thereof has been condemned or expropriated and that the project is no longer viable, or that the condominium owners holding in aggregate more than seventy percent interest in the common areas are opposed to continuation of the condominium regime after expropriation or condemnation of a material portion thereof; or e. That the conditions for such partition by sale set forth in the declaration of restrictions, duly registered in accordance with the terms of this Act, have been met.

f. It’s not like you will buy a condominium property and then after 50 years, your investment will be gone, just like that. When a condominium project is fully turned over to the unit owners, it becomes just like a corporation, and you are one of the owners of that corporation if you have a unit there. g. So it follows that you will have a “say” in the decision making as to what to do with the whole building, and if it has been decided that the property is going to be sold or demolished so that a new property will be developed on the area, you will get your appropriate share of the proceeds of the sale. h. Just like any investment, your condominium property can last, can be profitable and can be passed on to your heir(s).

Eight Things You Need to Know about the Maceda Law BY  Lamudi 5 April 2016 Tips and Advice

Read on if you plan to buy a property on an installment basis   Are you planning to buy your own house or condominium? If paying the full purchase price is just too much for you, then you are better off paying in installments. If this is the case, then you should know that there is a law that protects homebuyers who decide to purchase their homes on an installment basis. Republic Act No. 6552, or more commonly known as the Maceda Law  or the Realty Installment Buyer Protection Act , deals primarily with one’s rights as a real estate investor or a real estate buyer paying i n installments. It also describes the rights of a buyer defaulting in payments for such purchases. This law was authored by former senator Ernesto Maceda, hence its name, and took effect on August 26, 1972. Let’s say you plan to buy that dream condominium unit in Makati, and being the posh, new building it is, the developers have offered it at a price with a lot of commas and zeroes in it. Unfortunately, your salary does not have as many commas or zeroes to match the property’s price, so you have availed yourself of the initial installment plan they offered, thinking that y ou could get a loan for it after two or three years of building equity. But then after waiting, you ultimately did not get approved for a housing loan, and ended up defaulting. Now, you are in a pinch, and you do not know what to do or what your rights are. Well, keep reading and find out what the Maceda Law can offer you in your current situation.

1. How do I know that the state would protect my rights? Section 2 of RA 6552 states that the protection of buyers of real estate on installment plans against oppressive conditions shall be declared a public policy.

2. Who is covered by the Maceda Law? There are two categories of qualified buyers who are afforded protection. Under Section 3 of RA 6552, a qualified buyer is one who has paid at least two years of installments in all transactions or contracts involving the sale or financing of real estate on installment payments. Properties covered include residential condominiums, apartments, houses, townhouses, and house and lots, among others, but exclude industrial lots, commercial buildings, and sales of properties to existing tenants. Under Section 4, on the other hand, a qualified buyer is also one who has purchased any of the properties enumerated above, but who has paid less than two years of installments.

3. What rights do I have under Section 3 of the Maceda Law? Under Section 3 of RA 6552, buyers who default on their payments of installments are entitled to pay, without additional interest, the unpaid installments due within the total grace period they have earned. This total grace period has been fixed at the rate of one-month grace period for every one year of installment payments made. However, this right can only be exercised by the buyer once in every five years of the life of the contract and its extensions. If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property, which is equivalent to 50 percent of the total payments made. After five years of installments, an additional five percent for every year of payments will be added, but not to exceed 90 percent of the total payments made. For the above paragraph to apply, the actual cancellation of the contract must take place 30 days after receipt by the buyer of the notice of cancellation. This notice of cancellation, or a demand for rescission at that must be by a notarial act and upon the full payment of the aforementioned cash surrender value to the buyer. In a nutshell, buyers are entitled to a refund, as well as grace periods, so long as they have paid for at least two years.

4. What rights do I have under Section 4 of the Maceda Law? In contrast with Section 3 , Section 4 of RA 6552 deals with cases where less than two years of installments have been paid by the buyer. In this case, the buyer is entitled to a grace period of not less than 60 days. This is counted from the date the installment became due. The seller, on the other hand, is entitled to the cancellation of the contract, if the buyer fails to pay the installments due at the end of the grace period. The seller, however, must first notify the buyer of the cancellation, or of the demand for rescission of the contract. This notice or demand must be by a notarial act, and shall only render the cancellation or rescission effective 30 days after such notice or demand has been made.

5. Can I sell or assign my rights to the property to another person? Section 5 of RA 6552 stipulates that those buyers covered by Sections 3 and 4 have the right to sell or assign their rights over the property to another person. They may also reinstate the contract if they so choose by updating the account during the given grace

period, as provided for in Section 4. This transaction, however, must be made prior to the actual cancellation of the contract. The corresponding deed of sale or assignment must be done by notarial act.

6. What if I won the lottery or got a big break, and decide that I want to pay off my balance ahead of the due date? Will I be allowed to do so without incurring the corresponding interests? Section 6 of RA 6552 grants you the right to do so. It stipulates that buyers shall have the right to pay in advance any of the installments or the full unpaid balance of the property’s purchase price. This can be done any time without incurring interest. This full payment may also be annotated in the certificate of title over the property.

7. What if the contract I entered into clashes with the law? Which would prevail Ordinarily, the Constitution would tell us that no law impairing the obligations of contracts shall be passed, but in this case, the Maceda Law, under Section 7, provides that any stipulation in any contract that are contrary to Sections 3, 4, 5, and 6 are to be deemed null and void. This particular provision serves to protect those who may have overlooked the fine prints of contracts during signing that have been stipulated by real estate contractors or developers.

8. Does the Maceda Law apply when I pay through a bank? Transactions today are often done through financing schemes. Developers nowadays merely require that the buyer pay a down –payment, which constitutes a percentage of the purchase price. The remaining balance would then often be shouldered by a financing scheme (usually a housing loan) that may be provided by commercial banks, the Pag-IBIG Fund, by the developer’s themselves through their in-house financing schemes, or by other financing institutions. Opting for the first option —that is, taking a housing loan from a bank   —means that the balance that you have to pay the real estate developer has already been paid for in full by the bank through the loan. In other words, you, in essence, have already paid the purchase price in full by availing of the loan. The subsequent monthly payments you now 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. Hence, having been fully paid insofar as the purchase price is concerned, the only balance you are liable for is that of the loan, and since you are not exactly paying in

installments anymore, considering that the property is technically fully paid for, RA 6552 or the Maceda Law would no longer apply. To make it clearer, you are covered by the Maceda Law if you are paying for the property through installment basis paid directly to the developer themselves. The moment you entered to the loan agreements where the bank or other financial institutions, Maceda Law no longer applies. Because technically the banks or the financial institutions already paid the house on your behalf. And your obligation to pay is already with the bank and no longer to the seller or project developer. I hope this helps you out understanding your rights as a buyer and seller of real estate properties. Maceda Law protects buyers who are paying for the properties through installment basis.

1.

Essential Features of Maceda Law

Maceda Law or Republic Act 6552 is an act to provide protection to buyer of REAL ESTATE on INSTALLMENT PAYMENTS – known as “ Realty Installment Buyer Act.” This includes residential house and condominiums. However there are exemptions on the Maceda Law coverage. It excludes Industrial lots, Commercial Buildings, Sales to tenants and Sale with Mortgage. The Maceda Law two important categories: 1. The buyer has paid AT LEAST (2)two years of installments 2. The buyer has paid LESS that (2)two years of installments 1. The buyer has paid at least (2)two years of installments a. To pay without additional interest the unpaid installments due within the total grace period earned. One (1) month grace period for every one year of installment payments made. The right can only be exercised by the buyer only once in every five years of the life of the contract. b. In case of cancellation of contract, Entitled for a 50% refund of his total payments. If the buyer has paid five years or more, the buyer is entitled to an increase of 5% every year and so on… However the cash surrender value shall not exceed 90% of his total payments. This can be done after thirty days from receipt by the buyer of the notice of cancellation or demand for rescission of the contract by a notarial act. Example Scenario:

Mr. Santos has been paying installment for a subdivision lot since 2005 at the rate of 2,000 / month after a down payment of 20,000 to ABC Realty. In Jan 2013, due to some financial problems, he defaulted to pay his installment. ABC Realty decided to cancel the contract after giving him notarial notice. How many months is the grace period of Mr. Santos?  Answer:  Year 2013  – 2005 8 years x 30 days 240 days or 8 months grace period Question: How much is the cash surrender value due to cancellation of Mr. Santos contract?  Answer: Total monthly amortization paid inclusive of penalty (96 amortization at P2,000) = P192,000  Additional Down payment = P20,000 TOTAL= P212,000 Refund Factor: 65% —- > (2 years = 50% refund additional 5% after 5years, since it is equal to 8 years, therefore 50%+ 15% = 65%) THEREFORE, 212,000 X 65% = P137,800 2. The buyer has paid LESS that two (2) years of installments a. The right to pay within a grace period of not less than sixty (60) days from the date installment became due. b. Failure to pay the installment due at the expiration of the grace period, the seller may cancel the contract after 30 days from receipt by the buyer of the notice of cancellation or demand for rescission of the contract by a notarial act.  – Right to Assign / Reinstate Contract (RA 6552 Sec 5) The buyer has a right to sell or assign his rights to another person or reinstate the contract by updating the account during the grace period and before the cancellation of the contract.  – Right to Advance Payment (RA 6552 Sec 6) The right to pay in advance any installments or full payment without interest anytime and have such full payment annotate in the title.