Maceda Law

Whether you have experienced buying your own house or just planning for your humble abode, it
is best to be well-rounded with the laws protecting your rights as a homebuyer.

Whether you are ready to finally buy that dream house or condominium but would like to be extra
secured with your allotments or would already want to settle in a place that you can call home but
still lack a few more funds to suffice the big purchase, you are better off exploring payments via
installment basis.

This payment option in the Philippines is governed by the Republic Act No. 6552 or the Realty
Installment Buyer Protection Act. This is more commonly known as the Maceda Law, named after
the main author of this 1972 law, former senator Ernesto Maceda.

This law deals primarily with one’s rights as a real estate investor or a real estate buyer paying in
installments. It also describes the rights of a buyer defaulting in payments for such purchases.

In a sample scenario, let’s say you have opted to avail of the initial installment plan offered by a
developer and a location of your choice, thinking that you could get a favored house loan for it
after two or three years of building equity. Given that the odds were not mostly in your favor and
your loan was not approved, you may end up defaulting (meaning, you fail to meet the legal
obligations, or conditions, of a loan). In this situation, Maceda Law can protect your rights, and so
you can also stand up and dust yourself off from this dilemma. The following entails more
elaboration on the scope of the law.

1. How do I know if this law would truly protect my rights in real estate installment purchases?

It is clearly stipulated in Section 2 of the Maceda Law that the protection of buyers of real estate
on installment payments against onerous and oppressive conditions is declared a public
policy. The law is on the side of the homebuyers should there be any misdemeanor committed on
the side of the developer or seller.

2. Who is covered by the Maceda Law?

As termed in the law, 2 types of “qualified buyers” are afforded protection:

 one who has paid at least 2 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 excluding industrial lots, commercial buildings, and sales of
properties to existing tenants. (under Section 3)
 one who has purchased any of the properties enumerated above, but who has
paid less than two years of installments. (under Section 4)

3. What guarantees do I have should I fall behind in making payments or should the contract be
canceled?
In simple terms, as it is stated in Section 3, buyers are entitled to a refund, as well as grace
periods, so long as they have paid for at least two years.

On defaulting

 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 a one-month grace period
for every one (1) year of installment payments made. However, this right can only be
exercised by the buyer once every five years of the life of the contract and its
extensions.

On contract cancellation

 If the contract is canceled, 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 this 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
demand for rescission must be by a notarial act and upon the full payment of the
aforementioned cash surrender value to the buyer.

On grace periods

 In times of crisis, say, a pandemic, where you probably would want to hold on to cash as
much as possible, the Maceda Law, according to property experts, grants two months
of grace period if you’ve finished two years of installment payments. It’s worth taking
advantage of this temporary break from obligations to seriously think through the
decision of cancellation. However, if you’ve taken the time to consider things, and would
still like to proceed with canceling the contract, you can secure 50 percent of what you
paid as a refund, as long as you’ve paid two years’ worth of installment payments.

4. What guarantees do I have if I have paid less than two years of installments?

You are still primarily given the upper hand in this scenario since grace periods and notarized
notices should be given to you.

In Section 4, it is highlighted that 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?

Photo via DepositPhotos
Yes, since this is clearly explained in Section 5 – 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. 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. Can I opt to pay off my balance ahead of the due date? Will I be allowed to do so without
incurring the corresponding interests?

Yes, it stipulated in Section 6 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 at
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 is inconsistent with existing laws? Which will have more
bearing?

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 is 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 the signing that has been required by real estate contractors or developers.

In relation to this, should the developers be, in any possible way, at fault – in terms of delays
and damages, among others – the provisions of the Presidential Decree No. 957 or the Revised
Rules and Regulations Implementing the Subdivision and Condominium Buyer’s Protective
Decree may instead be explored and applied.

8. Does the Maceda Law apply when I pay through a housing loan from a bank?

This is where the common misconception usually lies in terms of the coverage of the Maceda Law.

To provide a quick background, 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, Pag-IBIG Fund, by the developers themselves through their in-house financing
schemes, or by other financing institutions.

If you are taking a housing loan from a bank, this 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.

9. What transaction is covered by Maceda Law?

Maceda Law, also referred to as the “Realty Installment Buyer Act,” covers real estate buying
transactions or financing for residential properties such as houses, lots, and condominiums
under installment payment terms. Purchase transactions on industrial lots, commercial lots, sales
on tenants, and mortgage sales are not included. The Maceda Law aims to protect buyers from
unfair installment terms and conditions. Maceda Law serves as a remedy to low-income and
middle-class buyers who wish to own a property. 

10. Can a contract to sell be rescinded?

Rescission refers to the legal cancellation of the contract for a purchase transaction. Under the
Maceda Law, the seller is given the right to demand rescission of the contract to sell when the
buyer fails to comply with the payment terms. However, before a contract to sell can be rescinded,
the buyer must first be given a grace period. For those who have been paying installments for
more than two years, the grace period is equivalent to one month for every one year installment
payments made. For buyers paying less than two years, the grace period is not more than 60
days. This right can only be used by the buyers once every five years. 

A contract to sell has a unique characteristic that distinguishes it from the other forms of contract.
In a contract to sell, a deed of sale is only executed upon full payment of the property’s
purchase price. Thus, the seller retains full ownership of the property until the payment is
completed. When the buyer fails to complete the payment or pay for the interests after the grace
period, the buyer will be given a 30-day notice of delinquency and cancellation. When the 30
days starting from the buyer’s receipt of the notice lapse and the buyer fails to settle the payment,
including interests incurred, only then will the seller be able to demand rescission for the contract
to sell.  

11. How is the Maceda Law refund calculated?

Upon cancellation of the contract to sell, the seller must refund 50% of the total payments made.
For those who have paid installments for five years or more, an additional 5% for every one year
will be added. However, the total amount refundable is only limited to 90%.

12. Is down payment refundable in the Philippines?

The refund of the down payment is only applicable to those who have paid at least two years of
installment on the transactions covered by the Maceda Law. 

13. Is the contract of sale a real contract?

According to Article 1458 of the New Civil Code, a contract of sale is a form of agreement where
the seller obliges himself to transfer the property’s ownership upon payment equivalent to its
value. It is a legitimate contract that explicitly implies property title transfer after the buyer fulfills its
obligation to pay. The crucial elements of a valid contract of sale are consent, where both parties
agree to fulfill their obligations; subject matter, which pertains to the property and its value
discussed; and cause of obligation that indicates the nature of the contract. A contract of sale
may be absolute or conditional. Absolute means there is no other condition aside from the
payment of the purchase price and the transfer of title, and conditional where certain conditions
need to be fulfilled before the property’s delivery. 

It is important to note that a contract of sale is different from a contract to sell. In a contract of
sale, the property ownership is transferred upon the property’s turnover after full or constructive
payment. In contrast, in a contract to sell, the seller retains property ownership until the buyer
fulfills all obligations and pays the total purchase price. 

14. Does a contract to sell need to be notarized?

Although a contract to sell remains valid even without notarization, it is necessary to notarize the
contract to sell to register it in public records. Under Sec 112 of the Property Registration
Decree, any form of document that affects registered and unregistered land shall be made
available to public records and registered to the Register of Deeds for accurate documentation.