Understanding Maceda Law in the Philippines

Republic Act No. 6552 also known as the “Realty Installment Buyer Act” and “Maceda Law” is a public policy that has been declared to protect buyers of real estate on installment payments from onerous and oppressive conditions. It was named after former Sen. Ernesto “Ernie” Maceda, who introduced legislation to assist buyers who fail to make installment payments and was approved on August 26, 1972.

Maceda Law protects all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments, but excludes industrial lots, commercial buildings, and sales to tenants under R.A. No. 3844, as amended.

Who is the Maceda Law applicable to?

Maceda Law is applicable to two types of buyers –buyers who have paid at least two years of installments and buyers who have paid less than two years of installments.

Maceda Law: Protection to Buyers of Real Estate on Installment Payments

Buyers who have entered into a transaction or contract involving the sale or financing of real estate on installment payments, including residential condominium apartments, and have paid at least two years or less than two years of installment have the constitutional right:

Buyers who have paid at least two years of installments have the following rights if he fails to pay subsequent installments payments:

• Pay without additional interest
  • The unpaid installments are due within the total grace period earned by the buyer, which is fixed at the rate of one month grace period for every year of installment payments made. Provided, however, that the buyer may exercise this right only once in every five years of the contract’s life and any extensions if any.
• Refund the cash surrender value of the payments on the property if the contract is canceled
  • If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equal to fifty percent of the total payments made, and, after five years of installments, an additional five percent every year, not to exceed ninety percent 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 deed.

Down payments, deposits, or options on the contract must be included in the total number of installment payments made.

Buyers who have paid less than two years of installments

• The seller must provide the buyer with a grace period of at least 60 days from the date the installment became due. If the buyer fails to pay the installments due by the grace period’s end, the seller may cancel the contract 30 days after the buyer receives the notice of cancellation or the demand for rescission of the contract by a notarial act.

How do you calculate the Maceda Law refund?

If the contract is canceled, the seller must refund the buyer the cash surrender value of the property payments equal to fifty percent of the total payments made. Those who have paid installments for five years or more will receive a five percent bonus for each year they have paid. The total amount refundable, however, is limited to ninety percent.

Cash surrender value is computed as TP (total payments) x % RF ( Percentage of refund) = RF or CSV (Refund or Cash surrender value). For example, your total payment is Php 10,000 and the installment payments were made for 3 years, your cash surrender value is Php 5,000 (Php 10,000 x 50% = Php 5,000).

Can you sell or assign my property rights to another person in Maceda Law?

Buyers have the right to sell or assign their rights to another person, or to reinstate the contract by updating the account during the grace period and before the contract is actually canceled. The sale or assignment must be done through a notarial act.

Can you pay the installments or the entire outstanding balance in advance?

The buyer shall have the right to pay any installment or the entire unpaid balance of the purchase price in advance at any time without interest, and such full payment of the purchase price shall be annotated in the certificate of title covering the property.

Maceda Law during the New Normal

In the event that as a buyer you fail to pay your installment payments during the new normal, the following options are available for you under the Maceda Law:

Grace period

Under the Maceda law, you would have two months to consider your decision. However, because of the health crisis, and in accordance with Republic Act (RA) No. 11469, or the Bayanihan to Heal Law, a grace period of 30 days is applicable in areas subject to enhanced community quarantine (ECQ).

Cancellation of Purchase Contract

If you still want to cancel after the grace period, the Maceda law states that if you have gone through at least two years of installment, you will receive a refund of 50% of what you paid for. If after five years of installments, an additional 5% for each year of payments is added, but not more than 90% of the total payments made.

However, there is no refund for those who paid for less than two years. The grace period is provided to allow residents to sell their property and allow the new owner to assume the remaining balance. This only applies if you are paying the developer in installments.

Bank Loan Cancellation

It’s a different story if you’re paying with bank loan installments. If like most people, you obtain a housing loan from a bank, this means that the balance owed to the real estate developer has already been paid in full by the bank. This is an extremely common legal misunderstanding. Given that the property is technically fully paid for, RA 6552 or the Maceda Law is no longer applicable.

Furthermore, banks do not offer refunds. Selling the property is one option. If you are unable to find a buyer, you have the option of cutting your losses and initiating a “Dacion en pago” with the bank. “Dacion en pago” refers to returning the property to the lender after the latter has dismissed the mortgage debt rather than not paying and fleeing the bank.