MISSED PAYMENTS ON REAL ESTATE FINANCING

YOUR RIGHT IF YOU MISS PAYMENTS ON YOUR REAL ESTATE FINANCING

A lot of Filipino-Americans in the U.S. are buying real estate properties in the Philippines, like condos, townhouses or residential homes, as vacation houses or for investment purposes. Most of these purchases are financed either by a bank or the seller, and the buyer pays on an installment basis for a period of 10 to 30 years, depending on the value of the property and the terms of the loan.

Sometimes, however, there are unavoidable situations where the buyer is unable to continue making the monthly payments on the loan. In such case, the seller or lender can cancel the sale contract or foreclose the mortgage on the property.

Luckily for the buyer, there is a Philippine law that protects him or her in case of default in making installment payments. Under the Realty Installment Buyer Act (Republic Act No. 6552) or the Maceda Law, a buyer of real estate property on an installment basis has the following rights:

1. Right to a grace period to pay the installments due. If the buyer has paid at least two years of installment, the buyer has a grace period of 30 days for every year of installment payments made; if only less than two years installment payments have been made, the buyer has 60 days from the date the installment became due.
2. Right to a 30-day notice of cancellation. If the buyer is unable to pay the installment due within the grace period, the sale contract will only be canceled after 30 days from receipt by the buyer of a written notice of cancellation or a notarized demand for rescission of the contract.
3. Right to refund of payments made. Under Section 3(b) of the law, if the contract is canceled or rescinded, the buyer is entitled to a fifty per cent refund of payments made, if buyer has already paid at least two years of installment. The refund percentage is increased to five percent for every year after five years of installment payments made, up to a maximum of ninety per cent. The down payment, deposit or option payment on the contract are included in the computation of the total installment payments made.

It is common practice among sellers to impose penalties, charges or other fees if the  contract is canceled or rescinded and to deduct these from the refund amount, thereby leaving the buyer with a smaller refund. This practice is of doubtful legality because the law expressly states that any stipulation in a contract that is contrary to the foregoing rights shall be void. Since the deductions would reduce the refund amount to less than fifty or more per cent (depending on the length of payments) of the installment payments made, this would contravene Section 3(b).

The realty installment buyer can also sell or assign his or her right under the contract before it is cancelled. And if he or she pays the whole balance in advance, no interest shall accrue on such unpaid balance.