The Real Estate Service Act, popularly known as the Maceda Law (Republic Act No. 6552), serves as the primary protective framework for installment buyers of real estate in the Philippines. Enacted to prevent exploitative practices in the housing industry, it outlines specific rights regarding payments, grace periods, and—most critically—cash refunds.
Scope and Applicability
The Maceda Law applies specifically to installment sales of residential real estate. This includes:
- Residential condominiums.
- House and lots.
- Residential subdivisions/lots.
Exclusions: The law does not cover the following:
- Industrial lots.
- Commercial buildings or commercial lots.
- Sales to tenants under the Code of Agrarian Reforms.
- Bulk purchases or investments not intended for residential use.
Two Categories of Buyer Rights
The extent of a buyer’s refund rights depends entirely on the duration of payments made prior to default.
1. Buyers with at least two (2) years of paid installments
If a buyer has paid at least two years' worth of installments, they are entitled to the following "Cumulative Rights":
- The Grace Period: The buyer can pay unpaid installments without additional interest within a total grace period of one month for every one year of installments made. This right can only be exercised once every five years of the contract's life.
- The Cash Refund: If the contract is cancelled, the seller must refund the Cash Surrender Value (CSV).
- The refund is equivalent to 50% of the total payments made.
- After five years of installments, an additional 5% is added every year, but the total refund cannot exceed 90% of the total payments made.
- Note: "Total payments" include the down payment, options, and deposits added to the installments.
2. Buyers with less than two (2) years of paid installments
If the buyer has paid less than two years of installments, the rights are more limited:
- The Grace Period: The buyer is entitled to a grace period of not less than 60 days from the date the installment became due.
- Cancellation: If the buyer fails to pay within the 60-day grace period, the seller may cancel the contract. However, in this category, the buyer is not entitled to a cash refund. The seller simply cancels the contract after the notice period expires.
The Mandatory Process for Cancellation
For a cancellation to be legally valid under the Maceda Law, the seller must strictly follow a two-step "Notarial Requirement":
- Notice of Cancellation: The seller must send a notice of cancellation or a demand for rescission to the buyer.
- Notarial Act: This notice must be made by notarial act (a notarized letter).
- The 30-Day Cooling Period: The actual cancellation of the contract takes place only after 30 days from the buyer's receipt of the notarized notice of cancellation.
Crucial Rule: For buyers with 2+ years of payments, the cancellation is only effective once the Cash Surrender Value has been fully paid to the buyer. If the seller cancels the contract without paying the refund, the cancellation is void.
Common Legal Protections & Nuances
| Feature | Protection/Rule |
|---|---|
| Down Payments | Included in the calculation of "total payments made" for the refund. |
| Interest & Penalties | Generally, the grace period prohibits additional interest, though original contract interest remains. |
| Full Payment Right | Buyers have the right to pay any installment or the full unpaid balance at any time without interest and to have such full payment annotated in the Certificate of Title. |
| Assignment of Rights | Buyers may sell or assign their rights to another person or reinstate the contract by updating the account during the grace period and before actual cancellation. |
Prohibited Stipulations
Any clause in a contract to sell that is contrary to the provisions of the Maceda Law—such as a clause stating that "all payments shall be forfeited in favor of the seller in case of default"—is considered null and void. The law is a matter of public policy designed to protect the "low and middle-income" installments buyers from being deprived of their life savings due to temporary financial distress.