In the Philippines, the condominium lifestyle has become a staple of urban living. However, financial reversals can lead to the grim prospect of foreclosure. Whether the foreclosure is initiated by a bank (due to an unpaid mortgage) or by the Condominium Corporation (due to unpaid dues), unit owners are protected by a specific framework of laws, primarily the Condominium Act (R.A. 4726), the Maceda Law (R.A. 6552), and the Rules of Court.
Understanding these rights is crucial for any homeowner facing the potential loss of their property.
1. The Right to Notice and Due Process
No unit can be foreclosed without following strict procedural requirements.
- Written Demand: Before any legal action, the creditor (bank) or the Condominium Corporation must send a formal written demand for payment.
- Notice of Sale: In an extrajudicial foreclosure, the law requires the posting of notices in public places and publication in a newspaper of general circulation for at least three consecutive weeks. Failure to comply with these notice requirements can be grounds to nullify the foreclosure sale.
2. Rights Under the Maceda Law (R.A. 6552)
If the unit was purchased through installments and the owner has paid at least two years of installments, they are entitled to significant protections under the Realty Installment Buyer Act, popularly known as the Maceda Law:
- Grace Period: The buyer has the right to pay, without additional interest, the unpaid installments due within a total grace period of one month for every one year of installment payments made. This right can be exercised once every five years.
- Cash Surrender Value: If the contract is cancelled, the seller must refund the "cash surrender value" to the buyer. This is equivalent to 50% of the total payments made, plus an additional 5% for every year after five years of installments, not to exceed 90% of the total payments.
- Notice of Cancellation: The actual cancellation of the contract can only take place 30 days after the buyer receives a notice of cancellation or a demand for rescission by a notarial act.
3. The Right of Redemption
Perhaps the most vital protection is the Right of Redemption, which allows the owner to "buy back" the property after the foreclosure sale.
- One-Year Period: For individuals (natural persons), the redemption period is generally one year from the date of the registration of the Certificate of Sale with the Register of Deeds.
- Juridical Persons: If the mortgagor is a corporation, and the mortgagee is a bank, the right of redemption exists only until, but not after, the registration of the certificate of foreclosure sale with the Register of Deeds, which in no case shall be more than three months after foreclosure.
- Redemption Price: To redeem, the owner must pay the purchase price at the auction, plus interest (usually 1% per month) and any assessments or taxes the purchaser may have paid.
4. Right to Possession During Redemption
During the one-year redemption period, the unit owner generally has the right to remain in possession of the property. The purchaser at the auction cannot forcibly evict the owner immediately unless they apply for and are granted a Writ of Possession by the court, and even then, the owner may stay if they provide a bond to stay the execution.
5. Foreclosure by the Condominium Corporation
Under Section 20 of R.A. 4726, a Condominium Corporation may file a lien against a unit for unpaid assessments (association dues). If these remain unpaid, the corporation can foreclose on the unit in the same manner as a real estate mortgage.
- Right to Contest: Owners have the right to contest the validity of the assessment or the computation of interest and penalties in court if they believe the charges are exorbitant or not in accordance with the Master Deed or By-laws.
- Equal Redemption Rights: The same right of redemption applicable to bank foreclosures applies to foreclosures initiated by the Condominium Corporation.
6. The Right to Surplus Proceeds
If the unit is sold at a foreclosure auction for an amount higher than the total debt (including interest and legal fees), the "surplus" belongs to the unit owner. The foreclosing entity is legally obligated to return the excess funds to the mortgagor.
Summary Table: Key Timelines and Protections
| Right | Description | Legal Basis |
|---|---|---|
| Maceda Law Refund | 50% to 90% refund of total payments if 2+ years paid. | R.A. 6552 |
| Grace Period | 30 days per year of payments made. | R.A. 6552 |
| Redemption Period | 1 year from registration of sale (for individuals). | Act No. 3135 / Rules of Court |
| Possession | Owner stays in the unit during the redemption year. | Rules of Court |
| Surplus | Right to receive excess funds from the auction sale. | Jurisprudence / Rules of Court |
Note on Delinquency: It is important to distinguish between "foreclosure" and "utility disconnection." While a Condominium Corporation has the right to foreclose for unpaid dues, they must still respect the basic rights of the occupant; however, many Master Deeds allow for the disconnection of water and electricity for delinquent owners, provided such measures are explicitly stated in the project’s House Rules.