It should be every developer’s policy to refund all installment payments made by defaulting buyers if there are mitigating circumstances

Majority of home buyers today are middle class. Many are renters who are buying their first home. Whether they are condominiums or townhouses, average price of these middle class homes range between P2.5 million to P4 million. With 20% down payment being the norm, a buyer will have to initially pay P500,000 for a P2.5 million home and P800,000 for a P4 million home either upfront or spread over two or three years. For those in the middle class, this is a fortune and may even constitute their life’s savings.

Currently, there are only two laws that provide refund for those who default on their installment payments: the Maceda Law and PD 957.

I will not delve into these two laws as I have extensively discussed them except to say that Maceda Law is for those defaulting buyers seeking refund resulting from their inability to pay and PD 957 is for those seeking refund due to the fault of the developer.

In the Maceda Law blog post that I wrote, I received around 80 questions (through the comment section or via private messages and even phone calls) from buyers who can no longer pay for their homes.

The Maceda Law was promulgated in the 1970’s when most homes for sale were already built and ready for occupancy and full down payment had to be paid within 30 days upon reservation. I am guessing that back then, a home buyer can move in to his new home as soon as he paid the full down payment and when the financing bank issues a bank guarantee to the developer.

At that time, it is understandable that under the Maceda Law, only those buyers who default on their installment payment after a minimum of two years are entitled to a refund to 50%. Why only 50%? Because the buyer has already used and lived in the house for almost two years.

Today, things have changed. Today is the era of PRE-SELLING. In the biggest bulk of the Philippine real estate market, the middle class condominium, developers sell their projects even before the first hole on the ground is dug. With flexible down payment terms that are payable up to three years and with high-rise condominiums taking an average of 3 ½ years to 4 years to build, it means that if all goes well with the buyer, he has already fully paid his down payment and started paying bank amortization for the 80% balance before he can move in to his unit.

A middle class person who will buy his first house, probably the biggest financial decision he will make in his entire life, will never blindly jump into this arrangement without planning his personal finances.

Unfortunately, not all plans work out. In the comments I received in my Maceda Law blog, the most frequently cited reasons for defaulting on their payments are loss of job, business bankruptcy, legal problems and sickness. Unfortunately, some of those who defaulted are not covered by the Maceda Law. Even if they are, considering that they have not yet taken possession of their property, the Maceda Law is no longer adequate and to my mind needs to be amended.

In one Reservation Agreement that I read, it says:

Any failure on my (buyer’s) part to pay the amortization of the down payments and remaining balance on due dates, or deliver the post dated checks on due dates, shall entitle the seller to impose a penalty at the rate of three (3%) percent per month and/or cancel this agreement on the unit without prior notice and all payments shall be forfeited as liquidated damages.

That to me is very unfair. Liquidated damage is defined as:

Present in certain legal contracts, this provision allows for the payment of a specified sum should one of the parties be in breach of contract. This is meant as a fair representation of losses in situations where actual damages are difficult to ascertain. These liquidated damages are meant to be fair rather than punitive.

I can accept that the reservation fee can be forfeited but forfeiting the down payment and the amortization as liquidated damages is unacceptable. Even the 50% refund offered by Maceda Law is no longer adequate since most defaults happen before actual ownership and possession of the property by the buyer.

For the developer, liquidated damages include the commission already paid to the agent, administrative expenses for processing the sale, opportunity cost of having sold the property to a buyer who defaulted instead of to someone who could have paid for it in full and marketing expense which could be spread over the total number of units in the project.

Given the above, forfeiting all payments or even just 50% of all installment payments under the Maceda Law is unfair and punitive.

My proposal is hold all payments made by the defaulting buyer, open his unit for sale and only give the refund including down payment and amortization (net of fair liquidated damages) when another person buys his unit.

These home buyers who became victims of circumstances which are not of their doing deserve sympathy not punishment.

“Nalubog na nga, huwag nyo namang ibaon pa lalo.”

Thank you so much

jun sanchez
Licensed Real Estate Broker
PRC Registration Number 4562
0915.965.1389
0923.594.4460

 

 

 

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Comments

  1. Hello Ma’am Mona,

    Sorry po sa late na reply na ito.

    Hindi po dahil hindi nyo pa natitirhan yung bahay na binili nyo at nagkaroon kayo ng financial problem ay pwede nyo nang i-refund yung naibayad nyo.

  2. Hello Ma’am Rosario,

    Please pardon me for this late reply.

    Since there is no way on earth the developer can finish the condo soon; in fact they have been delayed for six months in their promise to deliver, I suggest you file a complaint against the developer at the HLURB Regional Office that has jurisdiction over the place where the project is located. Invoke your right for a full refund of all that you paid including amortization interest under PD 957.

    Please pay special attention to Title IV Section 23 of the law.

    Never agree to their offer of a 50% refund as it only applies to buyers who have lost the capacity to pay their succeeding installment payments. The non-delivery of the condo is the developer’s fault, not yours.

  3. Rosario Cruz says:

    Good day, ask ko lang po me napurchse po ako condo fr majorhomes d2 sa silang cavite last May 2010 ngbyad po ako ng 3yrs sa down payment na 25% ang sbi nila unit will be turn over on DECEMBER 2013 pero til now po di pa gawa yon condo hukay pa lng po gsto ko na lang sana bawiin yon binayad ko pero sbi nila 50% lng daw po ang ma refund ko anopo kaya ang pwede ko gawin pra mabawi ko yon pera ko…salamat po

  4. Mona Santos says:

    Sir ask ko lng po kung yung DP ay marerefund ko pa sincedi pa nmn kami tumitira? 3 months navyung nai down ko , this month may kasunod ma payment nnmn eh gusto ko na po i cancel kc nag ka problema po aq. Kausap ko po agent kaso wl po daw cl alam sa rules , i called the office sasagot cl i papasa sa accounting tapos wl na po sssgot.

  5. mary grace says:

    sir jun helu po ask ko lng po kung sa 50%refund my deduction pa po ba un?sabi kasi ni camella my admin charge,oppurtunity cost at ung reservation fee di po kasama un.total po ng payment nmin is 688k ang marerefund lng po nmin is 150K DAHIL SA MGA DEDUCTION PA DAW PO

    THANK YOU PO

  6. Hello sharon,

    Although, Robinsons Land and the bank from which you applied for a loan are owned by the same holding company, the operations of the developer are separate from the operations of the bank. Hindi ba pwede pa kayong mag-apply ng loan sa ibang “partner” banks ng Robinsons Land? If not, you have no other alternative but pay the balance out of your own pocket or go in-house financing, na parehong mabigat.

    If for no other reasons, you cannot claim a full refund. Under Maceda Law entitled lang kayo sa 50% refund.

  7. Hi sir. Yung case nman nmin nbyran n nmin yung 20% down pmt the problem is di kmi maaprove ng bank. Pwedi po ba kmi mg request ng full from robinsons land corp? In the first place, they should not have not approve our application from the start alam nmn nla requirements at policy ng mga bank. Tapos sarili pa nilang bank denicline kmi twice ng d nman alam ang reason. Naging good payer nmn kmi for the past 3 yrs sa pgbyad ng equity o down pmt sa knila. Thank you..

  8. Hello Lei

    Ireklamo mo sa Legal Services Group ng HLURB for possible violation of PD 957. Please read this. Eto numbers nila: 927-3061, 920-8749. Humingi ka ng payo sa kahit sinong abogado dun.

    I hope this helps

  9. Sir,

    We purchased a house and lot in cavite, pre-selling in June 2012. They said that after 18 months we can move in na. However, until now, we have not moved in and worst, when i asked them the status of the construction, 4% palang.
    I am planning to discontinue this purchase, will i be able to get a refund?

    How about the case of my friend, same developer. but she already paid a one time payment of almost 50% of the contract price and no unit has been turned over to her until now.

    Your comment is highly appreciated. Thanks in advance. God bless you!

  10. Hello Lory

    I’m sorry to say this but negligence is very subjective and only the HLURB can determine if the negligence that you alleged the developer committed entitles you to a refund. They need to know “all” the facts, not just from you but also from the developer before they can decide on the matter.

    I suggest you call the Legal Services Group of the HLURB at 927-3061 or 920-8749 and ask any lawyer there how you can remedy your problem.

    Again, pardon me for not having a better solution to your problem.

  11. lory lingwa says:

    my question is this: I paid my lot in 30 months deferred cash 0% interest starting may 8, 2012 (meaning less 24months of payment) and i requested a re-structure for 10years instead last 0ct. 7, 2013 but the developer failed to send me the correct computation. as i go for follow-up as i may not be amenable with the computation, the one handling my account did not even replied nor endorsed my account to anyone from that office. so as i frequently following it through, i decided already not to push through because of that reason. when i sent the request for refund, someone replied and sent me an SOA and new computation which is lower that the first one (meaning, there is a big discrepancy on the total amount). aside from disappointment, penalty is also running and it is not my fault anyway. what should i do since i sent the refund already? it is their negligence anyway! can i demand for a whole refund less the marketing expense or only the 50%?

  12. Hello Chris

    I don’t think that’s the kind of mitigating circumstance that would warrant a refund.

  13. Sir, i just recently paid the 10% down payment 1 week ago. 10% is payable for 36months.
    The condo is still pre selling.
    Issue: can i refund? Change of plan, my gf’s preggy and realized i needa real house instead of a 1 br condo.
    Is it possible?

  14. Hello Sheila

    You and your husband made a mistake by not issuing a “consularized” Special-Power-of-Attorney to someone local who could have done what the bank had asked of you.

    You signed a contract to sell that says that in case your bank loan application is denied, you are given a short period to signify with the developer how you are going to pay the balance of your condo purchase, that is either through in-house financing or lump sum payment.

    If neither option is viable to you, you may ask the developer to cancel the contract and ask for a refund under RA 6552 or Maceda Law. In your case, you are entitled to a 50% refund of the P800k.

    Or, you may sell or “assign” your rights to an interested buyer (see Section 5 of the Maceda Law). But since you are pressed for time, this is very improbable to pull off.

  15. Sheila Cabahug says:

    Hi,

    I have a Makati condo unit ready for TO since November. The problem is when I was trying to arrange for bank financing, the bank we approached was asking my husband for clearances on previous loans he had way back 10 years ago. Since we are both based abroad, he was not able to do so. We paid a total downpayment of almost 800k for 3 years with the developer. Can you advise us on what’s the appropriate course of action to take as we are given until January 1, 2014 to settle all balances including penalties.

    Thank you

  16. Hello Richard,

    Check with the Regional Office of the HLURB that has jurisdiction over the place where the project is located. Ask if the project has a License to Sell (LTS). If it does not, chances are the project has been issued as cease and desist order by the HLURB, i.e., they are not allowed to sell, much less collect payment.

    Kung walang LTS, you may demand for a full refund of everything that you have paid.

  17. Hi Sir Jun,

    I purchased a unit in one of the leading real estate developer for condominiums around Quezon City and i filed a letter to the developer that i’m cancelling my contract with them and as of now they kept on sending me letter that i have failed my monthly obligation for the down payment on my purchased unit. I have paid a total of 22 checks that’s around 300k and the developer was telling me that i can’t refund all that i have paid even if i reasoned out to them that i am investing for nothing since i always check the site and not a single column or structure have been constructed. Anyway, is there a way that i could refund everything that i’ve paid to them?

    Thank you and would really appreciate your advise!

  18. Hello Sherwin

    Okay na sana kung hindi ka pumirma sa kontrata noong August para sa inalok sa iyong replacement unit. Qualified ka na sana for a full refund under PD 957 dahil yung three (3) years na delay ay sapat na for a refund. Pero nung pumirma ka noong August, binigyan mo pa sila ng “pisi.” Sa madaling salita, nabale-wala na iyong three years na delay.

    Wala kang magagawa kundi maghintay hanggang December kung makakalipat nga kayo. Basahin mong maigi yung contract na pinirmahan mo noong August. Pag iyan ay may escape clause na pwede nilang i-extend ang turn over beyond December, wala kang magagawa kundi hintayin yung extension date. Kung wala naman, isumbong mo na sa Legal Services Group ng HLURB. Eto tel number nila: 927-3061, 920-8749

  19. Hi Sir

    Good day

    Ask ko lng kung ano pa ba ang dapat kung gawin. Isa po ako sa kumuha ng Townhouse unit sa isang Realty Co n may kaso ngayon, (di ko na lng babanggitin ung name) Natapos ko na po ung downpayment since 2010 pa at since nag kakaso sila hinde po natapos ung bahay. As of now 3 yrs na po ako nangungupahan. Last May, nag alok sila ng replacment unit na almost complete na, pumayag po ako kahit may pagawain pa at may kataasan na ung monthly. napirmahan ko na po ung bagong contract since Aug pa. at napag usapan nmin na this Decemeber kami lilipat. Sir/Ma’am hanggang ngayon wla pa ring silang response sakin halos araw-araw na ako nag uupdate ang sabi na pirmahan na raw pero wala daw sa office ung contract. Ginagamit na po namin ung Advance namin sa bahay. Paano pag hinde pa rin kami makalipat? anu po ang next step ko. Mag 4 years na kaming hintay ng hintay. Naka ilang contrata din kmi na pinipirmahan pero wala namang bahay n binigay. Pahabol po na tanong, di na po ba pwde kunin ung downpayment ko para sa iba n lng ako maghanap.

    Salamat po

  20. Hello DAC,

    Are you buying the property from a private developer or from an individual owner/seller? If you are buying from a developer, you better read this: Adhesion contracts and how they make buying real estate difficult for the ordinary Filipino.

    If you are buying from an individual owner/seller, you can refund the down payment you paid as the sale has not been finalized yet by a Deed of Absolute Sale since you said that all agreements were done verbally which is not valid. All real estate transactions should be put in writing to be valid and enforceable.

    If the seller still refuses to give you back your down payment, I suggest you get the help of a lawyer.

  21. Hi, good day!

    I am buying a property and applied it through loan and the bank only approved 70% of the selling price. There are no contract or black and white made yet aside from the down payment given to the seller. When we are about to finalize everything and process the documents required by the bank for our loan, the seller and I dint agree on the mode of payment for the remaining balance and there are documents that the buyer wants me to accomplish which I believe are irrelevant. I want to cancel our deal, can I get my downpayment back?

    Thank you and will appreciate your advice on this.

    More power!

  22. Hello Meanne,

    I’m afraid you are not entitled to any refund regardless of how much it hurts. The Maceda Law is a very short, simple and straightforward law that anyone who reads it carefully will know with certainty if he is entitled to a refund or not. It is so clear that NOT even the court of law can interpret it in any other way.

    Sorry to be the bearer of this bad news.

    This is easier said than done, but why not find a buyer (the process is actually called “assignment”) who will pay you whatever you have paid and he will assume the balance of your amortization? People who choose this option usually settle for much less than what they have actually paid than lose everything.

  23. If maceda law stated that you can get 50% refund from all the payments that you’ve made for a min. Of 2year paymnet, what if we only pay 1year of the mo. Amort. For a term of 10years because of termination from job we cannot pay anymore. Does it mean that we cant expect any refund at all? Sayang nmn since the unit costs is P3.8M, and we have paid a total amount of almost P1.5M including DP, thats a big amount of money to be put into waste. Wla n po b tlga kming habol for refund?

  24. Since four years ka nang nagbabayad, entitled ka sa 50% refund ng mga naibayad mo under Maceda Law. Under Maceda Law, a buyer is entitled to a 50% refund if he has paid at least 24 monthly installments. Send a letter to the developer requesting for the cancellation of your contract. Include in your letter that you are claiming a 50% refund under Maceda Law. In your letter, copy furnish Atty. Cesar A. Manuel, Director for Legal Services Group of the HLURB. Here’s their address and telephone nunmbers: HLURB Bldg. Kalayaan Ave. cor Mayaman St., Diliman, Quezon City. 927.3061, 920,8749. Hingi ka din ng advice sa kanila. Malamang hindi mo makakausap si Atty Manuel dahil laging busy yun. Magtanong ka na lang sa kahit sinong abogado doon. Mababait mga yun.

    It will also help if you read this.

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