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.
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
Licensed Real Estate Broker
PRC Registration Number 4562