The Maceda Law, foreclosures and buy-back agreements

By Atty. Eduardo T. Reyes III

 

News about the divorce of Bill Gates and Melinda Gates had sent shock waves around the world. They had seemed a perfect couple with a shared philanthropic vision of ending global hunger and anticipating pandemics, if not preventing them from happening altogether.

Yet again, this only proves that not all marriages are made in heaven because some couples are conjoined on earth even if they met in elevated Silicon Valley.

Following suit from Amazon’s Jeff Bezos who also had a divorce with his wife MacKenzie Scott (previously Bezos), the Gates couple stand to split billions and billions of conjugal wealth perhaps yet unseen in the history of the world.

In stark contrast is the rest of the world that is hanging on by a thin thread to whatever measly properties they have amidst the still rampaging pandemic.

Many stand to lose their homes after receiving foreclosure notices because they had defaulted on their mortgages.

Do property owners whose bank or financing loans have turned sour, enjoy rights under the law?

In Star Asset Management Ropoas, Inc., substituted by Dallas Energy and Petroleum Corporation v. Register of Deeds of Davao City and Foothills Realty Development Corporation Represented by Maryline C. Lim, G.R. No. 233737. February 3, 2021, the Supreme Court explained that under Republic Act No. 6552 or what is more popularly known as the “Maceda Law”, the buyer is entitled to the following rights:

“Under the said law, when the buyer has paid at least two installments, he is entitled to the following rights in case he defaults in the payment of succeeding installments, to wit:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.”

The policy consideration behind this law is stated as follows:

“Under Section 2 of R.A. 6552, it is the “[p]olicy of the State to protect buyers of real estate on installment payments against onerous and oppressive conditions.” The scope of the law only encompasses “[s]ale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under R.A. 3844, as amended by R.A. 6389.”

As stated, the protection that the Maceda Law affords applies only to “buyers of residential land and residential condominium units”, and not to purchasers of commercial or industrial lots.

More elaborately, this law is in the nature of a social legislation which seeks to protect middle and lower class buyers of houses and low income earners, viz:

“In Active Realty & Development Corporation v. Daroya, the Court explained the essence of the Maceda Law as follows: The law seeks to address the acute housing shortage problem in our country that has prompted thousands of middle and lower class buyers of houses, lots and condominium units to enter into all sorts of contracts with private housing developers involving installment schemes. Lot buyers, mostly low income earners eager to acquire a lot upon which to build their homes, readily affix their signatures on these contracts, without an opportunity to question the onerous provisions therein as the contract is offered to them on a “take it or leave it” basis. Most of these contracts of adhesion, drawn exclusively by the developers, entrap innocent buyers by requiring cash deposits for reservation agreements which oftentimes include, in fine print, onerous default clauses where all the installment payments made will be forfeited upon failure to pay any installment due even if the buyers had made payments for several years. Real estate developers thus enjoy an unnecessary advantage over lot buyers who they often exploit with iniquitous results. They get to forfeit all the installment payments of defaulting buyers and resell the same lot to another buyer with the same exigent conditions. To help especially the low income lot buyers, the legislature enacted R.A. No. 6552 delineating the rights and remedies of lot buyers and protect them from one-sided and pernicious contract stipulations.” (Citations omitted)

Too, the said law only envisages  “initial purchases”  of these kinds of properties, but it does not include within its ambit, “buy-back arrangements” like for instance, a contract for repurchase after the property had already been foreclosed.

Thus it was held that:  

“In this case, while Section 3 of the compromise agreement gives Star Asset and/or Dallas Energy the right to foreclose the mortgaged properties in case of default and after formal notice or demand has been served and received by Foothills Realty, nevertheless, the correct interpretation should be that, in case of default, Star Asset and/or Dallas Energy should be given the right to cancel the compromise agreement. This is in keeping with the nature of the compromise agreement as a buy-back of foreclosed property arrangement. Besides, the subject property has already been foreclosed and its ownership was transferred to Star Asset and/or Dallas Energy. There is no reason for the latter to foreclose the subject property anew. X x x

And as already earlier mentioned, the Maceda Law does not protect buyers of large-scale tracts of land to be devoted for industrial or commercial uses:

“In this case, the buyer under the compromise agreement, Foothills Realty, is a company based in Davao City that is engaged in the business of real estate development, undertaking, establishing, or managing subdivision housing problems, industrial or commercial estates, golf course projects, resort projects and other real estate developments.

The properties subject of this case have an aggregate land area of 300,000 square meters. By its sheer size, the subject properties can hardly be classified as residential properties as to be covered by the Maceda law. As aforesaid, the Maceda law was enacted to curb out the bad practices of real estate developers like Foothills Realty. For that reason, We find that Foothills Realty is taking an incongruous position by invoking the Maceda law in as much as the said law was enacted precisely to guard against its practice. Besides, the record shows that as early as February 7, 2012, Star Asset already sent a letter to Goldland, Foothills Realty’s predecessor-in-interest, demanding payment of the installment due on January 30, 2012 as well as past installment payments that were not collected – amounting to a total of P1,317,642.37. Star Asset also gave Goldland a period of 30 days within which to pay the said debt. After the lapse of the 30-day period, Goldland requested for an extension of 15 days to pay but this was not granted by Star Asset, hence, on March 12, 2012, Star Asset sent a final demand for the payment of the unpaid installment equivalent to more than three months’ amortization as well as the whole unpaid balance amounting to 136,387,315.45, in accordance with the acceleration clause in the compromise agreement, this time to be paid within five days from receipt of the letter. Because Goldland failed to pay, Star Asset cancelled the compromise agreement on March 21, 2012.  (Star Asset Management Ropoas, Inc., substituted by Dallas Energy and Petroleum Corporation v. Register of Deeds of Davao City and Foothills Realty Development Corporation Represented by Maryline C. Lim, G.R. No. 233737. February 3, 2021).

Holding on dearly to one’s home may be a challenge nowadays especially to those just starting out on family life with not much buffer to start with.

Life is a skein of ironies. The lack of money may be a deep chasm that could sever a household. Yet too much of it is also not a glue that can keep it intact.

What holds the home together must be something more. Perhaps it is the same as aimed by the law. “The objectives of law should be justice and human dignity”- Justice Frank William Murphy, US Supreme Court.

(The author is the senior partner of ET Reyes III & Associates– a law firm based in Iloilo City. He is a litigation attorney, a law professor and a law book author. His website is etriiilaw.com).