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Can a buyer get a refund if he cancels installment payment on a property he bought?

Since most property buyers purchase a lot, house and lot, townhouse or a condominium unit on installment basis, and since most of these properties are sold on a pre-selling basis, they inevitably ask themselves:

Buyer refund for cancellation of installment payment of property or house and lot

Can I get a refund from the developer if…
  1. by some twist of fate, I suffer a reversal of fortune (loss of a job, business failure) and can no longer continue paying the monthly amortization? or...
  2. the developer fails to develop the subdivision or condominium project according to the approved plans and within the (promised) time limit?
The answer is YES. There are two laws that entitle a buyer to a refund under the 2 varying scenarios above. Let us start with the first scenario.

Maceda Law (Republic Act 6552) also known as the Realty Installment Buyer Protection Act

This law applies to residential properties including condos where the buyer has paid at least two years of monthly installment (including installment payment made on down payment or equity) and defaults on the succeeding payment/s.

If the buyer decides to cancel the purchase, he is entitled to a 50% refund of the total installment payments made including down payment, deposits or options or reservation fee.

If the buyer defaults and cancels after making three or four years of monthly installment payments, he is entitled to the same percentage of refund , 50%.

However, if he defaults and cancels after making 5 years of installment payments, he is entitled to an additional 5% or 55% refund. The buyer is entitled to an additional 5% refund every year thereafter but the refund should not exceed 90% of total payments made.

Thus, the buyer gets a 60% refund if he cancels after paying 6 years of monthly installments, 65% if after 7 years, 70% if after 8 years, 75% if after 9 years, 80% if after 10 years, 85% if after 11 years and 90% if after 12 years. He shall not get any additional refund if he cancels after the 13th year as 90% is the maximum allowable refund under the Maceda Law.

So far, I have only answered the issue of refund relating to a buyer who lost the financial capability to make installment payments on the property he bought.

We will now go into how a buyer can get a full refund in case the developer fails to deliver the property as promised.

We shall look at the buyer’s right to a refund resulting from the developer’s failure to deliver a project according to the approved plans within the promised time of completion.

August of year 2012, I received an email from someone who said: (This is an abridged version of a rather long email)

March 2011, I bought a unit from Aurora Heights along Katipunan Ave., Quezon City, a project of First Homes, a subsidiary of Eton Properties. I am still paying for the down payment as they have an installment scheme for the 30% DP. They committed that turn over date would be end of 2013 and construction would start late 2011.

It’s now more than a year and I have not seen any construction in the area. I live near the project site and pass by it everyday on my way to work that’s why I know that no construction is ongoing.

I could not believe the blatant disregard of this developer for the investors as we were never notified what was causing the construction delay. That’s when I decided to call their Customer Service. Apparently, the community around the area is protesting the building of the condominium.

We were not told when construction would commence as they were given a Temporary Restraining Order by the courts.

I have asked if there are options to pull out my investments but they said that I cannot. It is stipulated in the contract. Is this lawful? Can we get our money back?

Yes, you can get your money back as you are protected by PD (Presidential Decree) 957.

PD 957 or the Subdivision and Condominium Buyer’s Protective Decree

Like the Maceda Law, PD 957 is an old law that was promulgated during the time of President Ferdinand Marcos. PD 957’s main objective is to protect real estate buyers from fraudulent and manipulative developers who aggravate the economic, social and moral condition of the Filipino people.

Such fraudulent and manipulative practices of developers include but are not limited to the following:
  1. reneging on their representations and obligations to provide and properly maintain subdivision roads, drainage, sewerage, water systems, lighting systems, and other similar basic requirements, thus endangering the health and safety of home and lot buyers
  2. failure to deliver titles to the buyers or titles free from liens and encumbrances, and to pay real estate taxes, and fraudulent sales of the same subdivision lots to different innocent purchasers for value

Note: PD 957, as originally decreed, gave the National Housing Authority exclusive jurisdiction to regulate the real estate industry. Such jurisdiction was transferred to the Housing and Land Use Regulatory Board (HLURB) in 1986.

PD 957 is rather long; I shall only delve on its salient points that are relevant to the issue at hand: Refund in case of the developer’s failure to deliver the project as promised.

For our purpose, the most important provision of the law is found in Title IV, Section 23.

Non-Forfeiture of Payment No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate.

How does PD 957 safeguard the welfare of home buyers?

Every project, whether it’s a subdivision or a condominium, goes through a stringent series of applying for and seeking approval of several permits, clearances and certificates from a number of government agencies, primarily from HLURB. Among others, these are the Development Permit, Certificate of Registration and License to Sell.

In the developer’s application for a Certificate of Registration, the following are attached as annexes:

1. Sworn registration statement –is basically a promise by the developer to comply with all the rules and regulations pertaining to the project and to be responsible for all the facilities, improvements, infrastructures and similar developments thereon
2. Certified true copy of titles
3. Duly audited balance sheet
4. Articles of Incorporation, By-laws and latest annual corporate report to SEC
5. Copy of brochure, circular or prospectus for advertisement
6. Sample copy of Contract to Sell
7. Affidavit signifying willingness to change name (in case there is a project already registered whose name is similar to that of the developer’s)
8. Environmental Compliance Certificate (from the DENR)
9. Approved verified survey plan
10. In case of a condominium, a Master Deed with declaration of restrictions duly annotated at the back of the title/s and plans registered with the Register of Deeds
11. Sanggunian Resolution or Ordinance approving the subdivision plan or Development Permit
12. Approved subdivision plan by the LGU. In case of a condominium, approved development permit from the HLURB
13. Engineering plans
14. Topographic plan
15. Project study
16. Recent tax declaration
17. Permit to operate deepwell and a water resistively test
18. Bill of materials and cost of estimates
19. Barangay clearance

The developer’s compliance with the above requirements shall result to the issuance of the Certificate of Registration by the HLURB. Said certificate, however, does not authorize the developer to sell or pre-sell his project unless he shall first obtain a License to Sell from the same office.

The License to Sell is issued upon determination that the developer is of good repute, that his business is financially stable and the proposed sale of lots or condominium units to the public will not be fraudulent.

Note that the documents attached to the application for a Certificate of Registration; and the License to Sell are public documents that are open for inspection to anyone who might be interested in the project.

The most important part of the License to Sell is the Program of Development which indicates the project’s time of completion. Whereas, for the Registration, the development plan is the most important. Deviations or failure to comply with these are the ones referred to in Title IV, Section 23 of PD 957. These are the promises or warranties made by the developer and failure to deliver them shall entitle the buyer to a full refund. Claims in the developer’s brochures, prospectus, printed matters, letters or in any form of advertisement also constitute a warranty.

Note on time of completion:

Title IV Section 20 PD 957 mandates that:

"The developer shall construct and provide the facilities, improvements, infrastructures and other forms of development,…which are offered and indicated in the approved subdivision or condominium plans, brochures, prospectus, printed matters, letters or in any form of advertisement, within one year from the date of the issuance of the license to sell …or such other period of time as may be fixed by the Authority.

With high-rise condominiums and expansive subdivisions being the norm nowadays, the one year time of completion in the law has become unrealistic. Today, a high-rise condominium tower of, say, 35 to 40 storeys tall takes an average of 3 ½ to 4 years to complete. For most buyers, what‘s important is the immediate start of construction.

To the email sender

Although the cause of delay of the construction of Aurora Heights Residences is the Temporary Restraining Order issued by the court resulting from the protestation of the people in its vicinity, the developer’s problem is not your problem.

You bought a unit on the assumption that doing so would be problem-free.

You were told that construction of the condominium would start late 2011 and turnover date would be end of 2013. Two years seems to be an unrealistic period to construct a high-rise building. Such promise was most likely made to you by the developer’s brokers or agents. As such, the developer is liable for any claims or assertions made by its sales people.

Go back again to Title IV Section 23 of PD 957.

Before desisting from further payment, you must first notify in writing the developer of your intention and invoke this provision of PD 957. In said notice, be clear that you are asking for a full refund plus interest on the total amortization you paid.

File a letter of complaint at the HLURB and attach a copy of your letter to the developer as an annex. For good measure, copy furnish Housing Tsar VP Jejomar Binay, Chairman of the Housing and Urban Development Coordinating Council (HUDCC).

On the assertion of the Customer Service staff that you cannot pull out you investment because it is stipulated in the contract, any stipulation in a contract that is contrary to law is null and void.

Author: Cecilio A. Sanchez, Jr. (Licensed Real Estate Broker)
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