Pre-selling pictures of hope

For the convenience of proximity to one’s workplace, protection from flooding and improved security, condominiums have become the residence of choice for many. There are a number of reputable and reliable condominium developers who have strong track record of delivering on their commitments. Many have wished that they only bought from them.

Such is the wish of Jerry who made installment payments for more than two years on a pre-sold condo unit he bought in the metro, only to learn that his best laid-out plans for his life and future family could be affected by breach of contract.

When a condominium project halts, regardless of the commercial reasons given, buyers feel that they were scammed. A pre-selling is a contract to sell in the generic sense. It is also a loan. With a minor tweak, the buyer is made to finance the construction of what he is buying. And because it is still to be constructed, he pays without the benefit of enjoyment of the asset in the meantime. Since the buyer pays in advance, he effectively lends money to the developer. Ironically, if the developer breaches the contract, the buyer as the creditor is at the mercy of the developer. Specific performance or a demand to make the developer deliver the unit as promised often becomes an unrealistic, if not useless, remedy.

If you are in this unfortunate situation, you should file a claim with the Housing and Land Use Regulatory Board (HLURB), the government agency given powers as if it is a judicial court. But the best that one can expect is recovery of the installment payments made. The HLURB could grant damages. But recovery for damages and even interest is not a done deal. True, cash is unproductive for years. There are lost opportunities. And the emotional journey from hopeful excitement to worry, sadness and actual loss is arduous. But first things first. You must file the claim with HLURB and at least recover your actual cash outlay. They say fools learn from their own experiences, but the wise learn from the experience of others. Indeed, it is worth learning from others’ misfortunes. Do not just be attracted to the picture. Learn more about who painted it. Are the painters backed up by solid financials, success stories in condominium projects, and a résumé for keeping their word?

Not getting what was promised is not the only woe of the buying public. Even more common are buyers who were not able to continue paying for condominium units they bought at the pre-selling stage. And they are horrified by the prospect of losing everything they paid.

In the case of Dennis, he made a down payment and installment payments for 20 months. But he was not able to continue paying for three consecutive months. He received an email stating that his account was forfeited. When he contacted the condo developer, full payment of his arrears plus a fixed penalty is being required of him to continue with his contract. He requested instead for restructuring, but his request was denied. The condo developer is no longer entertaining him. Is everything he paid from his savings and hard earned salary now gone, and should he just bow his head and move on?

His case is not unique, and in fact is so common that a law was passed decades ago to protect rights of real property buyers. The “Realty Installment Buyer Protection Act,” also popularly known as the Maceda Law, recognizes that developers have the right to rescind contracts with defaulting buyers, but subject to important conditions.

The buyer is given a 60-day grace period (so if he fails to pay for two months, it is still okay). After the grace period, the seller must notify the buyer of the cancellation by notarial act. The cancellation takes effect after 30 days from receipt of such notice.

In the case of Dennis above, he only received an email. This is not compliant with the law which requires that a notarized document be sent to the buyer, stating the contract is being cancelled. As the notice is non-compliant with law, Dennis’ contract is still alive and enforceable. Under the law, he could also make good on his arrears by paying them without interest because while the contract is not yet cancelled, he could still avail of his original contract terms.

What if Dennis received a notarized notice of cancellation? Is it then over for him? The answer is “not yet”, because the law says cancellation takes effect within 30 days from receipt of notice. The Supreme Court interpreted this to mean that the actual cancellation of the contract only happens 30 days after the buyer receives the compliant notice of cancellation. Thus, after receiving the valid notice, he could still make an offer to pay his arrears, then continue paying the installments as scheduled.

If the condo developer already sold his unit to another party, the less contentious route is to demand an equivalent unit or get a full refund. Normally, condo buyers who default are not entitled to refund unless they made installment payments for at least two years. In which case, they are entitled under the law to refund half of the cash surrender value of what they paid. What I am saying is that even if the buyer has paid less than two years, if the cancellation is done illegally, and the subject property was sold quickly to another person by the developer, the buyer has legal rights to claim a refund of all he paid for as damages. Of course, the other recourse is to question the validity of the sale of his condo unit to another person, but this could be really difficult if the second buyer bought in good faith.

Dennis should go back to the condo developer with a lawyer (a lawyer-friend, of course, is cheaper). If that does not help, a claim should be filed with the HLURB.

It’s a new year, and an apt resolution is to no longer procrastinate and to stop sitting on your rights. They are yours if you use them.

* * *

Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He also chairs the tax committee of the Management Association of the Philippines (MAP). Email your comments and questions to [email protected]. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.