It came out in the news around three days ago that the Department of Human Settlement and Urban Development (DHSUD), formerly the HLURB, has ordered the owners of the condominium owners or developers of condominium buildings affected by the earthquake to temporarily stop collecting payments from the buyers and/or occupants.
I have not seen the actual issuance and I read about it only in news articles, so I am not certain as to the details but I do understand that the order covers not only the condominiums that collapsed but also those that were “red-tagged” and “yellow-tagged” by the Office of the City Building Official (OCBO).
I am sure that this is good news for the affected condominium buyers who were still under compulsion to make payments while being unable to use or occupy the condominiums they were paying for.
However, I do have some questions regarding the effect of the order with regards the buyers whose purchases were financed by banks.
From my own experience with my own clients, condominium buyers, during the pre-selling stage by the developer of a condominium, will usually deal directly with the developer, meaning to say that their contracts are with, and payments made to, the developer.
The buyers in this situation will clearly be covered by the suspension order of the DHSUD.
However, there are condominium buyers, particularly those that made the purchase after the condominium building was already erected, as well as some pre-selling buyers, whose purchases were financed by banks.
In other words, these buyers borrowed money from the bank and it was the bank that paid the condominium developer in full for the purchased unit and the loan is secured by a real estate mortgage over the condominium unit. Under this situation, the installment payments will be paid by the buyers to the bank and, as far as the condominium developer is concerned, the condominium unit has already been fully paid.
If this is the case, the condominium developer will not be the collecting entity anymore, it will be the bank doing the collecting. More importantly, the transaction between the bank and the buyer is one of loan and the bank has absolutely no responsibility for the quality of the purchased unit.
Simply put, the buyer cannot just go to the bank and say, I will stop paying already because the condominium unit was defective and was damaged by an earthquake. In colloquial terms, the bank would just say “Wala akong pakialam sa nangyari sa condo, basta may utang ka sa bangko kaya bayaran mo” and the bank would be well within its right to say so.
Some street-wise smart-aleck, or “Pilosopong Tasyo”, would say “E di huwag mong bayaran at pabayaan mo nang makuha ng bangko yang condo, di rin naman na matitirahan” meaning to just stop paying and allow the bank to foreclose on the mortgage on the condo which would be tempting particularly in the early stages when the buyer has not yet made substantial payments on the loan.
People in this situation should be warned that, unlike chattel mortgages on cars bought on installment where the recovery of the unit and foreclosure of the mortgage will prevent the bank from collecting the deficiency, this is not true when it comes to real estate mortgages.
When a bank forecloses on a real estate mortgage and the proceeds from the foreclosure sale of the mortgaged property are insufficient to cover the balance of the loan, the bank, under the law, can still sue the debtor/buyer for the deficiency. This is called an action for a deficiency judgment. Simply put, the foreclosure of the condo unit will not be the end of it, the buyer can still be liable for the balance plus penalties and interest.
Internet lawyers I have explained this to have implied that I am wrong by citing the Maceda Law (RA 6552) and the rights of residential property buyers protected by it.
That is just it, if the purchase was financed by the bank and the bank has already paid the developer, the purchase price of the property is technically ALREADY FULLY PAID. The debtor-buyer is not paying installments for the purchase of the condominium unit, he is paying for his loan with the bank and the Maceda Law does not apply to bank loans.
Again, I would like to be clear that I have not yet seen the issuance made by the DHSUD and I sincerely hope that it also covers some kind of arrangement to help the bank-financed condominium owners.
As it is, from what I have read in the news reports about the order on the suspension of collections, it is unclear what options buyers under this situation can do.
It is for this reason that I decided to write this article to inform these buyers about the possible intricacies involved so that they can make informed decisions on whether or not they can, or if they should, stop making their payments.
In ending, my advice will always be for them to consult their lawyers before making any such decision so that they will not end up regretting it.