The Interstate Land Sales Full Disclosure Act: Is ILSA A Land Mine Ready To Explode For Condo Developers?
October 1, 2007
The Interstate Land Sales Full Disclosure Act (”ILSA”) is a federal law which was passed in the late 1960s to protect buyers of out-of-state land. Those were the days when parcels of vacant land might be advertised to far-flung speculators as promising wonderful development opportunies. Only once the land was purchased and the purchaser travelled to take a look at the parcel for the first time, it would turn out to be a worthless, isolated patch of desert or swamp with little or no potential to access the infrastructure or resources needed to sustain a viable development project.
In the years since ILSA was passed, the law has been held to apply to condominium developments. And as real estate market watchers know, pre-construction condo investments in places like South Florida may appear to present many of the same problems that vacant land sales once did. In particular, pre-construction condos are advertised as glamorous out-of-state investment opportunities — a chance to make money while literally owning a cutting-edge piece of paradise. But the glamour wears off quickly once the market takes a downward turn and the buyer is unable to resell the property, whereupon he or she scrutinizes the development with a critical eye. At this point, the buyer detects ways in which the building (which may not yet be fully constructed) deviates from what he or she believes was promised before signing the purchase agreement, and the buyer begins to feel cheated.
This article by a partner in the D.C. office of Holland & Knight provides a useful overview of the Interstate Land Sales Full Disclosure Act, from the perspective of advising developers to fully comply with its requirements in order to avoid pitfalls down the road. One of the significant requirements of ILSA is that the developer register the development with the U.S. Department of Housing and Urban Development (”HUD”) and furnish a thick “Property Report” to the buyer before he or she signs the purchase agreement. Not surprisingly, developers don’t want to comply with this somewhat onerous requirement if they don’t absolutely have to. And in fact, there are a number of exemptions which developers can take advantage in order to avoid the registration and Property Report requirement.
One particularly important exemption, which is widely misunderstood, is the so-called “two-year” exemption. Generally speaking, a developer does not need to register with HUD and provide a Property Report if the developer provides a contractual commitment to build the development within two years after the date the buyer signs the purchase agreement. As this article from the Florida Bar Journal describes, however, the “two year” exemption is not as straightforward as it may seem, because while developers may seek to “qualify” any two year commitment by limiting the buyer’s remedies in the event that the two-year deadline is missed, Florida court are rather strict in their interpretation of the exemption such that the developer may actually lose the exemption if it qualifies the two-year deadline in such a manner.
Of special importance on this last point is 15 U.S.C. section 1703(c), a section of ILSA which provides that in the event a Property Report is required but the buyer is not provided one prior to signing the purchase agreement, the buyer has the option of revoking the contract. Given the current real estate market, it is unsurprising that there a number of cases currently on the docket in Florida state and federal courts allege that buyers (who are seeking to get out of their condo contracts) were not provided a Property Report when they should have been. Time will tell whether the courts agree with these buyers and find that the failure to provide a Property Report is an adequate basis to cancel their contracts. (See here for my previous article on issues relating to the buyer’s right to rescission under Florida state law, which is distinct from the federal law remedy under ILSA.).
This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.
Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. A significant portion of his practice is devoted to issues arising under condominium purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com
[...] two articles which I have posted to this blog take up issues related to certain Florida state and federal law grounds for condo purchasers to cancel their purchase agreements. To be sure, these are timely [...]
The truth is that so many would-be investors bought without thinking. Some of them really overextended themselves and are now looking for any possible way to avoid to close on a condominium that they can no longer flip.
I am curious to see if the courts will interpret the law with this new condominium market, or will simply apply what was at the beginning designed for vacant land.
Thanks for the very interesting information. Best regards.
FD @ Condo Hotel Miami Beach
Good points FD. From the buyer’s perspective, there is always the risk that the courts will interpret the law in a manner colored by a lack of sympathy for the failed flipper. On the other side of the coin, however, there are developers out there who may have cut corners when times were good such that under the law, they should pay the consequences no matter who the plaintiffs happen to be.
[...] First is this article from Sarasota County, on the West Coast of Florida, which reports that a slew of complaints have been filed against the developers of Bel Mare at Riviera Dunes and the Palms at Riviera Dunes (both in Palmetto), and the Promenade at Riverwalk in Bradenton. The common jist of these lawsuits appears to be that the projects have not been completed within two years, as promised in the purchase agreements. And while the developers tried to qualify the promised two-year construction period to account for unforeseen circumstances, such qualification may not pass muster under the federal Interstate Land Sales Full Disclosure Act (ILSA). I have written more generally on the interaction between ILSA and Florida state condo law here. [...]
[...] any terms) but to recover their deposits are inevitable, as I’ve described previously here, here, and [...]
[...] As is becoming typical with condo purchaser lawsuits, the plaintiffs have alleged a mix of state and federal claims. Under Florida state law, the buyers claim that the developer backed out of promises to refund deposits once the market tanked. Under federal law, the buyers allege that the developer failed to register the development with the U.S. Department of Housing and Urban Development (HUD), and to provide the buyers with what is known as a “HUD Property Report.” I’ve discussed the latter federal issue more generally and in some detail here. [...]
[...] (or perhaps a mixture of both). As I have posted previously on this blog, for example here and here, there are Florida and federal laws in place specifically intended to protect condo buyers. Many [...]
I understand this blog is focused on Florida laws and properties, but can ILSA be applied the same way in places like California and Nevada?
[...] Sales Full Disclosure Act (”ILSA”), about which I’ve written more extensively here, is a federal consumer protection statute that mandates certain disclosures and contractual [...]
[...] the growing pile of cases which have been and are being filed under Florida condominium law and the federal Interstate Land Sales Full Disclosure Act in Florida [...]