http://beckandlee.wordpress.com/2008/08/01/has-the-ilsa-land-mine-exploded-yet-a-mid-summer-update-on-recent-federal-cases-interpreting-the-interstate-land-sales-full-disclosure-act/

Thank you for your analysis. From my review of developer agreements, it appears that most have some potential defect, with respect to meeting the rigouous requirements for the 2 year exemption. Therefore, if they blew their exemption, the 3 years statute would be applicable because no property report would have been provided.

Do you have sites other than Krasna?

Thanks for the cogent analysis of the 2-year revocation window versus 3-year statute of limitations issue, which I largely agree with. There are some other cases out there which may shed some light, and I’ve gotten some other interesting comments on this topic from other attorneys through e-mail. I’ve been planning to do a follow up post on ILSA’s statute of limitations for some time, and hope to have it up in the next few days.

The right of rescission contained in §1703(c) is a substantive statutory right granted to buyers. On the other hand, 15 U.S.C. §1711(b) lists a procedural limitation to a cause of action based on this right. Under 15 U.S.C. §1703(c), a buyer has (i) two (2) years during which to revoke his or her contract when a property report is not provided prior to signing and (ii) the right to have a provision in the contract informing buyer of such fact. The notification requirement was added in 1980, at the same time that the statute of limitations was lengthened from two to three years. The importance of this addition becomes apparent when comparing 15 U.S.C. §1703(c) to a very similar provision found in 15 U.S.C. §1703(b). 15 U.S.C. §1703(b) reads as follows:
[a]ny contract or agreement for the sale or lease of a lot not exempt under [15 USCS § 1702] may be revoked at the option of the purchaser or lessee until midnight of the seventh day following the signing of such contract or agreement … and such contract or agreement shall clearly provide this right.
Pursuant to §1703(b), a buyer has a seven-day revocation period. However, under §1711 a buyer has three years after signing the contract to bring an action against developer for the violation of §1703(b). Such an action would be framed either (i) as a failure of developer to grant rescission when such request is made by buyer within the seven (7) days of signing the contract or, more frequently, (ii) as a failure to notify buyers of their right of rescission within seven (7) days of signing the contract. See Engle Homes, Inc. vs. Krasna, 766 So.2d 311 (Fla. 4th DCA 2000). Similarly, pursuant to §1703(c), a buyer has a two (2)-year revocation period. However, under §1711 a buyer has three years after signing the contract to bring an action against developer for the violation of §1703(c). Such action would include (i) the failure of developer to grant rescission when such request is made by buyer within the two (2) years of signing the contract or (ii) the failure to notify buyers of their right to rescission within two (2) years (when a property report was not supplied to buyers prior to signing).
The legislative history indicates that the construction of 15 U.S.C. §1703(c) together with §1711 allows buyers to enforce their right to revocation for up to three (3) years from the date of signing. Specifically, House Report 96-154, dealing, in relevant part, with the increase in the statute of limitations from two (2) years to three (3) years, states as follows:
This bill would require that … while retaining the two-year revocation period for failure to provide the property report, that right must be clearly indicated in the contract or agreement and a purchaser or lessee has a third year in which to sue to enforce the right.
Based upon the legislative history, Congress was conscious of the two (2)-year revocation period in §1703(c) when it extended the statute of limitations to three (3) years and meant for both provisions to work together.
In practice, Buyers would be limited to revoking their contracts within two (2) years of signing same in instances where (i) a developer has a statement of record in effect and is not otherwise in breach of ILSDA, (ii) the developer has included a provision in its contract stating that a buyer has a two-year period in which to revoke the contract if a property report is not supplied prior to signing, and (iii) the developer fails to provide the property report to buyer prior to signing the contract.
In other circumstances, buyer will be able to bring an action for rescission up to three years from signing the contract. For example, where a developer does not file a statement of record with HUD regarding a project that is not exempt from ILSFDA and the buyer consequently not provided with a property report, such buyer may argue that a claim for rescission can be made up to three (3) years from the signing of the contract based on the developer’s failure to include in the contract the disclaimer regarding the buyer’s two (2)-year rescission right. Additionally, where a developer does not register a non-exempt project with HUD, the buyer may have claims for violation of other provisions in ILSFDA which allow for all “actions at law or in equity” under 15 U.S.C. § 1709.

This response 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.