The Short And Tricky Statute Of Limitations Framework For Claims Under The Interstate Land Sales Full Disclosure Act (ILSA)

Previously on this blog, I described the federal Interstate Land Sales Full Disclosure Act (“ILSA”) as a possible “land mine” for condominium developers, owing to the statute’s poorly understood exemption provisions which can be and are subject to competing judicial interpretations.  The ILSA exemption morass has been at least partly responsible for the large number of lawsuits which have been filed in recent months in Florida courts by buyers alleging claims under the statute in an effort to recover deposits paid under condo purchase agreements.

However, ILSA is not just potentially treacherous from the developer’s point of view.  Indeed, the statute poses some significant perils for buyers who may have viable claims, and these pitfalls stem from ILSA’s unusually short statute of limitations.  In judicial parlance, a statute of limitations can sound a “death knell” to the claims of an unwitting plaintiff.  See, e.g., Helton v. Clements, 832 F.2d 332, 336 (5th Cir. 1987).

Most, if not all, ILSA claims originate with respect to a written contract for the purchase and sale of real estate.  Under Florida law, the statute of limitations for an action on an obligation under a written contract is five years.  See section 95.11(2)(b), Florida Statutes.  And claims under the Florida state condo statute are governed by a four-year statute of limitations.  See section 95.11(3)(f), Florida Statutes.  But for claims which arise under the ILSA statute itself (and which are not simply for breach of an obligation under the Purchase Agreement), ILSA sets forth shorter limitation periods as follows:

— 15 U.S.C. section 1703(b): “Any contract or agreement for the sale or lease of a lot not exempt under section 1702 of this title 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 or until such later time as may be required pursuant to applicable State laws, and such contract or agreement shall clearly provide this right.” (emphasis added).

— 15 U.S.C. section 1703(c): “In the case of any contract or agreement for the sale or lease of a lot for which a property report is required by this chapter and the property report has not been given to the purchaser or lessee in advance of his or her signing such contract or agreement, such contract or agreement may be revoked at the option of the purchaser or lessee within two years from the date of such signing, and such contract or agreement shall clearly provide this right.” (emphasis added).

And with respect to lawsuits brought to enforce rights under ILSA, the statute provides a three-year statute of limitations — either running from the date the contract was signed, or from the date the discovery of the ILSA violation was made, depending on which right under ILSA is being asserted.  See 15 U.S.C. section 1711.

ILSA’s statute of limitations framework is not only on the short side, but also confusing on its face.  In particular, the two-year revocation window under 1703(c) would seem to be at odds with the three-year period to bring an action provided under 1711.  The confusion stems from the fact that in its original form, ILSA provided a two-year (not the present three-year) limitations period for actions.  One Florida court has gone so far as to label the apparently conflicting provisions as “rather incongruous.”  Ni v. Deltona Corp., 701 So. 2d 888, 889 n.3 (Fla. 5th DCA 1997).  To date, I have not seen an opinion which adequately reconciles these provisions of ILSA.

Apart from the confusion inherent in ILSA, Florida condo buyers could reasonably be under the impression that all rights which they may have under their Purchase Agreements are governed by statutes of limitations longer than three years.  That may be true for state law contract claims (five years) as well as claims under the Florida condo statute (four years), but for claims specifically under ILSA, the limitations period is undoubtedly shorter, and buyers should be careful not to waive rights which they may have and wish to pursue.

By Jared H. Beck, Esq.

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. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation. A significant portion of Mr. Beck’s practice is devoted to issues arising under condominium purchase agreements.  He can be reached at 305-789-0072 or jared@beckandlee.com

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7 comments

  1. F D

    This is not the first time a legislation is poorly written.
    Many people are waiting now to see how things will work in court. Speculators against Developers, what will be the outcome?
    Thanks for keeping us informed. Best regards.
    FD @ Condo Hotel South Beach

  2. Alejandra R

    The reasoning below might shed some light on the admittedly poorly drafted ILSFDA:

    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.

  3. Jared Beck

    Alejandra R,

    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.

  4. M. Gunderson

    Alejandra, R

    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?

  5. hbnathan

    Hi,
    I am now reading (Aug.1,2008) this old thread. Did you ever elaborate on the ILSA’s statute of limitations,on this blog? I see that you were planning to do a follow up on this subject.
    As a realtor involved in this kind of transaction, I find it of great significance.
    Henry B. Nathan

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