Appellate Courts Weigh In On Both Sides Of The Interstate Land Sales Full Disclosure Act

Yesterday, in a closely watched contract rescission lawsuit brought by buyers under the federal Interstate Land Sales Full Disclosure Act (ILSA), the Eleventh Circuit reversed the lower court’s controversial interpretation of the statute and its award of the deposits back to the buyers.   As I noted previously, Pugliese v. Pukka Development, Inc. made waves when it was handed down in the Southern District of Florida in October 2007, because it effectively forged a pathway under ILSA for buyers to recover deposits in developments with fewer than 100 units or lots, even while the U.S. Department of Housing and Urban Development’s (HUD’s) official position was that such developments are entitled to a full exemption from the statute. 

The Eleventh Circuit’s opinion can be found here.   While much of the opinion is in the realm of arcane statutory construction, what stands out — and, in my view, what ultimately drove the appellate result — is the deference given to HUD’s stated position, which includes the amicus brief filed by HUD in the proceeding that sided with the developer against the buyers.  I have previously registered my disappointment with the notion that HUD would actively expend resources on advocating for the narrow application of a federal statute aimed at protecting members of the real estate buying public.  In the end, however, the impact of Pugliese v. Pukka will not be as far-ranging as the attention afforded to it, as the legal issues and range of affected real estate projects are comparatively narrow.

On the same day the Eleventh Circuit issued Pugliese, a Florida state appellate court, the Fourth District Court of Appeal, delivered an opinion on a separate ILSA exemption issue, in this case siding with the buyer plaintiffs.  The court held that where developers wish to avail themselves of one of the exemptions from the statute, any required contractual language must be operative before — not after the buyer executes the purchase contract.  The opinion in 200 East Partners, LLC v. Gold can be found here.  In contrast to Pugliese, the Fourth District was unpersuaded by HUD’s stated position on the issue before it.  As the court noted, “ILSA is a strict liability statute enacted for the purpose of protecting the public and should be liberally construed in favor of the public.”

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, as well as pursuing the rights and remedies of consumers and investors. A significant portion of Mr. Beck’s practice is devoted to issues arising under purchase contracts for real estate, including condominiums, condo-hotels, single-family homes, and commercial property. He can be reached at 305-789-0072 or jared@beckandlee.com

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