Last week, the United States Senate unanimously approved an amendment to exempt condominium developments from certain provisions of the Interstate Land Sales Full Disclosure Act (“ILSA”). The bill, which also passed unanimously through the House of Representatives last year, is now being sent to the President for his signature and will take effect 180 days thereafter.
Congress enacted ILSA in 1968 in response to the growing number of land sellers taking advantage of unsuspecting purchasers, who purchased the land sight unseen. Upon inspecting the land, buyers may have found their newly acquired properties to be under water, on steep slopes, or suitable only for grazing. By the time purchasers of these properties realized they had been conned, their binding purchase agreements generally left them with inadequate remedies.
ILSA attempted to remedy these problems by requiring sellers of non-exempt land to both file a statement of record with the government and also furnish a property report to the prospective buyer. If the seller fails to provide the property report, the buyer may revoke the purchase agreement for two years from signing. ILSA also contains a second prong that, in effect, makes unlawful any sale, lease, or offer that constitutes a fraud, or intent to defraud, on the purchaser.
During the recent economic downturn, condominium buyers used ILSA to revoke their purchase agreements, sometimes even after closing, when developers either failed to comply with ILSA’s onerous registration requirements or mistakenly believed the development fell under one of ILSA’s complicated exemptions. ILSA became a tool for savvy consumers to use in playing the market, giving them the right to revoke purchase agreements that became economically disadvantageous.
The proposed amendment to ILSA will clarify and expand the exemptions available to condominium developers by:
- exempting all condominium developments, regardless of size, from the registration and disclosure provisions, but not the anti-fraud provisions (unless they meet some other exemption);
- exempting all condominium developments from both the seven-day revocation period for all buyers and the two-year revocation period that arises from the seller’s failure to provide a property report; and
- requiring that the condominium unit purchased be an improved lot under the act, that is, physically habitable with the necessary utilities connected, but no longer requiring the rest of the development to be completed at the time of purchase.