The Interstate Land Sales Full Disclosure Act of 1968 (“ILSA”), codified at 15 U.S.C. § 1701 et seq., was enacted in 1968 to protect purchasers of undeveloped property from schemes where developers marketed “subdivisions” which were actually remote plots of land, often located in deserts or underwater, and which were never intended to be developed. The Act makes it unlawful for a developer or agent to sell or lease any nonexempt lot without first registering the development with the Consumer Financial Protection Bureau (the “Bureau”) and providing the purchaser with detailed information about the property prior to the sale. See 15 U.S.C. § 1703. The Act provides numerous exemptions from the requirements of the Act, including exemptions for subdivisions with less than twenty-five lots (§1702(a)(1)), for the sale or lease of improved property (§1702(a)(2)), and for sales to builders (§1702(a)(7)).
The Act provides for criminal and civil penalties, most importantly including a two-year right of rescission where information was not provided to homeowners at the time of the sale. During the recent recession, underwater purchasers have seized on technical breaches of the Act and used the rescission remedy as a means to get out of bad investments. More than half of all litigation dealing with the Act has come in the last decade, much of which has centered on what property constitutes a “lot” under the Act, which does not define the term. Under the law today, condominiums are “lots.” See Winter v. Hollinigsworth Props, Inc., 777 F.2d 1444, 1446-48 (11th Cir. 1985).
That changes at the end of this month. House Resolution 2600, introduced in 2013 and signed into law in September 2014, adds an exemption from ILSA’s registration and disclosure requirements for the sale or lease of condominium units, which are defined as “unit(s) of residential or commercial property to be designated for separate ownership pursuant to a condominium plan or declaration, provided that upon conveyance (1) the owner of such unit will have sole ownership of the unit and an undivided interest in the common elements appurtenant to the unit; and (2) the unit will be an improved lot.” Beginning next month, condominium developers will be exempt from some of the Act’s more rigorous requirements. Certain other requirements do still apply, however, so be sure to confirm compliance with an attorney or other knowledgeable person prior to marketing new condominium developments.