On March 12, 2013, the CFPB filed a new amicus brief supporting the consumer/appellee’s position that the Interstate Land Sales Full Disclosure Act (ILSA) applies to condominium units, even where the unit does not also include access to the land on which the building is constructed, such as a patio or parking space. The case, captioned Berlin v. Renaissance Rental Partners, LLC, No. 12-2213-CV, is pending before the United States Court of Appeals for the Second Circuit and concerns the sale of high rise condominium units in New York. 

ILSA is a consumer protection statute governing the sale or lease of undeveloped lots in large developments. ILSA protects consumers by requiring developers to register their plans with the CFPB (previously HUD) and to provide specific disclosures to consumers. Under Dodd-Frank, rulemaking and other authority relating to ILSA transferred from HUD to the CFPB in 2011. 

The issue before the Second Circuit in Berlin is whether the term “lot” includes vertical high-rise condominium units. The appellants argued that the condominium units at issue in this case were not “lots” under ILSA because they did not include any interest in the land underlying the condominium as defined by HUD, which the CFPB adopted without change. Under a rule enacted by HUD in 1973, HUD defined a “lot” under ILSA as “any portion, piece, division, unit, or undivided interest in land if such interest includes the right to the exclusive use of a specific portion of land.” HUD further explained in the preamble to that rule that ILSA applied to condominiums because condominiums “carry the indicia of real estate” and described the concept of condominium ownership as a form of ownership used in “horizontal” developments and campgrounds. 

Relying on HUD’s definition of condominiums as “lots” under ILSA, as well as HUD’s likening of condominiums to “horizontal” developments, the appellants argued that ILSA did not apply to all condominium units. Instead, appellees argued that ILSA applied only to those units that also included the exclusive use of land, such as ground floor units or units with patios or parking spaces, and did not apply to the upper floors of a high-rise condominium.

In its amicus brief, the CFPB disagreed and took the position that ISLA applied to any condominium unit in an uncompleted development, even those on the upper floors of a vertical high-rise. In support, the CFPB cited guidance issued by HUD in 1996, in which HUD explained that its definition of “lot” included any interest in land that included the right to exclusive use of a “specific portion of land or unit.” Additionally, a number of reported court decisions considering ILSA claims in connection with the sale or lease of high-rise condominiums have applied ILSA categorically to condominiums without discussing whether any particular unit includes an interest in the underlying land.

This appears to be the second time that the CFPB has taken a position with regard to ILSA. To date, the CFPB’s only other public action related to ILSA is an investigation of 3D Resorts-Bluegrass, LLC for possible ILSA violations, which was disclosed in a proof of claim filed by the CFPB in a bankruptcy court in Kentucky. Based on its amicus brief in Berlin, it appears that at least for now, the CFPB is adopting an interpretation of ILSA that is consistent with prior guidance and rulemaking provided by HUD with regard to this statute. Given the CFPB’s focus to date on consumer lending products, the submission of an amicus brief on an issue relating primarily to real estate sales and development is intriguing, and in light of the 3D Resorts investigation, one wonders if this will become a priority for the CFPB in the future. 

The CFPB’s brief in Berlin was filed as part of its amicus program. The CFPB has previously filed amicus briefs on the question of whether a borrower must file a lawsuit seeking rescission under TILA within three years of loan consummation. The CFPB also filed a brief in Marx v. General Revenue Corp. regarding when courts may award costs to defendants in FDCPA cases, although the US Supreme Court recently rejected the CFPB’s position. The CFPB met with more success in another FDCPA case in which it filed an amicus brief, Birster v. American Home Mortgage Servicing, Inc. In that case, the Eleventh Circuit issued an unpublished opinion agreeing with the CFPB’s position regarding FDCPA coverage of businesses that enforce security interests. In addition to Marx, the CFPB has filed amicus briefs in the US Supreme Court opposing the grant of certiorari in an FDCPA case involving FDCPA coverage of communications to a debtor’s attorney and supporting the plaintiffs in two Real Estate Settlement Procedures Act cases. In one of the RESPA cases, Freeman v. Quicken Loans, the Supreme Court also rejected the CFPB’s position.