The news tonight is focused President Obama's nomination of Richard Cordray to lead the Consumer Finanacial Protection Bureau. Although we provided some brief insights on the former Ohio attorney general in our January and April CFPB posts, we are fairly certain that more detailed information on the nominee's positions will be forthcoming.
The anticipated political wrangling notwithstanding, we are still more interested in a teleconference Peggy Twohig hosted last Thursday on the transition issues related to the Interstate Land Sales Full Disclosure Act. As we reported in June, the CFPB plans to assume enforcement of that law as of July 21. In explaining the transition protocols, Ms. Twohig discussed details regarding the "standing up" of the CFPB as an operating entity and how various arms of the agency will assume responsibilities for interstate land sales. As part of the transition, Ms. Twohig said the CFPB will take a "fresh look" at the ILSFDA with an eye toward modernizing processes.
It was at that point Ms. Twohig was pointedly asked how the "fresh look" would apply to the Guidelines for Exemptions Available Under the Interstate Land Sales Full Disclosure Act. The answer - the Guidelines will go dormant.
This has some real implications for developers. Like any complex law, ILSFDA's statutory provisions include general statements that require interpretation to fill in the blanks. The Guidelines provide (or provided) those needed details - for example, specifying which developer sales practices may be false and misleading and naming the factors necessary to evaluate whether or not a common promotional plan exists.
With respect to the rash of ILSFDA litigation following the economic crisis, the Guidelines were instrumental in interpreting the ILSFDA disclosure requirement exemption for developers assuming a contractual obligation to complete construction within a period of two years (15 U.S.C. 1702(a)(2)). Several purchasers, suffering buyer's remorse, attempted to escape their purchase obligations by arguing that broad force majeure provisions in effect permitted developer nonperformance with the two-year completion requirement. Citing the Guidelines for support, courts were generally able to reach sensible decisions in ILSFDA cases. For example, in Aikin v. WCI Communities (26 So.3d 691), the court stated:
The Guidelines provide that 'contract provisions which allow for nonperformance or for delays of construction completion beyond the two-year period are acceptable if such provisions are legally recognized as defenses to contract actions in the jurisdiction where the building is being erected.' This language supports our determination that a contract incorporating a legally-recognized defense under Florida contract law to the two-year construction obligation would not negate the exemption. . . . This provision does not limit the available defenses to impossibility or acts of God, but recognizes other events beyond the seller's reasonable control as appropritae defenses that would not render the obligation to complete construction within two years illusory.
With the Guidelines going dormant for now, and potentially subject to extensive changes later, developers may need to take a more conservative approach to ILSFDA compliance.