Condominium developers may finally see some relief from the onerous requirements of the Interstate Land Sales Full Disclosure Act (ILSFDA). In September of 2013, the United States House of Representatives unanimously passed H.R. 2600, a bill that would amend the ILSFDA by exempting condominiums from the ILSFDA’s registration and disclosure requirements.
Originally designed to prevent abuse in land exchanges where out-of-state buyers were unable to view the land they intended to purchase, the ILSDFA sought to protect purchasers by providing them with a right to rescind contracts of sale on the basis of fraud. Courts, however, began to apply the ISLFDA to vertical developments, like condominiums, in addition to land sales, thus forcing condominium developers to file repeated disclosures for every condominium unit sold or leased. Condominium developers have long bemoaned these stringent requirements because compliance can be difficult and sometimes impossible given inconsistencies between the ILSFDA and state laws. Exacerbating the issue, the ILSFDA permits consumers (i.e. purchasers or lessees) to rescind contracts within two years if the ILSFDA’s disclosure requirements were not strictly satisfied. Much to the chagrin of developers, consumers exploited this loophole during the recent economic downturn to escape otherwise valid contracts when real estate values dropped.
The pending legislation to the ILSFDA would exempt the sale and lease of condominium units from the statutorily required registration and disclosure requirements. While consumers will still have the right to rescind contracts for fraud, the exemption provided by H.R. 2600 will permit developers and lenders to move forward with condominium projects more easily as they can rely with more certainty on their condominium sales. The bill’s sponsor, Rep. Carolyn B. Maloney (D-NY), calls it a “common-sense amendment” and one that will “mean easier sales of condominium units… [to] help hasten the housing recovery.” The bill has been referred to the U.S. Senate Banking, Housing and Urban Affairs Committee. If passed by the Senate, the exemption would take effect 180 days after enactment.