On September 26, 2013, the House of Representatives took a major step in simplifying the sale and lease process for condominium developments, voting 410/0 in favor of H.R. 2600, introduced by New York Republican Congresswoman, Carolyn Maloney. The bill must now be considered by the Senate and President Obama and, if passed, the Interstate Land Sales Full Disclosure Act (“ILSA”) would be amended to exempt the sale and lease of condominium units from the existing registration and disclosure requirements under the statute. This change in federal law would be significant for developers of condominium projects who have, historically, had to satisfy a statutory exemption or comply with rigorous registration and disclosure requirements, even though condominiums were not contemplated when ILSA was enacted in 1968. Condominium developers have long struggled with how to comply with the statute’s requirements, which speak in terms of “lots” and subdivision improvements, and were initially intended to protect consumers from unscrupulous sellers of undeveloped swampland.
Currently, condominium developers who fail to comply with ILSA, or satisfy an exemption, are at risk of facing claims by buyers seeking to rescind otherwise valid purchase contracts within two years of the signing of the contracts. As a result of the recent economic downturn, a significant number of these claims were filed in courts throughout the country by buyers who signed purchase contracts prior to the downturn, seeking to avoid their contractual obligations to close when home prices fell and the real estate market plunged. If the bill passes the Senate and is signed by the President, condominium projects can be developed without this substantial risk. In addition, developers will no longer be required to file voluminous registration documents with the Consumer Financial Protection Bureau or prepare and deliver a Property Report disclosure to each prospective buyer before signing a purchase contract. The text of H.R. 2600 can be viewed here.