On September 26, 2013, the U.S. House of Representatives passed H.R. 2600, which would exempt the sale and lease of condominium units from certain requirements of the Interstate Land Sales Full Disclosure Act (ILSFDA). The bill awaits further action in the Senate, where is it being reviewed by the Banking, Housing, and Urban Affairs Committee.
ILSFDA is a consumer protection statute originally adopted to prohibit fraud arising out of the sale of land without access or utilities or that was unbuildable. ILSFDA regulates the sale of "lots" by imposing registration requirements as well as anti-fraud provisions. Unless a property qualifies for an exemption, ILSFDA generally requires that the property be registered with the Consumer Financial Protection Bureau (CFPB), which took over oversight of ILSFDA from HUD. ILSFDA also includes anti-fraud provisions that impose various requirements and prohibitions with regard to advertising and sales.
ILSFDA includes full exemptions and partial exemptions. If H.R. 2600 becomes law, condominium sales will be entitled to a partial exemption. Under this partial exemption, condominium developers will no longer be required to register their projects under ILSFDA, provide property reports to purchasers, or, most importantly, face demands and claims for automatic contract rescission for failure to perfectly comply with the ILSFDA registration requirements.
The exemption represents a major victory for condominium unit developers in light of pro-consumer judicial interpretations of ILSFDA in recent years that called into question whether it was possible for a condominium to be built and sold in complete conformance with ILSFDA. Condominium unit sales will continue to be regulated by state and local registration and disclosure laws. Because some state registration laws exempt projects that are subject to ILSFDA, the new exemption may actually impose new requirements on developers depending on the state or states involved.
ILSFDA and its registration requirements will continue to apply to the sale of subdivided lots. The CFPB is expected to issue new ILSFDA regulations within the next year that may significantly affect the sale of traditional subdivided lots.
