The Interstate Land Sales Full Disclosure Act: Will ILSA Provide an “out” for Florida Condo Buyers?
Three years ago in Florida, the market was so hot that condominium buyers would participate in a “lottery” to win the opportunity to buy a pre-construction condo. People would line up for city blocks to have the chance to buy a Florida investment property at pre-construction pricing. These days, a dancing gorilla or the offer of a new car couldn’t convince a prospective buyer to purchase a Florida investment condominium. Now that inventory is sky high and pricing is on a downward slide, we currently have little assurance about when condominium pricing may bottom out. So, what’s a pre-construction contract buyer to do?
There may be an “out” for certain buyers.
A federal law called The Interstate Land Sales Full Disclosure Act (“ILSA”) may provide Florida condominium buyers with an opportunity to revoke their pre-construction purchase contracts and obtain a recovery of their escrow deposit monies. In other words, if your developer fails to carefully follow ILSA’s specific filing and contractual requirements, you may have an “out” on your contract for purchase.
The U.S. Department of Housing and Urban Development (“HUD”) requires a developer to register with the department, file an annual report, amend as necessary, allow a 7-day rescission period and provide the buyer with a voluminous “Property Report” before moving forward with the purchase of a pre-construction residence, among other requirements. Frequently, a developer will prefer to avoid these strict ILSA guidelines if he or she can find an opportunity to do so.
There are a number of exemptions that your developer may take advantage of in order to avoid the burdensome filing requirements required by ILSA. If the building where you are buying contains less than 100 units, your developer may not have to register with HUD and he or she may be exempt from ILSA requirements. Note here that if your developer is selling a number of projects at the same time, it may be considered a “common promotional plan” and place your developer back on the hook to comply with ILSA guidelines.
The “two-year exemption” is a not-so-straight-forward provision that will allow a developer to avoid registering with HUD. In this situtation, if the developer contractually commits to complete construction within two years after execution of the purchase agreement, then he or she can avoid providing a Property Report and escape the burdens of ILSA in general. Remember, that two year commitment will then obigate the developer to finish your project within two years. If it is not completed, then you as a buyer may have a claim for breach of contract.
Keep in mind that The Interstate Land Sales Full Disclosure Act sets forth complicated law where specific facts will determine the ultimate legal outcome for both buyer and seller. Whether you as a buyer can rely on this federal law as your contract “out” will depend upon your developer’s legal preparation from the start.
Based on the current Florida real estate economy and the demise of the condo investor market, we should be seeing a good deal of litigation in 2008 where the buyer relies on ILSA for his or her purchase contract “out”.
Remember that Florida state law may also provide the buyer with multiple motivations to obtain pre-construction contract review by legal counsel. Always consult your attorney before making any decision that may ultimately impact your legal rights. Your financial future may depend on it.
By Charles A. Hounchell, Esquire
Please be advised that this article does not constitute legal advice nor does it provide any basis to form an attorney-client relationship. Nothing in this article should be copied without the express permission of the author.
Mr. Hounchell has a law degree from The University of Florida College of Law and he is a partner in The Law Offices of Charles A. Hounchell, P.A. – Attorneys & Counselors at Law, in Tampa, Florida. Mr. Hounchell obtained his undergraduate degree from The George Washington University in Washington D.C. and he obtained his MBA in International Management from the American Graduate School of International Management (“Thunderbird”) in Glendale, Arizona..
Mr. Hounchell is a licensed real estate agent with Smith and Associates, Inc. www.smithandassociates.com; www.livecasanova.com. He has lived in many different countries, including Spain, Brazil, Argentina, Mexico and Germany and he speaks Spanish and Portuguese. A significant portion of Mr. Hounchell’s law practice is concentrated on Real Estate Law.