Appeals court victory should help halt ILSA abuse

Steven Spinola

President, Real Estate Board of New York

In a major victory for the real estate industry, the United States Court of Appeals in the Second Circuit rendered a decision last month that is expected to go a long way toward stopping the abusive use of the Interstate Land Sales Act (ILSA) by condominium purchasers.   

Specifically, the Circuit Court reversed a lower court ruling and rejected a condominium buyer’s attempt to void a purchase agreement for a condominium unit in the 22-story high-rise called The Brompton, on 86th Street and 3rd Avenue, by claiming that the Sponsor failed to satisfy the requirements of ILSA.

The Buyer claimed that the description of a lot “in a form acceptable for recording” meant a Sponsor had to provide an actual deed.  The court rejected this interpretation and ruled that the information provided by the Sponsor, in this case The Related Companies, satisfied the disclosure requirement of ILSA as Congress had intended. 

The Court found that Related correctly filed a statement of record with HUD as required by ILSA.  In addition, the Buyer was provided with sufficient information including a condominium offering plan which contained a draft unit deed and a detailed description of each unit.

According to the Court, Congress was aware of the practice of pre-completion sales and contemplated that the description of a unit provided by a sponsor may not be adequate for conveyance.  The Court pointed out that in creating ILSA Congress was concerned with disclosure, not conveyance.

The Court added that the plain language of ILSA requires only that the description of the lot be in a form acceptable for recording; “it does not require that the description be ‘in the form acceptable for recording’ as the deed for the lot.”

Congress, the Court pointed out, could have mandated the revocation of a purchase agreement under ILSA based on recordibility, but did not.  Nothing in ILSA suggests that the description of the lot be coextensive with what is required for conveyance in the relevant jurisdiction. The Court concluded that the information provided by Related Companies satisfied the “in a form acceptable for recording” contained in the statute and rejected the Buyer’s claim that a deed was necessary to satisfy this requirement.

The Second Circuit’s decision is expected to help stop what had become an abusive practice.  ILSA was enacted almost a half century ago in the 1960s to regulate “fast-buck operators” who were bilking the elderly through blatantly fraudulent sales of raw land, often located in swamps and deserts. More recently, individuals who have signed contracts for condominiums in construction have increasingly invoked ILSA as a way to get out of the contract of sale.

The Real Estate Board of New York filed an amicus brief in the case noting the common practice of presales in New York.  REBNY’s amicus brief was prominently referred to in the court decision.

REBNY would like to commend Related Companies and its Attorney Mark Walfish of Katsky Korins, LLP as well as Attorney Robert D. Kaplan of Friedman Kaplan Seiler & Adelman LLP for the amicus brief filed on behalf of REBNY.

Finally, it is important to note that legislative action is also being taken to curb the abusive use of ILSA.  Last year in Congress, Senator Charles Schumer (D-NY), Rep. Carolyn Maloney (D-NY), Senator Kirsten Gillibrand (D-NY), along with Reps. Patrick McHenry (R-NC), Rep. Jerrold Nadler (D-NY) and Rep. Michael Grimm (R-NY) introduced the “Interstate Land Sales Disclosure Act Update of 2012” (S.3499/H.R.6337) to allow condominium developers and their lenders some certainty as the economy continues to recover and eliminates this abusive use of ILSA.

We will keep you apprised of the legislation’s progress and, along with others, will continue to take action against the misuse of ILSA.

In other REBNY News:

Don’t miss out on real estate’s biggest night of the year for the 117th year running, the Real Estate Board of New York’s Annual Banquet on January 17, 2013 will honor a distinguished group of industry leaders who have had noteworthy success and demonstrated continued commitment to the city and the industry. This year’s honorees are Donald Zucker, Mike Fishman, Dottie Herman, Woody Heller, Dick Concannon and William Montana. The event will be at the New York Hilton Hotel. REBNY advises to get your tickets early. For more information, contact MaryAnn Aviles at maviles@rebny.com or 212-532-3100.

You can still donate through two funds created for victims of Hurricane Sandy. The Mayor's Fund to Advance New York City set up a donation page for Hurricane Sandy recovery efforts on its website at www.nyc.gov and click on Hurricane Sandy Relief. Checks can be payable to: Mayor's Fund to Advance New York City, 253 Broadway, 8th Floor, New York City, NY 10007. For more information, call 212-788-7794. Governor Andrew M. Cuomo created the Empire State Relief Fund, aimed at rebuilding and restoring damaged homes from Hurricane Sandy. To donate, visit www.empirestaterelief.com or text “RELIEF” to 80000 to make a $10 donation.