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Category: ILSA


ILSA Appears Here To Stay

October 30th, 2011 — 11:13am

Last month, a Federal District Court judge presiding over a suit brought by purchasers at the 505 Condominium in Hell’s Kitchengranted the purchasers’ motion for relief and overturned an earlier verdict for the developers, citing the reversal in a similar ILSA litigation brought by purchasers at the Fifth on the Park Condominium Continue reading »

(click here for our post on the Fifth on the Park case).

As you may recall from that post, in overturning the District Court’s decision, the Second Circuit Court of Appeals sided with the buyers at Fifth on the Park and ruled that ILSA’s 100-lot exemption is determined as of the time the purchaser signs a contract, and not, as the developers argued, at some point in the future, when the developer in fact sells 100 or more non-exempt units.

The developers of the 505 Condominium argued that “because 12 of the 108 units in the condominium ‘were completed and ready for occupancy before contracts were executed for any of them’, those 12 units fall within the improved-lot exemption and the remaining 96 units, which would include [the purchasers’] units, would then fall within the 100–lot exemption.”

Judge McKenna rejected these arguments and found in favor of the purchasers reversing his earlier ruling, since that earlier ruling was based solely on the Court’s verdict in favor of the developers in the Fifth on the Park case.

Commentators have pointed out that the result in the 505 case, together with other similar ILSA decisions, have firmly cemented the position that ILSA, in fact, applies to condominiums s in NYC.

Nahum M. Palefski, Esq.

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DEVELOPERS BEWARE – ILSA MAY BE HERE TO STAY

September 20th, 2011 — 4:58pm

As you may recall from prior entries, condo purchasers have been employing the Interstate Land Sales Full Disclosure Act (“ILSA”) in their attempts to back out of their contracts before closing.

As discussed in those entries, ILSA is a federal statute that protects consumers from fraud and abuse in the sale or lease of land. The law requires developers of new condominiums of more than 100-units to register their buildings with HUD and to provide purchasers, prior to contract signing, with a disclosure document called a “Property Report”. Continue reading »

Prior to the economic downturn, developers were most likely under the impression that ILSA did not apply to condo purchases because it was enacted to protect consumers against fraudulent land deals.  It is this very position that the Developer argued before Judge Robert Patterson in US District Court in a dispute with buyers of condominium units in the Financial District development with a W hotel and 222 residential condominium units.

The Court rejected the Developer’s motion to dismiss and ruled for the buyers who were alleging that the Developer did not properly register the project with HUD, improperly signed the contracts during the time that sales were suspended and did not provide the required disclosures under ILSA.  However, the case turned on the issue of whether ILSA applied to New York condominiums.

In denying the Developer’s argument, the Court took a firm stance on whether ILSA applies to condominiums, satisfying themselves that “the legislative history and HUD’s interpretative analysis amply dictate that ILSA applies to condominiums.”

As we have discussed, several other courts have also sided with purchasers involved in ILSA disputes.  However, these courts have merely assumed that that the law applies to condominiums whereas the result in this case is seen as the first definitive ruling in New York that [ILSA[1]], in fact, applies to condominiums.

The Developer might appeal this ruling, but will have to swim against the tide of courts siding with purchasers in ILSA cases.

By: Nahum M. Palefski, Esq.


[1] The District Court in this opinion referred to the Act as “ILSFDA”, although we have consistently referred to it as “ILSA”.

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ILSA STRIKES AGAIN

July 12th, 2011 — 10:22pm

SPONSORS BEWARE: A few months ago, I posted an article concerning the reversal of a lower court decision involving the Interstate Land Sales Full Disclosure Act (“ILSA”), which was initially decided in favor of the developers of two New York condominium buildings- Harlem’s Fifth on the Park Condominium and One Hunters Point Condominium in Long Island City. Continue reading »

As you may recall, ILSA is a federal law enacted to help protect buyers from fraud in new real-estate subdivisions. If a developer fails to provide the proper disclosure, buyers may seek to rescind their contracts within two years of signing.

In November 2010, buyers at another development, Flushing’s Sky View Parc complex, filed suit alleging that the developers did not meet ILSA requirements by failing to disclose “substantial problems” with the development, including cost overruns and loan restructuring. The parties have now settled and the buyers will receive a 75% refund on their downpayments with the developer returning $3.69 million of the $50 million it was holding in downpayments.

The agreement was described by the buyers’ attorney as the “largest [ILSA] settlement on record in New York.”
With this latest development, it appears that lawsuits using ILSA as a basis for getting out of contracts signed before the financial collapse are becoming more and more successful.

By Nahum M. Palesfki, Esq.

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How Lawyers Count to 100

April 20th, 2011 — 5:49pm

Federal Court Sides Against Developers in Key ILSA Case. The Second Circuit Court of Appeals has overturned a key decision involving the Interstate Land Sales Full Disclosure Act (“ILSA”).  The dispute was initially decided by the lower District Court in favor of the developers of two New York condominium buildings- Harlem’s Fifth on the Park Condominium and One Hunters Point Condominium in Long Island City. Continue reading »

ILSA is a federal statute that protects consumers from fraud and abuse in the sale or lease of undeveloped land.  The law requires developers of new condominiums consisting of more than 100-units to register their buildings with HUD and to provide purchasers, prior to contract signing, with a disclosure document called a “Property Report”.   If the developer fails to comply with ILSA requirements, purchasers can rescind their contracts and be entitled to a return of the downpayment.  The importance of the statute was underscored when it was used by many purchasers to get their downpayments back during the recent financial crisis.

Sales in the Fifth of the Park project, consisting of 160 residential units, began in or around 2007.  Within two years of signing contracts, buyers in the project began looking for ways out of their contracts and sent letters to the sponsor indicating that they intended on rescinding their contracts for the sponsor’s failure to follow ILSA requirements.  The sponsor refused to return the downpayments and the buyers commenced litigation.

At the lower court, the developer argued that, although the project initially offered 160 units for sale, the 100-lot exemption applied because it had sold fewer than 100 unfinished units as of the date the temporary certificate of occupancy (“TCO”) was issued for the entire building and the remaining units, which were complete by the time the lawsuit was decided, qualified under another ILSA exemption, the “Improved Lot Exemption.”  15 U.S.C. §1705(a)(2).  The buyers argued that the 100-lot exemption only applies if, at the time the buyers signed their contracts, fewer than 100 units were being offered for sale in the subdivision, regardless of when those lots would ultimately be complete in order to qualify for the Improved Lot Exemption.

In January 2010, the District Court agreed with the developer and ruled that the 100-lot exemption could still apply to a subdivision containing 100 or more lots as long as all lots sold above the 99 maximum would be covered by another ILSA exemption, for example the Improved Lot Exemption.  The Court stated that, “only ninety purchase agreements were entered into before the Condominium was completed and the TCO was issued for the entire building.  As such, the remaining 70 units…qualify for the Improved Lot Exemption.”

In March 2010, another judge in a similar case involving the One Hunters Point Condominium in Long Island City came to the same conclusion. (Click here for decision)

The buyers at both these projects appealed to the Second Circuit Court of Appeals and argued that the developers did not claim the 100-lot exemption from HUD at the time the contracts were signed.   The Circuit Court, reviewing both lower court decisions, agreed with the buyers and ruled that the 100-lot exemption is determined as of the time of the sale of the lot, and not, as the developers argued, at some point in the future, when the developer in fact sells 100 or more non-exempt units.  Therefore, the buyers should have been notified of the claimed exemption at the time they signed their contracts.

It seems obvious that the developers were either unaware of the law or under the impression that it did not apply in New York.  It is hard to believe that the developers ignored the issue at the time the contracts were signed and relied on later claiming that the 100-lot exemption applied to their developments which were clearly above the 100-lot maximum.

The new decision could have significant implications for developers selling condos in New York City, putting them at risk of losing downpayments if proper ILSA procedures are not followed.

Lawyers for the developers indicated that they plan on appealing the case to the U.S. Supreme Court.

-by Nahum Palefksi, Esq. and Jerome J. Strelov, Esq.

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