Senator Charles Schumer (D-NY), Rep. Carolyn Maloney (D-NY), and Senator Kirsten Gillibrand (D-NY) along with Reps. Patrick McHenry (R-NC), Jerrold Nadler (D-NY), and Michael Grimm (R-NY) have 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.
This bill will maintain important protections that consumers have under the Interstate Land Sales Act, enacted in 1969. They will still have the right to rescind contracts in cases of fraud but will clarify the law's application to condominium construction. The bill will provide a narrow exemption for condominiums from ILSA's registration requirements. Developers would still be required to comply with state laws that require specific disclosures.
Land sales, not sales of units in condominium complexes, were the intended target of ILSA. The required paperwork relates to land issues, such as access to roads and water supply, and does not make sense in the context of condominium development. This legislation would only apply prospectively to new construction after its enactment.
"This legislation is crucial to secure greater stability in today's housing market and to maintain New York's economic recovery," said Senator Schumer. "A healthy real estate market depends on all parties involved in the construction, development and purchase of condominiums being on the same page about the applicability of the Interstate Land Sales Act. I believe that updating the Act to modern applicability achieves this goal and I look forward to working with my colleagues on final passage of this important legislation."
"The Interstate Land Sales Disclosure Act was enacted to protect consumers from being sold property where the property's description in the contract was not what was delivered to the buyer," said Rep. Maloney. "It was intended to protect out-of-state buyers who were sold land that was not what was advertised and provides a right of action to rescind the contract and walk away from the deal. Courts have ruled over the years that certain ISLA paperwork requirements apply to condominiums, and developers are required to file paper work that is unnecessary and out of keeping with how modern condominiums are constructed and marketed -- even when the developers are operating in good faith.
"This legislation will ensure that the Interstate Land Sales Act works as intended, giving land purchasers adequate information and disclosure, without unnecessarily hindering new condominium projects," Senator Gillibrand said. "By reforming this process we can help provide legal certainty to builders, and encourage growth in the struggling housing sector."
"This bill is a good step forward in preventing frivolous lawsuits that threaten economic growth," said Rep. McHenry. "In this economy we need to continue to push for this kind of commonsense legislation."
"ILSA was designed to protect consumers from unscrupulous sellers trying to make a buck peddling undeveloped swamplands billed as dream retirement communities," said Rep. Nadler. "While I strongly support consumer protection measures like those contained in ILSA, I also believe that disclosure requirements must be meaningful in order to be useful to a buyer. This bill strikes that balance."
"The Interstate Land Sales Disclosure Act is a win-win that removes unnecessary red tape while protecting developers and contractors," Rep. Grimm said. "By putting a stop to the use of crafty legal maneuvering to get out of signed contracts, this bill will help protect the legitimate interests of property developers."
At a time when the housing industry is recovering and construction lenders are gaining confidence to lend, the bill will provide stability to developers and lenders of condominiums to be constructed by avoiding strict application of a law (ILSA) intended to prevent the sale of "land under water" while still requiring compliance with respective state disclosure requirements and continuing to apply in the event of fraud. Without adoption of the bill, condominium buyers who received all required disclosure would continue to have the ability to void a contract due to technical noncompliance with ILSA in situations, for example, where ILSA imposes requirements that cannot be satisfied due to state or local requirements.