This story, in slightly different form, originally appeared in the New York Law Journal.
NEW YORK CITY-A federal judge in Brooklyn has declined to invalidate the sales contracts of eight plaintiffs who made deposits on apartments in a new Long Island City condominium project, then changed their minds as the construction dragged on and the economy spiraled down. The decision, Romero v. Border East River Realty LLC, by Eastern District Judge Allyne R. Ross is one of the first to address how the relatively obscure Interstate Land Sales Full Disclosure Act of 1968, which was originally promulgated to protect out-of-state home purchasers when buying land sight-unseen, may apply in the present market.
Attorneys have been citing the law with increasing frequency on behalf of clients whose prospective homes plummet in value after the contracts are signed but before the deals are closed. Few decisions, however, have been issued.
The 1968 act requires developers of subdivisions of 100 or more units to register with the secretary of Housing and Urban Development and to provide each purchaser a disclosure document before completing the sales agreement. The act's remedies include rescission.
In the present case, the developers, defendants Joseph Simone and Borden East River Realty, satisfied neither requirement. However, Ross found that two of the 1968 law's exceptions combined to exempt the Long Island City project, One Hunters Point at 5-49 Borden Ave., from the registration and disclosure requirements.
Specifically, Ross held that because fewer than 100 uncompleted residential units had been sold at the time the temporary certificates of occupancy were issued, and because the remaining units were sold either as completed units or under contracts requiring the building to be completed within two years, the project was subject to the law's "Hundred Lot" and "Improved Lot" exemptions. He rejected the plaintiffs' claims that the two exemptions could not be combined and that compliance with ILSA should be measured at the time the agreements are executed, not the time the temporary certificates of occupancy are issued.
"While courts have found that ILSA is a remedial statute intended to protect consumers and requires ambiguities concerning exemptions to be construed narrowly, no ambiguity in the Hundred Lot Exemption exists given Congress' omission of a timing requirement or requirement that the developer disclose at the time of purchase what other exemption it intends to utilize for any lots outside the Hundred Lot Exemption," Ross concluded.
Bruce H. Lederman of D'Agostino, Levine, Landesman & Lederman represented Simone and Borden East River Realty. Lederman said the decisions in the eight joined cases will substantially limit the number of projects to which the act is applicable.
"In its strictest sense ILSA applies to the sale of over 100 lots, however ILSA also provides that once a temporary certificate of occupancy is issued…any unsold units are exempt," Lederman said. "Therefore, under these decisions, so long as less than 100 contracts of sale were signed before a [temporary certificate of occupancy was] issued, all sales are exempt from ILSA''s registration and disclosure requirements."
Lawrence C. Weiner of Wilentz, Goldman & Spitzer in Woodbridge, NJ, represented the plaintiffs. Weiner said his clients intend to appeal.
Mark Fass can be reached at [email protected]
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