NEW YORK CITY—The United States Senate has passed H.R.2600: the Interstate Land Sales Disclosure Act Update of 2013. Now on its way to President Obama, the legislation will clarify that certain registration requirements in the 1968 Interstate Land Sales Disclosure Act (ILSA), which were written to stop fraudulent sales of raw land, do not apply to condominium sales. New York's democratic senators Charles Schumer and Kirsten Gillibrand, along with Senator Dean Heller (R-NV) introduced the bill in the senate.
Previously passed by the House of Representatives, the bill was introduced there by Congress members Michael Grimm (R-NY), Jerrold Nadler (D-NY), Patrick McHenry (R-NC) and Carolyn B. Maloney (D-NY), and then advocated for by the Real Estate Board of New York and the Real Estate Roundtable.
“Thanks to Senator Chuck Schumer and his tireless dedication, the Senate is restoring confidence in the condo construction market and reducing unnecessary federal bureaucracy while keeping important fraud protections in place," says REBNY president Steven Spinola. "Together with the tremendous leadership of Congresswoman Maloney, without whom this approval could not have happened, we also applaud and thank Senators Gillibrand and Heller as well as Congressmembers Grimm, Nadler and McHenry for their vision and dedication to this important issue.”
Adds Schumer, “With the passage of this bill, we have brought an outdated law into the 21st century, and aided in our ongoing economic and housing market recovery. Clarifying ILSA requirements will bring a greater stability and clarity to construction, development, and purchases of condominiums, which will help maintain and support New York's housing sector.”
“A condominium sale shouldn't be invalidated because the sellers failed to disclose if the unit was covered by water, presented signs of soil erosion, included oil and gas rights or had unique topographical characteristics,” asserts Maloney. “It's obvious that the registration requirements in the 1968 law were never intended for condo sales. This is a narrowly tailored, technical fix that will solve the problem
ILSA was originally passed in 1969 to protect consumers from being fraudulently sold property due to misleading advertising. However, beginning in the 1980s, federal court decisions began to apply ILSA to vertical condominiums, and when the real estate market crashed in 2008, purchasers successfully escaped pre-crash contracts by claiming technical violations of ILSA. The courts generally acknowledged that ILSA has become “an increasingly popular means of channeling buyer's remorse.”
H.R.2600 exempts condominium developments from ILSA filing and registration requirements, and subsequently provides condominium developers and their lenders some certainty as the economy continues to recover. By exempting condominium developments from portions of ILSA, Congress is closing this unintended loophole and providing tremendous bureaucratic relief from substantial filings that are duplicative—and sometimes contradictory—to many states' disclosure requirements.
Significantly, the amendment to H.R. 2600 is limited to ILSA's paperwork and filing requirements. The bill respects and does not amend ILSA's substantive structure to protect buyers of real property—including new condo units—from misrepresentation, and maintains a purchaser's right to rescind contracts in cases of actual fraud.
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
