In 1968, Congress passed the Interstate Land Sales Full Disclosure Act (“ILSA”) in an effort to protect consumers from developers who were selling land, sight unseen, to out-of-state buyers. Too often, this land was not suitable for development or the intended use of the unsuspecting buyer (reminiscent of your uncle saying something to the effect of: “if you believe that, I have a piece of swamp land in Florida to sell you.”
ILSA protects buyers by, among other things, requiring developers to comply with very detailed (some would say onerous) registration and reporting schemes when selling residential lots. ILSA also gives buyers the right to rescind purchase contracts within two years of execution if the developer/seller failed to comply with its requirements. Condominium units were part of the protections of ILSA, though many argued the intent of ILSA was vacant land as opposed to developed projects.
As the real estate market began to crash in 2007, buyers who wanted out of their condominium investment were often able to find some technical non-compliance by the seller with a portion of ILSA and thus able to revoke their contract. At times, buyers were able to get out of their deals post-closing or when the developer/seller mistakenly believed it was indeed in compliance. Then, the developer/seller lost sales and was stuck with more inventory in a market not conducive for sales. Often times, the actual reason behind the revocation had nothing to do with ILSA, but rather a buyer that was creative enough (or had an attorney that was creative enough) to key in on the technicality.
In September 2014, President Barack Obama signed into law an amendment to ILSA expanding the registration exemptions to specifically include condominium units. This amendment to ILSA takes effect in March 2015. This new exemption is an important victory for the condominium developer/seller, who can now sell condominium units without the burden of ILSA compliance and without the risk of buyers exploiting ILSA technicalities. However, registration and reporting requirements for the sale of condominiums may still exist under state law. Also, prior to March 2015, ILSA still applies to condominiums in the same manner prior to the amendment.
In short, BUT SUBJECT TO STATE LAW, after March 2015, the amendment effectively eliminates the need for the condominium developer/seller to file registrations under ILSA or provide buyers with property reports and the resulting rescission rights.
If you have any questions about ISLA, the Amendment or Arizona Public Report requirements, please contact Matthew B. Levine at mlevine@tbl-law.com or (480) 483-9600.
