April 9, 2010 — The second of two recent court decisions involving a law designed to protect home-buyers from fraud has gone against consumers. Though a group of purchasers waited up to 16 months after placing deposits before a condo developer received even Temporary Certificates of Occupancy, a U.S. District Court judge ruled that the joint Hunters Point and Hunters View condominiums (above) — a 204-unit pair of 12-story, luxury apartment buildings — fall under exemptions meant for small developers of under 100 units.
What does this mean for potential condo buyers? That you make sure before putting down any money that you meet ILSA.
ILSA, the federal Interstate Land Sales Full Disclosure Act enacted in 1968 and amended in 1979, was designed, in the words of one court, "to prevent false and deceptive practices in the sale of unimproved tracts of land by requiring developers to disclose information needed by potential buyers." Although conceived to protect purchasers from unscrupulous sales of undeveloped home sites, courts have ruled it also applies to the sale of developed land, including the sale of condominiums.
ILSA makes it illegal for a developer of a covered subdivision — which it defines as land "divided or is proposed to be divided into lots, whether contiguous or not, for the purpose of sale or lease as part of a common promotional plan" — to sell any lots unless full disclosure has been made about them. That disclosure usually comes in the form of a "statement of record" and a printed property report that the buyer has to be given before you sign any contract or agreement.
If the developer doesn't provide those statement, you can revoke your contract within two years from the date of signing, and you may be entitled to a refund. This "right of revocation" must even be acknowledged in the purchase agreement.
Seems simple enough. What honest developer wouldn't do this if he or she had nothing to hide from you?
Down the Rabbit-hole Loophole
But a couple of loopholes can strangle consumers — and in the case of Romero v. Borden East River Realty LLC , concerning eight individuals and couples who paid over $563,285 in deposits to the Long Island City, Queens, condo developments One Hunters Point (5-49 Borden Avenue) and Hunters View (48-15 11th Street), and which was decided on March 16, that's just what happened. The developer didn't comply with the ILSA disclosure requirements and got away with it — legally, according to the court.
One exemption, called the Hundred Lot Exemption, says that disclosure doesn't apply if the subdivision contains fewer than 100 lots. The joint Hunters Point and Hunters View development contains over 200 condos — 131 and 73, respectively — with each condo a "lot" under basic tax law and real-estate nomenclature. But real-estate math, as we'll see, says 204 is less than 100.
Another loophole is the Improved Lot Exemption, which exempts, in the words of one court, "any improved land on which there is a residential, commercial, condominium, or industrial building, or the sale or lease of land under a contract obligating the seller or lessor to erect such a building thereon within a period of two years."
In their response, Borden East River Realty and developer Joseph Simone (at right), president of Simone Development Companies, combined those two exemptions, claiming that because fewer than 100 uncompleted residential units were sold at the time the Temporary Certificates of Occupancy (TCO) were issued, and because the remaining units were sold as completed units or units "under contract obligating the seller or lessor to erect such a building… within a period of two years," the ILSA exemptions applied.
The buyers in turn argued that this two-year period should measured from when the purchase agreement is executed (the first was signed October 18, 2007) and not when the TCOs were issued on the two buildings (February 17 and March 12, 2009). Even if that somehow weren't true and the date of a signed contract when you turn over your money mean nothing, then, they continued, the condos' separately purchased roof terrace and parking units should be counted as lots.
The buyers, after waiting over a year in some cases, had their attorney send eight letters to Simone between January 26 and April 16, 2009, stating that because of "a complete failure… to comply with the requirements of" ILSA that they were are entitled to rescission of their purchase agreements and return of their deposits.
But that was not to be.
Engage, enrage, ask questions and give answers with your community of board members. Submit your questions and comments here!
Thinking of buying a co-op or condo? Already bought, and not sure how co-op/condo life and rules work? Learn all about purchasing a place and living in your new community. It's not like renting, and its not like owning a house. What's it like?