The Interstate Land Sales Act: A Buyer’s Escape Hatch – A Developer’s Worst Nightmare

For this week’s Guest Post Friday, Rich Cartlidge, a 3rd year law student at Stetson University College of Law in St. Petersburg, FL and author of the Green Building Envirotrends Blog has kindly offered to post on the Interstate Land Sales Act. Rich is a great resource and focuses on the areas of land use planning, environmental law, and property development. Rich can be contacted through his blog, on Twitter (both linked above) and by email.

Recently there has been a reemergence of individuals using the Interstate Land Sales and Full Disclosure Act 15 U.S.C. §1701-1720 to escape from contracts to purchase land, homes, or condominiums. The act was passed in the late 1960’s and modified several times in the 1970’s in response primarily to the shady development practices of Florida developers who were selling land to out of state residents. The most often litigated provision of ILSA is the exemption found in §1702. Developers are exempt from the time consuming disclosure requirements if they are building a residential subdivision containing 25 lots or less or if there is a contract which requires completion of the building in 2 years of less. It is my opinion that the 2 year completion provision is the most relevant provision in light of the current economic situation.

Imagine that a client walks into your office wanting to escape a contract to purchase a condominium entered into at the peak of the market in 2006. The condominium building was supposed to be ready for occupancy in the start of 2008 but due to the credit crunch and their inability to obtain bridge financing the developer did not complete the building in time. ILSA might just provide the escape hatch that your client desperately needs. If the condominium developer did not make the disclosures required under ILSA because of the 2 year completion exemption but has now failed to complete the building you may be in luck!

In January of 2009, a Miami based arbitrator ruled that the contract Kurt and Micheline Moeding inked with Kolter Homes violated federal law, and that they should get their $76,114 deposit back. The couple signed up for the $629,580 home at Kolter’s Verano community in Port St. Lucie in 2006 – before home values plummeted (As an interesting side note it was the development of Port. St. Lucie and Cape Coral that originally spurred Congress to enact ILSA). A link to an article from the Palm Beach Post relating to this case can be found here.

While ILSA has traditionally been an obscure law known only to those active in the real estate and land development industries the above referenced case shows it may soon become a valuable tool in the arsenal of any attorney representing client attempting to escape purchase contracts on properties now worth significantly less than their contracted for price.

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