As if the past three years weren’t hard enough for New York real estate developers, adding insult to injury, courts in the Southern and Eastern districts of New York have held that pre-construction sales of condominium units fall within the ambit of the Interstate Land Sales Full Disclosure Act, 15 U.S.C. 1701 et seq. (ILSA), a statute that was intended to apply only to sales of unimproved land. As a result, under certain circumstances, buyers were given an automatic right to rescind their purchase agreements within two years of signing if a developer had not complied with ILSA’s disclosure requirements. Although ILSA has both disclosure requirements and anti-fraud provisions, it is the strict-liability disclosure scheme that has been exploited by condominium purchasers in New York, none of whom has even alleged fraud or injury of any kind.
Prior to the most recent real estate crash, ILSA, which was enacted in 1968, had never been used to this effect in New York.1 However, after the bottom fell out of the New York real estate market and the ILSA-condominium connection hit the radar screen, purchasers who had contracted to pay pre-crash prices for units that no longer seemed to be worth as much lined up in droves to rescind. One commentator tallied over 40 reported state and federal cases of buyers seeking to rescind under ILSA in the first six months of 2009 alone,2 and a quick survey suggests that about a quarter of these were in the Southern and Eastern districts of New York.3
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