Interstate Land Sales Full Disclosure Act:

Ensuring ILSA Compliance, Avoiding

Contract Rescission, Fines and Penalties Latest Developments in CFPB Enforcement, Private Litigation and Legislative Activity

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THURSDAY, SEPTEMBER 4, 2014

Presenting a live 90-minute webinar with interactive Q&A

Judyann M. Lee, Attorney, Linowes and Blocher, Bethesda, Md.

Richard C. Linquanti, Shareholder, Carlton Fields Jorden Burt, St. Petersburg, FL

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FOR LIVE EVENT ONLY

Title: Ensuring ILSA Compliance, Avoiding

Contract Rescission, Fines and Penalties

Date: September 4, 2014

Judyann M. Lee

jlee@linowes-law.com

Interstate Land Sales Full Disclosure Act

(“ILSA”) (15 U.S.C. 1701 et seq.)

Applies to the Sale or Lease of Lots in a Subdivision by use of interstate commerce

Unless the sale is exempt under the Act, the developer must register the subdivision with the Consumer Financial Protection Bureau (“CFPB”)

• Cannot sell or lease Lot unless a Statement of Record is in effect

• Each purchaser must be given a Property Report prior to signing any sales contract or lease for sale or lease of the Lot

6

Transfer from HUD to the CFPB

The authority to implement and enforce ILSA was transferred to CFPB pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2011

On December 21, 2011 the CFPB republished the former HUD regulations found at 24 C.F.R. §§ 1710, 1715, and 1720 as CFPB Regulations now respectively found at

• 12 C.F.R. § 1010 (Regulation J) (Land Registration

• 12 C.F.R. § 1011 (Regulation K) (Purchaser’s Revocation)

• 12 C.F.R. § 1012 (Regulation L) (Special Rules of Practice)

Primary changes were changes to the name of the agency referenced in the regulations and use of forms

• HUD Guidelines were not adopted by CFPB

7

Registration File a Statement of Record with CFPB

Statement of Record Consists of • Property Report – contains warning and disclosures regarding risks

of purchasing land and disclosures regarding the project including: method of sale, title to the property, encumbrances, restrictive covenants, utilities, roads, sewage systems, electricity, financial information, local services, recreational facilities, construction schedules, subdivision characteristics, taxes, owners associations, memberships, etc. (provided to purchasers)

• Additional Information and Documentation Section (“A.I.D.”) –

supporting documentation regarding the disclosures made in Property Report and regarding the developer (not provided to purchasers)

Annual Reports of Activity are required and Amendments must be filed within 15 days of any changes in material fact

8

Applicable Fees

Initial Statement of Record – 200 or fewer lots $800

201 or more lots $1,000

Annual Activity Report – 101 or more unsold lots at end of

year $800

Amendment to Reactivate Statement of Record following

Suspension - $800 unless 100 or fewer unsold lots

9

Review of Registration by CFPB

HUD had administered and enforced ILSA since its adoption in 1968

Transfer of administration and enforcement to CFPB on July 21, 2011 resulted in:

Loss of institutional history/new staff

New interpretations of ILSA and tightened review

Long lists of deficiencies, including requests for information not required

in the regulations

Currently, appears to be less stringent review of condominium

registrations (possibly because of pending bill to exempt condominium units); developers must be very careful in completing such registrations

Developing software to make ILSA registrations easier and more efficient

CFPB to issue its own Guidelines (CFPB did not adopt HUD Guidelines)

10

Anti-Fraud Prohibits use of any device or scheme to defraud or

deceive purchasers

To obtain money or property by making untrue statement of

material fact, or omission of a material fact

To represent that roads, utilities, recreational amenities will

be provided or completed without stipulating the same in

the contract of sale

(Applies to sale or lease of lots not otherwise statutorily

exempt)

11

Purchase Contract Requirements • Initial 7 day right of rescission

• 2 year right of rescission if purchaser does not receive a

Property Report

• If a deed is not delivered within 180 days of signing

contract, purchaser is entitled to 2 year right of rescission

if contract does not contain:

• A legally sufficient and recordable lot description

• 20 days’ notice of right to cure default

• A damages limitation of 15% of purchase price or actual damages,

whichever is greater

12

Commonly Used Exemptions Exempt from both Anti-Fraud and Registration:

• Twenty-Five Lots – the sale or lease of fewer than 25 lots

• Improved Lots – the sale or lease of any improved land on which there is a building or where seller is contractually obligated to erect a building within 2 years

• Sales to Builders – the sale or lease of lots to any person in the business of constructing buildings or for the purpose of resale or lease to such persons engaged in such business

• Industrial or Commercial Developments – real estate is zoned industrial or commercial or restrictive covenants restrict to such use (and other requirements)

Exempt from Registration but Subject to Anti-Fraud

• One Hundred Lot – the sale or lease of lots in subdivision containing less than 100 lots

• Twenty Acre Lots – the sale or lease of lots in subdivision where each lot contains at least 20 acres

• Single-Family Residence – the sale or lease of lots in subdivision limited to single-family residential use (and other requirements)

Exemptions are self-determining and do not require prior approval of CFPB

13

Definition of “Lot” Lot is defined in the regulations as “any portion, piece, division, unit or undivided interest in land located in any State or foreign country, if the interest includes the right to exclusive use of a specific portion of the land” 12. C.F.R. § 1010.1 (was 24 C.F.R. § 1710.1 prior to CFPB’s republish of the regulations)

A Lot includes condominium units

The CFPB filed a letter brief in the Second Circuit case Berlin v. Renaissance Rental Partners, LLC, 723 F.3d 119 (2d. Cir. May 6, 2013), supporting its position that a condominium unit in a multi-story building is a “lot” and subject to ILSA’s disclosure and reporting requirements.

Appellants argued condominium unit is not a “lot” because purchasers of an upper-floor condominium unit did not have the exclusive use of a specific portion of land. Land under New York law refers to the “raw land” or “tangible surface of the earth.”

Second Circuit gave deference to CFPB’s interpretation of Lot.

Richard Linquanti will discuss more of the case law.

14

Bill H.R. 2600

H.R. 2600, sponsored by Representatives Carolyn Maloney

(D-NY) and Patrick McHenry (R-NC), unanimously passed

the House on September 26, 2013 by a vote of 410-0. The

bill exempts the application of ILSA to condominium units.

The bill still needs to get passed in the Senate.

15

Other Important Definitions • “Subdivision” any land which is located in any State or in a foreign country and

is 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

• “Common Promotional Plan” a plan undertaken by a single developer or group of developers acting in concert, to offer lots for sale or lease; where such land is offered for sale by such developer or group of developer’s acting in concert, and such land is contiguous or is known, designated, or advertised as a common unit or by a common name, such land shall be presumed, without regard to the number of lots covered by each individual offering, as being offered for sale or lease as part of a common promotional plan

• “Developer” any person who, directly or indirectly, sells or leases, or offers to sell or lease, or advertises for sale or lease any lots in a subdivision

• “Sale” any obligation or arrangement for consideration to purchase or lease a lot directly or indirectly

16

Remedies Under ILSA

• 2 year right to rescind contract for violations of 15 U.S.C. § 1703

• Private Cause of Action at law or in equity, with right to recover attorney’s fees and costs

• Criminal Penalties

• Regulatory- Civil Penalties ($1,000 per violation, w/ annual max of $1 million)

*CFPB recently indicated it is authorized to seek penalties under Dodd-Frank Act and ILSA. Penalties under Dodd-Frank are up to $1 million per day for knowing violations of ILSA.

17

Recent Enforcement Action By CFPB

3D Resorts Bluegrass, LLC

On June 14, 2013 CFPB filed a Notice of Charges against 3D Resorts. CFPB asserted 19 counts for violations of ILSA alleging misrepresentations in marketing materials and failure to comply with registration and filing requirements.

Consent Order was entered into by 3D and CFPB on December 2, 2013

• 3D must permanently cease and desist from land sales and any other activity

governed by ILSA

• $1 civil penalties (3D filed bankruptcy in US Bankruptcy Court in W.D. Kentucky,

Case No. 11-41599) 3D required to withdraw its objection to CFPB’s proof of claim and must allow unsecured claim in amount of $500,000 and distributions made to up to $50,000 to compensate purchasers

• Prohibited 3D from seeking any indemnification from any insurance policy

18

Common Issues in Case Law

Recordable Legal Description of Condominium Unit

Definition of Developer

Applicability of Improved Lot Exemption (2 year completion)

Applicability of 100 Lot Exemption and “Piggy-Backing”

Exemptions

Statute of Limitations Under ILSA

Evasion of ILSA

19

Interstate Land Sales Full Disclosure Act: Ensuring ILSA Compliance, Avoiding Contract Rescission, Fines and Penalties

Strafford Webinar

September 4, 2014

Richard Linquanti, Shareholder Carlton Fields Jorden Burt

Tampa, FL 813-229-4204 rlinquanti@cfjblaw.com

ILSA Roadmap

■Exclusions from ILSA

■Contracts for Registered Projects

■Full exemptions from ILSA

■Partial exemptions from ILSA

■Remedies and Enforcement

21

ILSA – COVERAGE

ILSA applies to the:

sale or lease

■of a lot

■in a subdivision

■under a common promotional plan

■by a developer or agent

22

of a Lot

Any interest in “land,” wherever located, if it includes the right to its exclusive use

■ Condominium unit in included (Berlin v. Renaissance Rental Partners, 723 F.3d 119 (2d Cir. 2013)

■ Exclusive right to use is necessary (Becherer v. Merrill Lynch, 127 F.3d 478 (6th Cir. 1997)

23

in a Subdivision

Land that is divided into lots for the purpose

of sale or lease as part of a “common

promotional plan”

Contiguity is not required

Proximity is not required

24

under a Common Promotional Plan

Common promotional plan means a plan,

undertaken by a single developer or a

group of developers acting in concert, to

offer lots for sale or lease.

Presumption where

■ such land is contiguous or

■ is known, designated, or advertised as a

common unit or by a common name

25

Common Promotional Plan

■ Common name ■ Common marketing ■ Common sales office ■ Common agents in a coordinated effort ■ Coordinated sales brochures ■ Common model homes ■ Duplicated covenants ■ Non-arms length transaction ■ Common ownership ■ Common officers or directors

26

Paniaguas v. Aldon Cos. 2006 WL 2568210 (N.D. Ind. 2006)

Common promotional plan:

■ Common name

■ Common promotion

■ Common sales office

■ Common model homes

■ Duplicated covenants

27

Orsi v. Kirkwood 999 F.2d 86 (4th Cir.1993)

No common promotional plan:

■ Arms length transaction

■ No common financial interest

■ No common officers or directors

■ No coordinated sales brochures

28

Tomlinson v. Village Oaks Devel. 2003 WL 21180644 (SD Ind.

2003)

Coordinated effort required between

the subdivision developer and the

home builder

29

Grove Towers, Inc. v. Lopez 467 So.2d 358 (3rd DCA Fla. 1985)

rev. den. 480 So.2d 1294

■ Developer planned a 108 unit condo project

■ Contracted with buyer

■ Developer changed the plan to 98 units by combining some units

■ “As long as appellant wanted the option to build 108 units, it was obligated to comply with ILSA.”

30

N & C Properties v. Windham 582 So.2d 1044 (Ala. 1991)

■ Developer retained the option to build the

second phase and included the second

tower in visuals.

■ Second tower units were not formally

offered for sale and were not advertised.

■ Court: “the two phases were to be treated

as part of a common promotional plan.”

31

by a Developer or Agent

“Developer” means any person who, directly

or indirectly, sells, leases, offers or

advertises any lots in a subdivision

An “agent” is “any person who represents, or

acts for or on behalf of, a developer

32

Developer/Agent

■ There must be “privity”

■ Brands need to be careful

■ Participation in negotiations

■ Controlling person over sales efforts

■ “Fraudulent planners and profit makers”

33

Barker v. Hostetter 2014 WL 1464319 (ED Pa. 2014)

■ Defendant sold lots to an unrelated third

party to build homes

■ Defendant published a statutory Public

Offering Statement identifying it as the

subdivision developer

■ The POS was sufficient to make

Defendant the “developer” for ILSA

34

Barker v. Hostetter 2014 WL 1464319 (ED Pa. 2014)

Aggregated lots in 3 subdivisions:

■ Lots and homes in all 3 developments being sold by the same parties

■ Some potential buyers in one development were brought to one of the other developments to view it

■ Some closings for one development occurred in offices in the other development.

35

Section 1703(d)(1)

■ the description of the lot or unit in the contract must be “in a form acceptable for recording.”

■ Bacolitsas v. 86th & 3rd Owner, LLC, 2010 WL 3734088 (S.D.N.Y. Sept. 21, 2010), and Berkovich v. Vue-North Carolina, LLC, 2011 WL 5037124 (W.D.N.C. Oct. 24, 2011) held that the form of description needed to be one that was immediately recordable, meaning if the condominium did not (or could not) legally exist when the purchase contract is signed, the contract is revocable.

■ Bacolitsas was overturned on appeal (702 F.3d 673 (2d Cir. 2012)), but Berkovich was not appealed.

■ Taplett v. TRG Oasis (Tower Two), Ltd., 755 F.Supp.2d 1197 (M.D. Fla. 2009) agrees with the 2nd Circuit decision.

36

Section 1703(d)(1)

In Bacolitsas, the identifying information included as part of the contract was:

■ A draft declaration

■ All of the information necessary to establish a condominium under New York law

■ The apartment was identified by a unique unit number, a building plan locating the unit and the direction it faced, and a floor plan with dimensions and locations of rooms and windows.

37

Berkovich v. The Vue-North Carolina

2011 WL 5037124 (W.D.N.C. 2011)

■ North Carolina condo development

■ Registered with HUD under ILSA

■ Contract for purchase executed before construction was completed

■ Contract signatures were not notarized

■ NC Condo Act requires legal description to include recording data of the declaration

■ Declaration cannot be recorded until construction is substantially completed

38

Judgment

■ “A contract of sale without a recordable legal description is permissible”

■ “But the permissibility of pre-construction condominium sales is not at issue. The issue is whether such a sale triggers a two year revocation right.”

■ “Section 1703(d) allows the purchaser two years to revoke the contract in this situation.”

39

Section 1703(d)(2)

■ “… in the event of a default or breach of the contract or agreement by the purchaser or lessee, the seller or lessor (or successor thereof) will provide the purchaser or lessee with written notice of such default or breach and of the opportunity, which shall be given such purchaser or lessee, to remedy such default or breach within twenty days after the date of the receipt of such notice.”

■ Be sure to tie the twenty days to the “receipt” of the notice, not something else like the “giving” of notice.

■ As to actual receipt or assumed receipt 3 business days after deposit in the US Mail, there are no cases, so the better practice is to provide for some kind of evidenced receipt.

40

Section 1703(D)(3)

■ “… the seller … shall refund to such purchaser … any amount which remains after subtracting (A) 15 per centum of the purchase price of the lot … or the amount of damages incurred by the seller … as a result of such breach, whichever is greater, from (B) the amount paid by the purchaser…”

■ we have not seen reported cases concerning the meaning of either the “purchase price” or what kind of damages the seller can claim.

■ the drafter needs to be careful that the number to which the 15% limitation is tied is the entire purchase price, not just some base price.

■ ILSA addresses a deposit refund, not necessarily a claims limitation.

■ the provision applies only “if the purchaser or lessee loses rights and interest in the lot.” Can the seller can provide for a remedy of specific performance against the buyer, possibly allowing the seller to hold onto the excess deposit while it does so?

41

Section 1703(D)(3)

■ Be sure to check the law of your jurisdiction to see if you need to elect in the contract between liquidated and actual damages, or between damages and specific performance.

■ The next drafting question is whether or not to define “damages.” Those who believe in drafting for certainty may be tempted to use an inclusive definition, such as “including, but not limited to, lost profits and incidental and consequential damages.” Is it worth specifying the possibility of incidental and consequential damages against the increased certainty that it will be challenged as not satisfying the mandatory contract limitations of §1703(d)(3), considering that if you lose the argument you are subject to rescission for all similarly written contracts in the project?

■ There is some experimentation with defining the components of “damages,” such as a presumption that marketing costs are lost at 10% of the purchase price. There are no cases.

42

ILSA - EXEMPTIONS

§ 1702. Exemptions.

(a) Full exemption from ILSA.

(b) Partial exemption from ILSA

■Registration and disclosure

■§1703(d) contract provisions?

43

Full Statutory Exemptions

§1702(a)

■ (1) Twenty-Five Lots

■ (2) Improved Lots

■ (3) Evidences of Indebtedness

■ (4) Securities

■ (5) Government Sales

■ (6) Cemetery Lots

■ (7) Sales to Builders

■ (8) Industrial/Commercial Developments

44

Partial Statutory Exemptions

§1702(b)

■ (1) One Hundred Lot Exemption

■ (2) Twelve Lot Exemption

■ (3) Scattered Site Exemption

■ (4) Twenty Acre Lots Exemption

■ (5) Single-Family Residence Exemption

■ (6) Mobile Home Exemption

■ (7) Intrastate Exemption

■ (8) Metropolitan Statistical Area Exemption

45

Regulatory Partial Exemptions

24 CFR §1710.14

(1) A sale for less than $100

(2) A lease for up to 5 years

(3) A sale to a person engaged in a land sales business

(4) A sale to a person who owns the contiguous improved lot

(5) A sale to a government or government agency

(6) A sale to a person who has leased and resided primarily on the lot for at least one year preceding the sale

46

Non-Evasion

“Unless the method of disposition is

adopted for the purpose of evasion

of this title … “

47

Atteberry v. Maumelle Co. 60 F.3d 415 (8th Cir. 1995)

■ Developer’s sales contract required buyers

■ to construct improvements within 2 years

■ to go through an architectural review process

■ Buyers argued these provisions were included with the intent to evade ILSA

48

Atteberry v. Maumelle Co. 60 F.3d 415 (8th Cir. 1995)

Court concluded “plaintiffs must show that, in including the building provision in the standard sales contract, defendants acted with fraudulent intent, i.e., that at the time contracting [defendant] did not intend for defendants to fulfill its obligations under the building provision.” emphasis added

49

Gentry v. Harborage Cottages-Stuart, LLLP

654 F.3d 1247 (11th Cir. 2011)

■ 126 condo units

■ Developer contracted for 36 units to

complete construction in 2 years

■ Developer claimed 100-Lot exemption for

remaining 90 units

■ Plaintiffs claimed the bifurcated sales

structure was with the intent to evade ILSA

50

Gentry v. Harborage Cottages-Stuart, LLLP

654 F.3d 1247 (11th Cir. 2011)

■ Rejects 8th Circuit’s anti-fraud test

■ Required that the purpose for seeking the exemption was not solely to evade the requirements of the ILSFDA

■ “a real world objective that manifests a legitimate business purpose”

■ Burden of proof on the developer

■ The developer did not produce any evidence

51

Double AA Int'l Inv. Grp. v. Swire Pac. Hold.

674 F. Supp.2d 1344 (S.D.Fla. 2009)

■ Court implies that “fraud” is reading too much into ILSA, but that “any legitimate business purpose” would suffice.

■ Developer says the business purpose in being exempt was to save considerable time and money and get to market sooner.

■ Court concludes “Swire’s proferred evidence meets [the required] low threhhold.”

52

BESSINGER v. INDIAN VALLEY GREENES, INC.

986 F.Supp.2d 566 (ED Pa. 2013)

■ This Court adopts the Eighth Circuit's construct. The Court concludes that the Eleventh Circuit's approach does not align as well with the antifraud underpinnings of the Disclosure Act as does the Eighth Circuit's. Moreover, the Eleventh Circuit's approach is potentially underinclusive, in that nearly any seller who structures a transaction to take advantage of an exemption, even a seller acting in bad faith, conceivably could come up with some legitimate business reason to meet the Eleventh Circuit's test simply by pointing to cost savings associated with avoiding the cost of compliance with the Disclosure Act.

53

2-Year Promise to Build

Section 1702(a)(2)

Full exemption

54

Section 1702.

(a) Unless the method of disposition is adopted for the purpose of evasion of this title, the provisions of this title shall not apply to --

(2) . . . 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;

55

Completed Lots

Basics

■ Improved lot – certificate of occupancy

■ 2-year unconditional obligation to build

■ Date of contract controls

56

Cruz v. Leviev Fulton Club, LLC, 711 F.Supp.2d 329 (S.D.N.Y.

2010).

The developer must make a contractual

“promise.” It is not sufficient to estimate or

anticipate a construction completion date, or

merely make the buyer’s obligations

contingent on a two-year completion date

being met.

57

Lopez v. TRG-Brickell Point West, Ltd. 2009 WL 1456340 (S.D. Fla. May 22, 2009) Pellegrino v. Koeckritz Dev. Of Boca Raton 2008 WL 6128748 (M.D. Fla. July 10, 2008)

The ILSA exemption is not lost just because

construction takes more than 2 years to

complete. There is only a breach of contract

claim under contract law, and the claim is

only by affected buyers.

58

Unconditional Obligation

Dalzell v. Trailhead Lodge at Wildhorse

Meadows, LLC, Civil No. 09-cv-02614-REB-KLM,

2010 WL 4932682 (D. Colo. November 30, 2010).

A provision in a contract obligating the

developer to build within two years that

allows termination of the contract by the

developer if there is a substantial casualty

does not qualify the contract for an

exemption from ILSA.

59

Force Majeure ■ Why risk including language that your client may never need but

that, if challenged, will give a rescission right to all purchasers?

The date for completion may be extended by reason of delays incurred by circumstances beyond Seller's control, such as acts of God, war, civil unrest, imposition by a governmental authority of a moratorium upon construction of the Unit or providing of utilities or services which are essential to such construction, casualty losses or material shortages or any other grounds cognizable in Florida contract law as impossibility or frustration of performance, including, without limitation, delays occasioned by wind, rain, lightning and storms.

Quoted and disapproved in Harvey v. Lake Buena Vista Resort, LLC, 568 F.Supp.2d 1354 (M.D. Fla. 2008), aff’d, 306 F. App’x 471 (11th Cir. 2011)

60

Force Majeure

■ A simple, safe clause: subject, however, only to delays caused by matters which are legally recognized as defenses to contract actions in the jurisdiction where the Building is being erected.

Quoted in Stefan v. Singer Island Condominiums Ltd., 2009 WL 426291 (S.D.Fla. Feb. 20, 2009). See similar language in Jankus v. The Edge Investors, L.P., 619 F.Supp.2d 1328, S.D. Fla. 2009).

■ More detailed and good language, at least in the 11th Circuit: Seller shall not be responsible for any delay caused by acts of God, weather conditions, restrictions imposed by any governmental agency, labor strikes, material shortages or other delays beyond the control of the Seller and the completion and occupancy date shall be extended accordingly.

Quoted in Stein v. Paradigm Mirasol, LLC, 586 F.3d 849 (11th Cir.2009)

61

Obligation to Build

The obligation runs two years from the date that the purchaser signs the contract, Long v. Merrifield Town Center LP, 611 F.3d 240 (4th Cir. 2010), not two years “from the effective date” or “from the seller’s acceptance of this contract.”

Seller agrees to substantially complete construction of the Unit, in the manner specified in this Agreement by a date no later than two (2) years from the date Buyer signs this Agreement.

Quoted in Stefan v. Singer Island Condominiums Ltd., 2009 WL 426291 (S.D.Fla. Feb. 20, 2009).

62

Construction Remedies

Buyer may commence an action to recover only actual and direct damages (out-of-pocket amounts actually paid by Buyer to third parties). Under no circumstances may Buyer seek or be entitled to recover any special, consequential, punitive, speculative or indirect damages, all of which Buyer specifically waives, from Seller for any breach by Seller of its obligation under this Agreement or any representation, warranty or covenant of Seller hereunder.

Quoted with approval in Stein v. Paradigm Mirasol, LLC, 586 F.3d 849 (11th Cir. 2009)

63

Construction Remedies

■ Ndeh v. Midtown Alexandria, LLC, 300 Fed. Appx. 203 (4th Cir. 2008) – quoted remedies of damages or contract termination were not stated to be exclusive, therefore specific performance was not negated

■ Hardwick Prop. Inc. v. Newbern, 711 So.2d 35 (1st

DCA Fla. 1998). Consequential/special damages waived.

■ Rosenstein v. The Edge Investors, L.P., Case No. No. 07-80903CIV-MIDDLEBR, 2009 WL 903806 (S.D.

Fla. March 30, 2009). No lis pendens may be recorded.

64

Drafting Traps ■ Definitions of completion of construction that involve anything other than substantial

completion of improvements, installation of all utilities, habitability and issuance of a non-contingent certificate of occupancy

■ “Anticipating” or “estimating,” and not expressly promising, a two-year construction completion date (Cruz v. Leviev Fulton Club, LLC, 711 F.Supp.2d 329 (S.D.N.Y. 2010); Giralt v. Vail Village Inn Assoc., 759 P.2d 801 (Colo. Ct. App. 1988))

■ A seller’s right to terminate the contract unilaterally or for any reason other than the buyer’s default

■ A seller’s financing contingency

■ A seller’s title contingency (Giralt v. Vail Village Inn Assoc., 759 P.2d 801 (Colo. Ct. App. 1988))

■ A contingency if seller’s design will not fit on the selected lot

■ Seller’s contingency on receiving a building permit (Princeton Homes, Inc. v. Virone, 612 F.3d 1324 (11th Cir. 2010); see also Harvey v. Lake Buena Vista Resort, LLC, 568 F.Supp.2d 1354 (M.D. Fla. 2008) and Cook v. Deltona Corp., 753 F.2d 1552 (11th Cir. 1985))

■ Conditioning the remedy of specific performance on some other act, such as posting money in escrow (Kolter Signature Homes, Inc. v. Shenton, 46 So.3d 1211 (Fla. Dist. Ct. App. 2010))

65

Harvey v. Lake Buena Vista Resort 2008 WL 1843909 (M.D.Fla. 2008)

In rejecting the use of a savings clause as an absolute bar to a usury claim, we note, as have other courts, that a contrary holding would permit a lender to “relieve himself of the pains and penalties visited by law upon such an act by merely writing into the contract a disclaimer of any intention to do that which under his contract he has plainly done.” ...

66

Savings Clause

Jankus v. The Edge Investors, L.P., 619 F.Supp.2d 1328, S.D. Fla. 2009), approved the following language:

The following sentence will supersede and take precedence over anything else in this Agreement, which is in conflict with it: If any provisions serve to: (1) limit or qualify Seller's substantial completion obligations as stated in Section 7, or (2) limit Buyer's remedies in the event that such obligations are breached, or (3) grant Seller an impermissible grace period, and such limitations or qualifications are not permitted if the exemption of this sale from the Interstate Land Sales Full Disclosure Act pursuant to 15 U.S.C. 1702(a)(2) is to apply or this Agreement is to be fully enforceable, then all those provisions are hereby stricken and made null and void as if never part of this Agreement.

67

Dubois v. Home Dynamics Murano Case No. 07-61082-CIV (SD Fla 2007)

Defendant argues, however, that the

severability clause of the contract

preserves the ILSA exemption. The

Court agrees. Severability is a matter

of state contract law.

68

Severability Clause

Ryan v. WCI Communities, Inc, 2008 WL

2557541 (N.D. Fla. June 23, 2008)

approved the following language:

It is the intention of the parties that this sale qualify for

the exemption provided by 15 U.S.C. Section 1702(a)(2),

and nothing contained in this Residence Purchase

Contract shall be construed or operate so as to any

obligations of Seller or rights of Purchaser in a manner

which would render said exemption inapplicable.

69

Anticipating Exemptions

■ Can the exemption of certain unsold lots

be anticipated?

■ 1979 Amendments and legislative history

■ HUD Advisory Opinions

■ Exemption plan

70

Exemption Plan

■ Bair v. Atlantis, LLC, Case No. 07-4243-CV-C-NKL, 2008 WL

5051393 (W.D. Mo. Nov. 20, 2008) Lack of evidence

■ First Global Corp. v. Mansiana Ocean Residences, LLC, Case No. 09-21092-Civ, 2010 WL 2163756 (S.D. Fla.

May 27, 2010) Public Announcements

■ N & C Properties v. Windham, 582 So.2d 1044 (Ala.

1991) Reserved second phase.

■ Grove Towers, Inc. v. Lopez, 467 So.2d 358 (3rd DCA

Fla. 1985), rev. den. 480 So.2d 1294 Marketing

71

Anticipating Exemptions

■ Bodansky v. Fifth on the Park Condo, LLC, 635 F.3d 75 (2d Cir. 2011)

■ Gentry v. Harborage Cottages-Stuart,

LLLP, 654 F.3d 1247 (11th Cir. 2011)

■ Nahigian v. Juno-Loudoun, LLC, Nos. 10–

2198, 10–2231, 10–2373, 2012 WL 1511815 (4th Cir.

2012)

■ Nickell v. Beau View of Biloxi, L.L.C., 636

F.3d 752 (5th Cir. 2011)

72

Bodansky v. Fifth on the Park Condo, LLC 732 F.Supp.2d 281

(SDNY 2010)

■ 160 condo project in NYC; $1 Million +

■ No evasion issue; developer did not know about ILSA

■ Fewer than 100 units sold before construction was completed

■ Pre-set plan is not necessary “as long as all lots sold above the 99 non-exempt lots maximum will be covered by a[n] exemption.”

73

Bodansky v. Fifth on the Park Condo, LLC 635 F.3d 75 (2d Cir.

2011)

■ ILSA exemptions must exist at the time of

contract

■ This allows buyers to make an informed

decision

■ Revocation is tied to date of contract; tying

the exemption to a long-future date “would

be of limited value.”

74

Nickell v. Beau View of Biloxi,

L.L.C. 636 F.3d 752 (5th Cir. 2011)

■ 4 towers planned, about 112 units each

■ July 2005 contracts; Aug. 2005 Katrina; Nov. 2007 Plaintiffs closed; June 2008 demanded rescission

■ Developer argued it planned to sign 90 contracts, and then sign 22 contracts with obligation to construct within 2 years

■ Held: Exemption was not available at the time of sale

75

Nahigian v. Juno Loudoun, LLC

684 F.Supp.2d 731 (E.D.Va. 2010)

■ Developer claimed plan to sell 82 of 164

lots to builders in the future

■ At contract, 45% of 31 lots sold to builders

■ Developer’s Summary Judgment Motion -

Court concerned a developer could not

fulfill its plan, too late for buyers’ remedy

■ Not persuaded there was a plan

■ Issue of fact about evasion motive

76

Nahigian v. Juno-Loudoun, LLC

677 F.3d 579 (4th Cir. 2012)

■ “It will not be known for years after the … purchase whether the lot was supposedly sold under an ILSFDA regime or not.”

■ Statute of limitations problem; impractical remedy too long after purchase

■ Equitable rescission under §1709

■ Ultimate concern – marketed as a Ritz-Carlton managed property but Ritz contract fell apart

77

Bair v. Atlantis, LLC, Case No. 07-4243-CV-C-NKL, 2008 WL

5051393 (W.D. Mo. Nov. 20, 2008)

■ A 90 unit project with a potential expansion to 240 units

■ Ads stated the community would exceed 200 units

■ Court: common promotional plan

■ “Defendant has provided no evidence that sales of these … units will qualify for exemptions under the Act.”

emphasis added

78

First Global Corp. v. Mansiana Ocean Residences, LLC

Case No. 09-21092-Civ, 2010 WL 2163756 (S.D. Fla. May 27, 2010)

■ 135 units planned

■ There were more than 100 units which

were not exempt at the time of contract

■ “the relevant number is the number of

units communicated by the developer to

the buyer and the purchasing public”

■ No evidence that the project “would meet”

the exemption requirements.

79

Statute of Limitations

Section 1703(c)

In the case of any contract or agreement for the sale or lease of a lot for which a property report is required by this title and the property report has not been given to the purchaser or lessee in advance or his or her signing such contract or agreement, such contract or agreement may be revoked at the option of the purchaser or lessee within two years from the date of such signing, and such contract or agreement shall clearly provide this right.

80

Disclosure Failure Cases

Plaza Court, L.P. v. Baker, 2009 WL 1809921 (5th DCA Fla. 2009).

Murray v. Holiday Isle, 2009 WL 857406 (S.D.Ala. 2009).

Venezia v. 12th Division Properties, LLC, 2009 WL 2366417 (M.D.Tenn. 2009).

Taylor v. Holiday Isle, LLC, 2009 WL 455439 (S.D.Fla. 2009).

81

Statute of Limitations

Section 1711(b)

No action shall be maintained under section

1709 to enforce a right created under

subsection (b), (c), (d), or (e) of section

1703 unless brought within three years

after the signing of the contract or lease,

notwithstanding delivery of a deed to a

purchaser.

82

Limitations Cases

Ali v. Royal Palm Miami Holdings, LLC, 2009 WL 959913 (S.D. Fla. 2009).

Orsi v. Kirkwood, 999 F.2d 86, 89 (4th Cir. 1993).

Taylor v. Holiday Isle, LLC, 2009 WL 455439 (S.D.Fla. 2009).

Tait v. 430 Hibiscus, 2008 WL 2222945 (S.D. Ala. 2008).

Bush v. Bahia Sun Associates, 2009 WL 963133 (M.D. Fla. 2009).

83

Rescission Period 2 years to rescind; 3 years to sue

■ Taylor v. Holiday Isle, LLC, 561 F.2d 1269 (S.D.

Ala. 2008)

■ Venezia v. 12th Division Properties, LLC, 679 F.Supp.2d 842 (M.D.Tenn. 2009)

■ Bush v. Bahia Sun Assoc., L.P., 2009 WL

963133 (M.D. Fla. April 8, 2009)

■ Veneklase v. Bridgewater Condos, L.C., 670 F.3d 705 (6th Cir. 2012)

84

Taylor v. Holiday Isle, LLC 2008 WL 2222945 (S.D. Ala. 2008)

“a plaintiff’s rescission claim requires

compliance with both §1703(c)’s two-year

limit for exercising the right of rescission

and §1711(b)’s three-year limit for filing

suit based on the seller’s refusal to honor

said rescission.“

85

Ditthardt v. North Ocean Condos, 580 F.Supp.2d 1288 (S.D. Fla. 2008)

■ Distinguishes claims under 1703(b) from 1703(c) and (d)

■ “If the three-year general limitations period applied to rescissions claims brought under 1703(c) and 1703(d), the general mention in those subsections of a two-year period would be effectively meaningless

86

Ditthardt v. North Ocean Condos, 580 F.Supp.2d 1288 (S.D. Fla. 2008)

This court find the reasoning in Taylor

persuasive and joins its conclusion that

rescission claims pursuant to 1703(c) and

1703(d) must be brought within two years

of the date of signing.

87

Pugliese v. Pukka Dev., Inc. 550 F.3d 1299 (11th Cir. 2008)

■ Section 1703(b) and (d) apply when a

contract for the sale of a lot is “not

exempt under §1702”

■ No distinction between §1702(a) and

(b)

88

Equitable Extension and Tolling Cases

■ Cook v. Deltona Corp., 753 F.2d 1552 (11th Cir. 1985), equitable tolling possible for the 2-year period, but not the 3-year period

■ Werdmuller von Elgg v. Carlisle Devel., No. 6:09-cv-132-Orl-31KRS, 2009 WL 961144 (M.D. Fla. April 7, 2009) no equitable extension

■ Plant v. Merrifield Town Center L.P., 711 F.Supp.2d 576 E.D. Va. 2010) equitable rescission

■ Nu-Chan, LLC v. 20 Pine Street LLC, No. 09 Civ. 00477(PAC), 2010 WL 3825734 (S.D.N.Y. Sept. 30, 2010) equitable rescission

■ Pigott v. Sanibel Devel., LLC, 576 F.2d 1258 (S.D. Ala. 2008).

■ Veneklase v. Bridgewater Condos, L.C., 670 F.3d 705 (6th Cir. 2012) equitable rescission

■ Nahigian v. Juno-Loudoun, LLC, 677 F.3d 579 (4th Cir. 2012) equitable rescission

89

Beaver v. Tarsadia Hotels 2014 WL 3002297 (SD Cal. 2014)

■ California Unfair Competition Law

■ Incorporates other state and federal laws as bases for claims under UCL, including ILSA violations

■ UCL statute of limitations is 4 years

■ ILSA does not completely pre-empt state laws

■ ILSA 3 year statute of limitations irrelevant to UCL claims

90

Nickell v. Beau View of Biloxi, L.L.C., 636 F.3d 752 (5th Cir. 2011)

“Where an “agency has not used a

deliberative process such as notice-and-

comment rulemaking,” this court does not

grant the agency’s interpretation Chevron

deference. … Of central importance today is

that we do not examine sources of meaning

external to the statute when the statutory

language is clear.”

91