Senate votes to strike down ILSA requirements for condos
Condominium developers scored a major coup last night, as the United States Senate voted unanimously to pass a bill that exempts condos from filing and registration requirements mandated by the Interstate Land Sales Full Disclosure Act, commonly referred to as ILSA.
Having now cleared both the Senate and the House of Representatives, the bill will move on to the White House to be signed into law. Once that happens, developers of new condos or time-shares with at least 99 units will no longer have to register their buildings with the U.S. Department of Housing and Urban Development.
Sen. Charles Schumer (D-NY), on behalf of himself, Sen. Kirsten Gillibrand (D-NY) and Sen. Dean Heller (R-NV), introduced the bill, known as S 2101, on March 10. Prominent members of the Real Estate Board of New York, including board president Steven Spinola and Kramer Levin attorney Jay Neveloff, had been lobbying to have ILSA repealed for condos.
ILSA was first passed in 1968, and was seldom used in New York City until the market crash of 2008, after which it became a popular exit strategy for condo buyers looking to get out of their deposits, as TRD reported. Buyers were able to overturn contracts even when developers made seemingly trivial ILSA filing errors.
“I’ve been working on this for over two years, I’m so excited!” Neveloff told TRD today. “ILSA was enacted decades ago to deal with abuses relating to the sale of swampland,” he added. “There were provisions of that law that made it very clear that it didnt deal with condos.”
Repealing ILSA for condos will not hurt buyers, Neveloff said. “They don’t lose any anti-fraud protections, and especially in a state like New York where there are extensive offering plan requirements” that safeguard buyers.
As for developers, repealing ILSA’s condo provision would bring more certainty to projects, Neveloff said, and also help to reassure construction lenders.
Real estate attorney Adam Leitman Bailey, who pioneered the use of the ILSA provision to get buyers out of contracts in the wake of the financial crisis,said today that “in the time of the nation’s greatest real estate crisis, ILSA provided a surprise weapon causing developers to discount prices on newly constructed units, to either allow purchasers to receive enough of a discount to be able to close on the unit after lenders pulled the original loan, or it allowed purchasers who could no longer afford the home to be able to terminate the contract.”
“Although we were proud to assist thousands of purchasers,” Bailey continued, “we also agree that the statute no longer has any utility and agree with Congress’s action.”