Maloney bill to fix major flaw in law governing condo sales heads to President’s desk
WASHINGTON, DC – An outdated and burdensome federal regulation governing condominium sales will soon be eliminated thanks to legislation introduced by Senator Charles Schumer (D-NY) and Congresswoman Carolyn B. Maloney (D-NY). The Interstate Land Sales Full Disclosure Act (H.R. 2600) is heading to the President’s desk today after the Senate approved the House-passed bill. The bill will clarify that certain registration requirements in the 1968 Interstate Land Sales Disclosure Act (ILSA), which were written to stop fraudulent sales of raw land, do not apply to condominium sales.
“With the passage of this bill, we have brought an outdated law into the 21st century, and aided in our ongoing economic and housing market recovery,” said Schumer. “Clarifying ILSA requirements will bring a greater stability and clarity to construction, development, and purchases of condominiums, which will help maintain and support New York’s housing sector.”
“A condominium sale shouldn’t be invalidated because the sellers failed to disclose if the unit was covered by water, presented signs of soil erosion, included oil and gas rights or had unique topographical characteristics,” said Maloney. “It’s obvious that the registration requirements in the 1968 law were never intended for condo sales. This is a narrowly tailored, technical fix that will solve the problem.”
ILSA was enacted to regulate “fast buck operators” who were bilking the elderly through blatantly fraudulent sales of raw land, often located in swamps and deserts. Land sales, not sales of units in condominium complexes, were the intended target of the regulatory scheme. The required disclosures relate to land issues, such as access to roads and water supply, and make little sense in the context of urban vertical developments.
Schumer and Maloney’s bill clarifies that ILSA’s ill-fitting federal disclosure requirements do not apply to condominiums. However, condominiums will still be subject to all of the normal state- and local-level disclosure requirements that come with condo sales. The bill also retains the protection of ILSA’s anti-fraud provisions.
The federal courts started to apply ILSA to vertical condominiums in the 1980s based on HUD’s broad interpretation and Congress’s failure to expressly clarify that ILSA does not apply to condominiums.
Private use of ILSA was practically non-existent for 40 years, until 2008 when the real estate market crashed, and purchasers looked for ways to escape pre-crash contracts. Purchasers started filing ILSA cases in Florida, New York, and around the country claiming technical violations of ILSA and demanding full rescission of contracts.
Maloney introduced H.R. 2600 in June 2013. The bill passed the House on September 26, 2013 by a vote of 410-0. The Senate approved the bill by unanimous consent on September 18, 2014.