Presenting a live 90-minute webinar with interactive Q&A 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 THURSDAY, SEPTEMBER 4, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Judyann M. Lee, Attorney, Linowes and Blocher , Bethesda, Md. Richard C. Linquanti, Shareholder, Carlton Fields Jorden Burt , St. Petersburg, FL The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Title: Ensuring ILSA Compliance, Avoiding Contract Rescission, Fines and Penalties Date: September 4, 2014 Judyann M. Lee jlee@linowes-law.com
6 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
7 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
8 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
9 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
10 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)
11 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)
12 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
13 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
14 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.
15 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.
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