One of the perks of running a successful business is the opportunity to purchase a vacation home where you can escape and recharge.
If you thinking about purchasing property in a new planned development, you are likely to have certain rights thanks to federal statutes comprising the Interstate Land Sales Full Disclosure Act (“ILSFDA”).
The act is designed to protect buyers from potential bait-and-switch marketing by unethical developers. It requires developers to register certain information about a development with the Department of Housing and Urban Development (HUD) and provide property reports to buyers prior to execution of sales contracts.
Developments generally fall within the scope of ILSFDA disclosure requirements when they are comprised of 100 or more lots and developers market them to prospective buyers by use of interstate commerce or the U. S. Postal Service. Examples include the many Florida condominium towers advertised in airline magazines or the upscale housing development, The Cliffs at High Carolina.
ILSFDA does not apply to individual properties that are not part of a development.
When a development falls under the disclosure requirements of ISLFDA, the developer must, prior to beginning the development, file a statement of record with HUD and provide all buyers with a property report prior to the execution of a sales contract. The report should contain information, such as:
- Name and address of the developer and any other person with a financial interest in the units
- A legal description of the units and a statement of the current state of title to the units, including all encumbrances, deed restrictions, and covenants affecting them
- Range of selling prices of the units
- Explanation of access to the development
- Availability of sewage disposal facilities and other public utilities in the development
- Nature of any planned improvements, such as swimming pools, to be installed by the developer and the schedule for each improvement
Failure of the developer to provide a requisite property report to a buyer gives the buyer the right to revoke the contract within two (2) years from the date of the execution of the contract. It also gives the buyer the right to file suit against the developer who does not permit revocation for damages and to ask the court to rescind the contract.
ISLFDA also prohibits fraud by a developer. For example, a developer would be liable to a buyer who was induced to purchase a lot by the developer’s misrepresentations of material facts about the development or by fraudulently promising that roads, sewers, utilities, or recreational facilities would be completed by the developer without stipulating these improvements in the sales contract.
If the developer violates the disclosure requirements of ISLFDA or commits fraud, the buyer can recover damages, an order for specific performance, or other relief the court deems fair. The buyer may also be awarded interest, court costs, reasonable amounts for attorneys’ fees and independent appraiser’s fees as well as costs of traveling to and from the property.
More information and a searchable database of ILSFDA-registered properties are available on the HUD website at http://nhl.gov/offices/hsg/sfh/ils/ilshome.cfm.
Given the complexity of the provisions of ILSFDA, we recommend that prospective buyers ask an experienced real estate lawyer review any sales contract prior to signing as well as make written inquiry to HUD to see if the developer has registered the development with HUD, thereby requiring the developer to provide the buyer with a property report. The lawyer can also ensure that the buyer has preserved all rights arising under ILSFDA in the event that the lot (or improvements to the development) is never built or fraud by the developer is discovered subsequent to execution of the contract.
Under the ILSFDA, “Lot” is defined as “any portion, piece, division, unit or undivided interest in land if such interest includes the specific use of a specific portion of the land or unit.” Courts dealing with this issue have consistently held that a condominium unit constitutes a “lot.”
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Know Your Rights When Buying a Vacation Home