INTERSTATE LAND SALES ACT, 15 U.S.C.
§§1703 et. seq.The Interstate Land Sales program
protects consumers from fraud and
abuse in the sale or lease of land.
In 1968 Congress enacted the
Interstate Land Sales Full
Disclosure Act, (“ILSA”) which is
patterned after the Securities Law
of 1933 and requires land developers
to register subdivisions of 100 or
more non-exempt lots with HUD and to
provide each purchaser with a
disclosure document called a
Property Report. The Property Report
contains relevant information about
the subdivision and must be
delivered to each purchaser before
the signing of the contract or
agreement. The purchaser of property
in a nonexempt transaction from a
developer who has not registered
under the ILSA has the option to
revoke their sales contract at any
time within two years after the date
of the contract. Other remedies for
violation of the ILSA include
disgorgement of related profits,
fines, injunctive relief, and
criminal prosecution for willful
violations.
There are a significant number of
exemptions under the ILSA. One of
exemptions under the ILSA that has
broader application is the so-called
“100 lot exemption.” Under this
exemption, the sale of property is
exempt from the registration
requirements of the ILSA if the
development or subdivision contains
fewer than 100 units, exclusive of
units that are otherwise exempt
under other statutory exemptions to
the ILSA. In determining the number
of units within the project, include
all units within related projects
that are marketed pursuant to a
“common promotional plan” and any
garage stalls or storage areas
created as separate units within the
CIC. It should be noted that the
100-lot exemption is only a
“partial” exemption from the ILSA in
that a development qualifying for
this exemption is still subject to
the antifraud provisions of the ILSA.
As a result, sales personnel should
be advised accordingly and purchase
agreements used for the sale of
units under the 100-lot exemption
should include language which
warrants to the buyer that all
utilities, common element roadways,
and other amenities have been or
will be completed.
The most common exemption is the
“improved property” exemption or the
“two-year rule”, which exempts the
sale of completed units and units
that are not complete but will be
completed within a period of two
years from the date of the purchase
agreement. The form of purchase
agreement used must expressly
obligate the seller to complete the
unit purchased within the two-year
period. In addition, the purchase
agreement cannot prohibit or limit
the purchaser's remedies if the
seller does not complete the unit
within two years, except in the case
of pre-sale contingency clauses
conditioning completion of
construction within a stated period
of time generally not to exceed 180
days.
Certain of the ILSA exemptions can
be used contemporaneously. The most
common application of this approach
is that the 100-lot exemption and
the two-year rule can be applied in
combination to exempt a project
containing 100 or more units in
certain instances. However, it is
important to note that the
determination of whether a project
is exempt (under single or multiple
exemptions) is made on an all or
nothing basis. For example, the sale
of more than 99 units in
transactions not covered by another
available exemption has the effect
of nullifying the 100-lot exemption
for all prior and future sales
within the project. As a result,
developers of projects containing in
excess of 99 units must assure
themselves that all units in excess
of 99 will be sold in exempt
transactions (for example, the
two-year rule) or risk the
consequences of noncompliance with
the ILSA. FEDERAL SECURITIES AND EXCHANGE ACT,
15 U.S.C. §§ 77a, et. seq.
The Federal Securities Act of 1933
was enacted in the aftermath of the 1929
Stock Market crash. The Act has two
basic objectives: (1) requiring that
investors receive significant (or
“material”) information concerning
securities being offered for public
sale; and (2) prohibiting deceit,
misrepresentations, and other fraud in
the sale of securities.
Underlying the 1933 Act is the idea that
a company (i.e., an “issuer”) offering
securities should provide potential
investors with sufficient information
about both the issuer and the securities
to make an informed investment decision.
To assist in achieving its objectives of
informing potential investors and
fostering fair dealing in the securities
markets, the 1933 Act requires issuers
to disclose significant information
about themselves and the terms of the
securities.
Disclosure of relevant information is
accomplished through the registration of
securities with the Securities and
Exchange Commission (“SEC”). The SEC is
the principal federal agency responsible
for oversight of the securities markets
and enforcement of the federal
securities laws. In general, securities
offered or sold to the public in the
U.S. must be registered by filing a
registration statement with the SEC. The
prospectus, which is the document
through which a company’s securities are
marketed to a potential investor, is
generally filed in conjunction with the
registration statement. In addition to
making these diclosures to the SEC, the
seller of securities must make certain
disclosures to the investor. The Act
also makes it illegal to commit fraud in
conjunction with the offer or sale of
securities. A defrauded investor can sue
for recovery under the 1933 Act.
The primary issue with regard to the
sale of condominium units is whether it
actually constitutes the offer or sale
of “securities.” The SEC has held that
the offer or sale of condominium units
in a real estate development coupled
with an offer or agreement to perform or
arrange certain rental or other services
for the purchaser of the condominium
constitutes a “security” for purposes of
the federal security laws. While there
are numerous situations where
condominium arrangements may constitute
securities under the federal securities
laws, the SEC has noted three types of
arrangements that are deemed securities:
Condominiums with any rental arrangement
or other similar services that are
offered or other similar service that
are offered and sold with emphasis on
the economic benefits to the condominium
purchaser to be derived from the
managerial efforts of the promoter or a
third party designated or arranged by
the promoter, from the rental of the
condominium units;
The offering or
participation in a rental pool
arrangement; and
The offering of a
rental or similar arrangement where the
condominium purchaser must hold the
condominium unit available for rent for
any part of the year, must use an
exclusive rental agent or is otherwise
materially restricted in the occupancy
or rental of the condominium unit.
In light of the aforementioned, the
SEC has frequently found condominium
offerings that use advertising,
sales literature or representations
focusing on the economic benefits to
the purcahser to be derived from the
managerial efforts of the promoter,
or a third-party designated or
arranged by the promoter in renting
the condominium, will constitute
securities. In addition to enforcement by the
SEC, the Securities Act contains a
private enforcement mechanism
allowing investors to sue for
violations of the Act. Liability
under the Securities Act flows not
only to the seller of the units, but
to individuals who “directly or
indirectly” engage in the offer or
sale of unregistered securities. The
test for liability is whether a
potential defendant was a “necessary
participant” or a “substantial
factor” in the offering or selling
of the unregistered securities.
FLORIDA DECEPTIVE AND UNFAIR
TRADE PRACTICES ACT, Fla. Stat. §§
501.201, et. seq.
The Florida Deceptive and Unfair
Trade Practices Act (FDUTPA), passed
in 1973, serves as Florida's version
of the Federal Trade Commission Act
(FTCA), which is designed to protect
businesses and consumers from unfair
competition and unfair or deceptive
acts in the conduct of any trade or
commerce. The Act defines “trade or
commerce” as the “advertisement,
solicitation, offering, or
distribution by sale, rental or
otherwise, tangible property.” It is
well-settled that this broad
definition includes the sale and
purchase of real property, including
condominiums. Real estate fraud
cases are frequently litigated under
FDUTPA. FDUTPA somewhat broadly forbids "[u]nfair
methods of competition,
unconscionable acts or practices,
and unfair or deceptive acts or
practices in the conduct of any
trade or commerce." FDUTPA does not
contain a definition or "laundry
list" of just which acts can be
"deceptive," "unfair," or
"unconscionable." There is no
specific rule or regulation required
to find conduct unfair or deceptive
under the statute. The Florida Deceptive and Unfair
Trade Practices Act contains a
private enforcement mechanism
enabling both consumers and
businesses to pursue relief in
litigation seeking redress for FDUTPA violations.
Most states have similar Consumer
Protection Acts that afford
aggrieved condominium purchasers a
private right of action for
deceptive or unfair acts and
practices. REAL ESTATE SETTLEMENT PROCEDURES
ACT, 12 U.S.C. §§ 2601, et. seq.The Real Estate Settlement
Procedures Act (RESPA) is a federal
consumer protection statute designed
to help homebuyers be better
shoppers in the home buying process.
The Act is enforced by HUD but also
contains a private civil action
provision. RESPA contains two
primary requirements. The first,
RESPA requires that borrowers
receive disclosures at various
times. Some disclosures spell out
the costs associated with the
settlement, outline lender servicing
and escrow account practices and
describe business relationships
between settlement service
providers. RESPA was designed to eliminate
kickbacks and referral fees that
unnecessarily increase the costs of
certain settlement services. Section
8 of RESPA prohibits a person from
giving or accepting any thing of
value for referrals of settlement
service business related to a
federally related mortgage loan. It
also prohibits a person from giving
or accepting any part of a charge
for services that are not performed.
Violations of Section 8's
anti-kickback, referral fees and
unearned fees provisions of RESPA
are subject to criminal and civil
penalties. In a criminal case a
person who violates Section 8 may be
fined up to $10,000 and imprisoned
up to one year. In a private law
suit a person who violates Section 8
may be liable to the person charged
for the settlement service an amount
equal to three times the amount of
the charge paid for the service.
Section 9 of RESPA prohibits home
sellers from requiring home buyers
to purchase title insurance from a
particular company.
Any private civil suit must be
brought within one (1) year to
enforce violations of Section 8 or
9. A person may bring an action for
violations of Section 6 within three
years. Lawsuits for violations of
Section 6, 8, or 9 may be brought in
any federal district court in the
district in which the property is
located or where the violation is
alleged to have occurred. FLORIDA CONDOMINIUM ACT, Fla. Stat.
§§ 718.101 et. seq.
The Florida Condominium Act is a
state version of the Interstate Land
Sales Act. The purpose of the
Florida Condo Act is to establish
procedures for the creation, sale,
and operation of condominiums in the
State of Florida. This includes
requirements for the establishment
of condominiums, the establishment
of the Condo Owners Association and
its board of directors, to what
portions of the common property are
owned by unit owners. The Florida
Condo Act includes the same causes
of action as ILSA and affords
purchasers the same remedies. Almost
every state with large numbers of
condominium owners have similar
statutes. TOOLS
Florida Administrative Code, Chapter
61B, Condominiums
Condominium Act, Ch. 718, F.S. -
relating to the development, sale,
ownership, and operation of residential
condominium units.
Cooperative Act, Ch. 719, F.S. -
relating to the development, sale,
ownership, and operation of residential
cooperative units.
Florida Mobile Home Act, Ch. 723, F.S.
- relating to the rental of mobile home
lots to mobile home owners.
Florida Vacation Plan & Timesharing Act,
Ch. 21 - relating to the development,
sale, ownership, operation, and
management of timeshare plans.
Florida Uniform Land Sales Practices Law
- relating to the regulation of the
disposition of any interest in
subdivided lands.
State Condominium Laws - pertinent
Condominium Laws for each state.
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