REAL ESTATE DEVELOPERS BEWARE; HOME BUYERS TAKE HEED--ILSA MAY ALLOW HOME BUYERS TO GET OUT OF REAL ESTATE CONTRACTS

Here’s a riddle that should cause developers to wince and home buyers to cheer:  What do Ingrid Bergman in Casa Blanca and federal real estate law have in common?  Answer:  “ILSA”--the name of Bergman's famous movie role (Ilsa Lund) and an obscure law (the 1968 Interstate Land Sales Act).

In recent years, cash-strapped home buyers have left no stone unturned in their search for ways to back-out of real estate contracts for homes and condos that they intended to buy but can no longer afford.  Several recent cases decided by federal district courts in Virginia and New York indicate that ILSA may provide just the relief that buyers have been looking for, and that developers have been fearing.

Congress passed ILSA decades ago to combat fraud in the then-burgeoning Arizona and Florida real estate markets, establishing a long list of mandatory disclosures that developers must make to home buyers.  This is vital because failure to make any of the disclosures required by ILSA gives a home buyer the right to void the purchase contract, cancel the sale, and recover any earnest money or deposit that has been paid for the home.

Although ILSA has not made much news over the 40 years since its passage, ILSA's star seems to be on the rise.  Several months ago, a Federal court in Virginia held that ILSA allowed a purchaser to back out of a contract to build a home on a $2,000,000 lot adjacent to a golf course in a community that was to include a Ritz Carlton.  Just last week, a New York Federal District Judge found that a condo-developer's failure to comply with ILSA allowed purchasers to back out of their purchase contracts.  (See links to orders, below.)

Although ILSA’s remedy is clear, developers and home buyers can and do fight about whether the law applies to particular development projects.  ILSA applies to developments of a certain size and includes several exemptions that can allow certain developers to escape ILSA’s requirements and penalties.  As the recent court decisions cited above demonstrate, however, ILSA is a potentially serious weapon that must be considered and respected.  Just as Ilsa Lund was strong enough at the end of Casablanca to leave Ralph Blaine (Humphrey Bogart) standing alone at the train station wondering where she was, ILSA can leave a developer stranded and wondering what happened to one of those few contracted sales that he or she had been counting on.

( Download VA Case Order      Download NY Case Order )