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Recent Developments Regarding the Interstate Land Sales Full Disclosure Act.

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The Interstate Land Sales Full Disclosure Act (ISLA) is a federal law which governs the sale or lease of subdivided property through the use of interstate commerce.  If a real estate developer or its agent markets or offers any property for sale using “interstate commerce” and does not meet an exemption to ISLA, then the developer must be in compliance with ISLA or risks serious consequences, such as the right of a buyer to revoke the contract, damages or other relief.

ISLA’s reach is very broad because the definition of “interstate commerce” includes routine advertising practices such as mailing a flyer, or advertising over the internet.  In addition, the types of properties subject to ISLA is much broader than just a subdivided lot, and includes residential property interests such as condominium units, cooperative units and even campsites.

The agency that previously had jurisdiction for enforcing ISLA compliance was the HUD’s Office of Interstate Land Sales Registration (OILSR).  The OILSR office published Guidelines for Exemptions Available under the Interstate Land Sales Full Disclosure Act (HUD Exemption Guidelines).  The HUD Exemption Guidelines were routinely used as a guide to help determine whether a project might be exempt from ISLA and were often considered in various court cases in arriving at their decision with respect to ISLA compliance.

However, effective as of July 21, 2011, the Consumer Financial Protection Bureau (CFPB) has been given the job of enforcing ISLA.  This change was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The CFPB is an agency that was created by Congress in the wake of the recent financial crisis for the purpose of protecting consumers by supervising and enforcing consumer financial laws.

On May 31, 2011 the CFRB published a notice in the Federal Register (FR Notice) which outlined certain rules and orders that the CRFB will use to enforce ISLA.  Importantly, the FR Notice did not list the HUD Exemption Guidelines and comments from the officials at the CFRB suggest the HUD Exemption Guidelines will not play a role in enforcement.  Recent case law has also questioned reliance on the HUD Exemption Guidelines and although the CFPB can also issue new guidelines and exercise rule making authority, to date no new guidelines have been issued on this subject.  As a result, there is a fair amount of uncertainty surrounding ISLA compliance. 

To make matters worse, in light of the recent economic downturn, buyers have increasingly turned to ISLA as a method for getting out of their contracts.

Because of the uncertainty currently surrounding ISLA and because it is thought that the CRFB will increase protection to consumers in its enforcement of ISLA, it would be a good idea for all residential developers to review ISLA to ensure, to the greatest extent possible, that their projects are in compliance.  Please contact Cheryl Velasquez or Bart Johnson of Waas Campbell Rivera Johnson & Velasquez LLP for advice on ILSA compliance or other real estate matters.