Second Circuit Accepts FKSA Amicus Arguments for Real Estate Board
Until the sharp decline in real estate prices beginning in 2008, the Interstate Land Sales Full Disclosure Act ("ILSA"), a statute enacted to prevent deceptive practices in the sale of undeveloped land, was little known to litigators in urban areas. In recent years, however, condominium purchasers suffering from "buyer's remorse" have claimed a right to revoke purchase agreements under ILSA's anti-fraud provisions. In Bacolitsas v. 86th & 3rd Owner, LLC, 2010 WL 3734088 (S.D.N.Y. Sep. 21, 2010), the District Court granted summary judgment to the purchasers under Section 1703(d) of ILSA, which allows a buyer to revoke a purchase agreement if the contract does not contain a description of the unit "in a form acceptable for recording." In New York, executory condominium purchase agreements are not recordable, so the District Court concluded that ILSA had been violated.
On appeal, FKSA filed an amicus curiae brief on behalf of the Real Estate Board of New York ("REBNY"), arguing for reversal. The Second Circuit reversed the judgment and ordered the District Court to enter judgment for the developer, holding that, under Section 1703(d), the description of the property must be in a form that would allow it to be recorded if it were attached to an otherwise recordable instrument, but the purchase agreement itself need not be recordable. The agreement at issue contained a detailed description of the unit and thus satisfied ILSA. Bacolitsas v. 86th & 3rd Owner, LLC, 2012 WL 6602795 (2d Cir. Dec. 19, 2012).
The Court also rejected the argument that the description of the unit must be in a form sufficient to record a deed. Citing FKSA's brief on behalf of REBNY, the Court pointed out that such a requirement would overturn settled industry practice. In New York, a description sufficient for a deed is not possible until the condominium declaration is filed when construction is complete. Purchase agreements, however, are routinely signed long before the completion of construction, a practice that benefits both purchasers, by allowing them to lock in prices early, and developers, by allowing them to receive revenue before the project is complete. The Court held that other provisions of ILSA explicitly contemplate pre-completion purchase agreements, and Section 1703(d) cannot be read in a fashion that would make such agreements impossible.
FKSA attorneys Robert D. Kaplan and Saumya Manohar represented REBNY.