Back in August the developers of new Hell's Kitchen condo building The 505 fired off a message to buyers looking to get refunds on their deposits by using the loophole known as the Interstate Land Sales Full Disclosure Act (or ILSA): Sue us and you'll lose. Now, nearly half the building's 108 units are tied up in cases in federal court. And The 505 is far from the only building in a similar situation. In an epic two-part feature, The Real Deal's Sarah Ryley catalogs the new developments most plagued by buyers looking to bail?whether through complaints to the state Attorney General's office over missed deadlines and offering plan discrepancies, or through lawsuits?as well as diving deep into the world of ILSA disputes. The 1968 consumer-protection law, rarely applied to or even heard of in the city before the market meltdown, requires developers who have divided land into 100 or more parcels to file a property report with the U.S. Department of Housing and Urban Development, and then give buyers a copy before they sign a contract. The law was meant to protect out-of-state buyers from purchasing worthless tracts of land in shady subdivisions, but does it really have the power to derail the NYC condo industry? Why, yes it does.
Ryley reports that ILSA decisions in other states have usually gone in buyers' favor, and buyers' attorneys think out-of-state interpretations of the arcane law will be upheld in New York. However, some developers are arguing that their buildings are exempt because fewer than 100 units were sold before the building was complete (the law doesn't apply to completed projects). There's all sorts of head-scratching fine print, but ILSA decisions could affect up to hundreds of new units around the city that had signed contracts. Harlem's Fifth on the Park (where seven buyers are suing under ILSA) is expected to be one of the first buildings where decisions are handed down, probably sometime in the spring. Says one of the building's developers, "Ninety percent of developers in New York never even knew ILSA existed. Ignorance of the law is no excuse ? but there is yet to be a case in this jurisdiction confirming the application of ILSA in New York."
Contract disputes, whether triggered by buyers' remorse or legitimate gripes, have become one of the most dominant aspects of the post-crash NYC real estate market. If decisions start going buyers' way, what will the return of all that inventory do to predictions of a stabilizing housing market? And what will the financial burden be to developers? If builders come out victorious, will buyers actually be able and willing to close, or will they cut their losses by forfeiting deposits and walking away? Your thoughts on condo mutiny in the comments, if you please.
· Fighting buyer mutiny [Real Deal]
· Where are buyers backing out? [Real Deal]