Bipartisan Maloney Bill Clarifying Condominium Fraud Law Passes House 410-0
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Bipartisan Maloney Bill Clarifying Condominium Fraud Law Passes House 410-0


WASHINGTON, DC – September 27, 2013 – (RealEstateRama) — Today, the House passed H.R. 2600, the Interstate Land Sales Full Disclosure Act, sponsored by Reps. Carolyn B. Maloney (D-NY), Michael Grimm (R-NY), Patrick T. McHenry (R-NC), and Jerrold Nadler (D-NY). The bill’s language removes ambiguities in the Interstate Land Sales Disclosure Act (known colloquially as the “Land Under Water Act” when it was enacted in 1969) which have caused it to be applied to contracts to purchase condominium units in addition to sales of raw land.

The popularity of condominium housing has increased in recent years, especially in states like Florida, New York and elsewhere, but during the economic downturn some buyers used ILSA to rescind otherwise valid condominium contracts for economic reasons — an entirely unintended consequence of the law and its intent.

H.R. 2600 provides a technical fix to distinguish condominium sales from other types of land sales and to recognize the unique conditions under which these units are sold in today’s market. By providing this clarity, condominium developers and their lenders will have more certainty going forward about the status of their sales as the economy continues to recover — while maintaining important protections that consumers have under ILSA.

Consumers will still have the right to rescind contracts in cases of fraud but will clarify the law’s application to condominium construction. The bill will provide a narrow exemption for condominiums from ILSA’s registration requirements. Developers would still be required to comply with state laws that require specific disclosures.

“This is a common-sense amendment to the ILSA law’s longstanding protections for consumers and will mean easier sales of condominium units, and thus will help hasten the housing recovery,” Maloney said. “The Interstate Land Sales Disclosure Act was enacted to protect consumers from being sold property where the property’s description in the contract was not what was delivered to the buyer — to protect out-of-state buyers who were sold land that was not what was advertised and provides a right of action to rescind the contract and walk away from the deal. Yet the courts have ruled over the years that certain ISLA paperwork requirements apply to condominiums, and developers are required to file unnecessary paperwork that is out of keeping with how modern condominiums are constructed and marketed by developers operating in good faith.”

At a time when the housing industry is recovering and construction lenders are gaining confidence to lend, the bill will provide stability to developers and lenders of condominiums to be constructed by avoiding strict application of a law (ILSA) intended to prevent the sale of “land under water” while still requiring compliance with respective state disclosure requirements and continuing to apply in the event of fraud. Without adoption of the bill, condominium buyers who received all the necessary disclosures would continue to have the ability — and the incentive — to rescind a contract due to technical noncompliance with ILSA in situations where, for example, ILSA imposes requirements that cannot be satisfied due to state or local requirements.

H.R. 2600 would only apply prospectively to new construction after its enactment.

A copy of the legislation may be viewed here:


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