Buyers look to 40-year-old federal law to revoke contracts
March 16, 2009 04:55PM By James Kelly
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Hundreds of condo buyers in new developments in Manhattan, Brooklyn and Queens are awaiting settlements or court decisions that could result in the refund of all or part of their down payments. The actions being taken by the buyers are the result of a recent focus on a consumer protection law that for decades has been invoked by buyers around the country looking to revoke their purchase agreements, but has only now entered the limelight in New York City.
With an onslaught of apartments closing two-plus years after signing at prices far below their current value, buyers are looking to extricate themselves from deals, with such cases making their way to federal courts.
Attorney Robert Chasnow of Holland & Knight in Washington, D.C., and other attorneys The Real Deal spoke with, agree that the law, called the United States Department of Housing and Urban Development's Interstate Land Sales Full Disclosure Act, didn't get that much attention in New York City before because the market had always been so strong that buyers did not to look to get out of contracts.
"But the difficulties in the marketplace have caused purchasers to look wherever they can for relief," Chasnow said. "And that looking wherever they can has led them to where many others outside New York have found it."
Under the act, passed in 1968 and amended in 1979, developers of condo projects with over 99 units are required to file a project report with HUD, present a copy of the document to each apartment buyer prior to his or her signing of a purchase agreement and promise to deliver the unit within two years. If the developer fails to fulfill his obligations, the buyer has two years to back out of the contract and potentially walk away from the deal with her entire down payment.
It's difficult to determine the total number of complaints since there is no central office for the filings, but attorney Adam Leitman Bailey said he is representing between 150 and 200 buyers looking to get out of contracts at approximately 20 projects in the city, claiming that developers did not comply with the full disclosure act.
As previously reported by the New York Times, Lawrence Weiner, attorney at Wilentz, Goldman & Spitzer, is representing approximately 20 buyers at seven or eight condo projects in Brooklyn, Queens and Manhattan, and in the last six weeks, has filed suits against Hakimian Organization's 75 Wall Street, Simone Development's One Hunters Point, and RAL Companies & Affiliates' One Brooklyn Bridge Park, among others. Only RAL responded to requests for comment saying, "the claim is being investigated."
Weiner was behind the December launch of the Web site No-Condo.com, a law firm referral service that helps buyers get out of contracts in buildings where the developer violated HUD regulations.
Weiner has filed each of these cases in federal court as did attorney David Wrobel, partner at Wrobel & Schatz, who went to the Southern District of New York with buyers' complaints against the Laurel in early February. He also filed a complaint against the Chelsea Stratus with the attorney general's office. Jonathan Canter of Kramer, Levin, Naftalis & Frankel, who is representing the Laurel and the Chelsea Stratus, did not respond to a request for comment.
Hundreds of buyers are awaiting decisions about whether they are eligible to revoke their contracts.
Wrobel said that he knew of three instances in the last month where developers simply agreed to the revocation of the purchase agreement and gave buyers' their deposits back, without going to court.
But the issue is complicated, and as D.C. attorney Chasnow notes, there are around 20 exceptions to the rule, which allow developers who failed to present HUD-approved property reports to maintain a contract. The most prominent loophole is that if the developer promised to deliver the property within two years of signing -- and fulfills the promise -- the buyer cannot revoke his or her purchase agreement.
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Comments
Anonymous
Cool story and very helpful. Thank you very much.
Comment #1 Posted By: Anonymous 03/16/09
Anonymous
It's amazing to me that the lawyers that represented the buyers, and reviewed the contract at the very beginning, didn't point out this significant clause of the contract in the beginning. The buyers could have hit the door of the developer on day 731, when maybe there was a deposit left to return without a huge battle. Instead, they have to hire another lawyer to confirm the contracts contents.
Comment #2 Posted By: Anonymous 03/16/09
Anonymous
The second poster is mistaken - it is not IN THE CONTRACT. As the article stated, it is an "obscure law" with "many loopholes." Most lawyers in NYC are unfamiliar with this.
Comment #3 Posted By: Anonymous 03/16/09
Anonymous
lawyers get only a few bucks out of a closing compared to what the broker gets, thats why they dont care, they get paid very little so they move to the next deal asap their due dilligence stinks
Comment #4 Posted By: Anonymous 03/16/09
Anonymous
Actually, third poster is mistaken. The two years obligation to complete MUST BE IN THE CONTRACT as should required disclosures even if property is registered with HUD. This "obscure law" is a federal statute mandated by a federal governmental agency (HUD). Simply because New York developers failed to abide by it doesn't mean it has any less validity or less relevancy. Check out what has happened in Miami the past couple of years with these lawsuits. Way to go No-Condo.com guys.
Comment #5 Posted By: Anonymous 03/16/09
Anonymous
As long as the developer finished the building, contract holders certainly should not be able to back out and leave the developer high and dry because the market dropped. You take a risk buying pre-construction and you have to live with your decision. There's no way in hell these people will be able to back out of the contracts unless they clearly state they can do so. This is very different from Trump's project in Baja California because he isn't even constructing the building, but he's trying to keep the deposits he collected. Both the buyer and the developer have obligations they must keep. There's no way the courts will side with buyers looking to back out because of the down market. The only party making money out of this one are the lawyers the tenants have hired to represent them.
Comment #6 Posted By: Anonymous 03/17/09
Anonymous
The law is clear and the obligation to complete constrction must be present at the time of excution of the contract. The statute does not afford the developer a free option l, meaning the fact that the building was completed within two years has nothing to do with the mandated obligation to promise completion. As for the poster who doesn't believe the courts will side with the buyers I would suggest they look at the case law. There is no case where the courts rule in favor of a developer when they fail to comply. I don't no no condo.com or bailey but I know chasnow and Wrobel and they are experts on this law
Comment #7 Posted By: Anonymous 03/17/09
Anonymous
Having sold new construction, I can tell you that the time frame stipulation appeared in all contracts- whether it was reviewed with the buyer or not is moot, as long as it's there. If it isn't, as stated above, it's not the fault of the buyers- it should have been disclosed. Without a time frame understanding, a developer could take ten years for completion. It may be an obscure law to NY'ers, but it isn't elsewhere- it's commonly understood in states where new construction is common fare.
Comment #8 Posted By: Anonymous 03/17/09
Anonymous
I know that in one of the buildings mentioned, the building was finished within two years of the first contract that was signed, and contracts gave buyers a right of recission if the building was not done in 18 months. How can this law possibly apply in this situation?
Comment #9 Posted By: Anonymous 03/17/09
Anonymous
I hate lawyers, I hate developers, I hate neighbors...I love ice cream...wait, I hate ice cream
Comment #10 Posted By: Anonymous 03/17/09
Anonymous
Bail out
Comment #11 Posted By: Anonymous 03/17/09
Anonymous
#6, Trump did not collect or keep any deposits and he was not the developer of the Baja project. Get your facts straight.
Comment #12 Posted By: Anonymous 03/17/09
Noel Dennis
The article and the posters appear to refer only to revocation of contracts. ILSA not only provides purchasers in contract with an enforceable legal claim to get out of their contract, it provides the same relief to buyers who have closed on their unit, provided the developer is not exempt, has failed to comply with ILSA, and the statute of limitations has not run. This second class of ILSA cases is about to hit the federal courts.
Comment #13 Posted By: Noel Dennis 03/17/09
Anonymous
Hurrah for such activities as No-Condo.com and the lawyers behind it!!!
Comment #14 Posted By: Anonymous 03/17/09
Anonymous
As to comment # 9, the language in those contracts say that the "first closing" has to be within 18 months. It does not say anything relative to a time frame specific to the Unit. The Developers took short cuts. They should have complied with the statute by filing and sending out the required disclosures.
Comment #15 Posted By: Anonymous 03/20/09
Anonymous
Most developers in NYC were anxious to get moving with sales activity, so as to cash in on the boom. Filing with HUD would have slowed them down and let a competitor pick up the Buyers. This was esp. prevalent in FiDi developments, 20 Pine, 75 Wall, 111 Fulton, where the developers were attempting to beat the clock on the 421g tax abatement. They may have captured the abatement, but now are open to exposure under ISLA.
Comment #16 Posted By: Anonymous 03/20/09
Anonymous
Some of you posters are correct. The language is NOT in the Purchase Agreements. Some attorneys request that the language be added in and some developers agree while others do not. Either way it is important to explain to the Purchasers that delays are common and have multiple consequences. The real issue here is that the Purchase Agreements (and all offering plans) are reviewed by the Attorney General's office. Because the AG's office does not require this language in all offering plans and contracts I believe we will see more down payments being successfully returned than any developer would have imagined. Whether or not that is fair to the developers in another matter altogether. I LOVE ice cream!
Comment #17 Posted By: Anonymous 04/08/09
Anonymous
I was told my unit would be ready in April 2008, it is still not ready and I have no firm date for closing. I have been living out of suitcases for over a year now, I am not an investor I merely wanted my home, I am going to contact no-condo.
Comment #18 Posted By: Anonymous 04/22/09
rodney
thought this would interest you
Comment #19 Posted By: rodney 05/17/09
Anonymous
To the lawyers out there---is anyone familiar with cases in which the project was registered under ILSFDA, a Property Report was provided to purchasers, but the disclosures were larded with misrepresentations and omissions for which amendments were never filed or sent to purchasers.
Comment #20 Posted By: Anonymous 06/18/09