Federal judge rules District condo buyers can get deposits back in landmark ILSA ruling

By David Jones | August 11, 2010 10:30AM

Expert says developer Lev Leviev has little chance of winning on appeal

Lev Leviev and the District at 111 Fulton Street (building source: PropertyShark)

In a landmark ruling, a federal district court judge ruled that developer Lev Leviev must return deposits to three buyers at the District condominium after he failed to register the property under the Interstate Land Sales Full Disclosure Act. 

The case marks the first time that a federal judge awarded rescission in a New York ILSA case since the global credit markets collapsed in 2008, and the first such ruling in more than 20 years. Experts say the case could swing the legal pendulum away from developers in several significant cases. 

“There are numerous pending cases not only in the Southern District [which covers Manhattan] but the Eastern District [including Queens and Brooklyn],” said Lawrence Weiner, attorney for the buyers. “Here you have Judge [George] Daniels who reiterates and reconfirms that ILSA does apply to condos and with respect to this specific condo they are not exempt.” 

The case involved three buyers, Steve An, Hoang Bui and Angelika Schubert, who brought separate suits against the developer alleging he failed to file property reports for the 163-unit condo at 111 Fulton Street and sought to get their deposits back. 

An deposited 10 percent on an $820,000 unit in August 2007, Bui deposited 10 percent on a $750,000 unit in March 2008, while Schubert deposited 10 percent on a $1.49 million penthouse in May 2008. 

After launching sales in June 2007, the District offering plan listed a projected first closing date of April 1, 2008, and a rescission date of 12 months later, a common window that allows for construction and regulatory delays. Under ILSA, however, the developer is able to claim an exemption from the law based on a so-called two-year exemption, meaning the units must be ready two years from the contract date.  

Daniels ruled that the developer failed to register the property with the Department of Housing and Urban Development, which is required, and failed to disclose the two-year exemption when the buyers signed their contracts. 

“We respectfully disagree with the decision of the honorable judge,” Yevgeny Tsyngauz, a lawyer for the developer, told The Real Deal. “We hope that the Second Circuit Court of Appeals will agree with our position.”

Attorney Andrew Weltchek, who was not involved in the case, said Leviev has little chance of winning on appeal, but that other pending ILSA cases will be decided based on the strength of their exemptions. 

“There are several possible defenses for a sponsor who doesn’t think he has to return the down payments,” Weltchek said. “Those were not present in this case and will be decided in other cases.”