Three buyers, led by “Royal Pains” actress Anastasia Griffith, have won the right to get their deposits back at 80 Metropolitan Avenue in Williamsburg.
U.S. District Court Judge Andrew Peck ruled that developer Doug Steiner’s Steiner Studios failed to register the 123-unit condominium, and was not exempt from the Interstate Land Sales Full Disclosure Act despite selling less than 100 apartments at the property.
“When plaintiffs… signed their purchase agreements, the condominium was publicly announced as consisting of 123 units,” Peck wrote. “Therefore the condominium was not exempt from ILSA registration and disclosure provisions under the 100-lot exemption unless 24 units were exempt at that time.”
ILSA is a federal consumer protection law that requires newly built condos of 100 or more units to register with the Department of Housing and Urban Development. The law allows buyers to get refunds on their condo deposits when developers either fail to register or commit fraud in the sales of these units.
Griffith — who previously starred on the FX television series “Damages” and the NBC series “Trauma,” before starring on the USA Network TV series “Royal Pains,” — entered a November 2007 contract to buy a one-bedroom apartment at the building for $575,000 and filed suit to get out of her contract in November 2009.
Philip Schatz, lawyer for the buyers, said the developer didn’t even register for ILSA prior to launching sales and tried to claim an exemption at the last minute.
“Basically it was one of these deals they weren’t in compliance with ILSA at the time anybody signed their contract but they said down the road we’ll comply,” Schatz told The Real Deal. “They didn’t have a written plan in place.”
Lawyers for the developer blasted the decision and said they plan further legal challenges.
“We believe the decision is deeply flawed, not supported by the statute itself and is contrary to the manner in which HUD has interpreted the statute,” said Starr Associates attorney Evan Scheiber, who represented the developer in the case. “We are confident that the decision will be reversed on appeal.”
Hundreds of buyers have filed suits under ILSA to get refunds on their condo deposits in recent years, and critics allege they are using ILSA as a loophole to back out of contracts because the values on their units have dropped or they can’t get financing. Lawyers for many of these buyers counter that many developers either didn’t know or skirted around the ILSA requirements because they were under pressure to sell more units in a weak real estate market.
Earlier this year, a federal district court ruled that the developers at Harlem’s Fifth on the Park condo at 1485 Fifth Avenue qualified for the so-called 100-lot exemption from ILSA, because they sold fewer than 100 apartments. However several legal experts argue developers must announce before the units go on sale that they intend to sell fewer than 100 units in the first phase of sales to get an exemption.
Attorney Andrew Weltchek, who has represented developers and buyers in new condos, but does not have any clients involved in this case, said this ruling shows the Fifth on the Park decision was erroneous.
“I think the judge in the 80 Metropolitan case really lays it on the line,” Weltchek said. “All the arguments [by developers] that ‘we really didn’t know [about ILSA]… are just complete nonsense.”
However, attorney Bruce Lederman, who represented the developer in the One Hunters Point ILSA case in Long Island City, countered that this case does not overrule the Fifth on the Park decision.
“We believe the ruling is correct in the Fifth on the Park case and the Hunters Point case,” he said. “Until the Second Circuit reverses, I believe that’s the correct interpretation of law.”
Steiner and Griffith were not immediately available for comment.