New ILSA amendment promises to end exploitation of the legislation.

In late September, President Barack Obama, responding to years of criticism, signed into law an amendment to the longstanding Interstate Land Sales Full Disclosure Act, known more commonly in the real estate industry as ILSA.

The bill, originally enacted in 1968, was structured around a single premise: to protect consumers from land sale scams, particularly regarding swampland. In the decades following the law’s passing, however, the requirements levied against unscrupulous developers have since bled over to condominium developers.

Of the ILSA disclosure requirements relative to condo development, many are already requirements under state guidelines, and for those that aren’t, it’s because they’re simply no relevance when it comes to condos in an urban context, such as having to disclosed the area’s topography and soil erosion levels.

In South Florida, the amendment is being heralded as a major victory for condo developers. According to the new legislation, developers of condos containing 100-plus units will no longer be required to register with the federal government and will furthermore be exempt from ILSA disclosure requirements.

A Once Powerful Weapon

In 2008, immediately following the financial crisis, a surge of buyer-filed lawsuits flooded courtrooms, many demanding the cancellation of contracts and deposit returns. Adam Leitman Bailey, a real estate attorney who stood at the forefront of buyer litigation at the time, recently defended the use of ILSA by buyers in an interview with The Real Deal.

“In the time of the nation’s greatest real estate crisis, ILSA provided a surprise weapon causing developers to discount prices on newly constructed units, to either allow purchasers to receive enough of a discount to be able to close on the unit after lenders pulled the original loan, or it allowed purchasers who no longer afford the home to be able to terminate the contract,” he said.

Eventually, after the foreclosure levels dwindled and home prices showed signs of long-term stabilization, courts, as well as Bailey, acknowledged the legislation had become more a means of channeling buyer’s remorse than anything else.

A Simple Fix

With the alterations to ILSA, condo developers are breathing easy. While the legislation still applies in regards to consumer protection, ensuring that buyers still have a legal defense in an instance of actual fraud, the senate’s amendment will effectively end the exploitation of the long misunderstood law.

The new ILSA will work to distinguish different types land sales, particular in regards to condos, in order to avoid the application of erroneous requirements. Experts hope the change will loosen the restrictions on condo sales and provide more stability in the long-run for developers, which, according to The Real Deal, is especially important as nearly 35,000 new condo units have been announced since 2011.