Condominium Sales by Developers: Regulatory Relief May Be Coming

On September 26, 2013 the US House of Representatives unanimously pass H.R. 2600, a bill drafted to amend the Interstate Land Sales Full Disclosure Act (15 USC 1701 et seq.)(the “Act”) to clarify how the act applies to condominiums. The bill is now pending before the US Senate and was referred to the Senate Committee on Banking, Housing, and Urban Affairs but no hearing or committee vote has been scheduled yet.

If passed, the bill would provide some welcome regulatory relief for developers by exempting condominium developments from the Act.  The Act was created to address the sale or lease of lots in a subdivision through the use of interstate commerce or the mail. The Act was never intended to cover condominium units, which are legislated by the state in which the project is located. However, the regulations currently in place under the Act include a definition of “Lot” that can include a condominium unit and courts have held the same.

This means, a developer, unless it meets certain narrow exceptions, has to meet very specific disclosure requirements, both before the purchase contract is signed and before closing, and must also register the condominium project with the Consumer Financial Protection Bureau (the “CFPB”), a bureau created as part of Dodd-Frank.  If the developer doesn’t satisfy the requirements, a buyer would have certain revocation rights.    

If the bill is ultimately passed by the Senate and becomes law, a lot of developers will be a bit happier. It might also make it a bit easier to find lenders willing to lend on the purchase of a condominium unit.


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