Enforcement of the Interstate Land Sales Full Disclosure Act (“ILSFDA”) Shifts to the Bureau of Consumer Financial Protection

On July 21, 2011, enforcement of the Interstate Land Sales Full Disclosure Act (“ILSFDA”) shifted from the Office of Interstate Land Sales Registration (“OILSR”), previously a sub-agency at the Department of Housing and Urban Development (“HUD”), to the new Bureau of Consumer Financial Protection (“CFPB”) under the Department of Treasury.  The CFPB was established by the Consumer Financial Protection Act of 2010 (“Dodd-Frank Act”), and will now be responsible for enforcing the ILSFDA.   The functions that were previously performed by the OILSR are now disbursed among at least six (6) new divisions.  The CFPB was created to enhance consumer protection and provide transparency in the financial and housing markets and to allow for more effective regulation of such areas in the future.  It is a direct result of the financial meltdown and the collapse of the housing bubble that occurred over the past few years.  It is anticipated that the staff will exceed 300 employees with a larger, more effective, enforcement division.   Peggy Twohig will head the new division of the CFPB dealing with the ILSFDA and at least two prior staff members of the OILSR, Dennis Weipert and William (Bill) Thomas, will accompany Ms. Twohig to the new division.

Although little is known at this time in regards to the status, if any, of any new ILSFDA regulations or guidelines that may emerge from the CFPB, what has been made clear by the CFPB is that the ILSFDA Guidelines created by the OILSR, which previously had been used by developers to understand the OILSR’s positions on ILSFDA registration and exemption matters, are now dormant.  The CFPB has yet to install its own set of ILSFDA guidelines leaving important ILSFDA questions unanswered at the current time such as its view of piggy-backing ILSFDA exemptions, applicability of ILSFDA to parking spaces, storage spaces, and roof terrace units, as well as other  pressing ILSFDA issues.  The transition is occurring now and how registrations and exemptions will be viewed and reviewed will start to surface as the process evolves.  Assuring accurate compliance with the existing ILSFDA Regulations which remain in effect are the best way to avoid problems during the transition.

Considering the significant number of ILSFDA cases that have been litigated over the past several years, the CFPB may bring a fresh look at ILSFDA registration and enforcement issues, however, it is recommended that any developer with over 25 lots or units that could subject them to regulation under the ILSFDA, keep apprised of new developments coming from the CFPB in the coming months.  As always, Carmel & Carmel attorneys will impart unto its clients any relevant changes this new agency makes to existing ILSFDA registration or exemption protocols.  We do expect some delays while the mechanics of the CFPB as it applies to the ILSFDA are worked out; however, we will not let them have any major impact on our existing clients.  We welcome communication from our clients with respect to issues and concerns they have with the ILSFDA so that we can bring these concerns to the forefront as we engage in discussions with the new agency.  Additionally, there will likely be opportunities to provide commentary and suggestions to possible regulatory changes that may be considered by the CFPB.  If any of you have any interest in that regard, Frank Carmel and Sam Rothman of our office will be interfacing with the CFPB on that topic in the near future.

We recommend that all developers take a new look at the ILSFDA compliance program currently in place at their community to ensure that the property has either been properly registered under the ILSFDA with a current Statement of Record and that the developer continues to distribute an up-to-date Property Report, or that the community meets the exact requirements of any ILSFDA exemption. In light of increased attention being paid to protect consumers, we strong urge all residential developers (i.e. original developers, builders, successor developers, etc.) to make sure their sales are ILSFDA-compliant or risk suffering rescission actions or CFPB enforcement actions in the future. 

If you have any questions concerning the CFPB or if you would like to discuss ILSFDA compliance issues with someone in our office, please contact Frank Carmel at fcarmel@carmel.us or 202.237.1775.