Fall Sales Season is Right Around the Corner: Are You in Compliance?

Did you know that 31 states have specific land sales registration requirements that must be complied with before contact with these states’ residents can be made?  As we begin the summer and start preparing for the fall and snowbird selling seasons, it is important to know the state registration requirements in addition to federal laws like the Interstate Land Sales Full Disclosure Act (“ILSA”).  Whether your marketing team participates in upcoming real estate shows or not, in order to have any contact with consumers in these states with registration requirements, a state registration or compliance through an exemption is required. 


States with land sales registration requirements are often referred to as “closed states” for sales and marketing purposes.  Closed states include (but are not limited to) markets which contain the most promising prospects: New York, New Jersey, Massachusetts, Illinois and Connecticut.  This means that prior to any contact with residents in any closed state (including emails, calls, direct marketing and mail or any other means), developers must have a registration or confirmed exemption in place prior to making contact with closed states’ residents.  Otherwise, developers are vulnerable to potential rescission lawsuits, fines and penalties that can be quite costly.  We are beginning to see an increase in claims by plaintiff attorneys using these state registration laws to get their clients out of contracts or alert state regulators of potential violations, which is enough to spark an inquiry or an investigation by a state.  In some cases the statute of limitations for these state violations extends longer than ILSA’s.  For example, in New York, a purchaser can bring an action up to six years from discovery of a violation.  And, of course, this applies to sales of units or lots that have already gone to settlement which can increase the cost of any remedial requirements.


To reach out and directly contact potential purchasers in these lucrative but “closed” markets, developers must first register their communities in these states.  Most closed states have disclosure document requirements in addition to any HUD Property Report (if you have one), as well as escrow and broker representation requirements.  In addition, an exemption from ILSA does not mean you are exempt from specific state registration requirements.    


One extremely effective source of lead generation has been attendance at real estate shows such as the Live South shows sponsored by Ideal Living Magazine (www.livesouth.com) which frequently take place throughout the fall and winter seasons in locations including New York, Massachusetts, New Jersey, Connecticut and Illinois.  All of these jurisdictions require prior registration or qualification.  Many closed states also have deadlines and any submissions after the deadline will not be considered.  To ensure your ability to attend these shows, now is the right time to begin securing your state registrations.   


States continue to pursue enforcement of these laws and we have recently seen state regulators search the Internet for press releases and local news stories about developers and their financial situation and consumer complaints.  Based on this trend, we would not be surprised if state regulators increase their attendance at shows beginning this fall or call properties advertising in their state to “shop” the market for violators.  Failing to register when a state regulator attends a show or otherwise violating these regulations could result in an enforcement action including the issuance of fines or cease and desist orders.  


If you are a developer who has state registrations in place, you should confer with counsel to make sure all disclosure statements are accurate and up to date, your purchase agreements are up-to-date and that you are in good standing with all state-specific registration requirements.  


If you are a developer that does not have any state registrations in place and you believe you will want to attend real estate shows or respond to inquiries from prospective purchasers in a “closed” state, you should confer with counsel to get into compliance and have scripts for your sales staff so you do not inadvertently make an offer in a closed state.   


The attorneys at Carmel & Carmel have more than 30+ years experience with HUD and state land sales regulations and can ensure you are in good standing with these regulations so you can focus on making new sales.  As summer begins developers should take the time to review their marketing plans and contact us to assist in evaluating state registration compliance.  We would rather help you comply now than be called in to assist you in defending against consumer complaints, state or federal inquiries, or rescission lawsuits at a later date. 


For more information, you can reach Frank Carmel via e-mail at fcarmel@carmel.us or at (202) 237-1700. 


This article does not constitute legal advice or the formation of an attorney-client relationship.  Republication of this article without express permission of Carmel & Carmel P.C is prohibited.