HUD and States Stepping Up Enforcement of Land Sales Registration Laws


The legal landscape is shifting with respect to the regulation of out-of-state subdivisions and condominiums.  For example, while Michigan recently repealed the regulations that required developers to register out-of-state properties, HUD and other states are seeing an increase in consumer complaints and have stepped up compliance reviews and enforcement actions against developers.  When examining the requirements of establishing and maintaining a national marketing campaign, being up to date on the federal and state regulations and review process is more crucial now than ever. 

 

On April 22, 2010, Michigan passed two bills repealing the Land Sales Act and Section 2511 (2) of the Occupational Code, both of which regulated the sale of out-of-state land to Michigan purchasers.  This means that registration with the State of Michigan will no longer be required for developers of properties located outside of Michigan marketing to Michigan residents.  Michigan is now considered an “open” state, and we will no longer be filing any registrations, renewals or amendments in Michigan.  As the result of the repeal, Michigan does not require a broker to market and sell property outside of Michigan so long as the transaction takes place outside of the state.  However, if you engage in a transaction within the state of Michigan (which may apply to participation in trade shows, etc.), you will still be required to facilitate the contract through a Michigan broker.  Therefore, if you plan on taking part in any events or shows in Michigan, you may still have to utilize a Michigan broker.  We continue to maintain relationships with Michigan brokers and should you intend to have a presence in Michigan or wish to send contracts to purchasers in Michigan, you should contact our office for an analysis of the proposed activity.  Please note that Michigan still has various consumer protection laws which regulate the type of offerings that may be conducted including laws pertaining to sweepstakes, lotteries, and similar promotional techniques.  As such, if you plan to engage in any type of creative offerings to Michigan residents, the nature of the promotion should be evaluated in advance of making the offers to them.  

 

Although Michigan is scaling back its jurisdiction over out-of-state offerings, HUD and several “closed” states have moved in the opposite direction by stepping up enforcement efforts and compliance reviews.  Based upon the level of review and comments we have received from HUD examiners, it is now more than ever imperative that you ensure your HUD property report and/or any state disclosure document you currently have in place are accurate and up to date.  Simple changes, such as a change in a developer’s address, may be flagged as a “material change” (one requiring disclosure) by a purchaser who is looking to rescind his or her contract and this may receive sympathy from HUD.  Even if you are relying on an exemption from ILSA, experienced counsel should regularly evaluate the basis of your ILSA exemption, since qualification for an ILSA exemption continues to be an active source of new case law in the courts.  

 

In addition, states such as Connecticut, Illinois, New Jersey, and New York remain more vigilant than ever in their enforcement efforts and in their review of submissions.  For example, the Wall Street Journal recently reported that the New York Department of Law (the agency that reviews in-state and out-of-state offerings of homeowners associations and condominiums) saw a 182% increase in the number of escrow dispute complaints from 2008 to 2009.  These disputes arose when consumers who purchased condominium units or homes demanded a return of their deposits held in escrow.  The Real Deal also reports that the New York Attorney General’s office has been very busy in 2009 and 2010 fielding consumer complaints and in a number of instances ruling that developers must refund purchaser deposits due to omissions or misrepresentations made in sales documents and during the sales process.  

 

Whether you are contemplating reaching out to consumers in Connecticut, Illinois, New Jersey, or New York or already have state registrations in place, you should be aware that regulators in these states are monitoring the communities, condominiums and developers that market in their jurisdictions.  In particular, escrow agreements, preliminary plats, and assurances of completion for infrastructure and amenities which may have been acceptable in the past are currently evaluated with intense scrutiny and with the best interest of the consumers in mind.  Given the current economy, we have seen a trend of the states going above and beyond in their efforts to provide protection and complete  disclosure to their consumers.   

 

If you do not have current registrations in place and have considered reaching outside of your local markets, you should contact Carmel & Carmel attorneys for further information, since follow up in a “closed” state can be problematic for developers marketing with a national campaign.  And of course, for current registrations, it is imperative that renewals and amendments be timely filed to keep the registrations in good standing.  For further information regarding the information in this article or to discuss your legal compliance needs, please contact Frank Carmel (fcarmel@carmel.us or (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.