The Short And Tricky Statute Of Limitations Framework For Claims Under ILSA

The federal Interstate Land Sales Full Disclosure Act ("ILSA") can fairly be described as a possible "land mine" for condominium developers, owing to the statute's poorly understood exemption provisions which can be and are subject to competing judicial interpretations. The ILSA exemption morass has been at least partly responsible for the large number of lawsuits which have been filed in recent months in Florida courts by buyers alleging claims under the statute in an effort to recover deposits paid under condo purchase agreements.

However, ILSA is not just potentially treacherous from the developer's point of view. Indeed, the statute poses some significant perils for buyers who may have viable claims, and these pitfalls stem from ILSA's unusually short statute of limitations. In judicial parlance, a statute of limitations can sound a "death knell" to the claims of an unwitting plaintiff. See, e.g., Helton v. Clements, 832 F.2d 332, 336 (5th Cir. 1987).

Most, if not all, ILSA claims originate with respect to a written contract for the purchase and sale of real estate. Under Florida law, the statute of limitations for an action on an obligation under a contract is five years. See section 95.11(2)(b), Florida Statutes. And claims under the Florida state condo statute are governed by a four-year statute of limitations. See section 95.11(3)(f), Florida Statutes. But for claims which arise under the ILSA statute itself (and which are not simply for breach of an obligation under the Purchase Agreement), ILSA sets forth shorter limitation periods as follows:

-- 15 U.S.C. section 1703(b): "Any contract or agreement for the sale or lease of a lot not exempt under section 1702 of this title may be revoked at the option of the purchaser or lessee until midnight of the seventh day following the signing of such contract or agreement or until such later time as may be required pursuant to applicable State laws, and such contract or agreement shall clearly provide this right." (emphasis added).

-- 15 U.S.C. section 1703(c): "In the case of any contract or agreement for the sale or lease of a lot for which a property report is required by this chapter and the property report has not been given to the purchaser or lessee in advance of his or her signing such contract or agreement, such contract or agreement may be revoked at the option of the purchaser or lessee within two years from the date of such signing, and such contract or agreement shall clearly provide this right." (emphasis added).

And with respect to lawsuits brought to enforce rights under ILSA, the statute provides a three-year statute of limitations -- either running from the date the contract was signed, or from the date the discovery of the ILSA violation was made, depending on which right under ILSA is being asserted. See 15 U.S.C. section 1711.

ILSA's statute of limitations framework is not only on the short side, but also confusing on its face. In particular, the two-year revocation window under 1703(c) would seem to be at odds with the three-year period to bring an action provided under 1711. The confusion stems from the fact that in its original form, ILSA provided a two-year (not the present three-year) limitations period for actions. One Florida court has gone so far as to label the apparently conflicting provisions as "rather incongruous." Ni v. Deltona Corp., 701 So. 2d 888, 889 n.3 (Fla. 5th DCA 1997). To date, I have not seen an opinion which adequately reconciles these provisions of ILSA.

Apart from the confusion inherent in ILSA, Florida condo buyers could reasonably be under the impression that all rights which they may have under their Purchase Agreements are governed by statutes of limitations longer than three years. That may be true for state law contract claims (five years) as well as claims under the Florida condo statute (four years), but for claims specifically under ILSA, the limitations period is undoubtedly shorter, and buyers should be careful not to waive rights which they may have and wish to pursue.

Realtors - Why Your Client Needs A Real Estate Attorney

In an effort to save money your clients may choose to forgo legal representation in their sale or purchase of real property. However, the lack of competent legal representation in the sale or purchase of real estate could not only cost your client more money in the long run, it could also jeopardize the entire transaction. An experienced real estate attorney helps facilitate the closing, working with all the parties involved- mortgage brokers, realtors, buyers and sellers- to ensure the smooth closing of the transaction. In my experience, there are four main reasons why your clients should hire a real estate attorney to assist with their transactions:

1. To Review the Contract Before Execution

Simply put, your client should not sign the contract until his/her lawyer has reviewed it. If the parties are in a time crunch- simply put the words "Contract subject to review by [party]'s attorney" and include a reasonable time frame. The other party will see that your client is serious about the sale/purchase and it will allow extra time for the attorney to review the contract. You may find that your clients are comfortable signing the contract if it is printed on a standard form.

However, I have seen standard form contracts where the costs of title insurance were incorrectly allocated, financing contingencies unknowingly waived, and inspection periods extending beyond the date of closing. Mistakes happen. At a minimum, the attorney serves as a second pair of eyes, trained to catch errors and potential issues that may arise from the contract terms.

2. To Review and Clear Title

Having an attorney on board early in the deal will also assist with any title issues that may later arise. Even a small issue, such as an unreleased prior mortgage, appearing at the last minute can delay the closing for the transaction. Your client's attorney will be on the look-out for any possible title issues, and plan ahead, obtaining satisfactions, releases, corrective deeds, probate approval, powers of attorney, etc. in a timely fashion.

Also, a real estate attorney is trained to review and understand the title commitment, which is prepared by the Buyer's attorney or title company. In transactions where I have represented sellers I have seen (and corrected) inaccurate title requirements that were unnecessary and would have caused the seller an undue burden and increased expenses. In such an instance it is essential to have a real estate attorney to communicate with the title company, the title insurance underwriter, and/or the buyer's attorney to clarify and amend the commitment. When your client is the buyer, having an experienced real estate attorney prepare your title commitment is both cost and time efficient- a correct title commitment needs to be prepared only once.

3. To Monitor Contract Dates and Requirements

The experienced real estate attorney will monitor the contract critical dates for the buyer's deposits, as well as all contract contingencies such as the inspections and financing. Missing a deadline can result in financial losses for the parties, including a potential loss of deposit or loss of the whole transaction. Simple matters such as calculating calendar days versus business days may make all the difference in some transactions. A party may try to use a missed deadline in order to avoid the contract or to make unreasonable demands on the other party.

Further, if the other party defaults, the attorney will address it properly, both representing your client's interest and working to salvage the deal. An experienced real estate attorney will keep your client's interest paramount, and will focus on meeting critical dates and requirements per the terms of the contract.

4. To Verify Property is Deeded Correctly

When most people purchase property they are not thinking about when they will be selling it. However, the experienced real estate attorney looks at the buyer's specific objectives when purchasing the property, making sure that the property is deeded correctly so when the property is sold in the future there will be no surprises. Your client's attorney will review and/or prepare the warranty deed and legal description, checking it for accuracy.

In addition, the different ways to title the property, affecting your client's real estate taxes and estate planning must be considered. Whether the parties want to be tenants in common or joint tenants with rights of survivorship, consequences of deeding the property individually, versus in the name of a company or trust, are all matters that should be determined well in advance of the closing. Incorrectly deeding the property at closing will cost your client more money later when the deed is corrected, including additional attorney fees, documentary stamps and county recording fees.

Fearing the cost of a hiring an attorney, many clients may try to handle their real estate transactions without one. However, your client may not realize that many real estate attorneys work on a flat fee, and are able to provide them both a fee and cost estimate before beginning any work. Advise your clients to hire an experienced real estate attorney, and let them know that they can request the fees and costs up front.

Land Contracts - Buy Or Sell A Home With No Bank Or Mortgage

In many cases, home buyers are in a financial position to afford the monthly payments associated with home ownership, but they lack the down payment necessary to purchase a home. Or the buyer's credit score or rating may prevent him or her from obtaining the traditional bank or mortgage company financing required for the purchase of a home. When this is the case, it often makes sense for the buyers to consider purchasing a home or piece of real estate and have the owner/seller provide the financing for the purchase - called a Land Contract or Contract for Deed.

Likewise, selling a home by way a land contract can prove beneficial to the seller in many ways. Selling property with a land contract can provide a quicker and more inexpensive way for the property owner to sell the property - the seller does not need to comply with the often rigid and tedious guidelines of bank financing and the delays that often accompany those guidelines. Likewise, real property sold on a land contract can often be priced higher than sales with bank financing since the seller provides the all-important financing and the buyer is often times not required to come up with a large down-payment, thereby permitting a higher asking price for the property.

So how does a land contract work?

Land contracts are common throughout the United States. In some states, they are called Trust Deeds, Contract for Deed, Deeds of Trust, Notes, or (privately held) Mortgages, but they all represent the same thing: a way of selling property where the buyer "borrows" from or relies upon the seller for the financing rather than paying cash up front or borrowing from a bank.

The process is generally as follows:

The seller and buyer enter into a contract that normally states that the seller shall transfer ownership of the property to the after the buyer has fully paid the seller the agreed upon purchase price. In most cases, the contract requires the buyer to make a modest down payment and then to make monthly payments over time. The land contract can require the buyer to pay the seller interest on the money owed (just like a bank would). Also, because the buyer and seller privately negotiate and reach their own sales terms, the contract can also call for smaller monthly payments - beneficial to the buyer - and then a balloon payment to be made at some certain period of time; this balloon or lump sum payment will pay the balance of the purchase price for the property.

During the term of the land contract (i.e. while the contract is in force and effect, the buyer is not in default and until all of the payments are made), the buyer holds legal possession of and occupies the property. The land contract can call for transfer of the property once the seller has received all of the required payments or can call for the transfer at some time sooner, with the seller then holding a mortgage on the property to ensure that the balance of the purchase price will be paid in full. Whatever the terms agreed upon for transferring ownership, when the agreed upon transfer date is reached, the seller tenders (or gives) a deed to the property to the buyer who then records the deed in the county recorders office or the real property office of the county where the property is located.

While the benefits of land contracts are many, there are some potential pitfalls to a land contract that the parties must be aware.

If the buyer misses any payment under the land contract, he or she may lose the property (the right to have the deed transferred to him) and the seller may keep the money paid up to that point as rent. Thereafter, the seller would not be required to transfer the deed to the buyer.

Some states have laws providing that if a buyer makes a majority of the payments under a land contract (which cover a large percentage of a purchase price of the property), the seller may not be able to keep or refuse to transfer the deed if the buyer can make payments on the contract price at a later date (known as the right of redemption). Your state laws should be reviewed.

A disadvantage for the buyer can be found when the seller has a mortgage on the property that the buyer is purchasing and the seller does not payoff existing mortgages by the time the buyer pays the entire purchase price - thereby causing the property to subject to foreclosure. The buyer should determine whether or not any mortgages exist on the property being purchased and then require the seller to pay off all mortgages prior to the final payment being made - but if the seller does not, the buyer should be aware that he or she may be required to pay off the mortgages.

Expert Witness Testimony for Real Estate

Expert witness analysis and testimony provides both the parties information to settle prior to the actual judicial proceeding. When settlement negotiations are not successful, expert witness testimony provides the trier of fact (judge or jury) information to consider in making their decision. Expert witness testimony is a subset of litigation support services. The expert witness' primary responsibility is to develop and support a credible opinion of value. The standard of care for expert witness assignments is substantially higher than for typical valuation assignments. Both opposing counsel and the expert witness representing the other party will likely carefully review and scrutinize the expert's underlying data, analysis and final report. Expert witnesses who develop an opinion of value which is unreasonable tend to cause cases to unnecessarily proceed to trial.

The higher standard of care appropriate for expert witness assignments extends through all phases of the assignment. The expert should precisely determine the scope and purpose of the assignment. This includes the letter of engagement, scope of work, research, report preparation, deposition and trial testimony, and preparation for deposition and trial testimony. All data needs to be researched and verified. In many cases, even if sales data has been previously confirmed, it will be verified a second time for the expert witness assignment. Even if the factual data regarding a comparable sale is accurate, issues relating to the motivations of the party can be meaningful. For example, if a purchaser was anxious to purchase it a property because they own the adjacent property, this could artificially influence the sales price. If an expert witness was unaware of such a fact, it could undermine their credibility during a deposition or at trial. The calculations and thought process for the analysis need to be checked and double-checked, as do the report. The expert needs to carefully prepare for both deposition and trial testimony.

Appraisers sometimes believe that preparing a voluminous narrative appraisal, totaling perhaps 200 pages, which effectively documents their opinion is helpful for litigation. However, it is virtually impossible to prepare a voluminous document without overlooking minor errors. For this reason, is typically better to summarize the data and opinion instead of presenting them in a voluminous report. Preparing a summary report also helps to reduce the cost of an expert witness engagement. While it is important to carefully research the facts and perform a thorough analysis, there is little benefit to preparing a voluminous report.

It is imperative that the expert witness understand that the objective of opposing counsel is to discredit the witness and their testimony. Any aspects of the experts' opinion, data, analysis or testimony which does not appear to be reasonable provide opposing counsel an excellent opportunity to discredit the expert witness. Typographical errors and minor math mistakes can be effectively utilized to undermine the expert witness's credibility. If the expert has made a mistake, he should promptly admit it. While all people make mistakes, those who deny them lose credibility.

The expert witness needs to be an advocate for their analysis and opinion, not for their client. Novice expert witnesses sometimes succumb to pressure from clients or other parties to develop an opinion which is not reasonable, credible or supportable. While this approach initially appears helpful to the client, it does not typically provide meaningful assistance to legal counsel or the client since it is not credible evidence for trial. Therefore, it is not efficacious for resolving litigation. In addition, opining an unreasonable opinion has a deleterious effect on the reputation of the expert witness. Expert witnesses who provide legitimate and credible opinions of value provide a meaningful benefit to their clients, counsel and the judicial process. Most cases settle when the experts provide a well-supported analysis.

A credible expert witness who is properly prepared to document and articulate a credible opinion is an integral part of the team necessary to resolve cases before trial or win at trial. In some cases, it makes sense to initially hire the expert witness as a consulting expert. If the expert's opinion is not consistent with what counsel is hoping to receive, the opinion and/or report does not have to be provided to opposing counsel. Legal counsel and the expert witness need to directly discuss the strengths and weaknesses of the case. Although a credible report may not comply with the exact preference of the party or counsel, it is an effective method to provide counsel with the insights they need to effectively resolve the case.