This post was written by Meredith Hartley and Robert Diamond.
On January 14, 2013, the Fourth Circuit Court of Appeals held that liability under the anti-fraud provisions of the Interstate Land Sales Full Disclosure Act (“ILSA”) extends to an entity that engaged in advertising or marketing activities in the course of a transaction covered by ILSA, even though the entity was not a party to the challenged real estate transaction. Enacted in 1968, ILSA was intended to regulate land sales where infrastructure was not yet in place to prevent shady developers from defrauding consumers. The classic situation was Florida developers selling swampland to northerners sight unseen.
In the case of In re Total Realty Management (2013 WL 142069; January 14, 2013), a case of first impression, the court analyzed the statutory language and the legislative history of the anti-fraud provision and concluded that the definition of “developer” under ILSA encompasses entities that sell or advertise for sale properties in covered subdivisions. This ruling is the latest holding in a continuing expansion of what entities fall under ILSA’s definition of “developer.” District courts in the Fourth Circuit have found that other participants in the marketing effort, particularly those who lent their “prestige and good name to the sales effort,” can be held liable as a “developer” under ILSA despite the fact that such entities are not part of the sale transaction. (See, e.g., Nahigian v. Juno Loudoun, LLC, 684 F.Supp.2d 731 (E.D. Va. 2010).)
Remedies for non-compliance under ILSA include both a two-year right to rescind the purchase and damages.