Daily Development for Friday, August 18, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

INTERSTATE LAND SALES; REMEDIES; RESCISSION: A buyer's timely rescission of a residential sales contract under the Interstate Land Sales Full Disclosure Act entitles the buyer to a full refund of the purchase price if the purchaser reconveys the residence = in a condition substantially similar to the condition of the home when the purchaser first acquired it, without any offset to account for time the purchaser lived in the home before rescinding the contract.

Engle Homes, Inc. v. Krasna, Case No. 4D981672 2000 WL 232616 (Fla. 4th Dist. Ct. App., March 1, 2000) .

The developer in this case sold a custom home to the plaintiffs under a contract obligating the developer to build the residence within two = years. The contract did not meet the requirements of the improved lot exemption under the Interstate Land Sales Full Disclosure Act (15 = U.S.C. =A7 1702), in that the contract limited the purchaser's remedy for the = seller's default to liquidated damages.

The Act and the related regulations administered by the Department of Housing and Urban Development provide that any contract for the sale of a lot which is not exempt under the Act may be revoked at the option of the buyer until midnight of the seventh day following the execution of the contract (or any longer time required under applicable state law), = and the contract must clearly provide the revocation right. (15 U.S.C. =A7 1703(b); 24 C.F.R. =A7 1715.2) In this respect, too, the developer's contract failed to comply with the Act. Among the remedies provided to a buyer of a lot sold without compliance with the Act is the right to rescind the sales contract within two years after the date the contract = is executed. (15 U.S.C. =A7 1703(c); 24 C.F.R. =A7 1710.105(d)(2)(i)). However, the Act provides that no action may be maintained to enforce the rescission rights under Sections 1703(b) and (c) unless brought within three years after the signing of the purchase contract. (15 = U.S.C. =A7 1709 (b))

More than two years, but within three years, after signing the purchase contract, the buyers learned of their seven day rescission right from a neighbor. The buyers tendered the lot to the developer 31 months after the execution of the contract, with a demand for a full refund of the purchase price. The trial court granted the buyers summary judgment.

On appeal, the developer argued (i) the buyers were not entitled to = relief because they failed to rescind the contract within seven days; (ii) the buyers had not proven their damages, and, even if they had, the remedy of rescission was not warranted; and (iii) the buyers had waived their right to rescission, or, even if they had not, the developer was = entitled to some offset against the purchase price, in light of the buyers' = enjoyment of the residence for almost two years.

The appellate court affirmed the trial court's summary judgment, apparently without hesitation, in light of the plain language of the = Act. First, the buyers acted within the three years limitation to bring an = action for violation of Section 1703(b) of the Act. Second, the court = reasoned that the buyers could not waive the right of rescission since they did = not know of the right. Third, the Act is clear in providing that a buyer entitled to rescind a contract is also entitled to repayment of all = money paid under the contract if the residence is tendered in a condition substantially similar to the condition of the residence at the time the buyers bought the property. In short, the court declined to come to the = aid of a developer who failed to follow the Act and then sought to limit = the remedies plainly provided by the Act.

Comment 1: The court does not address the apparent conflict between the two years to rescind set forth in Section 1703(c) and the three year = statute of limitations on the right to rescind described in Section 1711(b), = even though that conflict would appear to be implicated under the facts of = this case. In both statutes, the statutory language is more encompassing = than the narrow facts of this case, but some analysis would appear to be warranted. The court describes the case as one "of first impression," = but it is not clear what aspects of the decision fit that description.

Comment 2: Note that there are many home construction deals that might fit within this provision of the Interstate Land Sales Act. In = communities such as the editor's, where there is a bistate metropolitan area, = lawyers ought to pull out the Act routinely whenever they represent a new home buyer with remorse. One never knows what one will find.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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