Rensin v. Juno-Loudon, LLC - ILSA case rejecting Bodansky decision


Contact - Aaron Eidelman 

Rensin v. Juno-Loudon, LLC, 2010 U.S. Dist. LEXIS 30621 (E.D. Va. Mar. 30, 2010),

Related proceeding Nahigian v. Juno-Loudon, LLC, 2010 U.S. Dist. LEXIS 30610 (E.D. Va. Mar. 30, 2010) 

 

In what appears to be a well-reasoned decision, a Virginia federal district court specifically rejected the Bodansky court’s recognizing future sales to qualify for exemption eligibility when ruling on the defendant developer’s motion to dismiss.  In Rensin v. Juno-Loudon, LLC, 2010 U.S. Dist. LEXIS 30621 (E.D. Va. Mar. 30, 2010), the plaintiff entered into a contract to purchase a lot in a one hundred sixty four (164) lot development that was not registered with HUD.  The purchaser brought an action for rescission and for damages. The developer argued that the development fell within an exemption to the ILSA and moved for summary judgment in regard to the ILSA claims. The developer claimed that some lots were to be sold to builders at a future date. At the time of the sale fourteen (14) lots had been sold to builders. The district court found that the 100-Lot Exemption did not apply and denied the motion for summary judgment.  

 

The Rensin court refused to allow intended, but not yet completed, future sales of lots to builders to be considered “exempt” under ILSA.  In Rensin, the defendant developer attempted to combine the “Sales to Builders” exemption (15 U.S.C. § 1702(a)(7)) with the Under 100 Lot Exemption to say that it was exempt from the registration requirements of ILSA.  However, the Rensin court refused to allow intended, but not yet completed, future sales of lots to builders to be considered “exempt” from the outset.  The Rensin court reasoned that to permit the unfulfilled intention to sell lots in the future to a builder would bypass Congress's intent to protect potential purchasers through pre-purchase disclosure.  For example, if a developer had been unable to fulfill its intention to sell builder lots in the future and then sold them to individuals, purchasers of the first 99 lots would have been denied their right to full disclosure and the statutory remedy of rescission. The Rensin court noted that that Congress recognized the need for buyer protection by mandating disclosures be provided by a developer to buyers prior to their signing of a purchase agreement, and therefore, that the duties and rights imposed by ILSA vest prior to (or contemporaneously with) entering into a purchase agreement.  The Rensin court explained its decision by stating that the plain language of the statute reads that ILSA’s registration requirements do not apply to “the sale or lease of lots in a subdivision containing fewer than one hundred lots which are not exempt under subsection (a)” Id. at 12.  Since the statute is drafted in the present tense, a development will only be exempt from ILSA’s disclosure and reporting requirements if it is a subdivision containing fewer than one hundred lots which are currently exempt under § 1702 subsection (a).     

 

The court found that two exemptions were to be considered: Sales to Builders Exemption under 15 U.S.C. § 1702(a)(7) and the 100-Lot Exemption under 15 U.S.C. § 1702(b)(1). The court reasoned that to overcome the presumption that ILSA applied to the development, the developer needed to show that there were sixty-five (65) lots that qualified for an exemption under § 1702(a), bringing the number of non-exempt lots available in the development to ninety-nine (99).  The court explained that the statute does not state that the intended, but not yet completed, future sale or lease of a lot to a builder is “exempt.” The plain language indicates that 15 U.S.C. §1702(a)(7) is intended to exempt only the actual “sale or lease” of a lot, rather than the uncertain future sale.  The court reasoned that to permit the unfulfilled intention to sell lots in the future to a builder would bypass Congress’s intent to protect potential purchasers through pre-purchase disclosure.  Had, for example, a developer been unable to fulfill its intention to sell builder lots in the future and then sold them to individuals, purchasers of the first ninety nine (99) lots would have been denied their right to full disclosure. In analyzing the statute, the court noted that it gave the HUD guidelines cited by the developer some deference but refused to permit the language of the guidelines to trump the language of the statute.  

 

Like Bodansky, Rensin referred to the plain language of the statute but rejected the finding of the Bodansky court that anticipated future sales of lots may be considered within the context of an exemption. The court was willing to afford some deference to the interpretations of HUD on the subject, which tended to favor the developer’s position, but was unwilling to permit an interpretation to overcome what the Rensin court deemed to be the clear meaning of the statute.

 

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.

 

The citation for the Rensin order is:

Rensin v. Juno-Loudon, LLC, 2010 U.S. Dist. LEXIS 30621 (E.D. Va. Mar. 30, 2010)

The citation for the Nahigian order is:

Nahigian v. Juno-Loudon, LLC, 2010 U.S. Dist. LEXIS 30610 (E.D. Va. Mar. 30, 2010)

Please contact Aaron Eidelman at aeidelman@carmel.us if you have any comments or questions in regards to this article.

2010-04-15 13:27:00