Text By CRAIG KARMIN
A decades-old federal law initially intended to reduce fraud in sales of Florida swampland was applied for the first time to help dissatisfied buyers of Manhattan condominiums.
A federal judge in Manhattan ruled on Tuesday that a company controlled by property developer Africa Israel, a unit of Israeli-based AFI Group, had to return deposits to three buyers of condos in a downtown apartment building because of inadequate disclosure in the condo's offering plan.
The judge referred to the obscure federal law known as the Interstate Land Sales Full Disclosure Act, or ILSA, as the basis for allowing the three buyers of units at 111 Fulton St. to get out of their contracts and receive refunds on their deposits.
Mustafah Abdulaziz for The Wall Street Journal
Condo buyers at 111 Fulton St., above, won their case in federal court.
Officials at Africa Israel didn't respond to calls seeking comment.
Judges in other states have cited ILSA when ruling on behalf of home buyers but lawyers say this decision marks the first time in New York that a developer hasn't prevailed in an ILSA case.
The ruling comes at a time when hundreds of New York condo buyers have been trying to escape contracts signed around the market's peak and whose units have since fallen significantly in value.
Lawyers have pored through piles of documents and arcane laws in an effort to find something that would enable buyers to invalidate their contracts. Starting in early 2009, many buyers have based their cases around interpretations of ILSA. Some attorneys suggest that Tuesday's ruling could make way for pending cases and new appeals based on the act.
"It's quite significant," says James Schwartz, partner at Mitchell Silberberg & Knupp, a New York law firm not involved in the case. "It opens the door for wholesale use of the act to get out of contracts."
U.S. District Court Judge George B. Daniels ruled that the developer failed to comply with ILSA, which requires that buildings with more than 100 units provide buyers with documents that include a long list of disclosure details, from information about the condo association to zoning regulations.
If the developer fails to meet the disclosure requirements, buyers under the act have the right to tear up their contracts and receive refunds on their deposits within two years of their contract signings.
In previous New York cases, developers have argued successfully in court for exemptions from ILSA, such as saying that even though their buildings were marketed as having more than 100 units, fewer than 100 were actually sold. The law was initially intended to protect consumers from fraud on sales of Florida swampland and Arizona desert land.
Mustafah Abdulaziz for The Wall Street Journal
The Fulton Street building
.Bruce H. Lederman, an attorney with D'Agostino, Levine, Landesman & Lederman who has represented developers in other ILSA cases, says that Tuesday's ruling wouldn't have a far-reaching effect. "The judge decided that the very specific language of that condo offering plan did not qualify for exemption," he says.
But Lawrence Weiner, a Wilentz, Goldman & Spitzer attorney who represented the buyers in the case, said developers had sometimes said that ILSA does not apply to high-rise condonimums. "This case reconfirms that it does apply," says Mr. Weiner. He added he has about nine pending ILSA cases related to New York buildings, involving more than 50 purchasers.
He is also appealing two other ILSA-related cases, one in Harlem and one in Long Island City, where the court ruled on behalf of the developers.
Recent federal court rulings in Virginia and Florida that sided with buyers in ILSA cases had given hope to New York lawyers working with condo owners that their state would follow the same logic. "Even though it's a different jurisdiction, the ruling was persuasive and supports the purchaser," Mr. Weiner said of the Virginia case.
The 163-unit Fulton Street building began selling condos in June 2007, and three condo owners in the case signed contracts in 2007 and 2008. Their combined deposits totaled about $300,000, and the purchase price of their apartments ranged between $800,000 and $1.485 million, court documents said.
Africa Israel is headed by Lev Leviev, an Uzbekistan-born diamond merchant who immigrated to Israel and in recent years has bought up trophy properties in Brooklyn and Manhattan. That includes the historic Apthorp on the Upper West Side which is being converted into a high-end condo from a rental.
Write to Craig Karmin at craig.karmin@wsj.com
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