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Lenders and the Interstate Land Sales Full Disclosure Act

Co-Author: Kirsten A. Westerland


At the time of the publication of this article, the demand for residential lots is dead. Lenders find themselves foreclosing on and owning lots. When lenders sell those lots, they need to be mindful of the Interstate Land Sales Full Disclosure Act (“ILSFDA”).

ILSFDA is somewhat like a mini-securities law for residential, commercial, mixed-use, and industrial lots. It is a federal law that regulates the interstate advertising, sales, and leasing of land through a series of registration requirements and anti-fraud provisions, and is under the jurisdiction of the Department of Housing and Urban Development (“HUD”).

Who should be concerned about ILSFDA?

Because the term “developer” is broadly defined in ILSFDA, the Act has been found to apply to more than just the traditional subdivision developer. The Act defines a “developer” as any person, unincorporated organization, partnership, association, corporation, trust, or estate “who, directly or indirectly, sells or leases, or offers to sell or lease, or advertises for sale or lease any lots in a subdivision,” with the term “lot” being defined to include “any portion, piece, division, unit or undivided interest in land . . . if the interest includes the right to the exclusive use of a specific portion of the land.” These expansive definitions mean that the Act applies not only to the developer who plans and builds a subdivision, but also may apply to lenders or other entities that are reselling a number of lots in an existing subdivision that were acquired through foreclosures, a tax sale, an auction, or otherwise.

While many may think that their development is not a part of interstate commerce because it is more of a local operation, lenders or other entities using the U.S. Postal Service, television, newspapers, magazines, or the internet to advertise their lots, solicit purchasers, or make offers to sell their lots are likely taking part in interstate commerce and, therefore, subject to ILSFDA.

Furthermore, because the Act also broadly defines “subdivision” to include any land, whether or not contiguous, which is divided or proposed to be divided into separate interests for purposes of sale or lease as part of a “common promotional plan,” lenders and other entities should be cognizant that they may be subject to the Act not only for the lots they develop or own, but also for the lots advertised, sold, or leased by other developers if those other lots could be considered a part of the same subdivision.

What type of development does ILSFDA apply to? What exemptions are available?

Here’s the good news: ILSFDA and its corresponding regulations sets out a series of full or partial exemptions to the Act that might apply to you.

For example, the size of your development may determine whether you must comply with ILSFDA. In general, if you have fewer than 25 lots that are part of a common promotional plan for sale or lease, you are exempt from both the Act’s anti-fraud provisions and registration requirements. If your development is offering 25-99 lots for sale or lease, you need not register with HUD, although your development will remain subject to the Act’s antifraud provisions, unless an additional exemption applies. While a developer offering 100 or more lots is generally required to register its lots and is subject to the antifraud provisions, other full or partial exemptions may apply.

The other full or partial exemptions available under ILSFDA and its regulations are very fact-specific. Your development’s eligibility may depend on the current stage and expected timeline of development of the lots; the expected purchaser of the lots; the intended use of the lots; the amount of lots sold in a year; whether the lots are contiguous or not; the size of the lots sold; the effect of local regulations; and/or a combination of several of these factors or other factors not listed. Because these additional exemptions are dependent on the nature of your development and your particular circumstances, a detailed description of these exemptions is beyond the scope of this article and those interested in learning more should consult legal counsel.

What does ILSFDA require?

Unless a statutory or regulatory exemption (described above) applies to your development, you will need to fulfill certain requirements under ILSFDA. Such requirements may include, but are not limited to:

  • Registering your lots with HUD by filing a Statement of Record, the contents of which are defined in federal regulations corresponding with the Act, and paying a filing fee;
  • Amending filed documents as necessary;
  • Filing an annual report with HUD;
  • Furnishing consumers with a Property Report, the contents of which are defined in federal regulations corresponding with the Act, prior to their signing a lease or purchase contract;
  • Incorporating into your sales contract a 7-day period after execution of the contract during which a purchaser may rescind the contract; and
  • Complying with the anti-fraud provisions of the Act, which includes conforming your advertising and contract content to that which is required under the Act.

The penalties for non-compliance with the Act can be considerable. For example, if the purchaser is not provided a Property Report prior to execution of the purchase contract, the purchaser has a two-year right to rescind the transaction and be reimbursed all monies paid. Additionally, a developer in violation of the Act could face civil liability to the consumer, civil penalties imposed by HUD, and criminal penalties that could include fines, imprisonment, or both.


The first question in addressing the Interstate Land Sales Full disclosure Act is whether you are a developer selling or leasing a lot. If you are a developer selling or leasing a lot, then you hope to fit within an exemption of the Act. If you don’t fit into an exemption, then you need to comply with the Interstate Land Sales Full Disclosure Act.

Kirsten A. Westerland is no longer with Frascona, Joiner, Goodman and Greenstein, P.C.

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