A judge recently ruled in favor of a New York couple to allow them from walking away from a luxury condo they put deposit money down on. Mr. and Mrs. Bacolitsas put $510,000 down on a $3.4 million condo that was being built on the Upper East Side. This was in May of 2008, just before the housing market fell dramatically. Given the changing market, the couple went to the developer and requested the price be dropped $600,000 to reflect the new market value. The developer refused to change the price because they had already put money down.
The couple got a lawyer, who ingeniously used a 1960s federal law, which most people didn’t even realize was still on the books to win the case for the couple. A judge ordered they get their deposit back when they backed out of the deal.
The law in question called the Interstate Land Sales Full Disclosure Act (ILSA) was enacted in 1968 to protect out-of-state buyers from developing scandals. According to Bruce Lederman, one of the lawyers representing the developers in this case, “The statue was never designed for purchasers of luxury condominiums in urban areas to get out of contracts because of changes in the economy…it was designed to protect unsophisticated out-of-state purchasers like Jackie Gleason in ‘the Honeymooners’ from Florida swampland schemes.” Despite Lederman’s evaluation of the intention of the law, Adam Leitman Bailey, lawyer for the Bacolitsases convinced the judge otherwise.
According to Baily, “The crash of the market resulted in people losing their jobs, No. 1, and No. 2, the tightening of the credit market meant they couldn’t get the loans they needed to buy the property…we had to find some law to help these people, and that’s what ILSA did. Desperation inspired creativity.” Baily is now also representing several other buyers attempting to get out of similar contracts.
Similar cases have been won in Manhattan, Virginia, and Florida. Although these cases are still going through the appeal process, if the decisions are maintained, this will open the doors for a lot of other buyers negatively affected by the downturn in the economy to get out of deals they can no longer afford. Baily stated that despite the fact the case is currently being appealed, he has been getting a non-stop stream of calls from perspective clients.
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