On March 1, 2011, Matt Ferguson, partner with the Aspen, Colorado based law firm of Garfield & Hecht, P.C. (“G&H, P.C.”) acting as lead counsel for numerous consolidated cases and representing approximately sixty-five (65) Plaintiffs-vendees obtained a state court judgment having implications for all attorneys prosecuting or defending claims under the Interstate Land Sales Full Disclosure Act (“ILSA”) (15 U.S.C. §§ 1701, et seq.).
The case concerns Plaintiffs who entered into Purchase and Sale Agreements for the purchase of condo-hotel units in the Viceroy Hotel in Snowmass, Colorado, and sought rescission and return of their deposits of 15% of the purchase price – totaling nearly $15.0 Million. G&H, P.C. and its co-counsel asserted various claims under ILSA for rescission and common law claims for fraud and breach of contract. The Viceroy Hotel developer is a Related Companies (NYC) development entity currently in receivership and subject to a foreclosure by HYPO Real Estate Capital Company, the U.S.-based arm of the now-nationalized German bank Hypo Real Estate Holding, AG, which lead a consortium of German banks that agreed to lend $520,000,000 to the Related Companies subsidiary developing the massive Base Village Project outside Aspen, Colorado.
G&H, P.C. successfully argued that the units offered for sale were not clearly identified and thus each plaintiff had a rescission right under ILSA. In this case, the developer’s HUD property report and contract square footage representations of unit square footages did not comport with the as-built usable square footages. The discrepancies were significant and in the order of 6.734% to as high as 23.413%.
The developer, the receiver and HYPO all unsuccessfully argued that such a discrepancy did not violate ILSA and particularly the provisions of 15_U.S.C. § 1703(d)(1) because the discrepancy was purportedly solely the result of using a different methodology for square footage measurements in the property report as opposed to what was used to measure the as-built unit sizes. The trial court rejected Defendants’ notion that the claims were fraud only and stated: “The Court agrees that it is a fraud issue but the square footage issue is also a clearly identifiable issue under ILSA.”
In essence, sales prices in the contracts (calculated at approximately $2,000.00 per sq. ft.) were based on the unit sizes as appearing in the HUD property report even though the as-built units were almost all significantly smaller. Accordingly, the actual square footage price of the as-built units was considerably more than the $2,000.00 per sq. ft. or conversely there was approximately $8.7 million missing in actual property value. G&H, P.C. successfully demonstrated to the court that the evidence was uncontroverted that the property descriptions required by ILSA were not valid because of the discrepancy in square footage between the as-built condition and what was depicted in the HUD report and contracts.
Under § 1709 of ILSA, Plaintiffs are entitled to rescind their contracts, the return of approximately $15.0 in deposits, interest and attorneys’ fees, interest of approximately $3.7 million. Plaintiffs await a ruling pursuant to § 1703(a)(1)(C) of ILSA that also prohibits untrue statements in the HUD report and is essentially a strict liability fraud provision. Plaintiffs contend that HYPO is liable to Plaintiffs, as it dictated the minimum release prices for units based on as-advertised square footage prices.
Those wishing to follow this case are referred to Michael Keefe, et al. v. Base Village Owner, LLC, et al., pending in the Pitkin County (Colorado) District Court, Case No. 09 CV 273. Inquires about this case, other ILSA violations, or other legal disputes concerning real property may be made to G&H, P.C. attorney, Matthew C. Ferguson at firstname.lastname@example.org.