Condo purchasers may have lost rescission rights

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By Pat Murphy
Dolan Newswires

Condominium purchasers may have waited too long to exercise their right to rescind their contract pursuant to federal law requiring certain disclosures in land sales, the 6th Circuit has ruled.

In 2006, the plaintiffs entered into an agreement to purchase a particular unit in a condominium development. Two years later, the developer notified the plaintiffs that the unit was ready for closing.

Instead of closing on the property, the plaintiffs sued to rescind their purchase agreement under the Interstate Land Sales Full Disclosure Act. According to the plaintiffs, the developer violated the Act by failing to provide them with a property report.

The developer argued that the plaintiffs had forfeited their right to rescind by waiting more than two years before exercising their rights. Section 1703(c) of the Act generally requires the exercise of rescission rights within two years of signing.

The court agreed that the action was untimely under the statute, rejecting the plaintiffs’ argument that the two-year limit was tolled by the developer’s failure to provide them proper notice of their right to rescind in violation of §1711 of the Act.

“The [plaintiffs’] proposed construction – that [the developer’s] failure to include notice of their right to rescind in the purchase agreement extends the period in which they could rescind under §1703(c) until two years after the disclosure was correctly made – would not give effect to the clause of §1703(c) establishing a two-year window from the date of signing within which the buyer must exercise the rescission right. …

“Therefore, we adopt the construction …which gives effect to both §1703(c)’s two-year limit and §1711’s three-year statute of limitations. We hold that a purchaser or lessee must comply with both §1703(c)’s two-year limit for exercising the right of rescission and § 1711(b)’s three-year limit for filing suit based on the seller’s refusal to honor the buyer’s rescission,” the court said.

While the court concluded that the plaintiffs’ statutory rescission action was untimely, it remanded the matter for the trial court to consider whether the plaintiffs were entitled to equitable rescission.

U.S. Court of Appeals, 6th Circuit. Veneklase v. Bridgewater Condos, No. 10-1794. Feb. 6, 2012. Lawyers USA No. 993-3549.