Smile and grin at the change all around me
Pick up my guitar and play
Just like yesterday
And I'll get on my knees and pray
We don't get fooled again
~ Pete Townsend, Who’s Next 1971
On July 21, 2011, registration and enforcement jurisdiction over the Interstate Land Sales Full Disclosure Act ("ILSA") moved from the Office of Interstate Land Sales under the Department of Housing and Urban Development to the Bureau of Consumer Financial Protection ("CFPB") under the Department of Treasury.
According to Ms. Twohig’s July 14, 2011, CFPB teleconference, HUD’S "Guidelines for Exemption Available Under the Interstate Land Sales Full Disclosure Act" 61 Fed.Reg. 13596 (Mar. 27, 1996) that were drafted as practical guidance for interpreting ILSA, have been vitiated, at least for now. Ordinarily, I would disagree with such an action, but the courts in many instances have chosen to highlight one sentence of the guidelines while ignoring the rest of a relevant paragraph. When the CFPB deleted the guidelines, it ostensibly deleted all of the case law the relied heavily on the same. In other words, in one fell swoop they diminished the precedential value of any case that relied on HUD’S interpretation of ILSA set forth in the guidelines. While a clean slate is a promising start, it remains to be seen whether the transfer means real change, or will this new “independent” agency be hamstrung to the extent that no impact is really made. HUD was imbued with tremendous power to protect the buyer of properties subject to ILSA. If they found a violation they had the ability to force a complete refund to all purchasers. It would have been nice if HUD had stepped in and enforced 15 U.S.C. Sec. 1703(d) and facilitated the return of monies in excess of fifteen percent. (Read about it here.) I suppose that would have forced them to admit that Sec. 1703(d) had an anti-fraud component, which as you will see below, was not going to happen. A little history of HUD’s involvement in lawsuits brought by consumers illuminates the issue of why the HUD guidelines have been misused.
For instance, in Mayersdorf v. Paramount Boynton, LLC, 910 So.2d 887 (Fla. 4th DCA 2005) HUD provided assistance to the developer in the from of an opinion letter from Ivy Jackson, Director of ILSA and RESPA enforcement at HUD. The published opinion in Mayersdorf does not reflect this submission. The letter itself was not an official interpretation by HUD as an agency, rather it was the opinion of one of its directors. Unfortunately the Florida appellate court bought into this interpretation as if it were official and binding. Building on that success the “minority mafia” (that’s my pet name for the small group of developers who believe laws are optional. I like to make that distinction so as not to besmirch the good character of the majority of developers who get it right) had their shining star in the form of Ivy. As you might imagine Ivy’s letter, and support, would not stop there. The minority mafia loved this tactic, it was like having your own Attorney General to render opinion letters and change the law on the fly. Ivy’s letter returned (read Jackson affidavit and letter here) in Pugliese v. Pukka Development, Inc., 524 F.Supp.2d 1370,1371 (S.D.Fla.2007) reversed, 550 F.3d 1299 (11th Cir.2008), but the federal trial court was having none of it:
The Defendant cites to an opinion letter in further support of its position. That letter, authored by Ivy Jackson, the Director of the RESPA and Interstate Land Sales Office, was written to answer an inquiry “on the relationship of 15 U.S.C. § 1702(b)(1) to 15 U.S.C. § 1703”, in essence the very same issue now before this Court. The Director stated that “[t]he requirements of … § 1703(d) do not apply to the sale or lease of lots that are exempt under the 100 lots provision of 15 U.S.C. § 1702(b)(1) (or any other exemption of § 1702)”, the same interpretation the Defendant is advancing. Because the U.S. Dept. of Housing and Urban Development (“HUD”) is responsible for the Act’s administration, see 15 U.S.C. § 1715, the Defendant contends that the opinion letter should be “entitled to great weight and deference.” (Of note, the instant Defendant did not solicit the opinion letter.) * * * There is no case law addressing this issue, save for one. The final element of the Defendant’s argument relies on the opinion rendered in the case of Mayersdorf v. Paramount Boynton, LLC, 910 So.2d 887 (Fla. 4th DCA 2005). In that case the Fourth District Court of Appeal agreed with the interpretation the Defendant now advances. This Court has taken Mayersdorf into consideration, and the case does support the Defendant’s position. However, it, like the opinion letter, does not present binding authority, and because this Court reaches a different construction of the governing statutes, this Court does not find it to be persuasive.
This opinion was, of course, appealed by the developer. (Ivy would not be denied!) HUD filed an amicus brief in favor of the developer on appeal, which the Eleventh Circuit Court of Appeals adopted.
The letter from HUD’s director of RESPA and Interstate Land Sales stated her opinion that “[t]he requirements of … § 1703(d) do not apply to the sale or lease of lots that are exempt under the 100 lots provision of 15 U.S.C. § 1702(b)(1) (or any other exemption of § 1702).” This brief letter does not provide enough detail for this court to evaluate the thoroughness of HUD’s reasoning. The stated opinion is, however, “consistent with earlier and later pronouncements” by HUD on this issue in the prior regulations that existed from 1980 until 1996. See 45 Fed.Reg. 40,497 (June 13, 1980) (adopting the now deleted regulations discussed above). In addition, the United States’ amicus brief also represents HUD’s interpretation of the ILSA warranting Skidmore deference. See Auer v. Robbins, 519 U.S. 452, 462, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997) (affording deference to an agency’s interpretation of its regulations even when that interpretation was first expressed in an amicus brief to the Court). The brief is thoroughly reasoned and demonstrates a high level of consideration given to the issue; the brief thoroughly and rationally analyzes the statute, the legislative history, and the policy implications of the statutory interpretation. And the opinion set forth in the brief is consistent with the position HUD has always held on the meaning of “not exempt under section 1702” in § 1703(d). We thus owe Skidmore deference to the amicus brief.
Jared Beck did a good job in encapsulating buyer sentiment at the time, which you can read here. But even if the consumer had won at the Eleventh Circuit, HUD had that covered as well. There was a proposed rule change after the trial court decision in Pukka, which would have adopted the reasoning of, you guessed it, the Ivy Jackson letter. “Heads I win, Tails you lose” comes to mind. In any case, as far as ILSA matters went HUD was not on the buyer’s side during this period. Unfortunately for Ivy, someone decided that she was no longer the woman for the job in the new administration. (See a recap of the 2010 incident here.) So you can imagine my skepticism when a new agency is tasked with the enforcement of ILSA, which until now was virtually non-existent.
The current status of the BCFP is reflected in headlines such as; Republicans seek to handcuff Consumer Financial Protection Bureau http://bit.ly/pRUNXu; Disinformation About The Consumer Financial Protection Bureau http://bit.ly/qZQ71r; and Consumer Financial Protection Bureau can open without chief http://politi.co/pwtUYk. Perhaps BFCP will make a difference, but it seems more likely that lobbyists and Congress will render it HUD II. (I’d be ecstatic if they just avoid taking sides in court cases.) However, I will be happy to be proven wrong. If they truly make a difference in reigning in the minority mafia, I’ll surely tip my hat to the new constitution.