A decades-old law designed to prevent fraud in sales of Florida swampland has been used by a Northern Virginia couple to get out of their $1.6-million purchase of an undeveloped lot in a luxury gated club development.
U.S. District Judge James C. Cacheris last month granted rescission to the buyers under the Interstate Land Sales Full Disclosure Act. He found that a required “Property Report” had not been completed and that failure and other lapses constituted material misstatements and omissions under the act.
The Aug. 23 opinion is Nahigian v. Juno-Loudoun, LLC, (VLW 010-3-438). The case has produced two prior decisions reported by Virginia Lawyers Weekly. In one, Cacheris denied summary judgment on the ILSFDA claim despite the fact that fewer than 100 lots of the development were to be sold to individual homeowners (VLW 010-3-159).
The ILSFDA has seen a lot of use in the last year in Northern Virginia, according to attorney Chap Petersen of Fairfax, who represents the buyers, Keith and Courtney Nahigian. Most of the cases have involved condominium purchasers trying to recover their deposits.
Petersen said he was unaware of any ILSFDA rescission of a Virginia lot sale with a price tag as big as this case.
Enacted in 1968, the ILSFDA was designed to protect buyers from real estate scams typified by sales of Florida swampland or tracts in the Arizona desert. It requires that developments with more than 100 units provide buyers with extensive disclosure documents.
The buyers in this case were no naïve chumps, according to the opinion. Keith Nahigian had experience as a commercial real estate developer and was a partner in a commercial development project in South Carolina. He and his wife, Courtney, were described as “highly educated and accomplished professionals.” Nahigian’s brother, a former Jones Day attorney, reviewed the purchase agreement before the closing.
Nevertheless, the Nahigians complained they were misled by advertisements claiming the Creighton Farms development in Loudoun County would be a “Ritz-Carlton Managed Community.” The property was developed and sold by Juno Loudoun LLC, which promised in a brochure to contract with The Ritz-Carlton Hotel Company or an affiliate for management of the golf club and master association.
Creighton Farms is touted as a 900-acre luxury community planned around a Jack Nicklaus-designed golf course. As happened at many similar projects, the real estate decline led to unsold lots, unbuilt homes, and a lack of many planned amenities.
The Nahigians closed on their lot in July 2007, with $1.67 million paid to Juno.
In 2009, Ritz-Carlton parted ways with Juno. No Ritz golf clubhouse or Ritz day care center was ever built at Creighton Farms. “The bottom line is the community just never materialized,” Petersen said. “If you go out there now, it’s just land.”
Disappointed that their prospective home would no longer be associated with Ritz-Carlton and its services, the Nahigians sued. Their amended complaint against both Ritz and Juno set out claims of fraud, violations of the ILSFDA, and a violation of the Virginia Consumer Protection Act. In July, the parties filed cross motions for summary judgment.
The ILSFDA applies only to developers and their agents. Finding that Ritz did not directly sell any of the lots at Creighton Farms or spend its own money for advertising, Cacheris held Ritz was not a “developer” under ILSFDA.
Juno did not dispute that it failed to provide a Property Report and failed to provide notice that the buyers could revoke the purchase agreement within two years if a Property Report were not provided. Juno fought rescission, however, arguing the Nahigians’ claim was outside the limitations period and the missing disclosures were not material to the sale.
Cacheris held that a three-year limitations period applied under ILSFDA when equitable rescission was sought, so Juno’s limitations defense failed.
Cacheris found the missing Property Report would have been material to the Nahigians’ decision to purchase. “[A] Property Report that never mentioned Ritz at all or an agreement with Ritz would be material to the decision to enter into the Purchase Agreement,” Cacheris wrote.
Further, the judge found, “a Property Report that did not include description of, for example, the golf course club house, the Ritz Kids Day Care center, or other amenities as part of ‘the nature of any improvements to be installed by the developer and his estimated schedule for completion’ would have been material.”
Although the decision to grant rescission mooted the Nahigians’ state law fraud claims, Cacheris found (without deciding) that their proof of fraud damages fell short. Their expert did not opine as to the impact of the absence of Ritz-Carlton on the value of their lot.
Peterson said his clients were disappointed in the dismissal of Ritz-Carlton. He noted Ritz collected a 5.5-percent commission on the sale of the Nahigians’ lot. “While they may not have been at the settlement table per se, they were benefiting from the sale of the land,” he said.
Ritz was represented by Washington lawyer Oliver Garcia. Juno’s counsel is John J. Sabourin Jr. of Falls Church. Neither responded to a request for comment as of presstime.
The case remains pending for proceedings to determine, among other things, what Juno will have to pay for the title to the property and interest. Petersen said he does not know what resources Juno has to satisfy a judgment.
“I have no idea,” he said. “My client – he just wants his money back.”