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Full text of "The Interstate land sales full disclosure act amendments : hearings before the Subcommittee on Housing and Community Development of the Committee on Banking, Finance, and Urban Affairs, House of Representatives, Ninety-fifth Congress, second session, on HR. 11265 ... H.R. 12574 ... H.R. 3084 ... August 1, 2, and 3, 1978"

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THE INTERSTATE LAND SALES FULL DISaOSURE 
Aa AMENDMENTS . 



1% HAY 1979 



5-2 

HEARINGS 

SUBCOMMITTEE ON 
mVSim AJJD COMMUNITY DEVELOPMEN^f 

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CQHMTTElLaN 

;]NKIi\G. FINANCE AND URBAN AFFAIRS^ 
HOUS E OF JIEPRF.SENTATIVES 

JSUIfETY-FirTn rOKHKESS 



OH 

H.R. 112H5 

A BUX TO AMB> vi. IJLW8 

BKLATINQ TO Ii< " ' ntliUOOD 

DBVIIUlPMirVT AKD PRBSBllVATIOX. AND RELATED PRO- 

GBAM& AND ruK OTHJCK PUttfOHHW 



H.R 12574 




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n.R, 3084 




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THE INIERSTATE LAND SALES FUU DISCLOSURE 
AO AMENDMENTS 



HEARINGS 

BEFORE THE 

SUBCOMMITTEE ON 
HOUSING AND COMMUNITY DEVELOPMENT 

OP THE 

COMMITTEE ON 

BANKING, FINANCE AND URBAN AFFAIBS 

HOUSE OF REPRESENTATIVES 

NINETY-FIFTH CONGRESS 

SECOND SESSION 
ON 

H.R. 11265 

A BILL TO AMEND AND EXTEND CERTAIN FEDERAL LAWS 
RBLATINO TO HOUSING, COMMUNITY AND NEIGHBORHOOD 
DEVELOPMENT AND PRESERVATION, AND RELATED PRO- 
GRAMS, AND FOR OTHER PURPOSES 



H.R. 12574 

A BILL TO REVISE THE INTERSTATE LAND SALES FULL 
DISCLOSURE ACT 



H.R. 3084 



AN ACT TO AMEND AND EXTEND CERTAIN FEDERAL LAWS 
RELATING TO HOUSING, COMMUNITY AND NEIGHBORHOOD 
DEVELOPMENT AND PRESERVATION, AND RELATED PRO- 
GRAMS, AND FOR OTHER PURPOSES 



AUGUST 1, 2, AND 3, 1978 



Printed for the use of the 
Committee on Banking, Finance and Urban Affairs 



U.S. OOVBRNMENT PRINTING OFFICE 
tl-716 WASHINGTON : 1978 

86 379ST XL -•. [ 
09/92 53-005-00 tit H 






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COBiMITTEB ON BANKING, FINANCE AND URBAN AFFAIRS 
HBNRY 8. RBUSS, Wisconsin, Chairman 



J. WILLIAM STANTON, Ohio 
GARRY BROWN, Michigan 
CHALMERS P. WYLIE. Ohio 
JOHN H. ROUSSELOT. California 
STEWART B. McKINNEY, Connecticut 
GEORGE HANSEN, Idaho 
HENRY J. HYDE, Illinois 
RICHARD KELLY, Florida 
CHARLES B. GRASSLEY, Iowa 
MILLICBNT FBNWICK, New Jersey 
JIM LEACH, Iowa 
NEWTON L STEERS, Jr., Maryland 
THOMAS B. EVANS, Jr., Delaware 
BRUCE F. CAPUTO, New York 
HAROLD C. HOLLENBECK, New Jersey 
S. WILLIAM GREEN, New York 



THOMAS L. ASHLEY, Ohio 
WILLIAM S. MOORHBAD, Pennsylvania 
FBRNAND J. ST GERMAIN, Rhode Island 
HBNRY B. GONZALEZ. Texas 
JOSEPH G. MINISH, New Jersey 
FRANK ANNUNZIO, Illinois 
JAMBS M. HANLBY, New York 
PARREN J. MITCHELL, Maryland 
WALTER E. FAUNTROY, 

District of Columbia 
STEPHEN L. NEAL. North Carolina 
JERRY M. PATTERSON, California 
JAMES J. BLANCHARD, Michigan 
CARROLL HUBBARD, JR., Kentucky 
JOHN J. LaFALCE, New York 
GLADYS NOON SPELLMAN, Maryland 
LBS AdCOIN, Oregon 
PAUL B. TSONGAS, Massachusetts 
BUTLER DERRICK, South Carolina 
BfARK W. HANNAFORD, California 
DAVID W. EVANS, Indiana 
NORMAN B. D' AMOURS, New Hampshire 
STANLEY N. LUNDINE, New York 
EDWARD W. PATTISON. New York 
JOHN J. CAVANAUGH, Nebraska 
MARY ROSE OAKAR, Ohio 
JIM MATTOX, Texas 
BRUCE F. VENTO, Minnesota 
DOUG BARNARD, Georgia 
WES WATKINS, Oklahoma 
ROBERT GARCIA, New York 

Padl Nelson, Clerk and Staff Director 

Michael P. Flaherty, General Counsel 

Qrasty Crews II, Counsel 

Merger L. Jackson, Minority Staff Director 

Graham T. Northdp, Deputy Minority Staff Director 



Subcommittee on Housing and Couiixmnrr Development 
THOMAS L. ASHLEY, Ohio, Chairman 



GARRY BROWN. Michigan 
J. WILLIAM STANTON. Ohio 
JOHN H. ROUSSELOT. California 
CHALMERS P. WYLIE, Ohio 
STEWART B. McKINNEY, Connecticut 
RICHARD KELLY, Florida 
CHARLES B. GRASSLEY. Iowa 
THOMAS B. EVANS, JR., Delaware 



WILLIAM S. MOORHBAD, Pennsylvania 
FBRNAND J. ST GERMAIN, Rhode Island 
HBNRY B. GONZALEZ, Texas 
PARREN J. MITCHELL, Maryland 
JAMES M. HANLBY. New York 
WALTER F. FAUNTROY. 

District of Columbia 
JERRY M. PATTERSON, California 
JOHN J. LaFALCE, New York 
LBS AdCOIN. Oregon 
GLADYS NOON SPELLMAN, Maryland 
JAMBS J. BLANCHARD, Michigan 
CARROLL HUBBARD. JR., Kentucky 
PAUL B. TSONGAS, Massachusetts 
MARK W. HANNAFORD, California 
DAVID W. EVANS, Indiana 
STANLEY N. LUNDINE, New York 

Gerald R. McMdrrat. Staff Director 

Roger C. Faxon, Profeeeional Staff Member 

Frank T. DESTErANO, Profettional Staff Member 

Sheldo.v L. Schreibrrg. Counsel 

DiANi DORius, A$»i*tant Couneel 

Anthony Valanzano, Minority Counsel 

(H) 



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CONTENTS 



Hearings held on — ^•«* 

August 1, 1978 1 

August 2, 1978 121 

August 3, 1978 461 

Excerpts from — 

it.R. 11265 3 

S. 3084 32 

FuU text of H.R. 12574 12 

Staff summaries of — 

H.R. 12574 60 

H.R. 11265 52 

S. 3084 64 

"Comparison of Proposed Statutory and Regulatory Changes to Inter- 
state Land Sales Full Disclosure Act," table 42 

Statements 

Anaya, Hon. Toney, attorney general of the State of New Mexico, accom- 
panied by Hon. Joe Canepa, assistant attorney general 121 

Barnes, Hon. James I., Ill, deputy attorney general of the State of Nevada. 144 

Belin, J. B., Jr., president, chairman of the board, American Land Develop- 
ment Association; accompanied by Gary A. Terry, executive vice 
president, William B. Ingersoll, general coimsel, and George G. Potts, 
director of public affairs 263 

Halloran, Jean, on behalf of INFORM, a public interest group; accom- 
panied by L^lie Allan 76 

Hempel, John E., assistant commissioner for policy and planning, depart- 
ment of real estate. State of California 585 

Hynes, Patricia M., assistant U.S. attorney. Southern District of New 

York 1 . 107 

Minish, Hon. Joseph G., a Representative in Congress from the State of 
New Jersey 65 

Pfersich, Gordon, director, division of land sales and condominiums, de- 
partment of business regulation. State of Florida 654 

Roberts, David D., vice chairman. Realtors Legislative Committee, 
National Association of Realtors; accompanied by Albert E. Abrahams, 
staff vice president 316 

Smith, Herman J., vice president, National Association of Home Builders: 
accompanied by Robert D. Bannister, senior staff vice president, and 
-Gary Paul Kane, associate legislative counsel 437 

Steinman, Edward D., Acting Assistant Director, Division of Marketing 
Abuses. Federal Trade Commission; accompanied by John M. Tifford, 
staff attorney in the land sales program 562 

Worthy, Patricia, Administrator, Office of Interstate Land Sales Regis- 
tration, Department of Housing and Urban Development; accompanied 
by Peter Race and Alan Kappeler 461 

Additional Information Submitted for Inclusion in the Record 

American Land Development Association, prepared statement on behalf by 

J. B. Belin, Jr., president and chairman of the board 269 

Anaya, Hon. Toney: 

Prepared statement 126 

Resolution adopted at 1978 annual meeting, National Association of 

Attorneys General, St. Paul, Minn., June 18-21, 1978 136 

Aflhlev, Chairman Thomas L., letter dated August 9, 1978, from Frank J. 
Kelley, attorney general. State of Michigan, with enclosed "Comments 
on Proposed Interstate Land Sales Reform" 198 

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IV 

Additional Information Submitted for Inclusion in the Record — Con. 

Barnes, Hon. James I, III: 

Attachments to prepared statement: 

Exhibit A: Landex, Inc,, et tU, v. State of Nevada, ei al., Supreme Pi^f« 

Court of Nevada decision 155 

Exhibit B: "The Regulation of Land Sales in Virginia/' paper by 

Thomas L. Stringfield 167 

Prepared statement 148 

Responses to questions of Congressman Gonzalez 196 

Belin, J. B., Jr., prepared statement on behalf of the American Land De- 
velopment Association - 269 

California State Department of Real Estate, prepared statement on behalf 

by John E. Hempel, assistant commissioner for policy and planning 592 

Federal Trade Commission. Bureau of Consumer Protection, prepared 
statement on behalf by Eaward D. Steinman, Acting Assistant Director, 

Division of Marketing Abuses 566 

Florida Division of Land Sales and Condominiums, Department of Busi- 
ness Regulation, prepared statement on behalf by Gordon Pferish, 

director _ 658 

Halloran, Jean^repared statement on behalf of I NFORM 85 

Hempel, John K : 

Attachments to prepared statement: 

Attachment 1 : Statement by Chief Counsel W. J. Thomas before 
Government Operations Committee, Arizona State Legislature, 

November 9, 1977 601 

Attachment 2: Extract of special subdivision laws and regulations 

in CaUfomia dealing with land projects 609 

Attachment 3: Samples of filing forms of the California State 

Department of Real Estate 614 

Attaomnent 4: Letter to Chairman Ashley, dated July 31, 1978, 

with attachments. 641 

Prepared statement on behalf of the California State Department of 

Real Estate 592 

INFORNf, prepared statement on behalf by Jean Halloran 85 

McClory, Congressman Robert, letter dated July 28, 1978, with attached 
letter dated Alay 22, 1978, from Jack L. Lawson, executive vice presi- 
dent, Elgin (111.) Board of Realtors 683 

Minish, Hon. Joseph G. : 

Brief summary of H.R. 12574, a bill to revise the Interstate Land Sales 

Full Disclosure Act 60 

Summary of problems in the Nelson bill, S. 3084 66 

National Association of Realtors, prepared statement on behalf by David 

D. Roberts, vice chairman. Realtors Legislative Committee 320 

Office of Interstate Land Sales Registration, prepared statement on behalf 

by Patricia Worthy, Administrator 469 

Pferish. Gordon, prepared statement on behalf of the Florida Division of 

Land Sales and Condominiums, Department of Business Regulation 658 

Roberts, David D.: 

Abrahams, Albert E., staff vice president. National Association of 
Realtors Government Affairs Department, statement before Senate 
Committee on Banking, Finance and Urban Affairs, May 26, 1978— 336 
Prepared statement on behalf of the National Association of Realtors. 320 
Statement before House Committee on Banking, Finance and Urban 

Affairs, April 1 1, 1978, with attached correspondence 348 

Table submitted comparing the Nelson provisons of S. 3084 with the 

Minish proposals of H.R. 12574 330 

Smith, Herman J. : 

Ainendment to section 715 of S. 3084 451 

Prepared statement on behalf of the National Association of Home 

Builders 441 

Steinman, Edward D.: 

Prepared statement on behalf of the Bureau of Consumer Protection, 

Federal Trade Commission 566 

Response to request of Chairman Ashley for additional information.. 676 



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Worthy, Patricia: 

Prepared statement on behalf of the Office of Interstate Land Sales P^se 

Registration 469 

Response to question of — 

Chairman Ashley .— 498,499,556 

Congressman Brown 505,561 

"Statement of Record Filings," table submitted __ 496 



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THE INTERSTATE LAND SALES FULL DISCLOSURE 
ACT AMENDMENTS 



TUESDAY, AUaxnST 1» 1978 

House op Representatives, 
Committee on Banking, Finance and Urban Affairs, 
Subcommittee on Housing and Community Development, 

Washington^ D.C. 

The subcommittee met at 10 :30 a.m. in room 2212 of the Eaybum 
House Office Building, Hon. Thomas L. Ashley (chairman of the 
subcommittee) presiding. 

Present: Representatives Ashley, Gonzalez, AuCoin, Brown, and 
Grassley. 

Also present : Representative S. William Green of New York. 

Chairman Ashley. The subcommittee will come to order. 

This morning, the House and Community Development Subcom- 
mittee begins 3 days of hearings on the Interstate Land Sales Full 
Disclosure Act and the administration of this act by the Office of Inter- 
state Land Sales and Registration [OILSR] in the Department of 
Housing and Urban Development. 

Congress, 10 years ago, passed the Interstate Land Sales Full Dis- 
closure Act in response to evidence of widespread abuses in the sale 
of undeveloped land. Many people bought land, sight unseen, on easy 
installment payment terms. They relied on the developers' assurances 
and seductive advertising campaigns that promised secluded home 
sites and good investments. 

Many of these investments turned out to be worthless. The land was 
underwater or without water. The developer went bankrupt before 
providing promised amenities. Title to the land was encumbered after 
the land was sold pursuant to installment contracts. Often, there was 
no resale market for the land, whatever. 

The essence of this act is that a fully informed consumer will make 
a reasoned investment decision. While the intent of the act is laudable 
to prevent fraud by assuring that consumers are adequately informed 
and to provide remedies for fraud when it occurs — the act and its ad- 
ministration by OILSR have not escaped criticism. 

The land sales and building industry have criticized some require- 
ments for being burdensome and being contrary to congressional in- 
tent. Many consumers believe that disclosure without substantive 
standards provides weak protection and that existing legal remedies 
are inadequate. 

This debate has raised several significant issues that these hearings 
will address. We now have the opportunity, based on 10 year's ex- 
perience, to review the act in its entirety and to legislate necessary 
changes. 

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Among the issues we wDl consider are the following : First, the Fed- 
eral role in regulating intrastate sales of undeveloped land; two, 
whether fraudulent and unfair practices are any less prevalent in de- 
velopments which differ in size, type, or location; three, the usefulness 
of requiring full disclosure without establishing substantive stand- 
ards: four, the burden which existing law and regulation places on 
builaers and developers; and five, the adequacy of existing consumer 
remedies. 

Several bills are before this subcommittee : H.R. 11265, which con- 
tains the administration's proposals, H.R. 12574, introduced by our 
colleague, Mr. Minish, and S. 3084, which contains amendments passed 
by the Senate. In addition, the Office of Interstate Land Sales Regis- 
tration has proposed regulatory changes based on existing law. 

[Excerpts from H.R. 11265, the full text of H.R. 12574, and S. 3084, 
together with a table "Comparison of Proposed Statutory and Regu- 
latory Changes to Interstate Land Sales Full Disclosure Act," and 
staff summaries of H.R. 12574, H.R. 11265, and S. 3084, follow:] 



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95th congress 



w^="H.R. 1126i 



IN THE HOUSE OF EEPEESENTATIVES 

March 3,1978 

Mr. Ashley (for himself and Mr. Rkuss) (by request) introduced the follow- 
ing bill; which was referred to the Committee on Banking, Finance and 
Urban Aflfain* 



A BILL 

To amend and extend certain Federal laws relating to housing, 
community and neighborhood development and preservation, 
and related progimns, and for other purposes. 

10 A:\JEiiDMEXXS TO INTEKSTATE LAXD .SALES FULL 

11 DISCLOSUKE ACT 

12 Sec. 421. (a) Section 1402(8) of the Interstate Land 

13 Sales Full Disclosure Act is amended by striking "fifty'' 

14 and inserting in lieu thereof **'one hundred". 

15 (b) Section 1403(a) (1) of such Act is amended by 

16 striking "fift}^" and insertijig in lieu thereof *'one hundred". 
1'7 (c) Section 1403(a) (2) of sucli Act is amended by 

18 striking *'five acres or more" and inserting in lieu tliereof 

19 "more than forty acres". 

20 (d) Section 1403(a) (4) of such Act is amended 

21 by inserting immediately l)cfnrc the semicolon 'SvIumi the 

22 Secretary dctennines it to be in the public interest". 

2^ (e) Section 14.03(a) of such Act is further amended 

2"^ by striking paragraph (10). ])y inserting the word "or" 



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29 

;£ after tlie RCiiiicolon at tlie end of paragrapli (9) and by 

2 redesignating paragrai))! (11) as para^raplr (10). 

3 (f) Section 1404: of sucli Act is amended to read as 

4 follows : 

5 "PKDIITBITIONS KELATINO TO THE SALE OJl I^EARE OE LOTS 
(5 TX SL'BDIVISIOXS 

7 *'Sec. 1404. (a) It shall be unlawful for a)iy dc- 

8 veloper or agent, directly or indirectly, to make use of any 

9 means or instruments of transportation or conniiunication 

10 in interstate commerce, or of the mails, to sell or lease any 

11 lot in any subdivi.4on unless a sfatemeiit- of record with 

12 respect to such lot is in effect in accordance with section 

13 1407 and a printed property report, meetin*;; the require- 

14 ments of section 1408, is funiished to the purchasir in 

15 advance of the signing of any contract oi- agreement for 
Ifi sale or lease by the purchaser; and 

17 "(b) It shall be unlawful for any develo])er or agent 

18 thcveof subject to this title who directly or indirectly males 

19 use of any means of transportation or connnunicat'uin in 

20 interstate conmierce, or of the mails, in selling or leasing, 

21 or (hlering to sell or lease, any lot in a subdivision — 

22 **(1) to employ any device, scheme, or arlifire 

23 to defraud; or 

24 "(2) to obtain money or property ))y means of 



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30 

2 niiy untrue statement of a nuiterial fact, or any oniis- 

2 sion to state a material fact necessary in order to make 

3 the statements made not misleading, with respect to 

4 any information included in tlie statement of reco)*d or 

5 the property report or with respect to any other infor- 
5 mation pertinent to the lot or subdivision; or 

7 *'(3) to engage in any transaction, practice, or 

8 course of business which operates oi* would operate as a 

9 fraud or deceit upon a purchastn*. 

10 "(c) Any contract or agreement for the purchase or 

11 lease of a lot in a subdivision covered by this title, where 

12 the property report has not been given to the purchaser in 

13 advance or at the time of the purchaser's signing, shall be 
11 voidable at the option of the purchaser. 

15 "(d) A purchaser may revoke any contract oi* agree- 

16 ment for the purchase or lease of a lot in a subdivision 

17 covered by this title until midnight of the fourteenth day 

18 after signing the contract or agreement and the contract or 

19 agreement shall so provide.*'. 

20 (g) Section 1405(b) of such Act is amended l)y in- 

21 serting, immediately after '^amendment thereto", "or a re- 

22 (juest for an exemption," and b}' strikhig "not in excess of 

23 81,000". 

24 (h) (1) Section 1409(a) of such Act is amended to 

25 read as follows: 



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6 

SI 

1 '*{a) In administoriiio- tliis lilU? the Secretary shall 

2 cooperrtte witli State .-uithorities cliarged with tlie respousi- 

3 hihty of rooiilntiiif;- the sale of lots in subdivisions which are 

4 al.^o .subject to tills title. The Secretary ina}' accept for filing 

5 under >cction.s 140.') and 1408 and declare cffoctivc as a 
G stnlenieut of record and property report, material found 

7 acceptable by such authorities if the Secretary' finds such 

8 actio)! to ])e appropriate in the jnibllc interest oj- for tlie pro- 

9 tcctioji of pinvhasers. Tnless rhe Secretary has accepted 
10 State nijiteiials, the property- rep<n*t described in 5'ection 
ri 1408 shall be used in lieu of any Stati- disclosure document 

12 delivered to purchasers. 

13 (2) Section 1409 (h) of >uch Act is amended by strik- 
-j^.l ing '^Xfilhin;;-'' and insertin*;' in lieu thereof "JCxccpt as pro- 
25 vided in SMbsection (a) , nothing''. 

j(; (i) Section 1410 of such Act is amended to read as 

17 follows : 

13 "civil Tj.\niUTir.s 

J9 ''SKr. 1410. (a) A punba-er may bring an action at 

2Q laAv or in equity against a d* velo})cr oi* agent subject to this 

21 tide if tiie sale oi* lease was made in violation of (1) section 

22 140-1 (.'r) or (2) section 1104(b). In a suit authorized by 

23 this scctidu for violation of section MOl (a) or (b) , the 

24 court may order danniges. spt'cific i>erformance, or such other 

25 relief a^ ihe court deems fnir, just, and equitable. In deler- 



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32 

mining such relief the court shall take into account but not be 
Ihuited to the foUowmg factois: tlie contract price of the lot; 
the amount the pm'chaser actually paid ; the cost of any im- 

o 

provements to the lot; the fair market value of the lot at 
4 

the time of sale ; and the fair market value of the lot at the 
5 

^ time such suit was broudit. 
6 ^ 

"(I)) A purchaser may bring an action at law or in 
equity to enforce any right under section 1404 (c) or (d). 

o 

Q In a.ny suit to enforce a right created under section 1404 

-i/x (c) or (d) tlie purchaser, upon tender of an instnunent 

^.j divesting the purchaser of his or her interest in a lot, shall 

y be entitled to all moneys paid pursuant to such purcliaser's 

^ g con traxjt or agreement. 

14 " (c) A pm'clia.ser may l)ring an action at law or in 

15 equity against a developer or agent subject to this title if 

16 such developer or agent fails to c^ny out any obligation set 

17 forth in the statement of record and property report. 

18 "(d) The amount recoverable in a suit authorized by 

19 this section may include interest, reasonable attorne5'S' fees, 

20 independent appraisers' fees, and court costs. 

21 "(e) Eveiy person who becomes liable to make any 

22 payment under this section may recover contribution, as in 
2'^ cases of contract, frou) any person wlio, if sued separately, 
2-1 would have been liable to make the siune payment.". 



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33 

- (j) Section 1412 of such Act is amended to read as 

2 follows : 

g "L3MITATX0X OF ACTIONS 

^ *SSi:c. 1412. (a) Xo action slmll be maintained to en- 

t^ foico any jigiit created under clau>«e ( J ) of section 1410 (a) 

Q or under section 1410(b) unless brought within one j^ear 

ij after discovery of the violation upon which such liabilitj'' is 

g based. In no case .shall any such action be brought more 

9 than four years after the sale or lease notwithstanding de- 

10 lively of a deed to tluj ])urrhaser or the sale or assignment 

11 of the purchaser's contract or agreennnit to a third party. 

12 ''CO ^'o action shall be inaintniaed to enforce any 

13 right cKvited uiuler clause (2) of section 1410(a) unless 

14 brouglit within three years afiei- discovery of the violation 

15 upon which such liability is based or after discover}^ should 

16 have been made by tlic exercise of reasonable diligence. 

17 ''(c) Xo action shnll be nuiintnined to enforce a right 

18 creatrd under section 1410 (c) unless brought within three 
;19 yeai's after t]\c discovery of the violation upon v/hich such 

20 liabiliiy is based or after discovery should have been made 

21 hy the exercise of reasonable diligence, notwithstanding the 

22 delivery of a deed to the |)urcliaser.". 

23 (k) Section 1415 of siu-h Act is amended by addijig at 

24 the end thereof the following n< w subsections: 

25 "(e) Whenever the Secretary believes that any de- 



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9 



34 

2 veloper or agent is or has been engaged in (1) an act 

2 violative of this title or a nile or regulation prescribed 

3 pursuant thereto in a case which the Secretarj^ certifies is 

4 of substantial unportance or (2) recurring conduct viola- 

5 tive of any such provision, rule, or regulation, or that a 

6 developer or agent has failed to comply with the terms of 

7 any order issued by the Secretary, the Secretaiy may issue 

8 and serve upon such developer or agent a complaint stating 

9 the charges in that respect and containing a notice of a 

10 hearhig, at a time and a place therein fixed. Such hearing 

11 shall be on a date at least twenty days and not more tlian 

12 forty-five days after service of said complamt. The devel- 
IS oper or agent shall have the right to appear at the place 

14 and time so fixed and show cause why an order should not 

15 be entered l)y the Secretary requiring the developer or 

16 agent to cease and desist from the violation or failure to 

17 comply as so charged in said complaint. Notwithstanding 

18 the preceding sentence, if the developer or agent fails to 

19 file an an^wer and intention to appear within fifteen days 

20 after service of the complaint aiul notice, such developer 

21 or agent shall be deemed to have waived the right to a 

22 hearing and the Secretaiy may issue an order to cease and 

23 desist. The Secretaiy shall issue a decision within ten days 

24 after any hearing, and any order issued to coase and desist 

25 shall be efTective upon service on the developer or agent. 



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J ''(f) (1) Wlieucver the »Se(Tctaiy shall detcnnme thai 

2 the violatioii or faihuT to coiiiply specified in the complaint 

3 served upon an agent or developer pursuant to suhscction 
^ (e) of this flection i> likel}- seriousl}^ to prejudice the public 
5 interest, the Secretary inay i.-j^ue a temporary order requir- 
Q ing the developer or agent to cease and desist from any such 
rj violation or failure to comply. Such order shall l)ecome 

8 efTective upon service upon the developer or agent, and, 

9 imloso suspended b^^ a couit in proceedings authorized by 

10 paragraph (2) of this sul)section, shall remain cfTectivc and 

11 cnfon;oa))le pending the comphlion of the administrative 
1^ proceedings pursuant to the complaint and notiic, or if 

13 an order to cease and desist is issued againsl the de\elopcr 

14 or agent pursuant to subseelion. (e), until the eflective date 

15 of anj'suclj order. 

IG "(2) Within ten days after any agent or developer lias 

17 been served witli a (emporury ordi-r to cease and desist, such 

18 developer or agent may a])[)ly to the TTnitcd States district 

19 court for the judicial di-trict where the develojjer or agent 

20 is located, or to the T'nit^-^d Slak'S Disrrict Court for the 
.21 Dishict of Columbia, to determine whether such onler was 

22 arbitrary, capricious, or an abu?o of dlseretion, or wliether 

23 the order was issued in accordance with the ])roecdurL'^ 
*^ established hy law. The sole eli'ect of iuiy i^'i^CY of ihe court 
25 ^vill be ('iily to suspend the eifeciivenes^ of the tcjuporary 



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1 order to cease and desist, pending completion of the admin- 

2 istrative proceedings pursuant to the complaint and notice 

3 served upon the developer and agent under suhsection (e) 

4 of this section.". 

5 (1) Such Act is farther amended bj^ renumbering sec- 

6 tions 1417 through 1422 as sections 1418 through 1423, 

7 and by inserting after section 141G the following new section 

8 1417: 

9 "civil pexat.ties 

10 "Sec. 1417. (a) Any person who violates any provisions 

11 of this title or any rule, legulation, or order issued by the 

12 Secretary thereunder, may be subject to a civil penalty, in 

13 a determination by the Secretary after opportunity for a 

14 liearing, of not to exceed S5,no0 for eacli such violation. 

15 Each separate offense shall constitute a violation and, in the 

16 case of a continuing ofTense, each day shall cojistituto a 

17 separate violation. Any determination of the Secretaiy shall 

18 be subject to review only as provided in section 1411. 

19 '^(b) Penalties assessi»d puisihint to this section may be 

20 collected in an action brouglit l)y tiie Secretary in any district 

21 court of the United Slates. In any mc\\ action the validit}^ 

22 and appropriateness of the final dctmnination imposin<^ the 

23 penalty shall not be subject to review. 

24 " (c) The amount of sucli penalty, wIumi finally deter- 

25 mined, shall be payable to tin* L'niied States Treasury.'*. 



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i)5TH CONGRESS 
2d Session 



R R. 12574 



IN THE HOUSE OF REPRESENTATIVES 

May 4, 1978 

^f^. MiNiRii (for himself, Mr. Addabbo, Mr. Akaka, Mr. Anxunzio, Mr. Eil- 
BERo, Mr. Fary, Mrs. Fen wick, Mr. Florio, Mr. Gonzalez, Mr. Hanu.y, 
Mr. Harrington, Mr. Hollknbec'k, Ms. Holtzman, Mr. Hubbard, Mr. 
Hyde, Mr. Mitchell of Maryland, Mr. Neal, Mr. Patten, Mr. Richmond, 
Mr. RoDiNO, Mr. Roe, Mr. St Germain, Mr. Simon, Mrs. Spellman, and 
Mr. Vento) inti-oduced the following bill ; which was referred to the Com- 
mittee on Banking, Finance and Urban Affairs 



A bill 

To revise the Interstate Land Sales Full Disclosure Act. 

1 Be it enacted by the Senate and House of Representa- 

2 tives of the United States of America in Congress assembled, 

3 SHORT TITLE 

4 Section I. This Act may he cited as the "Interstate 

5 Land Sales Ifcform Act of 1978'\ 

6 exemptions 

7 Sec. 2. (a) (1) Paragraphs (1) and (2) of section 

8 1403(a) of the Interstate Land Sales Full Disclosure Act 

9 (15 U.S.C. 1702(a) (1) and (2)) are amended to read 
10 as follows: 



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1 " ( 1 ) the sale or lease of real estate not pursuant to 

2 a common promotional plan to o£fer or sell forty or 

3 more lots in a subdivision ; 

4 ''(2) the sale or lease of lots in a subdivision, all 

5 of which are forty acres or more in size ;". 

6 (2) Section 1402(3) of such Act (15 U.S.C. 1701 

7 (3) ) is amended by striking out "fifty'' and inserting in lieu 

8 thereof "forty". 

9 (b) Section 1403(a)(4) of such Act (15 U.S.C. 

10 1702(a) (4) ) is amended by inserting the following before 

11 the semicolon at the end thereof: "; except that the provi- 

12 sions of this title shall apply to sales and leases pursuant to 

13 court orders issued in connection with bankruptcy 

14 proceedings'*. 

15 PEOHIBITIONS AND BIGHT OF REVOCATION 

16 Sec. 3. (a) Section 1404 (a) (1) of the Interstate Land 

17 Sales Full Disclosure Act (15 U.S.C. 1703(a) (1)) is 

18 amended by striking out " ; and*' and inserting in lieu there- 

19 of"; or". 

20 (b) Section 1404(a) (2) (B) is amended to read as 

21 follows: 

22 " (B) to obtain money or property by means of 

23 any untrue statement of a material fact or any omis- 

24 sion to state a material fact necessary to make the 

25 statements made not misleading, with respect to any 



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3 

information included in the statement of record or 

2 the property report or with respect to any other 

3 information pertinent to the lot or the subdivision, 

4 or" 

5 (c) Section 1404(b) of such Act (15 U.8.C. 1703 

6 (b) ) is amended by striking out the last sentence thereof. 

7 (c) Section 1404 of such Act (15 U.8.C. 1703) is 

8 amended by adding at the end thereof the following new 

9 subsection: 

10 "(c) Any contract or agreement for the purchase or 

11 lease of a lot in a subdivision covered by this title shall be 

12 voidable at the option of the purchaser or lessee until mid- 
13 night of the thirtieth day following the signing of such con- 

14 tract or agreement and such contract or agreement shall so 

15 provide. Any contract or agreement for the purchase or 

16 lease of a lot in a subdivision covered by this title shall be 

17 voidable at the option of the purchaser or lessee for three 

18 years after the signing of the contract or agreement if— 

19 " ( 1 ) the signing of the contract or agreement takes 
2C place on the day on which the purchaser or lessee is first 

21 presented with the contract or agreement for the pur- 

22 chase or lease of the lot ; 

23 " (2) any part of the financing of such purchase or 

24 lease of such lot is provided by the developer, by an 

25 agent of such developer, or by any other partnership. 



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4 

1 association, corporadon, or other business entity with 

2 regard to which such developer or agent of such de- 

3 veloper or any person who has a financial interest in 

4 such developer, owns at least 30 per centum of such 

5 entity's financial assets ; except that this paragraph shall 

6 not apply to any arrangement for the financing of the 

7 purchase of a lot, which, as determined by the Secretary, 

8 provides that — 

9 "(A.) transfer of title to the purchaser of the 

10 lot shall occur within thirty days of the date of th^ 

11 signingof the contract or agreement; 

12 " (B) a formal foreclosure proceeding shall 

13 occur before such purchaser is deprived of such title 

14 in case of default or breach by the purchaser; 

15 '* (C) the purchaser of a lot shall establish 

16 equity in his lot proportional to his payments which 

17 are applied to reduce the principal amount of obliga- 

18 tion owed with respect to the lot; and 

19 " (D) the purcliaser shall not be obligated in 

20 any case to pay as damages, in the event of the 

21 purchaser's breach or default, any specified amount 

22 as liquidated damages or any amount in excess of 

23 the developer's proven damages ; or 

24 "(3) such contract or agreement does not contain a 



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5 

1 legally sufficient and recordable description of the bound- 

2 aries of the lot.''. 

3 INFORMATION BEQUIRED IN STATEMENT OF RECORD 

4 8ec. 4. Section 1406 of the Interstate Land Sales Full 

5 Disclosure Act (15 U.S.C. 1705) is amended by striking 

6 out "and'' at the end of paragraph (11), by striking out 

7 the period at the end of paragraph (12) and inserting 

8 in lieu thereof **; and", and by adding the following new 

9 paragraph at the end thereof: 

10 ''(13) copies of all printed material used by a 

11 developer or his agents to promote the purchase or lease 

12 of a lot in a subdivision covered l)y this title; tnmscripts 

13 of all television and radio advertisements used by a 

14 developer or his agents to promote the purchase or lease 

15 of such a lot; and accurate summaries of all verbal repre- 

16 sentations made by a developer or his agents to promote 

17 the purchase or lease of such a lot ; except that additional 

18 submissions of printed material, transcripts, or summaries 

19 pursuant to this paragraph shall not be construed to be 

20 changes affecting material facts under section 1407 (c) 

21 unless such additional printed material, transcripts, or 

22 summaries do reflect substantial changes in the repre- 

23 s(»ntation made by the developer, as detennined by the 

24 Secretary in regulations.". 



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6 

1 EFFECT ON STATE LAWS 

2 Sec. 5. Section 1409 of the Interstate Land Sales Full 

3 Disclosure Act (15 U.S.C. 1708) is amended by adding at 

4 the end thereof the following new subsection: 

5 "(c) Nothing in this title shall annul, alter, afifect, or 

6 exempt any dealer in land from complying with the laws 

7 of any State relating to the sale of interstate lands, except to 

8 the extent that those laws are inconsistent with the provi- 

9 sions of this title or rules, regulations or orders issued 

10 thereunder, and then only to the extent of the inconsistr 

11 ency.". 

12 DAMAGE AWABDS 

13 Sec. 6. Section 1410 of the Interstate Land Sales Full 

14 Disclosure Act (15 U.S.C. 1709) is amended to read as 

15 follows : 

16 "Sec. 1410. (a) Where any part of the statement of 

17 record, when such pai*t became eflFective, contained an untrue 

18 statement of a material fact or omitted to state a material fact 

19 required to be stated therein, any person acquiring a lot in 

20 the subdivision covered by such statement of record from the 

21 developer or his agent during such period the statement re- 

22 mained uncorrected (unless it is proved that at the time of 

23 such acquisition he knew of such untmth or omission) may, 

24 either at law or in equity, in any court of competent jurisdic- 

25 tion, sue the developer. 



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1 "(b) Any developer or agent, who sells or leases a lot 

2 in a subdivision — 

3 " ( 1 ) in violation of section 1404, or 

4 "(2) by means of a property report which con- 

5 tained an untrue statement of a material fact or omitted 

6 to state a material fact required to be stated therein, may 

7 be sued by the purchaser of such lot. 

8 ** (c) A purchaser or lessee may bring an action at law or 

9 in equity to enforce any right under sections 1404 (b) , 1404 

10 (<)) f 01* 1425 (b) . In any suit to enforce a right under section 

11 1404(b), 1404(c), or 1425(b), the purchaser or lessee, 

12 upon tender of an instrument divesting the purchaser of his 

13 or her interest in a lot, shall be entitled to all moneys paid 

14 pursuant to such purchaser's contract or agreement. 

15 "(d) (1) The suit authorized under subsection (a) or 

16 (b) may be to recover such damages as shall represent the 

17 difference between the amount paid for the lot, the reasonable 

18 cost of any improvements thereto, any reasonable court costs, 

19 and any reasonable cost incurred by the purchaser or lessee 

20 in connection with such suit for attorneys' fees, appraisal 

21 costs, and travel expenses to and from the lot, and the lesser 

22 of (A) the value thereof as of the time such suit was brought, 

23 or (B) the price at which such lot shall have been disposed 

24 of in a bona fide market transaction before the suit, or (C) 

25 the price at which such lot shall have been disposed of after 



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1 suit in a bona fide market transaction but before judgment. 

2 ''(2) The suit authorized under subsection (a) or (b) 

3 may, in lieu of a suit to recover damages, be for the purpose 

4 of securing specific performance of the contract or agreement 

5 and any other promises made by the developer or his agent 

6 in connection with such sale or lease. 

7 "(e) Every person who becomes liable to make any 

8 payment under thiij section may recover contribution as in 

9 cases of contract from any person who, if sued separately, 
10 would have been liable to make the same payment. 

U " (f ) In no case shall the amount recoverable under this 

12 section exceed the sum of the purchase price of the lot, the 

13 reasonable cost of improvements, reasonable court costs, and 

14 any reasonable cost incurred by the purchaser or lessee in 

15 connection with such suit for attorneys' fees, appraisal costs, 

16 and travel expenses to and from the lot.". 

17 STATUTE OF LIMITATIONS 

18 Sbc. 7. Section 1412 of the Interstate Land Sales Full 

19 Disclosure Act (15 U.S.C. 1711) is amended to read as 

20 follows: 

21 "STATUTE OF LIMITATIONS 

22 ''Sec. 1412. No action shall be maintained to enforce 

23 any liability created under section 1410 (a) or (b)(2) 

24 unless brou^t within three years after the discovery of the 

25 untrue statement or omission or after such discovery should 



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1 have been made by the exercise of reasonable diligence. No 

2 action shall be maintained to enforce any liability created 

3 under section 1410(1)) (1) or (c) miless brought within 

4 three years after the discovery of the violation upon which 

5 it is based or after such discovery should have been made by 

6 the exercise of reasonable diligence. In no event shall any 

7 such action be brought by a purchaser or lessee more than 

8 seven years after the sale or lease to such purchaser or 

9 lessee.". 

10 ADMINISTRATIVE REMEDIES 

11 Sec. 8. (a) Section 1415 of the Interstate I^nd Sales 

12 Full Disclosure Act (15 U.S.C. 1714) is amended by add- 

13 ing at the end thereof the following new subsections: 

14 "(e) If it appears to the Secretary at any time that 

15 there is a reasonable basis for believing that any developer 
1(5 or agent is violating or has violated any provision of this 

17 title or any rules or regulations prescribed pursuant thereto, 

18 or that a developer or agent lias failed to comply with the 

19 teniis of any order issued by the Secretary, the Secretary 

20 nuiy issue and serve upon such developer or agent a c(un- 

21 plaint stating the charges and containing a notice of a hcar- 

22 ing at a time and a place described therein. Such hearing 

23 shall be on a date at least twenty days and not more than 

24 sixty days after service of such complaint. The developer 

25 or agent shall have the right to appear at the place and time 



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1 of such hearing and show cause why an order should not 

2 be entered by the Secretary requiring the developer or agent 

3 to cease and desist from the violation or failure to comply 

4 as so charged in such complaint. If the developer or agent 

5 fails to file an answer and intention to appear within fifteen 

6 days after service of the complaint and notice, such developer 

7 or agent shall be deemed to have waived the right to a hear- 

8 ing and the Secretary may issue an order to cease and desist. 

9 The Secretaiy shall issue a decision within twenty days after 

10 any hearing, and any order issued to cease and desist shall 

11 be effective upon service on the developer or agent. 

12 '* (f ) ( 1 ) Whenever the Secretary determines that the 

13 violation or failure to comply specified in the complaint served 

14 upon an agent or developer pursuant to subsection (e) is 

15 likely to prejudice seriously the public interest, the Secre- 

16 tary may issue a temporary order requiring the developer 

17 or agent to cease and desist from any such violation or failure 

18 to comply. Such order shall become effective upon service 

19 upon the developer or agent, and, unless suspended by a 

20 court in proceedings authorized by paragraph (2) of this 

21 subsection, shall remain effective and enforceable pending 

22 the completion of the administrative proceedings pursuant 

23 to the complaint and notice, or, if an order to cease and 

24 desist is issued against the developer or agent pursuant to 

25 subsection (e) , until the effective date of any such order. 



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2 " (2) Withiii ten days after any agent or developer has 

2 been served with a temporary order to cease and desist, such 

3 developer or agent may apply to the United States district 

4 court for the judicial district where the developer or agent 

5 is located, or to the United States District Court for the Dis- 
5 trict of Columbia, to determine whether such order was 
7 arbitrary, capricious, or an abuse of discretion, or whether 
3 the order was issued in accordance with procedures estab- 
9 lished by law. The sole effect of any order of the court will 

10 be to suspend the effectiveness of the temporary order to 

11 cease and desist, pending completion of the administrative 

12 proceedings pursuant to the complaint and notice served 

13 upon the developer and agent under subsection (e) .". 

14 (b) The Interstate Land Sales Full Disclosure Act is 

15 amended by adding the following new section at the end 

16 thereof: 

17 "cniL PBNALTIBS 

18 "Sec. 1423. (a) Any person who violates any provi- 

19 sion of this title or any rule, regulation, or order issued by the 

20 Secretary thereunder shall be subject to a civil penalty, in 

21 a detennination by the Secretary after opportunity for a 

22 hearing, not to exceed $5,000 for each such violation. Each 

23 separate offense shall constitute a violation and, in the case 

24 of a continuing offense, each day shall constitute a separate 



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1 ' violation. Any determination of the Secretary shall be sul)ject 

2 to review only as provided in section 141 1. 

3 " (b) Penalties assessed pureuant to this section may be 

4 collected in an action brought by the Secretary in any district 

5 court of the United States. In such action the validity and 

6 appropriateness of the final determination imposing the 

7 penalty shall not be subject to review. 

8 " (c) The amount of such penalty, when finally deter- 

9 mmed, shall be payable to thie United States Treasury.". 

10 ADMINISTBATIOX 

11 Sec. 9. Section 1416(a) of the Interstate I^and Sales 

12 Full Disclosure Act (15 U.S.C. 1715(a)) is amended by 

13 inserting the following new sentence after the first senteiico 

14 thereof: "In carrying out this subsection, the Secretarj' shall 

15 appoint an Administrator of Interstate Land Sales who 
k; shall be responsible for carrying out delegations of functions, 

17 duties, and powers made by the Secretary under this sub- 

18 section and who shall report directly to the Secretary.". 

19 CKIMINAL TENALTJES 

20 Sec. 10. Section 1418 of the Interstate Land Sales Full 

21 Disclosure Act (15 U.S.C. 1717) is amended to read as 

22 follows: 

23 "penalties 

24 "Sec. 1418. Any person who willfully violates any of 

25 the provisions of this title or the rules and regulations pre- 



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1 scribed pursuant tliereto, or any person who willfully, in a 

2 statement of record filed under, or in a property report issued 

3 pursuant to, this title, makes any untnic statement of a mate- 

4 rial fact or omits to state any material fact required to be 

5 stated therein, shall upon conviction be fined not more than 
G $10,000 or imprisoned not less than one year nor more than 

7 seven years, or both.". 

8 REGULATION OF ADVERTISING 

9 Sec. 11. Section 1419 of the Interstate Land Sales Full 

10 Disclosure Act (15 U.S.C 1718) is amended by adding the 

11 following new sentence at the end thereof: "In canying out 

12 this section, the Secretary may make, issue, amend, and re- 

13 scind mles, regulations, and orders with respect to advertising 

14 and other promotional material w^hich may be used to pro- 
1-3 mote the sale or lease of lots in subdivisions covered by this 

16 title.". 

17 PUBLIC EDUCATION 

IvS Sec. 12. Section 1421 of the Interstate Land Sales Full 

19 Disclosure Act (15 U.S.C. 1720) is amended by inserting 

20 the following before the period at the end thereof: ", includ- 

21 ing sums which may be used hy the Secretary exclusively for 

22 public education concerning the dangei*s and difficulties inher- 

23 ent in the purchase or lease of lots in subdivisions covered by 

24 this title". 



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14 

1 PABENS PATEIAE 

2 Sp:c. 13. The Interstate Land Sales Full Disclosure Act 

3 is amended by adding the following new section at the end 

4 thereof: 

5 "parens patbiae bigiit to sue 

6 *'Sec. 1424. (a) (1) Any attorney general of a State 

7 may bring a civil action in the name of such State, as parens 

8 patriae on behalf of individuals residing in such State, in 

9 any district court of the United States having jurisdiction 

10 of the defendant, to secure monetary or injunctive relief as 

11 provided in this section for injury sustained by such indi- 

12 viduals by reason of any violation of this title, any violation 

13 of any rule, regulation, or order issued under this title, 

14 or any violation of other Federal law if such violation is also 

15 a violation of this title or of any rule, regulation, or order 

16 issued thereunder. The court shall exclude from the amount 

17 of monetary relief awarded in such action any amount of 

18 monetary relief — 

19 "(A) which duplicates amounts which have been 

20 awarded for the same injury ; or 

21 "(B) which is properly allocable to — 

22 "(i) individuals who have excluded their 

23 clauns pursuant to subsection (b) (2) of this sec- 

24 tion, and 

25 " (ii) any business entity. 



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1 "(2) The Court shall award the State as monetary 

2 relief the total damage sustamed as described in paragraph 

3 (1) of this subsection, and the cost of suit, including reason- 

4 able attorney's fees. 

5 "(b) (1) In any action brought under subsection (a) 

6 ( 1 ) of this section, the State attorney general shall, at such 

7 times, in such manner, and with such content as the court 

8 may direct, cause notice thereof to be given by publication. 

9 If the court finds that notice given solely by publication 

10 would deny due process of law to any person or persons, 

11 the court may direct further notice to such person or persons 

12 according to circumstances of the case. 

13 ''(2) Any individual on whose behalf an action is 

14 brought under subsection (a) (1) may elect to exclude from 

15 adjudication the portion of the State's claim for monetary 

16 relief attributable to such individual by filing notice of such 

17 election with the court witliin such time as specified in the 

18 notice given pursuant to paragraph (1) of this subsection. 

19 '' (3) The final judgment in an action under subsection 

20 (a) (1) shall be res judicata as to any claim under this 

21 section by any individual on behalf of whom such action was 

22 brought and who fails to give such notice within the period 

23 specified in the notice given pursuant to paragraph (1) of 

24 this subsection. 



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1 "(c) An action under subsection (a) (1) shall not be 

2 dismissed or compromised without the approval of the court, 

3 and notice of any proposed dismissal or compromise shall be 

4 given in such manner as the court directs. 

5 "(d) In any action under subsection (a), the amount 

6 of the plaintiff attorney's fee, if any, shall be determined 

7 by the court; and the court may, in its discretion award a 

8 reasonable attorney's fee to a prevailing defendant upon a 

9 finding that the State attorney general has acted in bad 

10 faith, vexatiousl}', wantonly, or for oppressive reasons. 

11 "(e) In any action under subsection (a) (1) of this 

12 section, in which there has been a determination that a de- 

13 fendant committed any violation of this title, any violation 

14 of any inile, regulation, or order issued under this title or any 

15 violation of other Federal law if such violation is also a viola- 

16 tion of this title or of any rule, regulation or order issued 

17 thereunder, damages may be proved and assessed in the 

18 aggregate by statistical or sampling methods, or by such 

19 other reasonable system of estimating aggregate damages as 

20 the court in its discretion may permit without the necessity 

21 of separately proving the individual claim of, or amount of 

22 damage to, persons on whose behalf the suit was brought. 

23 " (f ) Monetary relief recovered in an action under 

24 subsection (a) (1) shall— 



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1 " ( 1 ) be distributed in such manner as the district 

2 court in its discretion may authorize ; or 

3 "(2) be deemed a civil penalty by the court and 

4 deposited with the State as general revenues ; 

5 except that in either case any distribution procedure adopted 

6 shall afford each individual a reasonable opportunity to 

7 secure his appropriate portion of the net monetary relief. 

8 '* (g) (1) Whenever the Attorney General of the United 

9 States or the Secretary has brought an action under this 

10 title, under any rule, regulation, or order issued thereunder, 

11 or under any other Federal law with regard to a violation 

12 which is also a violation of this title or such rule, regulation, 

13 or order, and such Attorney General or the Secretary has rea- 

14 son to believe that any State attorney general would be en- 

15 titled to bring an action, under this section, based substan- 

16 tially on the same alleged violation of Federal law, he shall 

17 promptly give written notification thereof to such State at- 

18 tomey general. 

19 "(2) To assist a State attorney general in evaluating 

20 the notification described in paragraph (1) or in bringing 

21 any action under this section, the Attorney General of the 

22 United States or the Secretary shall, upon request by such 

23 State attorney general, make available to such State 

24 attorney general, to the extent permitted by law, any in- 

25 vestigative files or other materials which are or may be 



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1 relevant or material to the actual or potential cause of action 

2 under this section. 

3 " (h) For purposes of this section, the term *State attor- 

4 ney general' means the chief legal officer of a State, or 

5 any other person authorized by State law to bring actions 

6 under this section, including the corporation counsel of the 

7 District of Columbia, except that such term does not include 

8 any person employed or retained on — 

9 "(1) a contingency fee based on the monetary 

10 relief awarded under this section ; or 

11 " (2) any other contingency fee basis unless the 

12 amount of the award of a reasonable attorney's fee 

13 to a prevailing plaintifif is determined by the court under 

14 subsection (d) of this section.". 

15 IMPROVEMENTS DEALING WITH BASIC SERVICES 

16 Sec. 14. The Interstate Land Sales Full Disclosure Act 

17 is amended by adding the following new section at the end 

18 thereof: 

19 "improvements dealing with basic services 

20 "Sec. 1425. (a) Any developer or agent who agrees or 

21 promises to provide basic services in connection with a lot 

22 in a subdivision covered by this title shall deposit in escrow, 

23 withm ninety days after the signing of the contract of sale 

24 or lease, an amount to be determined by the Secretary, ex- 

25 cept that such amount shall not be less than an amount equal 



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2 to the total cost of the basic services which have been 

2 promised and not completed with respect to the subdivision 

3 at the time of the agreement or promise, divided by the 

4 pumber of lots in flie subdivision which will receive such 

5 services. Such total cost and number of lots shall be deter- 
5 mined by a registered engineer and shall be certified to the 

7 Secretary by the engineer. The costs of such determination 

8 shall be paid by the developer. Such escrow shall be de- 

9 posited in an account at a banking or similar financial insti- 

10 tution approved by the Secretary and shall be withdrawn and 

11 utilized pursuant to rules issued by the Secretary for the pur- 

12 pose of assuring that such amount be used solely for provid- 

13 ing the basic services which are to be provided in connection 

14 with such lot. For purposes of this section, the term 'basic 

15 services' means water, sewage disposal, roads, and any other 

16 amenities which may be specified by the Secretary. If, in the 

17 Secretary's judgment a State's requirement with respect to 

18 the establishment of escrow accounts in connection with the 

19 sale and lease of real property located in such State is suffi- 

20 cient to meet the purposes of this section, he may waive the 

21 requirements of this section with respect to property located 

22 in such State. 

23 " (b) If any developer promises before or at the time of 

24 the signing of a contract for the sale or lease of a lot in a 

25 subdivision covered by this title, to install or complete basic 



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20 

1 services which will scn'e the lot of a purchaser or lessee by 

2 a specific date, and if such developer fails to install or com- 

3 plete such basic services by such promised date, the contract 

4 of sale shall be revocable at the option of the purchaser, 

5 and upon revocation, such purchaser may recover all moneys 

6 which have been paid to the developer for the purchase or 

7 lease of his lot/'. 

8 E1TECT1VJ5 DATE 

9 Sec. 15. The amendments made by this Act shall be- 

10 come effective at the be^nning of the one hundred and 

11 twentieth day after the date of the enactment of this Act. 



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95th congress 
2d Session 



S. 3084 



AN ACT 

To amend and extend certain Federal laws relating to housing, 
conununity, and neighborhood development and preserva- 
tion, and related programs, and for other purposes. 

^ Be it enacted by the Senate and House of Bepresenta- 

2 txves of the United States of America in Congress assembled, 

3 That this Act may be cited as the "Housing and Commu- 

4 nity Development Amendments of 1978''. 



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103 

13 AI^IENDMBNTS TO INTERSTATE LAND SALES FULL 

14 DISCLOSURE ACT 

15 Sec. 715. (a) Section 1403(a) of such Act is 

16 amended — 

17 (1) by inserting "condominium," after "commer- 

18 cial," in clause (3); 

19 (2) by inserting after "adverse claims do not refer 

20 to" in clause (10) tlie following: "United States land 

21 patents or Federal grants and reservations similar to 

22 United States land patents, nor to" ; and 

23 (3) by striking out the matter which precedes 

24 "when — " in clause (11) and inserting in lieu thereof 

25 the following: 



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104 

1 "(11) tJie sale of lease of real estate which is 

2 zoned by the appropriate governmental authority for 

3 mdustrial or commercial development or which is re- 

4 stricted to such use by a declaration of covenants, 

5 conditions and restrictions which has been recorded in 

6 the official records of the city or county in which such 

7 real estate is located,". 

8 (b) Section 1403 of such Act is amended — 

9 (1) by redesignating subsection (b) thereof as 

10 subsection (c) ; and 

11 (2) by inserting after subsection (a) thereof the 

12 following: 

13 "(b) Unless the method of disposition is adopted for 

14 the purpose of evasion of this title, the requirements of sec- 

15 tions 1405 to 1408 inclusive, shall not apply to — 

16 "(1) the sale or lease of real estate by a de- 

17 veloper who is engaged in a sales operation which is 

18 intrastate or almost entirely intrastate in nature. A sales 

19 operation shall be considered 'intrastate or almost en- 

20 tirely intrastate in nature' for tlie calendar year if not 

21 more llian 5 per centum of (he lots sold in such year 

22 were sold to residents of another State, or if not more 

23 than five lots sold in such year were sold to resideni* 

24 of nnotlier State, wliiehever is greater, exclusive of s.-il**^ 

25 made under the provisions of clause (2) of this sul>- 



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105 

J section. For the purpose of the exemption contained in 

2 the preceding sentence, a lot may be sold to a resident 

3 of another State only if — 

4 " (A) the lot is free and clear of all liens, en- 

5 cumbrances, and adverse claims ; 

Q "(B) the purchaser or his or her spouse has 

7 made a personal on-the-lot inspection of the lot pur- 

8 chased; and 

9 "(0) the developer executes and supplies to 

10 the purchaser a written instrument designating a 

11 person within the State of residence of the pur- 

12 chaser as his agent for service of process and 

13 acknowledging that the developer submits to the 

14 legal jurisdiction of the resident State of the 

15 purchaser. 

16 As used in this clause (1), the tcims 'liens', 'encum- 

17 brances', and 'adverse claims' do not include United 

18 States land patents and similar Federal grants or reserva- 

19 tions, property reservations which land developers com- 

20 monly convey or dedicate to local bodies or public 

21 utilities for the pui-pose of bringing public services to 

22 the land being developed, taxes and assessments imposed 

23 by a State, by any other public body having authority 

24 to assess and tax property, or by a property owners' 

25 association, which, under applicable State or local law. 



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106 

1 constitute liens on the property before they are due and 

2 payable, or beneficial property restrictions which would 

3 be enforceable by other lot ownei*s or lessees in the 

4 subdivision, if — 

5 *'(i) the developer, prior to the time the con- 

6 tract of sale or lease is entered into, has furnished 

7 each purchaser or lessee with a statement setting 

8 forth in descriptive and concise terms all such 

9 reservations, taxes, assessments, which are appli- 

10 cable to the lot to be pm-chased or leased; and 

11 "(ii) receipt of such statement has been 

12 acknowledged in writing by the purchaser or lessee; 

13 " (2) the sale or lease of real estate by a developer 

14 to the resident of another State when the principal 

15 residence of the purchaser is within a radius of one 

16 hundred miles from the propert)' purchased if — 

17 "(A) the lot is free and clear of all liens, 

18 encumbrances, and adverse claims; 

19 "(B) each purchaser or his or her spouse ha^ 

20 made a personal on-tlie-lot inspection of the lot 

21 purchased ; and 

22 "(C) the developer executes and supplies to 

23 the purchaser a written instrument desiguntiii;jr a 

24 pei-sou within the State of residence of the purcha.M»r 

25 as his agent for service of process; and acknowl- 



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107 

1 edges that the developer submits to the legal juris- 

2 diction of the resident State of the purchasci-s ; and 

3 " (D) the developer executes a written affirma- 

4 tion to the eflect that he has complied with the pro- 

5 visions of clauses (A) , (B) , and (0) of this clause 
G (2), such aflSrmation to be given on a fonn pro- 

7 vided by the Secrctar}^ where such fonn shall in- 

8 elude only the name and address of the developer, 

9 the name and address of the puichaser, a legal 

10 description of the lot, an affinnation that clauses 

11 (A), (B), and (C) have been complied with, a 

12 statement that the developer submits to the juris- 

13 diction of the Act in regard to the sale, and the sig- 

14 nature of the developer. The affinnation is to be 

15 kept on file by the Secretary.". 

16 Sales made under this clause shall not be subject to the 

17 limitation contained in clause (1) but the number of 

18 sales made under this clause will be added to sales made 

19 under clause ( 1 ) to amve at the total number of sales 

20 made in one year by a developer for puiTposes of calcu- 

21 lation of the 5 per centum out-of-State sales limitation 

22 factor contained in clause ( 1 ) . As used in this clause 

23 (2), the teims 'liens', 'encumbrances', and 'adverse 

24 claims' do not include United States land patents and 

25 similar Federal grants or reseiTations, property reserva- 



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108 
tions which land developers commonly convey or ded- 

2 icate to local bodies or public utilities for the purpose 

g of bringing public services to the land being developed, 

^ taxes and assessments imposed by a State, by any other 

^ puWic body having authority to assess and tax property, 

g or by a property owners' association, w^hich, under ap- 

rj plicable State or local law, constitute liens on the prop- 

g erty before they are due and payable, or beneficial 

9 property restrictions which would be enforceable by 

10 other lot owners or lessees in the subdivision, if— 

11 "(i) the dcveloi)er, prior to tlic time the con- 

12 tract of sale or lease is entered into, has famished 

13 each purchaser or lessee with a statement setting 

14 forth in descriptive and concise tcnns all such res- 

15 ers'ations, taxes, assessments, which are applicable 

16 to the lot to be purchased or leased ; and 

17 " (ii) receipt of sucli statement has been 

18 acknowledged in writing by the purchaser or 

19 lessee ; or 

20 " (3) the sale or lease of real estate which is located 

21 within a municipality or county whose goveniing body 

22 specifies minimum standai-ds for the development of siil>- 

23 division lots taking place within its boundaries, when— 

24 "(A) the subdivision meets all local codes nii'l 

25 standards and is either zoned for single family rc>i- 



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109 

1 dences or, in the absence of a zoning ordinance, is 

2 limited exclusively to single family residences; 

3 "(B) the real estate is situated on a i)aved, pub- 

4 lie street or highway which has been built to a 

5 standard acceptable to the municipality or coimty or 

6 a bond or other surety acceptable to the municipalit)' 

7 or county in the full amount of the cost of the im- 

8 provements has been posted to assure completion to 

9 such standards, and that authority has accepted or 

10 has agreed to accept the responsibility of maintaining 

11 the public street or highway; 

32 "(C) at the time of closing, potable water, 

13 sanitaiy sewage disposal and electricity have been 

14 extended to the real estate or the municipality or 

15 county has agreed to install such facilities within 

16 180 days. For subdivisions which do not have a 

17 central water or sewage disposal system, rather than 

18 installation of water or sewer facilities, there must 

19 be assurances that an adequate potable water sup- 

20 ply is available year-round or that the land is ap- 

21 proved for the installation of septic taiiks ; 

22 "(D) the contract of sale requires delivery 

23 of a warranty deed to the purchaser within 180 
days of the signing of the sales contiact ; 

*' (E) a policy of title insurance or title opinion 



U 



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110 

1 is issued in connection with the transaction showing 

2 that at the time of closing, title to the real estate 

3 purchased or leased is vested in the seller or lessor, 

4 but nothing herein shall be construed as requiring 

5 the recordation of a lease ; 

6 "(1) each and eveiy purchaser or his or her 

7 spouse has made a personal on the lot inspection 
S of the real estate which he purchased or leased, 
9 prior to the signing of a contract to purchase or 

10 lease; 

n *'(f^) there are no direct mail or telephone 

12 solicitations or offers of gifts, trips, dinners, or other 

13 such promotional techniques to induce perspective 

14 purchasers or lessees to visit the subdivision or to 
j5 purchase or lease a lot. 

IG "(^) »^eetion 1412 of such Act is amended by striking 

17 the last sentence and inserting in lieu thereof 'In no event 

13 shall any action be brought by a pmchaser more than three 

19 ye^i*^ ftftei* tl^c signing of a contract Or lease, not with>t:uul- 

20 ing delivery of a deed to a purchaser on the sale or assi^rn- 

21 ment of the purchaser's contiact or agreement to a third 

22 P^ity/". 

23 (^') ^'^^'^•^ion 14 J G of such Act is amended by addiiiii 

24 at the end thrreof the following: 

25 "(^) (^) ^^* discharging his responsibilities umVr t»us 



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111 

1 title, the Secretary shall conduct all actions with respect 

2 to rulemaking or adjudication in accordance with the provi- 

3 sions of chapter 5 of title 5, United States Code. 

4 "(2) The Secretarj', by rule, shall prescribe the pro- 

5 cedure applicable to every case pursuant to this title of 
C adjudication (as defined in section 551 of title 5, United 

7 States Code) not required to be determined on the record 

8 after notice and opportunity for hearing. Such rule shall, 

9 as a minimum, provide that prompt notice shall be given 

10 of any advei*se action or final disposition and that such notice 

11 and the entry of any order shall be accompanied b)' a state- 

12 ment of legal authority and other written reasons.". 



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SUMMARY OF INTERSTATE LAND SALES REFORM ACT OF 1978 
H.R. 12574 (MINISH BILL) 

Section 2 - Subdivisions of less than 40 lots and subdivisions containing lots over 40 acres 
each are exempt. 

- Deletes existing exemption for sales pursuant to bankruptcy proceedings. 

Section 3 - Adds omissions to state material facts as violaUons and eliminates requirement 

of proof of reliance in order to establish material misrepresentation as a violation. 

- Provides an absolute 30-day right of recission for lot purchasers. 

- Provides that purchaser has right to void contract at any time during 3 years 
after signing contract if: 

(a) contract signed on first day contract is offered, 

(b) contract does not contain a legally sufficient and 
recordable description of the lot, or 

(c) the developer provides financing except when title 
is transferred within 30 days of signing contract, 
formal foreclosure proceedings take place before 

loss of title, purchaser establishes equity proportional 
to payments and on default, and purchaser not required to 
pay liquidated damages greater than de\'elopers proven 
damages. 

Section 4 - Copies of advertising and sales pitches must be filed as part oi Statement of Record. 

Section 5 - Nothing in Act shall affect requirement that person comply with State laws regarding 
sale of interstate land except to extent State laws are inconsistent with this Act. 

Section 6 - Elands damages consumer may recover in civil suit under Act to include attorney^ 
fees, travel expenses and appraisal costs. Purchasers may sue for specific 
performance of promises made by developers and on tender of the contract or deed 
pursuant to suit to enforce rights may be entitled to a total refund of monies paid 
pursuant to the contract. 

Section 7 - Extends statute of limitations to a maximum of 7 years after sale or lease. 

- Lengthens statute of limitations to 3 years after discovery for suit on basis of 
untrue statement or omission and for suit on basis of failure to file a statement 
of record or to give purchaser a prc^erty report. 

Section 8 - Gives OILSR authority to issue cease to desist oi-ders against developers and to 
impose civil penalties on developers after an administrative hearing. 

Section 9 - Directs Secretary of HUD to appoint an Administrator of interstate Land Sales. 



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Section 10 -* Raises the criminal penalties for violators of the Act from a maximimi of 
$5, 000 and 5 years imprisonment to maximum of $10, 000 and 7 years 
imprisonment. 

Section 11 - Clarifies HUD authority to regulate advertising by developers. 

Section 12 - Authorizes HUD to expend funds for public education concerning problems of 
buying property covered by tliis Act. 

Section 13 - **Parens Patriae" section allows attorney general of a State to bring civil actions 
on behalf of citizens of his State %vlio have purchased land against developers 
who have violated this Act. 

Section 14 - Requires that developers who promise to provide basic services, such .as water, 
sewage disposal and electricity establish escrow accounts to assure completion 
of these services. 
- Lot purchasers may revoke contracts of sale if developers fail to install basic 
services by date specified. 



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Summary <f Administration's Proposed Amendments to 
Interstate Land Sales Full Disclosure Act 
H. R. 11265 



Sec. 421(a}: Raises from 50 to 100 lots the size of a subdivision within 
the jurisdiction of the Act. 

Sec. 421(b) and (c): The sale or lease of subdivisions of less than 100 lots, 
or where all lots are more than 40 acres, are exempt from 
the Act. 

Sec. 421(d): The sale or lease of land under or pursuant to a court order, 
where the Secretary of HUD determines it to be in the public 
interest, is exempt. 

Sec. 421(e): Eliminates exemption from the Act for the sale or lease of 

unencumbered land after the on-site inspection by the purchaser. 

Sec. 421(f): Adds prohibition against omissions to state material facts and 

eliminates requirement of proof of purchasers reliance in order 
to establish material misrepresentation as a violation. 

Sec. 421(f): Creates unqualified right of revocation unkH the 14th day after 
signing contract. 

Sec. 421(g): Deletes the $1000 ceiling on the fee for filing, and adds requirement 
that such a fee be paid for filing a request for exemption. 

Sec, 421(h)(1): Unless the Secretary has accepted state approved materials, 

the property report shall be used in lieu of any state disclosure 
document. 

Sec. 421(i): In a civil suit b>' the purchaser, court may order damages, 

specific performance, or such other relief as the court deems 
fair, just, and equitable; the couil must take into account: the 
lots contract price, the price actually paid by the purchaser, the 
cost of any improvements, the fair market value at the time of 
sale, fair market value at time suit was initiated; a purchaser 
may sue to revoke the contract where no propert>' report was given 
at the time of signing, and the purchaser, upon divestment of his 
or her interest in the lot, shall be entitled to all monies paid 
pursuant to the contract; the purchaser may sue if developer does 



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2 

not fulfill any obligation set forth in the statement of record or 
property report; the amount recoverable in such a suit may 
include: interest, reasonable attorneys' fees, independent 
appraisal fees, and court costs; 

Sec. 421(g): -The statute of limitations for any right where no property 

report has been supplied, or no statement of record or property 
report filed is one year after discovery, but not more than four 
years after the sale notwithstanding deliveiy of the deed, or 
assignment of the contract; 
-the statute of limitations for actions based on fraudulent schemes, u 
true statements or omissions, or failure b>' developer to fulfill 
promises is three years after discover^'. 

Sec. 421(k): Secretary may issue cease and desist orders. 

Sec. 421(1): Developer may be subject to a civil penalt}' of no more than $5,000 
per violation. 



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Suxnmazy of Senate Amendments to Interstate Land 
Sales Full Disclosure Act (Nelson Bill) 



Senate Bill does the following: 

Sec. 715(a)(3): An exemption from all provisions of the Act is added for 
real estate restricted to commercial or industrial use k^ 
recorded covenants. The conunercial exemption is now 
limited to property restricted k^ zoning. 

Sec. 715(b)(2)(b): Exemption from Registration and Property Report requirements for 
three new categories: 

(A) developments where not more than 5% or five lots (whichever 
is greater) are sold to out-of-state residents if title is clear 
of all liens and an onsite inspection has been made; 

(B) sales made to out-of-state purchasers living within 100 miles 
of the property under same conditions as above; 

(C) real estate located in a mimicipality with subdivision 
development standards if (1) the subdivision meets all local 
codes and standards, (2) is limited to single family residences, | 
(^ is on a paved public street which the municipality has agreed 
to maintain, (4) water, sewage and electricity in place, (5) a 
deed will be delivered within 180 days, (6) title insurance 
issued, (7) on site inspection has been made, and (8) direct 
mail and telephone or similar solicitations and promotions 
have not been employed. 

Sec. 715(c): Maintains present 3-year maximum statute of limitations. 



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55 

Chairman Ashley. I look forward to the advice of the witnesses 
who will testify during the next 3 days and hope that they will not 
limit their comments solel v to the proposals before us. 

These proposals are only a starting point for reviewing the present 
state of the industry, the effectiveness of HUD's administration of the 
existing act, and the need for statutory changes. 

We will be pleased to hear first from our colleague. Congressman 
Joseph G. Minish. At my suggestion, his Subcommittee on General 
Oversight and Renegotiation, as most of you know, has conducted 
extensive hearings which have provided the basis for the reforms 
included in H.R. 12574. 

I do commend Congressman Minish and his subcommittee for their 
efforts and their recommendations now before us. After Mr. Minish, 
we will hear from Jean Halloran, accompanied by Leslie Allan, and 
then from Patricia M. Hynes, who will be properly introduced in a 
few minutes. 

So our first witness, with the cleanest teeth in the room, I am sure, 
is our colleague from New Jersey, Congressman Minish. I want to 
say that there isn't a more worthy and respected member of the full 
committee than the chairman of the Subcommittee on Gteneral Over- 
sight and Renegotiation. 

He has done outstanding work in a number of areas, not the least 
of which is the area that is of interest at this time ; namely the status 
of the Interstate Land Sales Full Disclosure Act. 

So if you will proceed, Mr. Minish, we will be grateful to you. 

STATEMENT OF HON. JOSEPH G. MINISH, A BEPSESENTATIVE IN 
CONOSESS FBOM THE STATE OF NEW JEESET 

Mr. MixiSH. Thank you, Mr. Chairman. 

Members of the subcommittee, thank you for inviting me to testify 
on the subject of interstate land sales. 

At the rec|uest of Chairman Ashley, the Oversight Subcommittee 
of the Banking Committee, of which I am chairman, conducted an ex- 
tensive investigation of the land development industry. This included 
the first comprehensive review of the Interstate Lana Sales Full Dis- 
closure Act since its inception in 1968. We held hearings in April^ at 
which we heard testimony from more than 30 witnesses, representmg 
Federal and State governments, industry, public interest groups, and 
consumers. Various other interested parties submitted written testi- 
mony to our subcommittee. I would like to share the findings of our 
investigation with you. 

Our primary finding was that consumers are not adequately pro- 
tected by present laws. Although several Federal and State agencies 
have taken steps toward cleaning up the land sales industry, severe 
problems remain. Literally millions of consumers continue to be de- 
frauded or disappointed by land developers every year. Unfortu- 
nately, the shady developers tend to prey on those who are least able 
to protect themselves; consumers who are elderly, poorly educated, 
or unsophisticated, constitute prime markets for land schemes. 

I believe that the problems in the land sales industry result in large 
part from three basic facts : 

Fact No. 1 : Land Sales regulation is an "orphan," especially within 
the Federal Government. Although a number of Federal agencies at- 



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tempt to police land sales, none of them has been able to devote the 
time and resources necessary to insure regulation with teeth. The pri- 
mary regulator, the Office of Interstate Land Sales within HUD has a 
total of 107 employees and a yearly budget of less than $3.5 million 
with which it attempts to oversee a multibillion dollar industry. The 
Federal Trade Commission and the Securities and Exchange Commis- 
sion have done some regulating but only on a very limited basis. Many 
States do not even have statutes dealing with land development and 
only a handful have laws which even approach being adequate. Local 
laws vary widely and the least sophisticated ordinances are often in 
the same rural areas which are the primary target of developers. 

Fact No. 2 : Disclosure by itself cannot prevent abuses in the land 
sales industry. The selling practices of the land sales industry work 
against effective disclosure. Any land salesman will tell you that a sale 
T^ich is not closed on the same day the sales pitch is made is almost 
always lost. The high pressure push toward same-dav closings run 
directly contrary to the theory of disclosure. In real life, land buyers, 
who usually purchase at sales dinners or on their first visit to develop- 
ments, rarely have a chance to read, much less imderstand, the infor- 
mation in the property report. 

Fact No. 3 : There are a number of commonplace practices within 
the land sales industry which are extremely imfair to consumers. 
Among them are : the financing of lot purchases through installment 
contracts which give buyers almost no protection for their money; the 
promising of improvements such as water, sewage disposal and recre- 
ational facilities which the developer cannot complete ; high pressure 
sales tactics designed toward insuring same-day closings; and false 
or misleading advertising. 

None of these practices can be controlled by a simple disclosure 
statute and all of them should be discouraged. Most of the consumer 
abuses in the land sales industry can be eliminated without putting 
developers out of business. The bill which I and 26 of my colleagues 
have introduced, H.R. 12574, would eliminate many of the worst con- 
simier abuses in the land sales industry without seriously affecting 
honest developers. 

I am happy to report that five of the members of this subcommittee. 
Representatives St Germain, Gonzalez, Mitchell, Hanley, and Spell- 
man, have decided to cosponsor this bill. I would like to discuss a few 
of its major provisions, but before I do so, I want to speak briefly <m 
another measure being considered by this subcommittee, the "Nelson 
bill," which has been incorporated into the Senate version of the Hous- 
ing Act of 1978. 

During the investigation and the subsequent hearing which my sub- 
committee held, we received testimony from various mdustry sources 
which suggested that OILSR has overstepped its jurisdiction by regu- 
lating some small, primarily intrastate developers. This may, m fact, 
be the case and there may be some need for legislation which clarifies 
the jurisdiction of OILSR. However, I question whether the Nelson 
bill IS the way to accomplish this. 

I think that the Nelson bill, in its present form, is an imwise pro- 
posal. It will exempt some of the worst interstate developers in the 
country from the requirements of the Interstate Land Sales Full Dis- 
closure Act. It contams complicated and probably unworkable exemp- 



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tions which will leave developers, consumers, and HUD uncertain as to 
who is covered by the Federal law. Although it may be possible to 
draft amendments to the Interstate Land Sales Act, which exempt 
only some intrastate developers, this proposal does not accomplish 
that. It is far too broad and contains loopholes which would allow 
manv large interstate developers to escape Federal regulation. 

I know that HUD intends to testify as to the problems of the Nelson 
bill. In general, I concur with its analysis. There are, however, sev- 
eral difficulties which I think deserve special mention. 

First, the two main exemptions in this bill, the five lot or 5-percent 
exemption and the 100-mile exemption, are vefry complicated yet they 
are self -executing. This means that many developers may think they 
qualify for exemptions and then be forced to cancel sales contracts 
when they find out later that they are covered by the Interstate Land 
Sales Act. 

Second, the Nelson proposal makes the fraud provisions of the act 
applicable to all developers covered by that law, even if they qualify 
for the Nelson exemptions. However, as was pointed out by several 
witnesses in the Senate Banking Committee's hearings on land sales, 
criminal prosecutions or civil suits are almost impossible to bring 
without the benefit of the information provided in the statement of rec- 
ord. Without the information provided under the disclosure sections 
of the Interstate Land Sales Act, attorneys for buvers will be operat- 
ing in the dark. The fraud provisions, by themselves, will be silmost 
meaningless. 

Third, one section of this proposal requires OILSR to comply with 
the Administrative Procedures Act. OILSR already does this by reg- 
ulation. No one seems to know which this section is in the bill. 

Fourth, the provision of the Nelson bill that concerns me most is the 
100-mile radius exemption. This exempts sales to people who live 
within 100 miles of the developer. It is a lot-by-lot exemption which 
means that no matter how big or how bad the developer is, he may sell 
to anyone within 100 miles of his development, without being covered 
by the Federal law. I would like to ^ve one example of the nightmares 
which would occur if this provision is adopted. 

One of the primary areas for land subdivision in the East is the 
Pocono Mountains of Pennsylvania. Within 100 miles of most Pocono 
developments are the metropolitan areas of New York City, northern 
New Jersey, and Philadelphia. Taken together, these three areas repre- 
sent a market of ovefr 20 million people. Under the Nelson bill, none 
of these people would be protected by the Federal disclosure require- 
ments if they bought lots in the Poconos. 

During our hearings, our subcommittee heard testimony concerning 
a number of very poor subdivisions in the Poconos. One will serve as 
a good example. 

Sherwood Forest, near Newfoundland, Pa., sold over 800 lots during 
1972 and 1973. Three hundred and sixty-five of the lots were sold to 
people from New Jersey. At least 30 of the buyers are my constituents. 
Most of the other lots were bought by residents of the Philadelphia 
or New York metropolitan areas. Among other things, Sherwood 
Forest promised improvemefnts such as sewage disposal and water, 
which it never completed. It concealed from prospective buyers a dis- 
pute with local township authorities which made Sherwood Forest 



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unable to deliver clear title to the lots it sold. It used high-pressure 
sales tactics and committed other consumer abuses. 

Today, 6 years after most sales took place at Sherwood Forest, the 
buyers are unable to build on their lots, thejr can't sell their lots because 
of the clouded titles and the inability to build, and they have been un- 
able to get any money back from Sherwood Forest, which is now 
ins olven t. 

HUD suspended Sherwood Forest from selling lots and recom- 
mended that several of the principals be prosecuted for violaticms of 
the Interstate Land Sales Act and the Federal mail fraud statutes. If 
the Nelson bill had been in effect in 1972 and 1973, the great majority 
of the sales made by Sherwood Forest would have been exempt from 
most of the major provisions of the Interstate Land Sales Act. The 
situation at Sherwood Forest would be even more of a travesty than 
it is todav. 

If the Nelson bill, as presently in the Senate Housing Act, is passed, 
there will be new Sherwood Forests all over the Poconos and other 
areas of the country and the Federal Grovemment will be unable to 
intervene in any meaningful way. Although there may be some need 
for a clarification of OIISR'S iurisdiction, it would be very wrong to 
make that the major thrust of land sales legislation. The people who 
suffer most under the present law are not the developers; they are 
consumers. 

As you may know, a number of the provisions of my bill closely 
parallel provisions in the administration's proposal, Tf'hese include 
restrictions on the statutory bankruptcy exemptions, an absolute ri^ht 
of recision for lot purchasers, the prohibition of omissions of material 
facts by developers, a provision which allows purchasers to sue for 
specific performance of promises made by the developer, extension of 
tne statutes of limitations on civil suits under the Land Sales Act, and 
provisions which allow OILSR to issue cease-and-desist orders and 
to impose civil penalties. My bill does go beyond the administration's 
proposal in several key areas. I would like to mention three of them. 

Our bill attempts to eliminate the use, in its present form, of the in- 
stallment-contract method of financing lot purchases. Under the tradi- 
tional installment contract, the purchaser agrees to pay for his lot over 
a period of years, usually 7 to 10, through monthly installments. There 
is no transfer of title to the purchaser until he has completed payments 
and, in many cases, purchasers who finish paying discover that the 
developer is unable to deliver clear title. Most installment contracts 
contain a "liquidated damages" clause which provides that in the case 
of default by the purchaser, all money paid by the purchaser is re- 
tained by the developer. Thus, the purchaser builds no equity propor- 
tional to his payments as he would under a traditional mortgage 
method of financing. In some cases, purchasers have paid over 90 per- 
cent of what they owe and then have been left with nothing when they 
cannot continue to pay. 

Another problem which results from the installment contract 
method of financing is that developers often sell the installment con- 
tracts to third parties. The purchaser then owes his payment to the 
third party, but, because of the holder in due course laws, the pur- 
chaser cannot force the third party to fulfill any of the obligations of 
the developer. In addition to sill these problems, because the purchaser 



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does not get title until he has completed pajrments, he may not be 
able to use the property for 7 to 10 yefars after he signs the contract 
of sale. 

In short, consiuners who buy imder installment contracts are all- 
around losers. 

Our bill would prevent this abuse by insuring that developers who 
extend credit for tne purchase of their own lots, do so by means of the 
more traditional mortgage or deed — deed of trust arrangements. They 
would have to use contracts which provide for formal foreclosure 
proodedings in case of default and which do not contain liquidated 
damages clauses. This would insure far more protection to the 
consumer. 

A sec(md provision of our bill requires that developers who promise 
to provide basic services such as water, sewage disposal, and electricity 
must establish escrow accounts which insure completion of these 
services. During our investigation, we found that developers often 
promise all lsm& of improvements as part of their sales pitch. In mmj 
cases, those developers are financially unable to keep their i>romises 
and thus force lot buyers to spend money which they never anticipated 
having to spend. A number of States already have escrow requirements 
which have provided increased consumer protection without imposing 
excessive economic burdens on developers. 

The third major reform which our bill provides is our "parens 
patriae'' section. We found that many people who have civil causes of 
action under the present Interstate Land Sales Act are imable to bring 
suit because individual suits are too expensive and it is too difficult to 
bring class actions in Federal court. 

Our parens patriae section allows the attorney general of a State to 
bring civil actions a^inst deevlopers on behalf of citizens of his State 
who have purchased land. This provision does not create any new 
rights but simply makes it easier for consumers to enforce rights which 
they already have. 

There are a number of other reforms in our bill which I shall not 
go into at this time. I would like to submit a summary of the major 
provisions of our bill. 

[Mr. Minish subsequently furnished the following summary for 
inclusion in the record:] 



ii-7U O - 78 - 5 



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BRI^ SUMABY CF INTERSIATE: LAND SAUES REFORM ACT CF 1978 



Section 2 deals with the ocpverage of and exemptions to the Interstate Land 
Sales Full DisclosLire Act (ILSFDA) . Itie floor of the HiSFDA is lowered 
frcm 50 to 40 lots, thus exenptlng siixdvisions of less than 40 lots. The 
n^FDA is also amended to cover lots up to 40 acres. The present Act is 
limited to lots of 5 acres or less. Ihe exanption in the present Act for 
sales pursuant to bemkn:^>tcy proceedings is eliminated. 

Section 3 pros^ides an absolute 30-day right of rescission for lot purchasers. 
It also discourages sales on the same day that the buyer receives the con- 
tract of S£de frcm the developer and, with certain exceptions, prevents de- 
velopers from extending credit on their own lot scQes. Preventing the ex- 
tension of credit by developers will do avey with a nunber of the major 
abuses in the land sales industry, including installment contracts, the in- 
ability of seme developers to deliver good title and the sale of bad ocm u ta .'- 
cial paper by developers. Ihis section also requires a legally sufficient 
and recordable description of lots sold by developers. Under the present Act 
a "material misrepresentation" is a violation if the buyer relies on it. 
Ihis section includes anissions to state material facts as violations and 
eliminates the requiren^ait of proof of reliance. 

Section 4 requires that copies or transcripts of all advertising and siin- 
msuries of verbal presentations made by a developer or his agent be made a 
part of the Statement of Record filed with the Office of Interstate Land Sales 
Registration. 

Section 5 provides that nothing in the Act shall affect state laws except 
to the extent that the state laws are inconsistent with the Act. 

Section 6 expands the damages %4iich consaners may recover in civil suits under 
the ILSFDA to include attorneys* fees, travel expenses and ai]praisal costs. 
It allows consuners to sue for i^)ecif ic perfonnances of pronnlses made by de- 
velopers and gives purcdiasers the right to sue to enforce their ric^its of 
revocation. 

Section 7 extends the statute of limitations of the II£FDA to a maximum of 
seven years and also lengthens the specific statutes of limitations on vari- 
ous sections of the Act. 

Section 8 provides new administrative remedies for OUSR. It gi'v^es OILSR the 
authority to issue cease and desist orders against developers and also allows 
OII^R to impose civil penalties i:pon developers after an 2Kininistrative hear- 
ing. 

Section 9 changes sli^tly the adndnistrative structure of the Departanatt of 
Housing and Urban Development by providing for ein eidndnistrator of interstate 
land sales within HUD. 



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Section 10 raises the crimljial penedties for violators of the Act. 

Section 11 makes it clear that OILSR has the authority to regulate ad- 
vertising~by developers. 

Section 12 authorizes HUD to esqpend money for public education oonoem- 
ing the problems of buying land. 

Section 13 the "Parens Patriae" section allows the attorney general of 
a state to faring civil actions against developers on behalf of citizens 
of his state who have purchased land. This provision vdll maike it 
easier for oonsunoers \iho have been defrauded by land developers to get 
tiieir money back. 

Section 14 requires that developers \^io promise to provide basic se3>- 
vioes sul^ as v»ter, sewage di^x)sal and electricity establish escrow 
aooounts uhidi insure the oanpletion of these services. It also pro- 
vides that lot purchasers may revoke their contracts of sale if developers 
fail to keep specific premises with regard to the installation of basic 
services. 



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Mr. MiNiSH. I could also cite additional examples of abuse by devel- 
opers, but I'm sure you will hear plenty in the testimony to be pre- 
sented by INFORM, Patrcia Hynes, and Attorney General Anaya. 

In closing, I would like to give you a word of warning. You are 
going to hear a lot of industry testimony which paints a picture of 
small, overburdened businessmen, tormented by a giant government 
bureaucracy at HUD. Don't believe it. The real victims here are un- 
sophisticated, lower and middle class people who are led into buving 
land they often don't want through financial arrangements they don't 
understimd. The main issue before this subcommittee is not protecting 
business from big government — OILSR has 107 employees. The main 
issue here is protecting little people from bi^ business. If you follow 
the testimony closely for the next 3 days, I thmk this will become very 
clear. I think you will conclude that the main thrust of land sales 
le^lation has to be increased consumer protection. 

Mr. Chairman, I want to thank you very much, and ccmsidering that 
I have a numb jaw, I don't think I was too bad. 

Chairman Ashley. If you will let us know when the anesthetic starts 
to wear off, we will be happy to let you go at that juncture. [Laughter.] 

That is a veir good and forceful statement. I suppose that this ques- 
tion could be airected at other witnesses, those from HUD and else- 
where. But in your statement you say that literally millions of con- 
sumers continue to be defrauded or disappointed by land developers 
every year, and I am wondering about the effectiveness of the origmal 
act and the extent to which it has provided adequate protection. And 
obviously, this comment reflects on those interests that I have 
expressed. 

What kind of testimony did you get as to the incidence of continued 
fraud, of deception within or without the law, the disappointment, the 
whole range of activities that you are concerned with addressing? 

Mr. MiNiSH. Mr. Chairman, let me just take one, Sherwood Forest, 
which I am familiar with, is in the Poconos, not very far from where 
I was bom and only about 75 miles from where I live now. Just the 
other day a lady stopped by my office and said : "Mr. Minish, what do 
I do with my land ?" She said : "I just got a bill to pay school taxes, and 
I can't build." The reason lot owners can't build up there is because 
the developer was supposed to put sewers in there, and never did and 
somehow the money aisappeared. The lot owners cannot put septic 
tanks in because of the high water table. So all of these people up 
there — and there are literally hundreds — are hung up with all of this 
land that they can't do a darned thing with. They don't know what to 
do. 

I had another case. A gentleman from New Jersey bought 40 acres 
in Colorado. And when he bought the land, he didn't have a chance to 
go out there and see it. The developer told him that there was no ques- 
tion that he could earn money on the land, and probably what he earned 
by leasing it out to cattle owners would more than pay whatever the 
cost was per month. 

Well, he found out that not a single cattleman was interested in it, 
because when he finally went out there, he found that the lot was on the 
side of a' mountain, all stone, and not even billy goats could climb up 
there. And so he has been paying for 7 or 8 years, and he has 2 years 
to go on the contract. And he says : "What do I do?" It is rather diffi- 



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cult to tell a man what to do in that case. Do you tell him to stop paying 
and forget everything ? 

I said : "I really don't know what to tell you. Chances are if you 
have only 2 years to pav, maybe you ought to pav it. Who knows, you 
mOT find uranium or gold up there. I doirt know,'' 

But anyhow, OILSR has not done the job. I don't think that they 
have enough employees. And I am not in favor of building the bu- 
reaucracy, but I am for requiring government to protect consumers. 
If you want to know how well consumers are protected, ask Patricia 
Hynes, the assistant U.S. attorney from New York, because I think 
she will tell you a story that will be more convincing than anything 
that I can tell you, about some developer who got about $170 million for 
land that he paid about $20 million for, and that is a pretty good 
profit. 

And I am inclined to remember something Bob Strauss said. When 
asked about our oil problem he said, "I am from Texas and I don't know 
any poor oilmen." I am getting to the point where, I am from New 
Jersey and I haven't heard of a poor land developer in the United 
States. 

Chairman Ashley. In your hearings, apparently you established to 
the satisfaction of just about every bcSy that there are only a handful 
of States that have ade(][uate laws protecting their consumers. 

Mr. MiNisH. That is right, Mr. Chairman. 

Chairman Ashlet. And that for that reason this has escalated into 
a national problem, requiring a national solution. 

Of course, that was decided 10 years ago when we legislated in the 
first instance. Is it your impression that States are looking to the Fed- 
eral Government to provide this protection? Is that the reason that 
only a handful of States are in this business of trying to protect their 
own people from the kinds of fraud and deception that is found both 
in intrastate and interstate land sales ? 

Mr. MiNiSH. Mr. Chairman, that is an accurate statement. Some of 
the States are looking for Federal assistance. I think that the attorney 
general from Colorado, Mr. MacFarlane, and also the one from New 
Mexico, will testify to that, that they are looking to the Federal Gov- 
ernment for help with this problem. 

Chairman Ashley. One of the things that has interested me is that 
OIIiSR doesn't seem to be interested in establishing any kind of cooper- 
ative arraujgements with those States that do pursue aggressively the 
kind of legislation that affords protection to citizens purchasing prop- 
erty either within that State or outside that State. Generally within 
the State, that would be the province of State governments. 

And I am curious as to what your notions are about the situation 
where a State, whether it be New York or Florida or any other State, 
directs itself aggressively to this problem. In that situation wouldn't 
it-be appropriate for there to be some kind of cooperative arran^ment 
between OILSR and that State which would obviate the necessity for 
the honest developer — and we are concerned with him, as well as the 
dishonest developer — to fill out the reams of disclosure material, and 
go through the registration and so forth, twice rather than once. What 
is your thought on that ? 

Mr. MixisH. Well, I think that is a good suggestion, Mr. Chairman. 
I think that OILSR should work with the States to eliminate a lot of 



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duplication. It is my information that the only State whose property 
report is accepted by OILSR is California. 

Chairman Ashley. Well, it certainly suggests itself to me that this 
might be an area that together we might look at closely. It would seem 
to me to be one way of encouraging the States to direct their attention 
to this matter in the first instance ; and it* would help to eliminate costly 
duplication, which obviously is paid for in large measure by the tax- 
payers, be they Federal or State. 

Mr. MiNiSH. Well, Mr. Chairman, I agree with you that there should 
be cooperation. But I get a little concerned, whether many States have 
the interest or ability to do the job. I am reminded, and I am sure 
you are well aware of, the meat inspection issue, where some of the 
people who were against Federal legislation said that the States could 
do it. Then the people who were managing the bill showed pictures in 
the Speakers lobby of what thef States were doing. And I think that if 
anyone here saw some of those pictures, he would probably be a vege- 
tarian from that day on. [Laughter.] 

So I question whether the States have the will or the means to regu- 
late land sales by themselves. 

Chairman Ashley. Well, it strikes me that we might consider 
establishing some kind of Federal standards to be met by the States, 
at least where there is the duplication and the States don't do every- 
thing that OILSR does, because the problem from the Federal stand- 
point is broader than that of the States, I suspect. I seems to me that 
through the establishment of standards, where appropriate and where 
those standards are met, duplication could be eliminated. It would be a 
good idea. 
Mr. Grassley, any questions? 
Mr. Grassley. TTiank you. 

Before I ask our colleague a question, I would like to say that I 
worked very closely with Mr. Minish on this legislaticm and I think 
he needs to be complimented for his hard work. I am the ranking 
Republican member and, even though we don't agree on everything, I 
find that he has a fine reputation around here, and it has been sup- 
ported by my work with him. He probably doesn't need any flowers 
thrown in his path, but in all the investigations I have shared the 
podium with him, I found him to be very thorough and very extensive, 
and a person that can ask fair and penetrating questions to get to the 
bottom of things. 

So I feel your calling him as a witness is a good place to start the 
meeting, Mr. Chairman. 

Mr. Minish, I was interested in your discussion concerning Sher- 
wood Forest Starting on page 3 of your statement about the Nelson 
bill, where you state that it will exempt some of the worst interstate de- 
velopers, your testimony deals almost exclusively with that 100-mile 
exemption. I was wondering if there was any other problems with that 
bill, and specifically, do you have any specific examples related to the 
Nelson exemption of where there are other problems. 

Mr. Minish. Well, Mr. Grassley, first of all, thank you for your 
kind remarks. The think that upsets me most about the bill is that 100- 
mile exefmption. Mr. Green, who is from New York City, has a lot 
of constituents who could be burned and who would not be protected 
under the Nelson bill. And while there are many other problems— I 



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don't have the bill before me and I don't know all of the specifics of it — 
I would say that that alone is enough information to make you be 
against it. 

There is the self-executing problem, also. 

Mr. Grassley. 'What you could do is, if jrou think of any of the 
others, you could submit them to us in writing. I would appreciate 
that. 

Mr. MiNiSH. I will have my staff provide a siunmary of all the 
problems in the Nelson bill. 

[The following summary of problems in the Nelson bill was provided 
for the record by Congressman Minish :] 



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JO«9H a. k.iNIM«. NJ.. CMAIMMAN 
BAX.J W. CVAfTt. iNa 

JIM K . . rex. TCX. 

HCNflV a. OOMlAt.SZ. TKX. 

r„AHK ANHUHXK,. .u.. y g HOUSE OF REPRESENTATIVES 

SUBCOMMITTEE ON GENERAL OVERSIGHT 
AND RENEGOTIATION 
Boa borrus. stavt MnscToii 0^ -fHC 

COMMITTEE ON BANKING. HNANCE AND URBAN AFFAIRS 

Nw 



WASHINGTON. D.a 20515 
August 15, 1978 



SUBJECT: PRESET? SIAIUS CF IHE NELSGN PROPOSAL 



As you kncwr S. 3084, the Housing and Ocmnunity DevelQpnsnt Anend- 
ments of 1978, was passed by the Senate on July 20, 1978 and is now in 
oonferenoe. Secticn 715 of this bill oontains the so-called Nelson pro- 
po82d %ihich pcovides a niiii3er of new exenptions for developers f ran the 
present law. Since the House versixsn of the Housing bill, H.R. 12433,oQn- 
tains no land szdes a roenAnents (Chaixinan Ashley chose to defer consideza- 
ticn of land s£des unt:il you r^xarted to him on our Subccmnittee's investi- 
gation) , one of the nain issues at the conference will be whether tao aooept 
any or all of the Nelscn acnendoents. It would be best for us if the con- 
ference accepts none of the Nelson land saQes proposals. Our cbjectlons 
to the Nelson aroencknents are as follows: 

1. Policy Cbjecticns. The investigation which our SidbconiQittae 
has pursued has shoMn that large nunbers of consuners continue tao be de- 
frauded or disappointed by land developers every year. It is widely a g rood 
that the federal law is inadequate to protect lot buyers. OWo bills (cur 
proposed, H.R. 12574 and the Carter Adninistration*s proposal) would make 
the Interstate Land Sedes Full Disclosure Act significantly tougher, but 
neither of those refonn proposcds is included in either of the Housing bills. 

Therefore, under the rules of the oonferenoe, the only questdon for 
the conferees is %iiether to provide more exenptions to an already inadaquate 
law. There is no possibility of getting any oonsuner-ariented aroenAnents 
into the final Housing bill. In li^t of the results of our investigation 
and the testiimony which has been given at the various hearings held en land 
sales, it would be ir responsible for the Congress to make exemptions for de- 
velopers the only concern of its legislation. Any land sades a roenckne n ts 
should be primarily concerned vdth protecting the public, not with taking 
care of developers. 



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It shoold be pointed out that sincae lot purchasers have little or 
no organized voice in Washingtcxi, the only way to get any increased pro- 
tection for them nay be to tie it to changes in the law that the land sales 
industry vients. If the Congress accepts the Nelson amendkiiaits by theneelves, 
even the possibility of a tradeoff will be non-existent. 

2. Procedural Objections. If the conferenoe conmittee accepts the 
Nelson proposals, it will be short circuiting the legislative process. 

As you ymaa, although two House subocnmittees (ours and the Housing 
Subocmnittee) have held hearings on land Bales, there have been no markups 
of any of the various proposals for change. No mennber of the House has 
voted on any land sales a mendtoents. 

The Senate's procedure in adopting the Nelson proposal was disjointed, 
to say the least. Ohe ixqpetus for the Nelson bill came out of hearings, 
chaired by Senator Nelson, vAiich the Senate Staiall Business Ocmnnittee held in 
January of this year. Besides the Office of Interstate Land Sales Registra- 
tion of H.U.D. , which administers the federal law, the only other witnesses 
were developers or other r^aresentatives of the land sales industry. No 
representatives of the lot-buying public testified. Shortly thereafter. 
Senator Nelson introduced a bill, S. 2716, which provided a muter of new 
exenopticns from the Interstate Land Sales Act. The bill made no attenpt to 
deal %KLth oonsuraer problems. 

The Nelson bill was introduoed as an aroendnent to the Housing bill 
which was marioed up by the Senate Banking Ooninittee in May, 1978. The Senate 
Ccmiit^ee deleted the consunner-oriented reforms which were in the original 
Carter Adtadnistration proposal and substituted the Nelson bill. The Oonndt- 
tee had held no hearings on the Nelson bill prior to aco^>ting it. Hi the 
face of strenuous objections by Senator Willicns, the Ocnmittee scheduled 
hearings on land sides to be held before consideration of the Housing bill 
by the full Senate. At those hearings, a nixnber of witnesses, including 
yourself, H.U.D. , public interest groups and plaintiffs' attorneys testified 
about the large loopholes vAiich would be created by the Nelson proposeds. 
De^ite extensive criticism, only minor changes were made to the Nelson anend- 
ments before their passage by the full Senate. Hopefully, the oonferenoe 
ccmmittee will decide to reject these ill-oc^isidered and one-sided amendknents. 

3. Sifcstantive Objections. Although there may be seme need for 
clarification of the jurisdictiion of 0II5R, the Nelson bill goes far beyond 
its stated purpose and adds new exaiptions \^ich would apply to sane of the 
biggest and worst develofinents in the country. The following is our analy- 
sis of several of the Nelson propos2ds. 

(a) The 5%-5-lot Exemption. The Nelson bill would amend sec- 
tion 1403 of the Interstate Land Sales Act to exenpt frcm its disclosure re- 
quirements any developer who sells no mere than five lots or five percent of 
his total lots sold during a oalenc3ar year (whichever is greater) to out-of- 



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State pucdiasers if the develOEser meets the following xequironentss 

i) The land is free and clear of liens and enoidbranoes. 

ii) The purchaser makes an on-site inspection of the lot. 

iii) The seller agrees to submit himself to the jurisdiction of 
the hcxoe state of the purchaser. 

This exienption is undesirable for several reasons. 

- It is quite complicated, yet it is also self-determining. This 
means that the developer himself decides \(«hether he has coRplied with all 
the requirennents for the exemption and then merely notifies OILSR that he 
is claiming exBn|>tions. If the developer misinterprets sane pert of the 
requirements, for exanple, vhat constitutes a "lien** or "encunnbranoe" or 

if he makes a mistake in oonputing his out-of-state sedes, OILSR may subse- 
quently question his exempt status. If this happeans, all the developer's 
S2Qje8 under the challenged exanption may be sijbject to rescision. 

- There is no cap on the 5% requirement. Some subdivisions have 
veil over 10,000 lots, and thus would be able to sell a substantial minber 
of lots to out-of-state residents vdthout being subject to federal disclosoce 
zequirements . 

- Reliance on on-site inspections. As an alternative to tiie infoc^ 
mation which is presented in the federal property r eport (the disclosure 
statement required under the present Interstate Land Sales Act) , this ex- 
en|>tiGn relies heavily on an on-site inspection by the purchaser. However, 
most of the truly crucial information about a develoEment cannot be dis- 
cerned by merely looking at it. An on-site in^section tells the buyer nodi- 
ing about the financial stability of the developer, about whether there is 
sufficient water, about %^iether the land is suitable for proper sewage dis- 
posed, about whether the land is subject to flooding, about the provisions 
the developer has made for installing promised amenities, about the cost of 
necessary utilities, about local land use laws, etc. Purchasers who are de- 
prived of property reports and who make their on-site inspections in the 
ocnpany of high-powered salesmen will be at a decided disadvantage. 

(b) Ttie 100-Mile Radius Exemption. The Nelson bill would amend 
section 1403 of the Act to provide a lot-oy-lot exemption of any sales made 
to buyers who reside within 100 miles of the developer, if the following 
requirements are met. 

i) The land is free and clear of all liens and encunbranoes. 

ii) Ohe purchaser makes an on-site inspection. 

iii) The seller agrees to sufcmit himself to the jurisdiction of the 
home state of the purch2iser. 



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iv) Otie developer certifies to OILSR that he has oomplied Kith 
the first three requirements. 

This is probably the most harmful of the Nelson proposals for miner^ 
ous reasons. 

- Since this is a lot-by^lot exarption, no matter how big oar how 
bad a development is, it can benefit from this exeqption. H.U.D. offi- 
cials hacve stated that many of the worst developnents in the country would 
qucdify for at least partial exaiption under this section. 

- Crossing state bount3aries. Ihe Nelson bill pu r par t s to assist 
snail intrastate developers, yet many of the prime beneficiaries of the 100 
mile exEnnption are neither small nor intrastate. A good exEsiple of tiie prob- 
lems with this exaiption is the case of the Pocono Mountains of Pennsylvania, 
a primary area for land subdivision in the East. Within 100 miles of the 
Pooonos are the metropolitan areas of New York City, Northern New Jersey and 
Philadelphia. A circle with a 100-mile radius drawn around a developnent in 
the Pooonos thus enconpasses an area of over 31,000 square miles with a po|>- 
ulation well in exoess of 20 million people. Under the Nelson bill, any 
Pocono developer could sell to any of those people without beijig required to 
disclose a thing by the federal law. To cite another exannple, Washington, 

D. C. is within 100 miles of many of the developnents in rural Mcuryland and 
Virginia. This problem repeats itself throu^ut the country. 

- This exemption is self -executing. Therefore, serious problems of 
interpretation arise. For example, vho knows exactly how many miles he lives 
fxaa any given point? Once agedn, misinterpretation or mistake by the de- 
veloper may make him liable to recisions land other penalties. 

- This exenption, like the 5% - 5-lot exarption, says that developers 
%ito are exenpt from disclosure requirements are still covered by the fraud 
prohibitions in the Interstate Land Sales Act. However, several prosecutors 
and plaintiffs' attorneys have testified that prosecution or civil suit for 
fraud would be practically iitpossible without the information contained in 

the statement of record and property report. If the information required by 
the disclosure sections of the Act is not available, attorneys representing 
purdiasers who believe they have been defrauded will be working in the daxk» 
The fravd provisions will become an enpty rented/, providing a false sense 
of security and little else. 

- Like the 5% - 5-lot exarption, the 100 mile exemption relies heavily 
on on-site inspections which do not provide a great deal of useful informa- 
tion to the prospective purchaser. 

(c) Statute of Limitations. The Nelson proposal would amend 
section 1412 of the Act to insure that no actJ.on can be brought within more 
than three years after the signing of a contract for the sale or lease of 
the lot. 



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70 



this prevision woald make it even more difficult far disairointed 
purcdiasers to assert the rights they have under the present Iem. In our 
investigaticn of the land sales industry, one of the most CGrnnon oonplaints 
we heard was that people often don't discover that they have been swindled 
until 2LEter the statute of limitations heis run out. This is because peqple 
ooninonly buy lots on long-tezm installioent oontrcKrts which require trans- 
fer of title only after the purchaser has ocqpleted payment, often seven to 
ten years after the signing of the oontract. In addition, many purdiaaers 
act in reliance upon the premises of developers to install utilities and 
other amenities ipany yeeurs in the future. Because of this, neny purchasers 
just don't know whether they have a cai2se of action until long after the 
three year limit has passed. In recognition of this, several courts hacve 
tried to extend the statute of limitations by tying it to the disocvery of 
the defect or to the period of the installment oontract. Ohe Nelson bill 
would preclude such equitable solutions. Once ag^uLn consumers lose. 

(d) Ihe A±ninistrative Procedures Act. The Nelson bill would 
amend section 1416 of the Ast to require OJISR to oconply with the Acfadnia- 
trative Procedures Act. OUSR already does this by regulation. No one has 
been able to explain why this section is in the Nelson proposal. 



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71 

Mr. GrBASSLEY. Speteifically, where the point where we were talking 
about the exemption, I was thinking, as Chairman Ashlej was asking 
you his last question on the possibility of the States administering parts 
of this law, it seemed to be in our testimony, though, we run into reluc- 
tance on the part of OILSR to do that now. And I don't know whether 
were indicating that they really didn't want to do it or whether the 
law did not permit it I assume that the law permitted some of that, 
but they really don't want to go in that direction. 

Mr. MiNiSH. The law does permit it. 

Mr. Grassuey. There is some reluctance from the Department. But 
also, there was some reluctance expressed by consumer groups to having 
State enforcement, as well as some developers wanting to deal with the 
Federal Government rather than dealing with individual States. 

So I don't know how widespread the support would be for having 
the States do it. Frankly, I would prefer to have the States more in- 
volved, and I think it could be done. Because I know in my own State 
of Iowa we have an aggressive attorney general and assistant attorney 
general who have been working in this area. And I think it can be done, 
and I think we ought to be working toward that direction. Because 
I think if the job is going to be done right, it would just take too many 
people at the Federal level and then still not do it as well as if we had 
the States more intimately involved. 

Mr. MiNiSH. Well, my only comment, Mr. Grassley, would be that, 
unless we set the guidelines from up here, it is not going to be done, 
because some of those States don't have the legislation to do what I 
know you believe in and I believe in also. 

Mr. Grassley. Mr. Chairman, I don't have anything else. 

Chairman Ashi^ey. Mr. Gonzalez? 

Mr. Gonzalez. Thank you, Mr. Chairman. I don't have any ques- 
tions. I would just compliment Chairman Minish for his leadership 
in this area. And I am privileged to serve on the Subcommittee on 
General Oversight and Renegotiation with the gentleman. 

Chairman Ashley. Mr. Green ? 

Mr. Greex. I have a couple of questions on one point. I know that 
HUD had cooperative relationships with not only California but two 
or three other States, one of which was New York, which has a quite 
aggressive program in its department of law, under its attorney gen- 
eral, for dealing with the problem of fraudulent land sales. 

Do you have any reason to know why these arrangements with the 
other States are no longer operative ? 

Mr. MiNiSH. No, I do not. unless it is because of the aggressiveness 
of the department, or lack of it, I should say. 

Mr. Green. The other question I have was what sort of escrow ar- 
rangements you had in mind. Who would be the escrow holders, and 
what sort oif expense would that involve? Also, would bonding be 
another way of reaching the problem of nonperformance of promises 
on the part of developers ? 

Mr. Minish. They have an escrow requirement similar to the one 
we are proposing. It requires the developer to set aside a fixed percent- 
age of the mone^ he takes in to pay for improvements. As the pay- 
ment of the lot is completed, more money will be in the account to 
assure the people who purchased the lot that they would not be left 
hanging, as they were in other areas. 



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72 

Mr. Green. Did you look into whether a performance Ixmd was a 
possible alternative? 

Mr. MiNiSH. I am advised that our staff looked into corporate per- 
formance bond financing, but that it doesn't work, because so many 
developers go bankrupt. 

Mr. Green. I was thinking in terms of a bonding company. 

Mr. MiNiSH. I have been told that if you ask^ them to provide 
a surety bond, most of the developers say they can't afford it. 

Chairman Ashley. Absolutely. I was interested— excuse me. Do you 
want to question, Mr. Brown ? 

Mr. Brown. I might have a couple of questions Mr. Chairman. 

Chairman Ashley. I just have one with respect to the provision in 
your legislation to eliminate the installment contract as a means of 
financing lot purchases. That is a pretty extreme remedy. I mean, this 
kind of contract is really a land contract, isn't it ? 

Mr. MiNisH. The one they are using now ? 

Chairman Ashi^ey. Yes. It is a form of land contract, I would sup- 
pose ; isn't that right ? 

Mr. MiNiSH. Yes, it is. 

Chairman Asht^y. A lot of States, Ohio included, have taken a very 
good look at land contracts and have passed legislation that is very 
protective of a buyer under a land contract. Now, it certainly used to lie 
the situation that land contracts were scandalous. They gave every 
conceivable advantage and opportunity for mischief to the seller. 

But it is my impression that a number of States over the years have 
recognized that problem and have passed corrective legislation, as has 
Ohio. 

Mr. MiNiSH. Well, Mr. Chairman, I am not so sure that some of the 
States where we have the major problems have done anything about 
that, because I know of a personal incident where an individual entered 
into a 7-year contract — I think it was $26 a mmith — and then unfor- 
tunately, lost his job after paying for 6 years. He could not pay the $26 
a month, and the land reverted, or the land stayed with the developer. 
And this individual is out 48 times $26, or whatever he paid in. 

Chairman Ashley. You mean the entire amount? 

Mr. MiNisH. Yes, the entire amount. 

Chairman Ashley. Well, isn't there the principle of equity of re- 
demption. But under Ohio law, it is presumed that the property can be 
sold again and the purchaser can receive what he paid in. 

Mr. MiNisH. Well, in this case it was sold again by the developer. 

Chairman Ashley. But the point is the pernicious provision in the 
land contract or the installment contract is a stipulation of damages of 
one kind or another, because it means that if a person is unable to 
make the payments he loses everything that he put down. That is what 
caused the massive difficulties we've had at the time of the 1929 clos- 
ing of the banks. People weren't able to make their pajrments and 
they lost their property — and I mean all of their property. 

Mr. MiNisH. The other problem, Mr. Chairman, is that many of 
these purchases are made on the spur of the moment. You attend a 
meeting in some fancy motel or hotel and they feed you and you buy, 
and then later on you get to see the land, and then you decide that it 
was a bad purchase. Then it is almost impossible to sell it. 



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73 

Chairman Ashley. There is a different problem when you are talk- 
ing about developed real estate and the redemption that a buyer is 
entitled to there and the situation where it is totally undeveloped land 
that in many cases has never been seen. 

Let me call on Mr. Brown. 

Mr. Brown. I realize that caveat emptor is dead, but do we have to 
go the complete other route? Who is the beneficiary, would you say, of 
the interstate land sales lemslation ? 

Mr. MiNiSH. Who is? The developers, the ones that sell it. 

Mr. Brown. No, no, the developers are not the beneficiaries. I as- 
sume that it is aimed primariljr at the purchasers. 

Mr. MiNisH. Our legislation? Positively. It is to protect thef 
consumers. 

Mr. Brown. Now, who are these purchasers? Wlio are these con- 
sumers? How do they get into the market in the first place? 

Mr. MiNiSH. Well, many ways : Advertisements on TV; they are in- 
vited to dinners. You know, a lot of these developers contract the work 
out to salesmen. 

Mr. Brown. Now, even to invite someone to one of these things, you 
have to have some kind of advertising, right ? 

Mr. MiNiSH. Right. 

Mr. Brown. Doesn't the FTC have jurisdiction over all advertising 
that would be applicable to interstate land sales ? 

Mr. MiNiSH. The FTC has done some work in this area, but not 
enough to satisfy me or the people who got burned. 

Mr. Brown. But then, because the FTC has not done the kind of 
job it should do, should we therefore change this law ? 

Mr. MiNisH. Yes. 

Mr. Brown. The substantive law with respect to interstate land 



Mr. MiNiSH. Yes. 

Mr. Brown. Well then, supposing you change the substantive law, 
but they still go on and advertise fraudulently. You are going to say 
that the^ would benefit by the ex post facto right to rescind the 
transaction, right ? 

Mr. MiNiSH. In the legislation that is before your subcommittee 
now, that is, the legislation that came out of our subcommittee, we 
have proposals which deal with the advertising problem. The FTC 
hasn't been able to do the job by itself and it doesn't want to. If I 
called Mr. Brown and the members of this subcommittee over to my 
home next month and said, "Come on over, we're having some fellow 
come up from the Poconos or the Catskills who has some land, he's got 
a nice block of land and he's going to divide it up, and here's a chance 
for us to get into the act." And while I know your fellows are all so- 
phisticated and sharp, the average guy may be snowed ^nder by that. 

Mr. Brown. But is the average guy going out to ihe Poconos and 
buying a lot ? 

Mr. MiNiSH. Many times he doesn't go out there at all. Other people 
read advertisements in the mail or advertisements in the paper. Ajiy 
paper you pick up in New Jersey, and I assume New York has ads that 
say : "Come on up. We'll give you 3 days free lodging and a radio and 
this and that." 

Mr. Brown. But you have criticized the Nelson bill, and doesnt that 
require actual onsite inspections in order to qualify for the exemption? 



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74 

Mr. MiNiSH. Well, first of all, it excludes everybody within the 100- 
mile limit, and how much can you learn about the development from 
an onsite inspection? You look at the foliage and the nice green 
trees. 

Mr. Brown. Well, it exempts from the term "interstate commerce," 
as I recall, those who reside within 100 miles if they have visited on- 
site. Isn't that true? 

Mr. MiNiSH. Right. 

Mr. Brown. So therefore, the Nelson bill isn't saying that you can 
do it bjr a letter or meeting at somebody's house. You've got to ac- 
tually visit the site and live within a 100 miles in order to come within 
the exemption of the Nelson bill. 

Mr. MiNiSH. How much can you learn by an onsite inspection? llie 
average person doesn't know anything about sewers and septic tanks. 
For examplef in Sherwood Forest, they were told that, fine, this is a 
beautiful area and we are goinff to have sewers installed. And there 
were no sewers put in and the lot owners can't build because of the 
water table. The municipality in which this development is situated 
will not ffive people permission to put septic tanks there now. 

You tell me, how can an onsite inspection tell an individual whether 
the water table is involved or not, or whether they can put septic tanks 
in or not. 

Mr. Brown. Apparently, there are six States that account for about 
75 percefnt of the developments that would be really involved. 

Those States are Florida, Texas, Arizona, New Mexico, Colorado, 
and California. You, in effect, feel that even though these few States 
constitute 75 percent of the problem, nevertheless you would impose 
the requirements on all the States. Right? 

Mr. MiNisH. Well, we don't know when one of the States that is left 
out might have new problems. 

Mr. Brown. I noticed, in your proposal, you require escrow accounts 
for all kinds of improvements in the property. 

Mr. MiNisH. Well, not all kinds; just the improvements the de- 
velm>er agrees to put in, like the roads, or the sewers. 

Mr. Brown. Water, sewage disposal, electricity. You have escrow 
accounts to insure these improvement are made. 

If that State did not require it, that developer might very likely opt 
not to get into interstate land sales. Right ? 

And then, for all intents and purposes, since there would be no 
holding out access to that development, it would in short be precluded 
to that purchaser you're talking about. Right ? 

Mr. MiNisH. Correct. 

Mr. Brown. Because there would be no obligation to do these things. 

Mr. MiNisH. If some of these developers that came before the c<Mn- 
mittee did not get involved in interstate land sales, a lot of people 
would be a lot happier today and have a little bit more money in the 
bank. 

Mr. Brown. Why did you, in your proposal, even though HUD 
recommended that there snould be an exemption of developments of 
fewer than 100 lots, and the present law says 50, drop yours down to 
40? 

Mr. MiNisH. Well, Mr. Brown, we think that everyone ought to be 
protected. 



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75 

Mr. Brown. Well, then, why 40 ? Why not 10 ? 

Mr. MiNisH. Well, maybe it should be 10. But, you know, we have 
fellows who develop 26, 30, 35 lots. We wanted to help the little guy 
as much as we can; but we wanted to protect the consumers from the 
big developers who have the power to apply all of this pressure to land 
sales, and advertising, and whatever. 

Mr. Brown. I notice that you, in your parens patriae provision in 
your bill would permit the attorney general of any State to bring a 
class acticm on behalf of residents of his State, against the developer 
in the other State even though it may involve only one or two residents 
of his State. 

Mr. MiNisH. That is my understanding of it. 

Mr. Brown. And there is no definition of "class," for the purposes 
of bringing such an action ? 

Mr. MiNiSH. There is no definition, other than the people who got 
burned. 

Mr. Brown. But, I mean, one person could insist that the attorney 
general of the State bring the action ? 

Mr. MiNiSH. Well, the attorney general has discretionary powers. 
I would assume that if there was only one person, the attorney general 
might be able to jawbone somebody into straightening it out, rather 
than going into court and spending a lot of money. 

Mr. Brown. You don't change the existing law. Apparently the 
regulations now are going to give the Secretary discretion to make a 
determination in suMivisions of fewer than 300 lots, if sales out of 
State do not exceed 5 percent. 

You don't touch that area at all, in your bill, as I understand it? 

Mr. MiNisH. No. 

Mr. Brown. Would you be willing to let the Secretary exempt — if 
the Secretary decided to — a development if up to 20 percent of the sales 
were out of State? 

Mr. MiNiSH. The answer is "No." 

Mr. Brown. What ? I am not sure 

Mr. MiNisH. No, I'm not giving the Secretary the right the exempt 
anyone, other than whatever the 1 aw provides for. 

Mr. Brown. Well, the law presently provides that she can make this 
determination. 

Mr. MiNisH. Up to 300. 

Mr. Brown. And now they are going down to 160 lots. But still j the 
5-percent limitation 

Mr. MiNisH. Well, we ought to bring it down to minus zero. 

Mr. Brown. In other words, you would not want — even if there 
were no sales 

Mr. MiNisH. Well, if there are no sales, there is no action. Nobody 
is beingbumed. 

Mr. Brown. But all of the provisons of your law would still be 
applicable, apparentljr. 

Mr. MiNisH. Where it applies, sure. 

Mr. Brown. I have no further questions, Mr. Chairman. 

Chairman Ashley. Just one final question. 

For what period of time does the right of recission apply? Are 
there different circumstances for different periods of time ? 

Mr. Brown. Thirty days, isn't it ? 



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76 

Mr. Mtnish. Thirty is the absolute right of recission. 

Chairman Ashley. Mr. Minish, I thank you very much indeed for 
your testimony this mominff. It has been helpful indeed, and we really 
appreciate, more than can be said, the work that you have directed 
in this important area. 

Mr. MiNisH. Mr. Chairman, let me say that this committee and its 
chairman have done great work. There are a lot of people in the 
United States who live in better conditions, and who will live in better 
conditions because of Chairman Ashley and his subcommittee. 

All I would like the committee to do now is make sure that the 
houses on land that is secure, with sewers and whatever is needed. 

Thank you very much. 

Chairman Ashley. Thank you, Mr. Minish. 

Our next witness is Jean Halloran, who is the editor of "Promised 
Lands," a comprehensive, three- volume study of the land sales indus- 
try conducted by INFORM, a nonprofit organization which conducts 
research on the impact of corporations on consumers and the environ- 
ment ; and Patricia M. Hynes, who is an assistant U.S. attorney for the 
Southern District of New York, who has prosecuted major land sales 
fraud cases. 

We will now hear from Ms. Halloran. 

STATEMENT OF JEAN HALLOBAN, ON BEHALF OF INFOBH, A 
PUBLIC INTEBEST OBOUP, ACCOMPANIED BT LESLIE ALLAN 

Ms. Halloran. Thank you, Mr. Chairman. 

I am Jean Halloran, and with me is Leslie Allan, who is the primary 
author of "Promised Lands." I would like to ask that the full text of 
my remarks be incorporated into the record. 

INFORM is a nonprofit, public interest research organization that 
studies the impact of business on society. We have a permanent, full- 
time staff of 20, and a subscriber list oi over 100 major corporations, 
institutions, and Government agencies. 

Our organization has been studying the practices and regulation of 
the land sales industry for 5 years. Our primary finding has been that 
the land sales and subdivision industry is rife with consumer abuse. 
It is riddled with problems of consumer deception and fraud. 

Our conclusion was that a new regulatory approach is sorely needed. 
For this reason, we feel that Congress Minish's effort to reform the 
Interstate Land Sales Full Disclosure Act is a vital step forward, a 
step which can save ordinary people millions of dollars. 

For this same reason, we are extremely dismayed to see Senator 
Nelson's bill which would exempt vast numbers of developers from 
what little regulation now exists, progressing through the legislative 
process. 

We understand, and indeed support, the goal of reducing the regula- 
tory burden on the small, legitimate businessman and of freeing Fed- 
eral regulators for more important tasks. But the broadly worded 
Nelson provisions go far beyond this goal. 

The past historj^ of this industry does not justif^r such loosely drawn 
exemptions, nor does it justify the hasty consideration given the Nelson 
amendments by the Senate Banking Committee prior to substituting 
them for the administration proposals in the Housing and Com- 
munity Development Act. 



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77 

I would like, if I may, to tell vou some of what we found in our 
research, and then to discuss specifically how this relates to the various 
legislative proposals on land sales you have before you. 

Chairman Ashley. We will proceed until the second bell, at which 
time the subcommittee will recess and retire to the floor for two votes 
that are on suspension that should take us about 10 minutes, and then 
we will return at that juncture. 

So if you would please proceed. 

Ms. liALLORAN. The impact of the land sales industry is enormous, 
but no one seems to know exactly how enormous. The land sales indus- 
try is generalljr defined as consisting of companies engaged in selling 
lots in subdivisions. 

The companies range from mom and pop businesses to multimillion 
dollar corporations traded on the Stock Exchange. The lots range 
from quarter-acre, quote, "townhouse," unquote, lots, to 40 or 50 ranch- 
ettes; and the subdivisions, from 5-lot aevelopments to 200,000-lot 
planned, new communities. 

Since 1969, most companies selling lots have had to file with OILSR. 
Alan Kappeler estimated in 1976 that approximately 6,200 individual 
projects were registered with his agency. 

There are subdivisions in all States except North Dakota and Rhode 
Island. And as you noted before, most subdivision activity is concen- 
trated in Florida, New Mexico, Arizona, California, Colorado, o^nd 
Texas. 

One industry expert estimates the total stock of lots in this country 
covers 35 to 40 million acres of land, about 2 percent of the continental 
United States. 

Assuming 3 residents per subdivision lot, this land could accommo- 
date 45 to 60 million people. That is more than the populations of Los 
Angeles, San Francisco, Chicago, Detroit, Boston, New York, Phila- 
delphia, and Washington, D.C., and the entire State of New Jersey 
combined. 

These figures on the scope of the industry are sometimes challenged 
on the grounds that land sales are declining and the problems are now 
moot. 

The recession of the seventies did cause a precipitous slide in indus- 
try volume. However, a survey by the American Land Development 
Association indicates that sales are on the upswing. The industry 
seems to be riding on the coattails of the current real estate boom. 

Of the 163 companies they surveyed, 78 percent had better sales in 
1976 than 1975, and most were planning new projects. Most observers 
agree that OILSR and the FTC had had a chilling effect on some of the 
most flagrant abuses conducted by thef very largest companies, yet 
OILSR continues to receive about 3,000 consumer complaints a year, 
as it has for each of the past 6 years. 

INFORM has studied, in detail, a sample of companies and sites 
which represent the various aspects of the mass-market portion of the 
industry in the States with the most widespread land sales activity. 
The sites are old and new, large- and modern-sized, and in varied 
terrains. 

They were marketed by the largest companies, who should have the 
most resources, and therefore be the most responsible. 

We identified several important problem areas. Problems begin with 
representations made in aavertising — which is generally the purchas- 



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78 

er's first contact with the subdivision project. For example, promo- 
tional materials for Colorado City, a (jreat Western United project, 
promised, quote, "plenty of water," closed quote; and prwninently 
featured a photograph of lushly flowing Greenhorn Creek. Yet, the 
subdivision has legal rights to only enough water for, at best, one-tenth 
of its ijrojected population. 

Similarly, Palm Coast, ITT's 100,000-acre project in northeast 
Florida, was promoted as, quote, "not an ordinary development," close 
quote. 

Full-page ads stated, quote, "only the immense resources of a giant 
corporation like ITT could build a community of this scope," close 
quote. 

Yet, at Palm Coast, development is being financed not by the multi- 
billion dollar ITT corporation, but by its subdivision subsidiary, so 
small that its assets are not listed separately in ITT's annual report 

Again — is that the bell ? 

Chairman Ashmjy. Yes. 

Again, Ms. Holloran, we are about to take leave of your charming 
co mpa ny, but we will return. 

[Whereupon, at 11 :30 a.m., the subcommittee recessed for lunch.] 

APTERNOOX SESSION 

Chairman Ashley. The subcommittee will come to order. 

The Chair apologizes for starting a little late. It was a matter of 
urgency that suddenly arose. 

If you will continue, then, Ms. Halloran, with your oral statement, 
we would receive your testimony with considerable interest. 

Ms. Hallorax. Thank you. 

I was talking about Horizon Corp. and some of its advertising. 

The Horizon Corp. is selling a project called Rio Commimities in 
New Mexico which it advertises as a "carefully planned cluster of 
communities growing so rapidly that they seem like a mirage." 

A mira^ it may, in fact, be: Thefre are only 800 homes in the 7 
communities, despite the fact 170,000 lots have been sold. If construc- 
tion at Rio Communities continues at its present rate, Rio Communities 
will not be fully occupied in less than 3,600 years. 

The second major problem we uncovered is that of the installment 
contract. 

All of the companies we studied were selling lots via installment con- 
tracts generally extending over 10 years, and installment contract sales 
are characteristic of the industry. 

Many purchasers think they are buying a lot when they sign a con- 
tract but, in fact, the contract is not a deed, nor is it similar to a con- 
ventional mortgage wherebv the purchaser mav live in a house while 
he is pajring for it. An installment contract purcThase agreement doesnt 
transfer ownership of the land, and it doesn't transfer the right to 
use the land ; it simply gives the purchaser the right to make monthly 
payments for 6 or 10 years, at the end of which the company promises 
to turn over the land and whatefver improvements it has agreed to 
furnish. 

Under this sort of contract the purchaser has virtually no rights or 
protections. Should a purchaser ever fail to make the monthly pay- 



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79 

ment for the lot he in most cases will forfeit everything, both lot and 
all prior payments. And I would like to say that was true for seven 
of the nine companies we studied. 

Should the company go bankrupt in the course of the 10 years and 
be unable to provide promised improvements, there is usually little 
the purchaser can do. 

We also found abuses in terms of the product that the lands sales 
companies are selling. All of the companies we looked at sell lots either 
impBcitly or explicitly as homesites or as investments; yet all too 
often they do not provide the basic services that make the lots usable 
and salable. 

INFORM found only 5 of the 19 projects we looked at had most 
necessary basic services, such as water supplies, sewage system, elec- 
tricity and telephones and adequate draina^. 

The problems we uncovered do not end with the lack of basic serv- 
ices. The condition of the land itself can often be a problem. INFORM 
found that subdivisions are frequently located on land prone to natural 
hazards such as flooding, landslides, earthquakes, and hurricanes. 

Marco Beach and Cape Coral, to take two Florida subdivisions, are 
in the coastal hurricaner flood zone, a fact which is not necessarily ap- 
parent to the naked eye, even during an onsite inspection. 

Lake Havasu City, located in the dry and barren Arizona desert, 
has experienced flash floods in which three people have died and, I 
might add, $4 million worth of damage was done. 

Is such land a good investment? Companies claim it is, or at least 
that they are providing land cheaply to people who otherwise could 
not afford it. However, INFORM has found that lot prices are actual- 
ly the opposite — inflated and fraught with hidden and/or unantici- 
pated costs, disguised by the elaborate wording and long duration of 
the payment arrangements. 

Lots sold on the installment plan at the projects we looked at range 
from $1,000 to $60,000 in their base price. On top of this the purchaser 
must pay a finance charge of 4 to 9 percent, which adds $200 to $2,800 
to the price. 

They must also pay property taxes, although they do not own the 
landi special service, district assessments, bond reduction charges, re- 
duction charges, recreation fees, property owners' association dues, 
and often improvement fees or betterment fees. They must often sink 
wells and dig septic tanks. 

At the sites we studied, these additional charges add up to $26,000 
to the lot price over the course of the 10-year contract. 

In the end, a purchaser usually receives a bad bargain. We polled 
local realtors and found that at virtually all of the projects we studied 
lots can be resold only at hardship prices, that is, at less than the pur- 
chaser initially paid. 

At several of the projects local realtors reported that it was virtually 
impossible to unload a lot at any price. 

If the problems of consumer abuse are so endemic to the industry, 
the question arises ns to what the existing laws do do. INFORM 
analyzed the laws of six States and the Federal Government and found 
that regulation of this industry is not adequate. What little protection 
exists is embodied in the Interstate Land Sales Full Disclosure Act. 
This act requires the subdividers to register with OILSR and to pre- 



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pare a property report. It also gives purchasers and the government 
the right to sue for damages on the basis of misstatements of fact in 
the statement of record of property report. 

I would like to turn to the various legislative alternatives pending 
before this committee. I would like to start with the Nelson admend- 
ment which is now part of the Senate version of the Housing and 
Community Development amendments of 1978. 

This would exempt certain types of land sales operations from hav- 
ing to register with OILSR and having to give consumers a property 
report although the companies could still be used for fraud. 

Companies marketing to residents of the same States would be 
exempt. Companies marketing to people who live within a 100-mile 
radius of the subdivision would also be exempt, provided a lot pur- 
chaser has inspected the lot before buying. Finally, companies selling 
lots having certain kinds of basic services who deliver a deed and who 
do not use elaborate sales techniques and who require an on-the-lot in- 
spection would also be exempt. 

In our view these amendments would be devastating to the effective- 
ness of the Office of Interstate Land Sales Registration, and for vast 
numbers of consumers remove one of the few protections against 
deception and fraud in land sales which they now have. 

The 100-mile exemption which would allow land sales companies to 
operate virtually unregulated in a 31,400-square-mile area is particu- 
larly dangerous. 

As Congressman Minish has pointed out, its impact in the Northeast 
would be most serious. In that area, without a property report, with 
only a site visit and a salesman's pitch to go on, purchasers buying in 
the Poconos would have no way of knowing whether the project has a 
water supply, who will build and pay for the sewage system, whether 
the land is in a flood zone, or any of the other myriad facts that 
purc^hasers should consider before making a $5,000 or $10,000 invest- 
ment in land. 

The developers will argue that the purchaser still has the right to 
sue for fraud if there is misreprevSentation, but without a property 
report, the purchaser has very little in the way of documentation on 
which to base a suit 

An exemption for land sales companies operating intrastate, though 
perhaps not quite so blatantly contrary to the intent of the original act 
as the 100-mile exemption, is still, we feel, not in the public interest 

Again, companies operating solely within one State include both 
large and J^mall developers, honest and irresponsible operators. The 
larger companies will use elaborate phone and mail solicitation tech- 
niques. Smaller ones may have problems with raising the capital to 
extend services. Consumers approached by these companies need the 
protection of property reports. State governments are simply not 
equipped to take on the job of regulating these companies. 

Fully 27 States have no land sales laws of their own or mechanisms 
for supervising preparation of {property reports. In many cases this is 
at least partly because State legislatures felt the Federal Government 
was handling the problem. Those States would have to establish their 
own State agencies to take over registration and disclosure tasks now 
handled by OILSR. They will have to setup expensive bureaucracies 
and acquire staff and expertise. Conflicting and duplicative rules and 
procedures will proliferate. 



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INFORM h-as examined the property reports and consumer protec- 
tion laws of five States which do already attempt to regulate this 
industry. Without exception the State property reports are less com- 
plete than those prepared imder current Federal requirements. 

The Federal OILSR now provides an extremely useful, helpful, and 
important service to the States, and it should not be taken away. 

And I would like to add that the Federal Office of Interstate Land 
Sales and Registration does accept State property reports if it deems 
them to be as effective or equally adequate as the Federal report, but 
so far only California has qualified under that kind of rule. 

Many more States, a couple of dozen, have done the reverse, have ac- 
cepted the Federal report m lieu of their own property report, being 
happier to have the Federal Government take over this task for them. 

Even the third Nelson exemption, designed to exempt subdividers 
who have installed all basic services and who are delivering the deed 
to the buyer, thus, presumably, obviating the need for a property 
report, is, in our opinion, somewhat loosely worded. 

For example, a drainage sjrstem, without which a lot could be under 
water half the year, is omitted from the list of services which must be 
completed in order to obtain the exemption in the Nelson bill. 

The Nelson amendments were proposed in the guise of helping the 
small businessman, but we feel that the three types of exemptions in 
these amendments open the door for fast consumer abuse by deregu- 
lating not just small businesses but large ones, as well. 

Were there a cap on the size of these exemptions limiting them to 
projects of less than 250 lots, thus truly designing this bill for the 
small businessman, our concern would not run so deep. More important, 
the need for statutory exemption for small developers may not be 
moot. 

About 1 month ago thef Office of Interstate Land Sales Registration 
issued a set of proposed guidelines which outlined exactly what had 
been proposed oy Senator Nelson, exemptions for small developersi 
However, these exemptions, unlike the Nelson provisions, are very 
carefully drawn to separate the large developer from the small, the 
sound from the unsound. 

Among the exemptions which OILSR proposes are the sale of lots 
to other land sales companies, sale of lots to builders, and several other 
exemptions I won't go into. Sales in projects of less than 150 lots if 
marketed locally, sales in subdivisions of less than 300 lots which 
have all basic services delivered and do not use installment contracts. 

This last exemption is similar to the third exemption in the Nelson 
bill, yet because the OILSR is carefully drawn, we favor it while we 
oppose the Nelson version. 

In general, we feel that OILSR's approach, establishing exemptions 
based on the character of the subdivision, is far preferable to the 
blanket approach of the Nelson bill. It is our sincere hope that these 
regulations pending now for over a year and a half will be soon made 
final. These exemptions would ease the burden in the existing protec- 
tions for consumers. 

I would also like to mention at least one provision of the Nelson bill 
which we feel does a gross disservice to consumers. It is the provision 
prohibiting a lot purchaser from bringing any action against a de- 
veloper more than 3 vears after signing a contract, regardless of 
whether he has received a deed. 



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Such a law would make it impossible for mo^ of the consumers in 
a majoritjr of the subdivisions we studied to bring any^ kind of legal 
action a^inst a developer even if the developer committed the most 
blatant Kind of fraud. This is because most companies do not even 
promise to make any kind of improvements until all payments are 
complete, usually 10 years after contract signing. 

Some specify that services will not be made available until the lot 
purchaser obtains a building permit, something he might not do 
for several years after completing all payments. There is no way a 
consumer can know by year 3 whether the subdivider will fullfill nis 
promises in year 10. l^o mandate that the statute of limitations runs 
out in year 3 is, in effect, taking away the purchaser's right to sue be- 
fore the subdivider even has the opportunity to commit the fraud. 

A lightening of the burden on the small developer may be in order. 
We feel, however, that there is an equal if not more pressinjg need for 
better consumer protection in land sales. Congressman Minish's bill 
would be a large step in that direction. 

I have mentioned some of the problems of misleading advertising 
we came across in our search. The Minish bill would give OILSR spe- 
cific authority to set standards for advertising. 

I have also mentioned some of the sophisticated sales techniques the 
industry employs. These tactics create a strong need for a reasonable 
cooling-off period in which a consumer can think seriously about the 
purchase, consult experts, read the property report, and if necessary, 
get a refund. 

The Minish bill would guarantee consumers a 30-day cooling off 
period. 

As I have noted, the basic services that make lots usable are an im- 
plicit part of the product purchased in the subdivision. The Minish 
bill in specifically providing for the escrowing of moneys for prom- 
ised improvements and a refund in the case these improvements are 
not forthcoming affords necessary consumer protection an area of 
heavily documented abuse. 

Addressing the problems created by the installment contract itself 
is a difficult task. As I noted earlier, under this form of agreement the 

{)urchaser does not have the use of the land while he or she is paying 
or it, and is assured no refund if he defaults on any payments. 

The Minish bill would ameliorate the problems created by the use of 
installment contracts in several ways. 

First, it would give purchasers a 3-year period in which to revoke 
the contract, unless the consumer receives title immediately, has equity 
while making payments, and has the right to a partial refund in the 
event of a default. 

This in itself would be a definite benefit. 

The Minish bill also extends the statute of limitations under which 
purchasers can sue a subdivider for fraud, rather than making it 
shorter as the Nelson bill does. 

Were we at INFORM drafting legislation, we would prefer a law 
which set forth rigorous conditions that would have to be met before 
any land could be registered for sale at all. Such conditions, in addi- 
tion to those addressed in the Minish bill, would include a subdivider 
having received all necessary Government permits to complete basic 
improvements and at least partial refunds to any purchaser who de- 



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faults on a contract— on an installment contract — at any time during 
the contract period. 

On balance, however, we feel the Minish bill goes a long way 
toward protecting consumers from the most flagrant and prevalefnt 
land sales abuses. 

I would like to conclude by telling you about a phone call I got a 
few months ago from a woman in New Hampshire, and I must say, I 
get similar phone calls at least once a week and sometimes more often. 

The woman and her husband had just sold a small family business 
and were looking for someplace to invest the proceeds, about $9,000. 
They thought of land, and accepted an invitation for an all-expense- 
paid weekend in Florida to see a very large subdivision called Lehigh 
Acres. 

There they made a downpayment and signed their installment con- 
tract for a quarter-acre lot priced at $7,195. 

The woman called INFORM shortly thereafter because she read a 
magazine report on our research and had become concerned about the 
soundness of her investment. 

As I spoke to her, it became clear that she had not seen the lot she 
signed for. Only one which the salesman described as similar to it, that 
the lot was not improved, although she thought these improvements 
were promised in the future, and that she had no idea of how the price 
of her lot compared to the prices of comparable lots on the resale 
market She had received only the Florida property report, which is 
permissible in certain situations under current OILSK regulations, 
which gives only very sketchy information on these issues. 

Lehigh Acres was not one of the projects which we studied in de- 
tail, so I could not give her detailed answers to her (questions, but from 
the description of the sales operation and the location of the subdivi- 
sion, in one of the most oversubdivided sections of the State, and what 
I knew of similar projects, I feared the worst for the future of her lot 
as an investment. 

I think this woman was concerned enough that she would go out and 
get the answers she needed, and if she found that her land was a poor 
investment, she was at least only at the beginning of her contract 
period, and would lose only the $700 she had made as a downpayment. 

My point here, however, is that this woman and thousands like her 
deserve more protection than they now get. Mr. Brown this momin^g 
mentioned the edict of caveat emptor, but like most Americans, this 
woman is a decent, basically trusting person. She is not unintelligent, 
but she did not operate on the assumption that others are out to cheat 
her. She also does not operate on the assumption that the law permits 
fraud or allows it to go on, and she is not a gambler out to make some- 
thing for nothing in real estate. She deserves to have, as Congressman 
Minish proposes, 30 days in which to talk to knowledgeable individ- 
uals, and if she discovers problems, she should receive a refund. If she 
is paying on an installment contract which gives her no equity in the 
land, she deserves to have 3 years to cancel and get a refund. She de- 
serves to have money escrow to guarantee the completion of improve- 
ments, and she deserves to receive a Federal property report. 

We strongly urge you to oppose the Nelson amendments in confer- 
ence, amen£nents which would take away the property report for 
thousands of consumers, because consumers need the property report 



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and because the administrative regulati<ms proposed by OILSR will 
shortly accomplish the same basic goal, that of helping small business, 
by a better means. 

We also hope you will give serious consideration to the Minish bill 
and to certain provisions of the original administraticm bill which we 
do not have the time to discuss here. The entire area of land sales 
regulation deserves your serious and thoughtful review. 

And I would like to thank you for taking time to spend several days 
on the subject. 

[Ms. Halloran's prepared statement, on behalf of INFORM, fol- 
lows:] 



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TESTIMONY OF JEAN HALLORAN 
RESEARCH DIRECTOR, INFORM 
. ACCOMPANIED BY LESLIE ALLAN 

before the 

HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS 
SUBCOMMITTEE ON HOUSING 
on 

Interstate Land Sales Regulation 
August 1, 1978 



INFORM 

25 Broad St. 

New York City 10004 

212/425-3550 



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My name is Jean Halloran. I am Research Director of INFORM 
and the editor of INFORM* s three- volume study of the retail land 
sales and subdivision industry entitled PROMISED LANDS. With me is 
Leslie Allan, primary author of PROMISED LANDS . 

By way of background, I would just like to say that INFORM 
is a nonprofit public- interest research organization that studies 
the impact of business on society. We have a permanent full-time 
staff of 20 and a subscriber list of over 100 major corporations, 
institutions and government agencies. Our organization has been 
studying the practices and regulation of the land sales industry for 
five years. 

Our primary finding has been that the land sales and subdivision 
industry is rife with consumer abuse; that it is riddled with problems 
of consumer deception and fraud. Our conclusion was that a new 
regulatory approach is sorely needed. For this reason, we feel 
Congressman Minish's effort to reform the Interstate Land Sales Full 
Disclosure Act is a vital step forward, a step which could save 
ordinary people millions of dollars. For the same reason, we are 
extremely dismayed to see Senator Nelson's bill, which would exempt 
vast nuirbers of developers from what little regulation new exists, 
progressing through the legislative process. Wc understand and in- 
deed support the goal of reducing the regulatory burden on small 
legitimate businessmen and freeing federal regulators for more inpor- 
tant tasks. But the broadly worded Nelson provisions go far beyond 
this goal. The past history of this industry docs not justify such 
loosely drawn exeirptions, nor does it justify the hasty consideration 



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given the Nelson a mendm en ts by the Senate Banking Comnittee prior to 

substituting them for the Administration proposals in the Housing and 
Conmunity Development Act of 1978. 

I would like, if I may, to tell you some of what we found in 

our research, and then discuss specifically how this relates to the 

various legislative proposals on land sales you have before you today. 

The iinpact of the land sales industry is enormous, but no one 
seems to know exactly how enormous. Existing fragments of descriptive 
data only suggest the broad features of land sales activities. 

The land sales industry is generally defined as consisting of 
companies engaged in selling lots in subdivisions. The companies 
range from mom-and-pop affairs to multi-million-dollar corporations 
traded on the stock exchange. The lots range from 1/8 acre "townhouse" 
lots to 40 or 50 "ranchettes ; " and the subdivisions from 5- lot develop- 
ments to 200,000 lot "planned new communities." Since 1969, companies 
selling lots of less than 5 acres in size in subdivisions of over 
50 lots in size must file with the Federal Office of Interstate Land 
Sales Registration. Alan Kappeler, of OILSR, estimated in June of '76 
that approximately 6200 individual subdivision projects are registered 
with his agency. The President's Council on Environmental Quality 
has found that most developments registered with IIUD arc relatively 
large, averaging about 1,000 acres, and that most of the lots marketed 
are relatively small, about a quarter-acre to one acre. 

Another analysis of OILSR's filings indicates that there arc 
subdivisions registered in all states except North Dakota and Rhode 
Island, and that the most subdivision activity is concentrated in six 
states: Florida, New Mexico, Arizona, California, Colorado, and Texas. 
However, OILSR's filings may be very incomplete. For example, it had 



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315 projects registered for Colorado, while the Colorado Real Estate 
Coninission had 1,000 projects registered. Similarly, OTLSR shows half 
a million acres subdivided in California, while California's Department 
of Real Estate shos 2-1/2 million acres subdivided. Frankly, we have 
been unable to come up with an adequate explanation for this discrepancy; 
whether it reflects the existence of many federally unregistered 
subdivisions or whether it reflects simply poor or inadequate record- 
keeping. 

Considering both state and federal information, one industry expert 
Estimates that the total standing stock of lots subdivided in this 
country covers 35 to 40 million acres of land. This amounts to 62,000 
square miles, which is about 2 percent of the continental United States. 
Assuming three residents per subdivision lot, this land could acconinodate 
45 to 60 million people. That is more than the populations of Los Angeles, 
San Francisco, Chicago, Detroit, Boston, New York, Philadelphia, and 
Washington, and the entire State of New Jersey, combined. 

These figures on the scope of the industry are sometimes challenged 
on the grounds that land sales are declining, and the problems are now moot. 
The recession of the mid 1970 's did cause a precipitous slide in industry 
volume. However, a survey conducted by the American Land Development 
Association indicates that sales are on the upswing. The industry seems 
to be riding on the shirt-tails of the current real estate boom. Of 163 
conpanies surveyed, 78t had better sales in 1976 than 1975, and most 
were planning new projects. 

Most observers agree that since 1969 OILSR and the FTC have had a 
chilling effect on some of the most flagrant abuses conducted by the 



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very largest companies. Yet OILSR continues to receive about 3000 
consuner complaints a year, as it has for each of the past six years. 
The land sales industry has historically gone through boom- and -bust 
cycles and will undoubtedly continue to do so, particularly if it 
remains relatively free from substantive government regulation. 

INFORM has studied in detail a sample of companies and sites 
which represents the various aspects of the/^ industry in the states 
with the most widespread land sales activity. They are old and now, 
large and small, and in varied terrains. They are marketed by the 
largest companies, who should be the most responsible. 

CXir primary finding was that the industry is in radical need of 
reform. Problems begin with the representations made in advertising, 
which is generally the purchaser's first contact with the subdivision 
project. As an example, promotional materials for Colorado City, a 
Great Western United project, promised "plenty of water," and promi- 
nently featured a photograph of a lushly flowing Greenhorn Creek; yet, 
the subdivision has the legal rights to only enough water for, at best, 
a tenth of its projected population. 

Similarly, Palm Coast, ITT's huge, 100,000-acrc project in 
northeast Floraida, was promoted as "not mi ordinary development." Full 
page ads stated, "Only the immense resources of a giant organization 
like ITT could build a conimjnity of this scope." Yet, at Palm Coast, 
development is being financed not by the multibillion dollar ITT 
Corporation, but by a subdivision subsidiary so small that its assets 
are not listed separately in ITT's annual report. The water supply for 



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the project has been in question since its inception, and it was only 
the corabined efforts of the Federal Trade Comnission and several Florida 
agencies that managed to rein in this massive problem. 

Again, Horizon Corporation is selling a project called Rio 
Commmities in New Mexico, which it advertises as a "carefully planned 
cluster of coninunities growing so rapidly that they seem like a mirage." 
A mirage it may in fact be: There are only 800 homes in these 7 connunitics, 
despite the fact that 170,000 lots have been sold. If construction at 
Rio Comnunities continues at its past rate, Rio Coirmunitics will not be 
fully occupied in less than 3600 years. 

The second major problem we uncovered is the installment contract. 
All the companies we studied were selling lots via installment contracts 
generally extending over 10 years, and installment contract sales are 
characteristic of the industry. Many purchasers think they are buying a 
lot when they sign a contract, but, in fact, the installment contract is 
not a deed. Nor is it similar to a conventional mortgage, whereby a 
purchaser may live in a house while he is paying for it. An installment 
contract purchase agreement doesn't transfer ownership of the land, and 
it doesn't transfer the right to use the land. It simply gives the 
purchaser the right to make monthly payments for five or ten years, at 
the end of which the company promises to turn over the land and whatever 
improvements it has agreed to furnish. Under this sort of contract, the 
purchaser has virtually no rights or protections. Should a purchaser 
ever fail to make the monthly payments for the lot, he in most cases will 
forfeit everything, both lot and all prior payments. Should the company 
go bankrupt in the course of the ten years and be unable to provide 



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promised inprovements , there is usually little the purchaser can do. 
Finally, the contract is often used by the developer as a source of 
revenue, either as conmercial paper discounted to a bank, or as collateral 
for loans. The holder of the paper is not necessarily liable for the 
developer's obligations. 

We also found abuses in terms of the product that the land sales 
conpanies are selling. All of the companies we looked at sell lots 
either implicitly or explicitly as homcsites or as investments; yet, 
all too often they do not provide the basic services that make the lots 
usable and saleable. 

INFORM found that only 5 of the 19 projects we looked at had most 
necessary basic services such as water supply, sewage system, electricity, 
and telephones, adequate drainage available. The others lacked these 
services, do not guarantee installation by the time the purchaser has 
paid for his land, have not set aside any funds for installation, and 
do not offer a refund if land is not usable. 

This can prove very costly to purchasers of lots in these comminitics. 
At Rio Conmunities, for example, if a purchaser wants to use his plot of 
sparsely vegetated desert grassland, he has to pay up to $11,000 for a 
well, a septic tank, a radio -telephone, and a generator; or he can pay 
local utilities up to $12,000 a mile to extend electricity and telephone 
service to whatever part of this vast 400 -square-mile site he is located 
in; or he may be able to trade the land for a lot in the core development 
area. However, there are no guarantees that any land will be available 
for trade, and to get it he will have to pay considerably more money and 
he will have to build immediately. His original lot, which he has paid 



SS-71t O . 711 . 7 

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for over 10 years with 30 percent interest, is virtually useless, except 
as an option to buy a conventional home on a conventional -mortgage basis. 

The problems do not end with lack of basic services. The condition 
of the land itself is often a problem. INFORM found that subdivisions 
are frequently located on land prone to natural hazards such as flooding, 
landslides, earthquakes and hurricanes. Marco Beach and Cape Coral, 
to take two Florida subdivisions as an example, are in the coastal 
hurricane flood zone, a fact which is not necessarily apparent to the 
naked eye even during an on-site inspection. Lake llavasu City, located 
in the dry and barren Arizona desert, has experienced flash floods in 
which three people died. Many California subdivisions are in earthquake 
zones . 

Is such land a good investment? Companies claim it is, or at least 
that they are providing land cheaply to people who otherwise could not 
afford it. However, INFORM found that lot prices are actually the 
opposite: inflated and fraught with hidden and/or unanticipated costs, 
disguised by the elaborate wording and long duration of the payment 
arrangements. Lots sold on the installment plan at the projects we 
looked at ranged from $1000 to $60,000. On top of this, purchasers must 
pay a finance charge of 4 to 9 percent annually, which adds $200 to $28,000 
to the price. They must also pay property taxes, although they do not 
own the land; special service district assessments; bond reduction 
charges, recreation fees, property owners' association dues; and often, 
imfirovemcnt fees or betterment fees. At the sites we studied these 
additional charges added up to $26,000 to the lot price over ten years. 

In the end, the purchaser usually receives a bad bargain. We 
polled local realtors to see if any of the lots were an adequate 



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investment. We found that at virtually all of the projects, lots can 
be resold only at hardship prices, that is, at less than what the 
purchaser initially paid. At several of the projects local realtors 
reported that it was virtually iinpossible to unload a lot at any price. 

The problems I have described do not respect state boundaries. 
They-endemic to land sales transactions conducted in the absence of 
substantive regulation. They are as likely to occur if the subdivider 
is on the eastern shore of Maryland selling to Baltimore residents, in 
the Poconos selling to Philadelphians, in the Nassanutton Mountains 
selling to Washington Suburbanites, or in northern Wisconsin selling 
to Milwaukee residents, as they are if he is in New Mexico or Florida 
selling to New Yorkers. 

If the problems of consumer abuse are so endemic to the industry, 
the question arises then as to what the existing laws do. To answer 
this question, INFORM analyzed the laws of five states which are the 
sites of intense subdivision activity and a sixth state, New York, 
where many of the lots are marketed. We also analyzed the laws of the 
Federal Government. We found out that regulation of this industry is 
not adequate. What little protection now exists is embodied in the 
Interstate Land Sales Full Disclosure Act. This Act requires sub- 
dividers to register with OILSR, and to prepare a property report 
disclosing important information to consumers. It also gives purchasers 
and the government the right to sue for damages on the basis of mis- 
statements of fact in the statement of record or property report. 

Beyond OILSR' s registration and disclosure requirements, only 
20 states have their own laws requiring subdividers to issue property 



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reports to lot purchasers. And only a very few states 
actually have substantive regulations to require a central 
water system, for example, or escrowing of funds for refund 
purposes. 

Both INFORM and the President's Council on Environmental 
Quality, which has also studied this industry, found disclosure 
to be inadequate protection for consumers. But, weak as it 
is, it is a vital and necessary minimum. 

I would now like to turn to the various legislative 
alternatives pending before this Committee. I would like to 
start with the Nelson amendments, which are now part of the 
Senate version of the Housing and Community Development 
Amendments of 1978. This would exempt certain types of 
land sales operations from having to register with OILSR and 
give consumers a Property Report, although the companies could 
still be sued for fraud under the Interstate Land Sales Full 
Disclosure Act (ILSFDA). Companies marketing to residents of 
the same state would be exempt. Companies marketing to 
people who live within a 100-mile radius of the subdivision 
would also be exempt, provided the lot purchaser has inspected 
the lot before buying. Finally, companies selling lots having 
certain kinds of basic services, who deliver a deed, who do 
not use elaborate sales techniques, and who require an on-thc- 
lot inspection would also be exempt. 



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In our view, these amendments would be devastating to the 
effectiveness of the Office of Interstate Land Sales Reg- 
istration, and for vast numbers of consumers remove one of 
the few protections against deception and fraud in land 
sales which they now have. The 100-mile exemption, which 
would allow a land sales company to operate virtually un- 
regulated in a 31 ,400-square-mile area, is particularly 
dangerous. Its impact in the Northeast would perhaps be 
the most serious. There, an unscrupulous land sales operation 
in the Poconos would have the entire metropolitan area to 
market to, since a 100-mile line drawn around the Poconos 
includes New York City, all of New Jersey and Philadelphia. 
With this huge market to approach, it is very likely that 
an exempt land sales operation could sell thousands of lots 
and do millions of dollars of business a year in interstate 
commerce, using high-pressure sales tactics--the very type 
of abuse which the ILSFDA sought to address ten years ago. 
Without a Property Report, with only a site visit and a sales- 
man's pitch to go on, purchasers will have no way of knowing 
whether the project has a water supply, who will build and 
pay for the sewage system, whether the land is in a flood 
zone, or any of the other myriad facts a purchaser should 
consider before making a $5,000 or $10,000 investment in land. 
The developers will argue that the purchaser still has the 
right to sue for fraud if there is an misrepresentation. But 
without a Property Report, a purchaser has very little in the 
way of documentation on which to base a suit. 



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An exemption for land sales companies operating intrastate, 
thought perhaps not quite so blatantly contrary to the intent 
of the original ILSFDA as the 100-mile exemption, is still, 
we feel, not in the public interest. Again, companies 
operating solely within one state include both large and 
small developers, honest and irresponsible operators. The 
larger companies will use elaborate phone and mail solicitation 
techniques. Smaller ones may have problems with raising the 
capital to extend services. Consumers approached by these 
companies need the protection of property reports. State 
governments are simply not equipped to take on the job of 
regulating these companies. Fully 27 states have no land sales 
laws of their own or mechanisms for supervising preparation 
of property reports. In many cases this is a least partly 
because state legislatures felt the federal government was 
handling the problem. Thus, if the Nelson amendments become 
law, the intrastate sale of subdivision lots would be totally 
unregulated in over half of the states in the country. Those 
states would have to establish their own state agencies to 
take over the registration and disclosure tasks now handled 
by OILSR. They will have to set up bureaucracies and acquire 
staff and expertise. Conflicting and duplicative rules and 
procedures will proliferate. 

INFORM has examined the property reports and consumer 
protection laws of five of the states which do already attempt 
to regulate this industry. Without exception, the state property 
reports are less complete than those prepared under current 



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federal requirements. The federal OILSR now provides an 
extremely useful, helpful and important service to the states 
which should not be taken away. 

Even the third Nelson exemption, designed to exempt 
subdividers who have installed all basic services and are 
delivering a deed to the buyer--thus presumably obviating the 
need for a property report--is, in our opinion, somewhat 
loosely worded. For example, a drainage system, without which 
a lot could be underwater half the year, is omitted from the 
list of services which must be completed in order to obtain 
the exemption. 

The Nelson amendments were proposed in the guise of helping 
the small businessman. We feel that the three types of 
exemptions in these amendments open the door for vast consumer 
abuse by deregulating not just small businesses but large 
businesses as well. Were there a cap on the size of all these 
exemptions — limiting them to projects of perhaps less than 
250 lots, thus truly designing this bill for the small businessman- 
our concern would not run so deep. The amendments as drawn, 
however, contain no such limitation. 

Most important, the need for statutory exemptions for 
small developers may now be moot. About a month ago, OILSR 
issued a set of proposed regulations pursuant to ILSFDA which 
outline exactly what has been proposed by Senator Nelson- 
exemptions for small developers. However, these exemptions, 



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unlike the Nelson provisions, are very carefully drawn to 
separate the large developer from the small, the sound from 
the unsound, and the responsible from the irresponsible. 
Among the exemptions which OILSR proposes are the sale of 
lots to other land sales companies, sale of lots to builders, 
sale of lots in large subdivisions where there are less than 
12 sales a year, sales in projects of less than 150 lots if 
the marketing is entirely local (as carefully defined by the 
agency), and sales in subdivisions of less than 300 lots 
which have all basic services, deliver a deed to the purchaser, 
and do not use installment contracts. This last exemption 
is similar to the third exemption in the Nelson bill. Yet 
because the OILSR version is carefully drawn, we favor it. 
Because the Nelson version has clear loopholes, we strongly 
oppose it. 

In general, we feel that OILSR' s approach, establishing 
exemptions for small developers based on the character of the 
subdivision, is far preferable to the blanket approach of 
the Nelson bill. We feel OlLSR's regulations take adequate 
stock of the needs of the consumer while trying to lighten 
the load of the small operator. It is our sincere hope that 
these regulations, pending now for a year and a half, will 
soon be made final. These exemptions would ease the burden 
of small, legitimate developers without establishing huge 
loopholes in the existing law. 



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I would also like to mention one last provision of the 
Nelson bill which we feel does a gross disservice to consumers. 
It is the provision prohibiting a lot purchaser from bringing 
any action against a developer more than three years after 
signing a contract, regardless of whether he has received 
a deed. Such a law would make it impossible for most of the 
consumers in a majority of the subdivisions we studied to 
bring any kind of legal action against a developer even if the 
subdivider committed the most blatant kind of fraud. This is 
because most companies do not even promise to make any kind 
of improvements until all payments are complete- -usually ten 
years after contract signing. Some specify that services 
will not be made available until the lot purchaser obtains a 
building permit, something he might not do for several years 
after completing all payments. There is no way a consumer 
can know by Year Three, whether the subdivider will fulfill 
his promises in Year Ten. To mandate that the statute of 
limitations runs out in Year Three is in effect taking away 
the purchaser's right to sue before the subdivider even has 
the opportunity to commit the fraud. 

A lightening of the burden on the small developer may be 
in order. We fell, however, that there is an equal, if not 
more pressing need for better consumer protection in land 
sales. Congressman Minish's bill would be a large step in 
that direction. 

I have mentioned some of the problems of misleading 
advertising we have come across in our research. The Minish 
bill would give OILSR specific authority to set standards for 



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advertising. 

I have also described some of the sophisticated sales 
techniques the industry employs. These tactics create a 
strong need for a reasonable cooling-off period in which 
a consumer can think seriously about the purchase, consult 
real estate experts, read the property report thoroughly, 
and if necessary get a refund of his or her downpaymcnt 
(usually at least several hundred dollars). The Minish 
bill would guarantee consumers a 30-day cooling-off period. 

As I have noted, the basic services that make lots usable 
are implicitly part of the product purchased in a subdivision, 
and the costs of these improvements are generally reflected 
in the purchase price; yet neither federal law nor any of 
the six states we studied provides for a purchaser to receive 
a refund if the developer fails to provide promised services. 

Further, given the long installment contract period, 
escrowing of the cost of promised improvements is especially 
necessary; yet of the six states that we studied, only 
Florida addresses this question at all. In that state, 
contract payments for promised improvements must be escrowed, 
but only if refunds are promised in the purchase contract. 

A number of states do require, the posting of corporate 
performance bonds to guarant^i^ these promised basic improvements, 
but this is inadequate protection. These bonds are backed only 
by the assets of the corporations and are worthless in the 
event of a bankruptcy. Florida required the GAC Corporation 



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to post a total of almost $62 million in corporate performance 
bonds for only two of its subdivisioas . It also required $2.5 
million in surety bonds, backed by a third party. When the 
company declared bankruptcy, the $62 million worth of 
corporate performance bonds were virtually useless. 

The Minish bill, in specifically providing for the 
escrowing of moneys for promised improvements and a refund 
in the case these improvements are not forthcoming, affords 
necessary consumer protection in an area of heavily documented 
abuse. 

Addressing the problems created by the installment 
contract itself is a difficult task. As T noted earlier, 
under this form of sales agreement the purchaser docs not 
have the use of the land while he or she is paying for it 
and is as.sured no refund if he defaults on any payments. 
This highly inequitable arrangement, which all too often 
lot buyers fail to understand until they have sunk thousands 
of dollars into the deal, can impose severe financial hardships. 

The Minish bill would ameliorate the problems created by 
the use of installment contracts in several ways. First, it 
would give purchasers a three-year cancellation period in which 
to revoke contracts and receive a. refund, unless they are 
given several important protections, including immediate 
transfer of title, equity while making payments, and partial 
refunds in the event of a default. This in itself would be 



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a definite benefit. Whether providing a three-year can- 
cellation period would have the important secondary impact of 
reducing the commercial paper value of the contract so that 
companies would stop discounting it or using it to obtain loans 
is more questionable. However, based on our knowledge of the 
industry, this provision would certainly have a chilling 
effect on the companies' reliance on discounted contracts 
as a source of immediate cash, and thus on the use of install- 
ment contracts themselves. 

The Minish bill also extends the statute of limitations 
under which purchasers can sue a subdivider for fraud. INFORM 
believes, however, that instead of the seven years proposed, 
that a more appropriate period would be 10 years. As I stated 
earlier, most of the subdivisions we studied offer lots on 
10-year installment contracts and the land sales company's 
obligations often do not come due until the end of the contract 
period. Ten years is also the statute of limitations under 
standard real property law. 

Were we at INFORM drafting legislation, wc would prefer 
a law which set forth rigorous conditions that would have to 
be met before any land could be registered for sale. Such 
conditions, in addition to those addressed in the Minish bill, 
would include a subdivider having received all necessary 
government permits to complete basic improvements, lot prices 
which have been determined to be fair, just and equitable 
(as is the law in California for out-of-state offerings), and 



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at least partial refunds to any purchaser who defaults on an 
installment contract. On balance, however, we feel the 
Minish bill goes a long way toward protecting consumers 
against the most flagrant and prevalent land sales abuses. 

I would like to conclude by telling you about a phone 
call I got a few months ago from a woman in New Hampshire. 
The woman and her husband had just sold a small family business 
and had been looking for some place to invest the proceeds, 
about $9,000. They thought of land, and accepted an invitation 
for an all-expenses-paid weekend in Florida to see a very 
large subdivision called Lehigh Acres. There they made a 
downpayment and signed an installment contract for a quarter- 
acre lot priced at $7,195. The woman called INFORM shortly 
thereafter because she read a magazine report on our research 
and became concerned about her investment. As I spoke to her, 
it became clear that she had not seen the lot she signed for, 
only one which the salesman described as similar to it; that 
the lot was not improved although she thought these improvements 
were promised in the future; and that she had no idea of how 
the price of her lot compared to prices of comparable lots on 
the resale market. She had received only the Florida Property 
Report, which is permissible in cprtain situations under 
current OILSR regulations, which gives only very sketchy 
information on these issues. Lehigh Acres was not one of the 
projects which we studied, so I could not give her detailed 
answers to her questions; I could only refer her to people who 
could. But from the description of the sales operation, the 



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location of the subdivision--in one of the most over-sub- 
divided sections of the state--and what I knew ot similar 
projects, I feared the worst for the future of the lot as 
an investment. I think this woman was concerned enough 
that she would go out and get the answers to her questions. 
If she did find that the land was a poor investment, she at 
least was only at the beginning of her contract payments, 
and so would lose only the $700 or so she had given over 
as a downpayment if she decided better of the deal. 

My point, here, however, is that this woman and thousands 
like her deserve more protection than they now get. Like 
most Americans, she is a decent, basically trusting person. 
She is not unintelligent, but she does not operate on the 
assumption that others are out to cheat her, and she is 
not a gambler out to make something for nothing in real 
estate. She deserves to have, as Congressman Minish proposes, 
30 days in which to talk to knowledgeable individuals about 
her purchase, and if she discovers problems, receive a 
refund. If she is paying on an installment contract which 
gives her no equity in the land she is buying, she deserves 
three years to cancel and get a refund. She deserves to have 
money escrowed to guarantee the completion of the basic 
services to the lot, and she deserves to receive a federal 
Property Report. 

We strongly urge you to oppose the Nelson amendments in 
Conference- -amendments which would take away the property 



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report for thousands of consumers--because consumers need 
this protection and because the administrative regulations 
proposed by OILSR will shortly accomplish the same basic 
goal--that of helping small business--by a better means. 
We also hope you will give serious consideration to the 
Minish bill, and to certain provisions of the original 
Administration bill which we do not have the time to discuss 
here. The entire area of land sales regulation deserves 
your serious and thoughtful review. 



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Chairman Ashley. Well, we are very grateful to you for excellent 
testimony which will be extremely helpful to us in the days aheacL 

Let me ask you a little bit about INFORM, which you describe as a 
nonprofit, public interest research organization that studies the im- 
pact of busmess on society. 

Who funds INFORM? 

Ms. Halloran. It is partially foundation funded and it is partially 
self-supporting from sales of publications and reports. 

Chairman Ashley. And you indicate that you have a subscriber 
list of over 100 major corporations, institutions, and Government 
agencies. 

Do these contribute to the support of INFORM ? 

Ms. Halloran. Yes. We have a sliding scale of subscription rates, 
ranffing from $25 for individuals up to $500 for large corporations. 

Chairman Ashley. Is ITT on your list ? 

Ms. Halloran. No, it isn't, although General Development is. 

Chairman Ashley. I should think it would be worthwhile for them 
to be on your list. 

Ms. Halloran. Well, I would think so. 

Chairman Ashley. Is there any way of getting at the instances of 
fraud or deceptive practices and quantify it in any meaningful way? 

Ms. Halloran. I can't think of one offhand. 

Chairman Ashley. I mean your methodology has been to focus, and 
understandably so — I think it is a perfectly sensible methodology — 
to focus on 18 or 20 different-sized land development companies and 
corporations and to bring under a magnifying glass the nature of their 
operations. 

And that, of course, gives us a body of information which we other- 
wise would not have. It is enormously valuable to the Minish sub- 
committee and to the Congress generally. We are often faced, of course, 
and will be in these hearings, with the assertion that the instances 
of fraud are blown out of proportion and there won't be any substan- 
tiation of that, I suspect, in that it is extremely difficult ior you to 
quantify the instances of fraud and deception. 

All that can be said, I take it, is that we know that it does exist and 
it exists with some degree of regularity. 

Ms. Halloran. I suppose one coula set up a group of investigators 
and send them out to listen to sales pitches. We did a little bit of that 
at INFORM on a spot basis, and I can report to you that at the one 
land sales dinner that I went to, a salesman blandly assured me that 
there was skiing at a subdivision in New Mexico in the middle of the 
summer. 

When I indicated that I was interested in skiing, that happened to 
be the one dinner I went to — if you wanted me to think for the record 
of a possible method of quantifying this better, I would be glad to. 

Ms. Ali^n. I think, in addition to trying to quantify actual exam- 
ples of fraud, it would be possible to at least document a lot of the 
cases of dissatisfied consumers because while we were doing our 
research, we found in virtually every State office, as well as the OILSR 
office, boxes and boxes and boxes of letters. And whether each of 
these letters is a documentable fraud may be questionable, but in point 
of fact, they are a definite sign of some communication problem 
between the Durchaser and the salesman. 



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Chairman Ashlet. Ms. Hynes, I did not mean to proceed without 
hearing from you, and inasmuch as you are an assistant U.S. attorney 
from New York and have devoted considerable time to the subject 
area, give us the benefit of your thoughts at this time if you would. 

STATEHEHT OP PATBICIA H. HTNES, ASSISTANT U.S. ATTOBHET, 
SOUTHEBN DISTRICT OF NEW TOBK 

Ms. Hynes. I would be happy to. Just in response to your last 

Juestion about whether we could quantify the fraud, in the case that 
investigated and prosecuted, which was the Rio Rancho case, this 
was a very large developer located in New Mexico. That particular 
subdivision, Rio Rancho, was located in New Mexico. AMKEP is the 
parent company and has other subdivisions. 

Our criminal prosecution focused on the Rio Rancho subdivision 
in New Mexico, which was the largest 91,000 acres. The basic selling 
device and technique used there was to take these 91,000 acres, sub- 
divide it into lots, sell off these raw unimproved desert lots as a safe 
and sound financial investment. 

That was the primary thrust of the sales pitch. That was inherently 
fraudulent and there were many other large developers who had vast 
tracts of lands, and I am really now talking about the really large 
developers, with 100,000 acres and more, who sold off subdivided lots 
as safe and secure financial investments which could be resold at a 
profit 

When you are talking about quantifying fraud, that type of opera- 
tion is inherently fraudulent because when you are selling a sub- 
divided lot, one of several hundred thousand lots, as a safe and finan- 
cial investment, a subdivided lot in that situation is not an investment 
vehicle as these companies well knew. There was no resale market for 
the lots. There wasn't over a period of 15 to 20 years. And there is 
no resale market today for those lots. 

So when you deal with that type of sales practice, which was 
prevalent in the sixties on into the seventies, and when we brought 
our criminal prosecution against Rio Rancho Estates and showed them 
that we meant business, that that was a fraudulent operation and a 
fraudulent way of selling land, I think, and at least I hope that the 
practice, if it has not stopped, it has at least made serious inroads 
into that type of sales operation. 

But let me just give you some of the background of the Rio Rancho 
prosecution. 

The company bought 54,000 acres of land in 1961. It paid $178 an 
acre for this land. They probably overpaid at that, but they paid $178 
an acre. 

They began to subdivide it and sell it off throughout the country. 
The sales effort was very successful. They sold through the mail in 
tlie early sixties and they started to advertise on radio. Then they 
started these dinners, which were a huge success. They would get 
people into a room, offer them a free chicken dinner. It escalated to 
a steak dinner at some point, and they made money. 

They increased the sales price of the property, the property that 
they bought for $178 an acre. At the time we filed our indictment in 
1976, it was being sold for up to $12,000 an acre — raw, unimproved 



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desert land. They had not done anything to that property other than 
blade in a dirt road. 

They started these sales dinners in the midsixties. You would get 
salesmen up at the front of the room and it was a real hustle operation, 
high pressure sales. Get them to sign the contract that night— they 
could not even leave with the contract and think about it overnight* 
They had to sign it that night. 

There were followup calls the next morning to deal with buyers' 
remorse. It was just a tank operation. They were rolling down the 
avenue and these people were just right in the middle being mowed 
down. And the sales training manuals had it down to a science and 
you had to follow the practices of the company. 

And you would get — at that dinner, there would be salesmen who 
would be jumping up calling holds on property. The whole idea was 
to create this enthusiasm and to get people to Wieve that they were 
getting in on the ground floor. 

Representations were made in sales literature that this land was 
increasing 25 percent a year. And basically, it was geared to the blue 
collar, unsophisticated buyer, although I will tell you, there were scMne 
professionals, some lawyers and accountants and do<iors who fell for 
it as easily as the blue-collar worker. But primarily, it was geared to 
the blue-collar worker. 

New York City was a huge marketplace for this sales effort, as 
other cold climates were as well, but New York was their primary 
market. 

When the salesmen got the couple at the table, did the high pitch — 
they saw the films, were told in their advertising literature that they 
could make 25 percent a year as a financial investment, the sale wais 
made. 

In Rio Rancho, the evidence at trial showed that the company, 
while they represented themselves to these purchasers as community 
developers and you will hear a lot of talk, I am sure, from the land 
companies who will talk about themselves as being land developers 
and community developers. I disagree when you deal with really the 
large ones because they are not community developers; they are land 
subdividers. They have a small community as a secondary effort which 
aids their sales effort in selling off the subdivided lots out in the 
boonies. But their primary business is subdividing and selling raw, 
subdivided lots. 

They are not community developers. 

Now when a person bought the land, he was told that it was a safe 
financial investment and could be resold at a profit because there would 
be a demand for it. 

Now in the Rio Rancho situation, they were told that Albuquerque 
was bursting at the seams and could only grow through that property. 

Now there is another large subdivision outside of Albuquerque to 
the south, 40 miles, who gave the same pitch, only it says that Albuquer- 
qxxe is bursting at the seams and can only grow south, and that is why 
it is a good, safe financial investment. And we are talking about Hori- 
zon Corp., with 170,000 lots sold off, mostly to people out of State. 

The Rio Rancho subdivision sales amounted to $170 million. Now I 
mentioned that the land that they bought in 1961 was bought for $178 
an acre. Ten years later, 1971, they bought another 37,000 acres of land 



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which adjoined their prc^rty. They bought that for $180 an acre. 
Ten years later, $2 more an acre. I mean that wasn't even abreast with 
inflation. And they were selling it to the public as a safe financial 
investment that was appreciating at 25 percent per year. 

Well, it wasn't appreciating even $2 an acre over 10 years for the 
company to buy the next 37,000 acres of that land. 

Now they were successfully prosecuted on the theory that that land 
was not a ^e financial investment and they knew it, and they misrep- 
resented the facts. 

Now AMREP and Rio Rancho came back and said, "But we have a 
community out there and we are building homes." Well, the evidence 
at trial showed, we found an internal management report, a report that 
was done for management, the management of Rio Rancho and 
AMREP never believed that more than 5 percent of the people that 
they sold land to would ever move to that property, and that was their 
basic operating premise. 

So they set aside, and this is really how the very large subdividers 
operate, and this is what you have to be very careful about, they set 
aside a piece of land which this company owned — ^they don't oflfer 
it for sale nationwide. And they will put some utilities in that land 
and they will say to that 5 percent or less who want to move to the 
property, we will take one of the lots out in the boondocks and exchange 
it in and you can move into our building area and you build a house 
and you've got water, electricity and you are happy and we are happv. 

That person is happy if he only bought one lot because he can only 
exchange one lot and build a house. If he bought 10 other lots for his 
financial investment, he is not happy. The company is happy because 
he then takes — ^they then take that small area, put it on film and use 
it at their sales dinner and say, "This is what we are going to do to the 
entire property." 

Well, they are not. They know they are not. They don't have the 
capability l)ecause they've sold off the rest of the land to people in 37 
States. 

In the Rio Rancho case, they sold off 77,000 lots to 45,000 purchasers 
in 37 States, for a total sales price of $170 million. They paid a total 
of $18 million for that land and sold it for $170 million. 

Now what you really have here in terms of trying to protect the con- 
sumer, when we come back to what we learned, having had this statute 
on the books for 10 years, I think that we have leamSi several things. 

One, that the problem of fraud in the land industry is with us. It has 
been, it continues to be, and something has to be done about it. 

We have learned lessons, we have taken some steps forward, but there 
is still much to be done. 

One, you've got to enforce the law and I say in appropriate cases, 
you have to bring criminal prosecutions. That is the strongest deter- 
rent to a land developer or a land subdivider, to be (Hi notice that this 
is taken seriously, that he faces possible criminal jail time if he is going 
to violate the law and defraud the public. 

Now the idea that there is a sucker bom every day, I probably would 
agree. But it does not give you the right to go out and to just steal 
from that person. 

In addition to really effective enforcement of the laws, I think that 
the laws must be strengthened. The Interstate Land Sales Act needs to 



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be strengthened in very precise ways, many of which are covered in the 
Minish bill. 

For example, the escrow situation. In the Rio Rancho case, they ad- 
vertised themselves as a master planned community and the invest- 
ment value of these lots was supposed to c<Hne f nwn the fact that they 
were going to place utilities in the land that you are buying. You were 
paying for it, God knows, I mean you were paying $6,000 to $12,000 
an acre because you thought you were going to get utilities. 

Well, it turns out you don't get utilities umess you want to build 
a house, and if you want to build a house, you don't build it on the land 
that you bought ; you have to go into the company building area. 

And to add insult to injury, you pay more to ^ into the company 
building area because it is a nice lot. It sure is. It is the (mly place you 
can build. 

So you get to the situation where if you had the companies required 
to place money in escrow for those utilities, that would go a long way 
toward preventing fraud. 

Now when the developers come in and say to this subcommittee, we 
can't do it because it is too expensive, then I say look very closely at 
what they are telling the consumer. 

If they come into this subcommittee and say, we can't do it because 
the bond is too expensive and a bonding company thinks it is too 
risky, then I say if it is too risky for a bonding c<Mnpany , then it is too 
risky for the consumer and the consumer should not be in the positicMi 
of having to buy that lot without any protection, believing the pitch 
that the company is making to them. 

Now if the company is going to start making promises about utilities, 
which is really the situation that is covered in Congressman Minish's 
bill, if they are going to say they are going to put utilities in, then the^ 
have to put the money behind them, what they are saving, because if 
you had a situation in Bio Kancho, if their advertising was true, if 
there was going to be a demand for these lots, then Bio Rancho could 
have slowly placed the utilities in those lots and sold oflf those lotR 
and made a profit. 

If Albuquerque was, in fact, bursting at the seams and there was no 
place to grow, except through their property, they could have made the 
money. Those claims were not true. 

So I say that for a developer who is not able to put money in escrow 
to back up his promises, then we had better be very careful about what 
he is selling and what he is promising to the consumer public, because 
if it is a legitimate operation, if there is the demand there, and if that 
situation is going to be that the utilities are going to be in place, there 
should be a situation that can be worked out where there will be finan- 
cial protections for the consumer who is buying that property. 

The second thing that I think that we really have to deal with in 
terms of these selling efforts, if now everyone is buying land or sub- 
divided lots at these sales dinners or through the mails or through these 
mass marketing techniques, is that we absolutely need a cooling oflf 
period. 

Now whether it is the 14-day cooling off period proposed by HUD or 
the 30-day cooling off period proposed by the Minish bill, a basic mini- 
mum has got to be the 14-day. 

I think that the longer period of time, the better. 



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But when you give a purchaser a property report, you cannot expect 
any purchaser to absorb and intelligently understand the information 
that IS in that property report whenTie is given the property report and 
asked to sign a contract the same evening. 
So we absolutely need the cooling off period. 

The other situation that really must be addressed by this subcommit- 
tee in terms of making the Interstate Land Sales Act effective is the 
statute of limitations. 

In the Rio Rancho case, we had a criminal conviction affirmed on ap- 
peal. There were class actions brought immediately after the indict- 
ment was filed. However, the indictment was filed m 1975. 

Under the HUD statute as it is presently on the books, there is a 8- 
year statute of limitations which meant that only the people who had 
bought the land in the last 3 years had a right of action to be included 
in that class, even though the entire — actually, the class was composed 
of all the purchasers ¥mo bought that land as a financial investment. 
Most of them were cut out of the class because of the statute of limi- 
tations. 

I would say that in a fraud situation, there is no reason to have a 
cutoff point where you are excluding from the class of defrauded pur- 
chasers people who bought their land 5 years earlier or 6 years earlier or 
7 years earher. 

In a fraud situation, if you have a provable fraud, there is no reason 
not in include in that class all of the defrauded victims, regardless of 
the statute of limitations. 

But to start arbitrarily saying 3 years after you buy your prop- 
erty, you have no right of action is really a serious abuse. And I 
would agree with the comments of Ms. Halloran from INFORM, that 
it really is, not only is it not a protection, but it cuts off substantial 
rights of the consumer, particularly in a fraud case. 

Chairman Ashley. Do you have any judgment as to whether or not 
the regulatory and the enforcement functions should be separated? 

Ms. Htnes. I don't know whether they should be separated. I cer- 
tainly think there has to be more done in terms of enforcement, in terms 
of the Rio Rancho case that was developed through a grand jury. There 
were very substantial benefits to proceeding in that way. 
Chairman Ashuey. Well, who referred that case to you ? 
Ms. Hynes. No one referred it to me. 
Chairman Ashley. It did not come from the FTC did it ? 
Ms. HynbJs. No. I started it. It was a situation where I was chief of 
the consumer fraud unit in the U.S. attorney's office, and I was look- 
ing for areas where there was not enough, where there was a Federal 
problem, but that the Federal Government had not done anything. 

You find many agencies that are charged with enforcement. Few in 
the larger white-collar cases really don't get involved, and it is more 
appropriately handled through a grand jury, so I began the investiga- 
tion into the AM REP case based on a survey of trying to find out what 
were the problems of consumers in the New York area and what was the 
largest category of problems, and I found out that land was one of 
them. 

Chairman Ashley. What you are really saying is that neither HUD 
nor the FTC nor the SEC referred that particular case to you. 
Ms. Hynes. That's correct. 



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Chairman Ashley. Have they ever referred any matters to you! 
Ms. Hynes. Right now we are workinff with HUD jointly in an in- 
vestigation that we had initiated and asked them to come in and help 
us with; in terms of specific referrals, I would have to say no. But 1 
think that the enforcement effort has to be shouldered, perhaps Iqr other 
law enforcement offices, such as the U.S. attorneys' offices. 

Now, the Southern District of New York where I come from is a 
very large office, and we have good resources, but we committed sub- 
stantial resources to that investigation. It was the largest fraud case 
that was ever brought by the U.S. attorney's office in the Southern Dis- 
trict of New York, and we bring very large cases in the district, and 
the commitment of resources was tremendous, but we felt that the 
problem was tremendous, and it warranted that conmiitment of re- 
sources. 

But I think that you really have to address the problem of effective 
enforcement, because the industry is going to realize that if the laws 
are on the books and they're not enforced, it doesn't make a bit of differ- 
once anyway. You can put a lot more laws on the books and if they 
are not enforced, it doesn't make any difference. 

Chairman Ashijiy. Well, I can see that. But of course, from the 
Federal standpoint we are looking at divided jurisdiction. 

Ms. Hynes. I don't think so. I think tliat in Congressman Brown's 
question this morning about does the FTC have jurisdiction, the FTC 
statute which I am familiar with, because I dealt in the U.S. attornev's 
office with the FTC and prosecuted some of their cases civilly, the FTC 
has their basic statute, is to prevent fraudulent and deceptive acts and 
practices in commerce. 

Now, that is very broad. They can get into the land business which 
they did. I guess they could even get into the SEC if you started hav- 
ing television ads for brokerage houses that were fraudulent and de- 
ceptive. The point is that I don't think that the FTC does have exclu- 
sive jurisdiction, and I don't think we are taking anything away fran 
the FTC in asking HUD to start to set standards for advertising* and 
to boef up their enforcement effort in the area. I think you need 

Chairman Ashley. Well, it is a divided responsibility is what you 
are saying, which is just what I finished saying. Isn't that what the 
FTC is supposed to do ? 

Ms. Hynes. No. I think you need an agency that has expertise in 
the area, and HUD has that expertise and should build upon the ex- 
pertise and then go after. 

Chairman Ashley. I don't understand. I thought the FTC had ex- 
pertise with respect to fraudulent advertising and that kind of thing. 

Ms. Hynes. No; I am talking about an industry. I think that FTC 
theoretically has the jurisdiction, but I think HUD also has 
jurisdiction? 

Chairman Ashley. So it is divided jurisdiction. And is that good 
or is that appropriate and beneficial ? That is what I am trying to get 
at. There doesn't seem to be a lot of effectiveness at the present time. 

Ms. Hynes. That I would agree with. 

Cliairman Ashley. Is this because it is divided jurisdiction? 

Does anybody want to comment on this ? 

Ms. Halloran. Yes; I think there are a number of problems here. 
The first one is that although the FTC decided to get involved in the 



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issue, my understanding is that they have made a decision to get un- 
involved and are rapidly phasing themselves out of it. They brought 
a couple of cases. Those cases were presumably leading to a trade regu- 
lation rule which would have and could have set very valuable con- 
sumer standards for the industry. 

But the procedure for doing that takes several years and a commit- 
ment of resources on their part, which they feel they don't have, and 
it is my understanding that they are not going to proceed with the 
trade regulation rule, and they expect OILSR to be handling the prob- 
lem from now on. 

I think also OILSR's problem in enforcement is also one of lack of 
funds and lack of resources. Before you start thinking about jurisdic- 
tional problems, I think these agencies could all be doing a lot better 
job if they had a little bit more money. The question is not do too 
many people have the powers, but does anybody have the means to use 
the power. 

Cnairman Ashley. Well, I disagree with you there. One of our prob- 
lems is we don't run our Government all that effectively, and rather 
than fund a number of different as:encies and continue to give them 
more money, my thought is that why not centralize responsibility in 
a specific area, rather than have a proliferation of agencies that claim 
the same kind of responsibility and come to 0MB or others to beef 
up their budget so they can each do their thing, generally overlapping 
each other. 

That doesn't make any sense to me at all, unless there is a set of 
circumstances which appears to justify it. 

Ms. Halix)Ran. Well, unfortunately at this point, the Federal Trade 
Conmiission has the powers to substantively regulate the industry, but 
it doesn't want to commit the resources to it at this point. 

OILSR, on the other hand, lacks those powers, although you could 
give it so that if you gave it more resources; it needs a little more 
authority. 

Ms. Hynes. Mr. Chairman, I would just respond to your question 
that in my view it would be more economical and more effective to have 
the jurisdiction centered in HUD to give them the resources and give 
them the power to set standards for advertising and to give them the 
enforcement effort. And not to have it split up between HUD and 
FTC. 

There is a considerable amount of expertise involved here, which is 
the prerequisite to effective enforcement. I just want to make one com- 
ment on the Minish bill, where I disagree with one of the provisions 
in that bill, and that is to submit the advertising to HUD for review. 

I believe that HUD should have the power to set standards for 
advertising and be able to regulate advertising through setting stand- 
ands. but in my experience in prosecuting the Rio Rancho case, one of 
the biggest problems we ran into in that prosecution was that in New 
York State, New York State has a very strong land regulatory scheme. 
And they require the developer to submit their advertising to New 
York State. 

The developer did that. The AMREP Co. and Rio Rancho submitted 
their advertising, but nothing was done. Nothing. The advertising 
went on. It was fraudulent for 15 years, and it was used for 15 years, 
and there were no substantive changes made that had any effect on the 



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consumer. But the company was able to say to the consumer : We have 
submitted every piece of advertising to the State for your protection. 

And I am very concerned. If that same situation is going to be the 
factor when you are submitting it to HUD, that jou are going to ask 
for a lot of people to have to review this advertising, really not know- 
ing enough facts upon which to make any effective changes in it. 

And there you are going to create the bureaucracy. So, I think that 
you should get away from having HITD reviewing advertising, be- 
cause it is going to be used against HITD and convince the consumer 
that he is protected, when in fact he is not. 

So, I would oppose submitting the advertising to HUD. I think it 
is not efficient. It will be costly, and it will not be beneficial ultimately 
to the consumer. 

Chairman Ashley. You would keep that within the jurisdiction of 
the FTC? 

Ms. Hyxer. No: there are two separate things. Should HUD be able 
to issue regulations to say you can and you can't say this in adver- 
tising? Yes. 

Should advertising be physically submitted to HUD for a review? 
No: because then you get into the situation of bavins: the developer 
or the land company say : It has all been submitted for your protec- 
tion, and you are protected, because HUD has taken a look at this. 

So, I say let them regulate it, but don't let them review it. It is not 
cost-efficient, and it doesn't help the consumer in the long run. 

Chairman Ashley. What about the propertv report? We hear from 
some quarters that this doesn't really provide much help to a pur- 
chase, because that purchaser is drowned in information that he or 
she does not understand very well. I wonder if you have a judgment 
as to whether or not the proposed regulations do enough to simplify 
the information that is required to be of some positive help ? 

Ms. Halloran. Yes; we think the proposed regulations are pretty 
good, as a matter of fact. There is a certain point l)eyond which infor- 
mation on purchase of land can't be made simpler. There are just a 
lot of complex facts that you should know before you purchase land. 

And I think OILSR is now doing a pretty good job of trying to 
write their regulations ^o that these property reports will be as under- 
standable and clear and comprehensible to the average person as pos- 
sible. And I think they are also pretty complete. 

Chairman Ashley. Do you think that the installment sales contract 
should be banned or that it should be modified or that consumers 
simply be warned of the pitfalls apparent in that type of sales 
contract ? 

Ms. Hallor.\n. I don't think just warning them will do the job, and 
I can't really see how practically such a warning could be adminis- 
tered. I think the installment contract is inherently — well, in fact, in 
some of the cases, the FTC has brought, they have described the cur- 
rent installment contract arrangement as an unfair trade practice: 
that is, in a situation where the consumer gets no refund if thev de- 
fault on payments. That T think is an important minimum. I think the 
installment contract is structured so that the consumer does have no 
rights and no right to a ref imd is, in fact, inherently unfair. 

Chairman Ashley. Well, that is what I suggested this morning that 
might be a modification along the lines that the State of Ohio has 
followed. At least, that is my understanding in the land contract. 



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Ms..Hallorax. It is our understanding that the State of Ohio does 
do this, and it is very unusual in that regard and is to be commended 
for it. 

Chairman Ashley. I was surprised Ohio did it. It is one they 
slipped through the legislature. 

Ms. Hynes. Mr. Chairman, the situation you described this morn- 
ing about the 1929 situation where all of the provisions in the contract 
really were against the seller and in favor — I mean, against the per- 
son who was purchasing the land and in favor of the one who was sell- 
ing it, is really the situation that pertains today in the contracts^ 

Chairman Ashley. Indeed. 

Ms. Allan. One of the other problems 

Chairman Ashley. I was just goin^ to say that there is a possibility 
of modifying the provisions of an installment contract so that that 
form of financial tool can be used. 

But obviously, on a soimder basis — I mean, we are really going 
pretty far in the eyes of the honest land developer when we say we 
need 15 to 30 days rescission right, and no installment contracts. I 
mean that honest developer — and I suspect that they probably out- 
number the dishonest ones — is probably paying a fearful price tor the 
fraternity that he is running with and he happens to be operating in. 

Ms. Allan. One of the things 

Chairman Ashley. All I am saying is : If we could be sophisticated 
enough in our legislative efforts that the sound, the sensible, the prop- 
erly motivated land developer that wants to operate in an honest fasn- 
ion could be accorded legislative treatment that wouldn't really pre- 
suppose that he is of the breed that we have been discussing m our 
hearings today. 

That is preity hard to do, but it does seem to me that there is that 
kind of concern that we should try to be responsive to. 

Ms. Allan. We found that the developers who have a real product to 
sell, in fact, do modify the use of the installment contract to conform 
with the quality of that product, so that, for instance, the Deltona 
Corp., which is one of the ones we studied, sells contracts of varying 
durations, so if the purchaser wants to use his land within 2 jrears, the 
Deltona Corp. sells it on a 2-year contract and promises all improve- 
ments at the end of 2 years and turns the land over and does that for 
a 4-year and a 6-year and an 8-year period, which is a way of — an 
internal modification which we found pretty good. 

The same thing with DART Industries: we found they actually 
wanted to get the land used. They wanted people to come to it. They 
want people to live on it, and they do the same thing. 

On the other hand, we found that in the few States that have laws 
which regulate installment sales, all of those laws exclude installment 
land contracts. They apply to appliance contracts, every other kind 
of installment contract, but not land, and we think that perhaps if these 
laws could be modified to include the land contract, maybe that would 
go a long way toward helping the problem. 

Ms. Halloran. There is a way of paying for land on time, which is 
perfectly legitimate and everyone knows about it. It is known as mort- 
gage. If installment contracts could allow a person to have equity the 
wi^ you do in a mortgage, it would be a far better instrument. 

Chairman Ashley. What is required in the registration statement? 
I am a little unclear on that. 



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Ms. Halijoran. That is probably a better question to ask HUD, but 
it is a lot of information which the examiner uses to see whether the 
property report is true. 

Chairman Ashley. I see. So, there is a real purpose to be served by 
this re^st ration statement, in your judgment? 

Ms. Hallorax. Yes. I think it is an open question, however, whether 
all of the material now required in the registration statement is really 
useful and necessary. They do fill drawers and drawers at HUD, and 
I think in the proposed regulations HUD is making an effort to try to 
cut down on some of the paperwork and perhaps that could go further. 

Chairman Ashi^y. Congressman Minish's bill contains a provision 
permitting rescission at any time during «3 years, if certain ccmditions 
aren't met, such as if the contract was signed on the same day the con- 
tract was offered and the developer provides financing, and so forth. 
The industry, and again, this is presumably the honest participants in 
the industry, have stated that this provision would simply dry up 
financing. 

I wondered if you agreed with that and whether you think the propo- 
sal is valuable. 

Ms. Halloran. I imagine it would dry up financing: in some cases 
and not in other cases. Banks who Ho make lonns to businesses to spend 
money on something where they think there is a reasonable assurance 
that the ccmipany would be able to make money back — in other words, 
if the risk is reasonable, a bank will make a loan. 

I would think that a legitimate, honest developer oneratinqr on a rea- 
sonable scale ought to be able to obtain bank loans to finance basic serv- 
ices and so forth to obtain the capital he needs, in effect, an installment 
contract. 

The subdivider is borrowing the money from the consumer to pay 
for improvement and to build the subdivision. Why should the con- 
sumer have to assume this risk? This doesn't seem fair to me, particu- 
larly when the consumer is not necessarily aware of the fact that he is 
playing this role. 

Chairman Ashley. Do you know how many cases have been prose- 
cuted in this general area ? The complaint has come to us that ther e has 
not been much in the way of Government prosecution, and that HUD 
does not prepare its cases well. 

Ms. HALTiORAX. Perhaps also Ms. Hynes could comment on that, but 
the Federal Trade Commission has brought, I believe, less than a dozen 
casevS, the SEC a couple. 

Chairman Ashley. Well, if there are 8,000 complaints a year, which 
I think was your testimony, and if my complaint mail is anv indication, 
there are more than just a few. There are 3,000 that indicate there is 
some lesritimacy to the beef. 

Ms. Halloran. I would think so. I would think, in fact, that based on 
our research it is quite possible that a prosecution similar to the one 
against Rio Rancho could be brought against quite a number of the 
companies we studied. This hasn't happened. Partly it is a question of 
resources; partly it may also be a question of the way efforts are di- 
rected and resources are directed. 

Chairman Ashijiy. That is very discouraging to me, frankly, because 
I have to wonder how ad\'antAgeous it is to consider sweeping changes 
in the law when we haven't b^hered to prosecute on the basis of the 
law that is on the books. 



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117 

I mean, how do we have any knowledge or judgment as to how the 
industry and the bad players m the industry would have responded if 
they were put on notice, properly put on notice, not just by one case self- 
generated by a charming and delightful and obviously assiduous assist- 
ant U.S. attorney, but by HUD referring cases with the insistence 
that prompt prosecutions be brought. 

I just wonder how the industry would have responded over the past 
10 years had there been a vigorous enforcement effort and a real com- 
mitment to stopping these practices. 

Ms. Hau/>ran. I think that is a very legitimate comment; however 

1 would say that both are needed. Enforcement is a very expensive one 
by one process, and while there is an important deterrent power to it, 
the companies know that the Government can afford to bring in only so 
many cases a year. I think there also needs to be substantive protections 
that have a much broader impact. 

Chairman Ashley. Well, we will never know, but what we do know 
is that the changes in the law that are being suggested are ^ing to 
apply to the innocent, to the responsible and to the honest participants 
in the industry as well as the dishonest ones, and they are being in some 
respect unfairly burdened not only bv the conduct of others in their 
indiistry who aren't honest, but by the failure of the bureaucrats to 
properly enforce the law. Had the law been enforced, the need for cor- 
rective legislation would be less. 

Ms. Hynes. Well, I am not sure about that. I think that the lesson in 
the Rio Rancho case was that one — let us take some of the very specific 
highlights of the proposals here — ^the cooling-off period. 

If an honest developer has a good product to sell, if somebody gets 

2 weeks to think about it, presumably, he will still be as enthusiastic 
and want to buy that property 2 weeks later. 

Chairman Ashley. I would say that's fine from your standpoint and 
mine, but if we were in the private sector running one of those com- 
panies and trying to do it honestly, we would find that this created 
uncertainties that carried over into their ability to finance their prod- 
uct. I mean, we are introducing additional uncertainties. 

Certainly it may well be in the public interest, but to say rather 
blithely that the honest operator simply isn't going to be impacted by 
the changes that are proposed, strikes me as being — going maybe a step 
bevond the realm of reality. 

Ms. Hynes. I am not saying there is no impact. I am saying that on 
balance the impact is not so terrible that it would warrant not passing 
the le^slation. I think that while there misrht be uncertainty for 14 
days, if that is the period that we focus on, and take the shorter period 
of time, that there is more to be gained by that 2 weeks of uncertainty 
and in trying to extend the statute of limitations for fraud cases where 
it is really a fraudulent situation, and you are not talking about the 
honest 

Chairman Ashley. But you can't have it both ways, Ms. Hynes. If 
we are not going to enforce, then we are asking the honest operator to 
suffer the uncertainties and the changes in his operation which are not 
changes for the better, for no reason whatever. 

I mean, if we are not going to enforce, then there has been no pur- 
pose in adding these burdens on the honest operator. 

Ms. Hynes. Well, I agree with vigorous enforcement. But I think 
there are some loopholes that need to be plugged, that would not harm 



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118 

the honest operator and would benefit the consumer. I mean, there are 
loopholes. We have cei-tainly leaiTied the lessons of where they are, not 
all of them, but a good number of them. 

Chairman Ashley. Well, I am at a bit of a quandary on that. I sus- 
pect from your standpoint there is every reason to accept that as being 
persuasive. But I think it is very difficult to be able to reach a sound 
judgment on a piece of legislation that has not been enforced. And now 
we come in and say, well, we can improve the law. 

It just doesn't make any sense to me in many respects. 

Ms. Hynes. Well, I think — ^you know, you can look at the theory of 
whether you look back and see whether the fraud has been committed 
or whether you have preventive legislation — and I think in this area, 
when you are talking about SEC and the Interstate Land Sales Act, 
which was fashioned after the SEC statute, that you are very much 
talking about preventive legislation, in terms of trying to deal with 
the situation before the horse is out of the barn and not deal with the 
situation looking back and saying, now, what can we do and should we 
have effective enforcement. 

Yes, we should, liut I certainly think that we should also focus <Mi 
preventing these situations from happening again in a balanced way, 
and in a way that is not going to be overly burdensome to a legitimate 
operator. And I think that some of these proposals would not be really 
opposed by the legitimate operators. I don't think it would have a great 
deal of effect on some legitimate operators. 

I would be encouraged — I mean, I would be interested to hear from 
some of the developers who don't rely on the tactics that the less ren- 
table ones relied on. I think the impact of these proposals would not be 
very substantial on them. 

Chairman Ashley. Well, I will tell you what I will do. I will send 
you their testimony, and it will be soon, because we intend to hear from 
them within the next day or so. 

Ms. Allan. Could I add one thing to what Ms. Hynes said! In the 
case of the subdivisions that we studied, where a company was prose- 
cuted, be it by the Federal Trade Commission or the SEC or the dis- 
trict attorney of Pueblo County, in most cases, except for the criminal 
case, the remedy that resulted from the prosecutions, the remedies were 
very much what is proposed by the Minish bill : Money was put in es- 
crow, the company had to provide the funds for the ser\nces that it had 
promised and not put in, advertising had to be changed to conform to 
the reality. 

So, in fact, the result of those cases was just to create for a specific 
subdivision what the Minish bill would create for the whole industiy, 
which would be good. 

Chairman Ashley. Well, that is a pretty good point. You're stipulat- 
ing in advance that there probably won't bo much enforcement, so you 
just write the conditions into the law tlmt take that into account. But 
you do the same thing when you are talking about the bureaucracy and 
the fact that they could not be trusted to review advertising. Because 
obviously you are saying that gives the sales pitch fellow an opportu- 
nity to say: Well, we have submitted to HT^D the advertising. And 
you are saying is : Yeah. And you know where that advertising is ?^ It is 
what you are saying is : Yeah. And you know where that advertising 
is? It is in a file drawer some place, and somebody is out for a coffee 
break. 



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119 

Well, you have been very helpful in your testimony, and I mean that. 
And I always play devil's advocate for at least 2 or 3 minutes. 

The subcommittee will stand in recess until 10 o'clock tomorrow 
morning. 

[Whereupon, at 3 :15, the hearing was adjourned, to reconvene at 10 
a.m. on Wednesday, August 2, 19787| 



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THE INTERSTATE LAND SALES FULL DISCLOSURE ACT 

AMENDMENTS 



WEDNESDAY, AUGUST 2, 1078 

House of Representatives, 

COMMTTTEE ON BANKING, FINANCE AND TJRBAN AtPAIRS, 
SuBCOMMriTEE ON HOUSING AND CoMMXTNlTr DfiVEIiOPMENT, 

Washington^ D,C. 

The subcommittee met at 10 :10 a.m. in room 2212 of the Raybum 
House Office Building, Hon. Thomas L. Ashley (chairman of the sub- 
committee) presiding. 

Present: Representatives Ashley, Gonzalez, AuCoin, Brown, and 
Kelly. 

Chairman Ashley. The subcommittee will come to order. 

The hearings on the Interstate Land Sales Full Disclosure Act 
will continue this morning. During this session we will hear from 
the Honorable Toney Anaya, attorney general of New Mexico; and 
Mr. James Barnes, deputy attorney general of the State of Nevada, 
representing Attorn^ General Robert List. And we will also hear, 
following that, from Mr. Herman Smith, vice president of the National 
Association of Home Builders; David D. Roberts, vice chairman of 
the legislative committee, National Association of Realtors, accom- 
panieaby our old friend, Al Abrahams, vice president for Govern- 
ment affairs; and Mr. J. B. Belin, Jr., president of the American Land 
Development Association. 

I have a slight problem this morning, gentlemen, in that a number 
of members will fe somewhat delayed in getting here. But they will, 
as their other committee responsibilities permit them, join us. 

I have a funeral at 11, so I am not going to be able to be with you 
all morning. I will say to all of the witnesses that I read your state- 
ments last night, each and every one in their entirety. Wnile I may 
not be here to put questions to you and discuss some of the points raised, 
in your testimony, vou can be sure that I will direct questions to you in 
writing and will, nopefuUy, receive responses in a timely fashion so 
that they may be a part of the record. 

I think we will proceed, then, with the testimony of the distinguished 
attorney general of New Mexico, the Honorable Toney Anaya. 

STATEMENT OF HON. TONET ANATA, ATTOBNET OENEBAL 07 THE 
STATE OF NEW MEXICO, ACCOMPANIED BT HON. JOE CANEFA, 
ASSISTANT ATTOBNET OENEBAL 

Mr. Anaya. Mr. Chairman, thank you very much. 
I am Toney Anaya, the attorney general of the State of New Mexico, 
appearing here in my official capacity. 

(121) 



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122 

For the record, I would also like to introduce one of my staff mem- 
bers, Assistant Attorney General Joe Canepa, who works in the area 
of land fraud. 

Mr. Chairman, I would like to submit my entire statwnent for the 
record, as well as a resolution that was adopted by the National 
Association of Attorneys General in June of this year, endorsing 8<Mne 
of the legislation. 

Chairman Ashley. That will be done. 

Mr. Anaya. Thank you very much, Mr. Chairman. 

Mr. Chairman, I just will highlight my statement. 

Land fraud is a national problem, with its victims increasing by the 
day. The victims of fraudulent land schemes are scattered throughout 
the country, even though much of the land itself is in New Mexico. We 
have estimated in New Mexico, Mr. Chairman, that we have over a 
million and a half subdivided acres, and in the past 15 years we have 
estimated that approximately $1 billion in subdivided land sales have 
been made in our State. 

Mr. Chairman, of the acreage in New Mexico, we estimate that 
roughly about a half a million subdivided lots in New Mexico are 
presently registered with the Office of Interstate Land Sales Registra- 
tion and, Mr. Chairman, no one can really estimate how many unregis- 
tered subdivided lots there are in our State. Just taking the re^stered 
lots alone, we estimate that if they were all fully developed and a 
family of four moved into a subdivided lot, that our population in 
New Mexico would almost triple overnight. This is a preposterous 
proposition in itself, but, nonetheless, new subdivisions are being 
carved out almost daily. 

I think if investors really recognized the extent of the land that is 
already subdivided there, 1 do not think that very many investors 
would be too anxious to buy land in New Mexico. Most or this land, 
Mr. Chairman, is in remote areas; it is very dry with sparse vegetation, 
not even fit for cattle-grazing in most cases. 

Chairman Ashley. Let me interrupt you, Mr. Anaya, and ask you 
why your State legislature tolerates a situation of that kind? 

Mr. Anaya. Mr. Chairman, unfortunately — and this is an indict- 
ment on my State legislature 

Chairman Ashley. Well, we will not let the word get back to the 
them. [Laughter.] 

Mr. Anaya. I am sure that it will, and it has. But it is no secret. I 
have made this statement back home. Our State legislature has^ in Uie 
past, been very heavily lobbied by the real estate industry. The real 
estate industry is a very large and powerful lobby in the State, and 
because of that lobbying, the State legislature has not come to grips 
with the problem. In fact, a law which was passed 3 years ago gives us 
some protection, but it was adopted only after a great deal of com- 
promising and a great deal of backroom negotiation. But even the act 
that we presently have is a very weak, one, with hardly any sanctions 
at all. 

Frankly, one of the reasons that I am here today is to plead with 
this subcommittee and plead with the Congress to give us some Federal 
legislation. 

Chairman Ashley. A legislative body that is not subject to pres- 
sure of any kind. I can see your point. [Laughter.] 



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Mr. Anaya. Mr. Chairman, I would hope that some of the pres- 
sures could be diminished here and watered down a little bit. 

Chairman Ashley. I will tell you this: There is only one on this 
panel before you that is subject to any pressure at all. [Laughter.] 

Mr. Anaya. Hopefully, Mr. Chairman, as the pressures get away 
a little bit from the local front, we can perhaps dissipate some of its 
effects. ... 

Mr. Chairman, there is one subdivision in New Mexico which is 
probably the largest subdivision in the Nation, and yet, after only 
15 years of land sales, it now has less than 2,000 residents and is only 
1 percent developed, with 99 percent of the land having no resale 
market whatsoever, and much of it being described as a negative 
investment. 

This kind of development has led to literally thousands and thou- 
sands of complaints to my office. Most of the complainants are elderly 
individuals living in the East who purchase land as an investment 
or for retirement and then, after some 8 or 10 years of making regular 
monthly payments, they find out that really the land is not suitable 
for development, that the land is not really the dream that they had 
hoped for. 

Chaimmn Ashley. Is this subdividing going on today? 

Mr. Anaya. Mr. Chairman, it is going on daily. We have been 
able to bring a number of actions through my office which have slowed 
down the progression of illegal subdivisions, but it is still going on. 
There is a great deal of subdivided land that was subdivided years 
ago that is still being marketed here. 

In fact, just in uie past couple of weeks, we brought an almost 
300-count indictment against one subdivider from Baltimore, Md., 
who was selling land in New Mexico to individuals in the Washing- 
ton, D.C., area and enticing them to buy the land by claiming that 
it had oil and gas deposits on it, and by using all kinds of schemes. 

Some of the land, Mr. Chairman, will not be in actual development 
until about the year 3000, and yet people are being sold land with 
the thought that they might be able to retire on it. Unless they plan 
on being over 1,000 years old, Mr. Chairman, it is obvious that they 
would have no hopes of ever being able to realize their dream. 

The types of schemes and techniques that are used in land fraud 
are unlimited. It occurs not only in the sale of the raw land, but in 
the enticing of investors into the land companies and in the financing 
and the sales operations. 

Most of the misrepresentations that my office has proceeded against 
have involved misrepresentations concerning, among other things, 
clear titles, location of lots, availability of potable water, existence 
or promised development of utilities that never occurred, oil and gas 
discoveries, investment potential, hidden costs, hidden building limi- 
tations, and almost any kind of a gimmick or a method of trickery 
to try to sell the land. 

We have even had examples where salesmen would take the pros- 
pective purchasers out to a lot where there would be a hole in the 
ground with a bucket of water at the bottom of the hole, and they 
would drop stones down into the bucket of water, trying to show 
that the water table was just a few feet below the land. Free trips, 
that individuals found out were not free unless they purchased land ; 



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and many, many other devices, Mr. Chairman, that were being used 
to entice unknowing consumers into purchasing this land. 

Our present New Mexico statutes, as I mentioned to you earlier, are 
totally inadequate in dealing with these kinds of developments, and, 
in fact, there is some pressure from business communities locally. My 
office received considerable pressure a year and a half ago when we 
filed a major action against the biggest subdivider in the State and 
one of the biggest — if not the biggest — in the Nation. 

I received considerable pressure from the business community that, 
in effect, translated itself to a simple statement : "These subdivision 
lots are being sold to people out of State, so why should you be con- 
cerned? It is really consumers in other States back east, primarily, 
that are being taken. It is good for the economy of New Mexico. So, 
why should you, Mr. Attorney General, be concerned about trying to 
put a stop to this kind of activity ?" 

Chairman Ashley. I think what I will do is to recess at this time. 
We have a vote on the floor. It is going to take us just a very few 
minutes to accomplish this, and then we will be back and you can 
pick up at this point. 

This is an important area of your testimony, and I would jiist as 
soon forbear it at this juncture. And we will resume just as quickly 
as we get back. 

[Brief recess.] 

Mr. GrONZALEz [presiding]. The subcommittee will please come to 
order. 

At the time that the subcommittee recessed for the vote, I believe 
Attorney Greneral Anaya was testifying. 

I also understand that you have a time factor or deadline. And, 
if you wish, you could proceed as you see accordingly and would suit 
your purposes best; and that is, you can summarize your statement, 
or you can proceed as you are, whatever suits your purposes, in view 
of the fact that I understand you have a time problem. 

Mr. Anaya. Thank you, Mr. Chairman. 

Mr. Chairman, I had pretty well gone through most of the prob- 
lems that land fraud creates in the State of New Mexico, and, as 
I indicated, it is really not a problem for New Mexico or New Mexi- 
cans as much as it is a problem, really, for the constituencies of the 
members of this subcommittee, because most of the land that is being 
sold is being sold in the Midwest and in the East. 

Mr. Chairman, in the last few pages of my prepared testimony, 
I have made a number of recommendations that I feel should be taken 
by the Congress to try to give us some tools at the local level to deal 
with the land fraud problems in our respective States. 

I would call the committee's attention to those recommendations 
and would basically point out that most of the provisions are con- 
tained in either one or both of the House bills that are before this 
committee. 

I heartily endorse those provisions and particularly, would point 
to one provision that is contained in one of the House bills and not in 
the other, and that is the question of giving the State attorneys gen- 
eral the ability to sue, acting as parens patriae on behalf of citizens 
within respective States. This is not a novel approach, Mr. Chairman. 
The Congress gave the State attorneys general this same power under 



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the antitrust statutes. We are currently implementing that and using 
that authority at the State level very successfully, and I feel that this 
is the kind of tool that could be added very easily and very effectively 
to try to bring the question of land fraud under control in our respec- 
tive States. 

Mr. Chairman, one final point with respect to the specific bills that 
are before this committee. The Senate bill, S. 3084, section 715 of that 
bill, I understand, is the section that tries to attack the problem of 
land fraud. As we have reviewed that particular proposal, Mr. Chair- 
man, we find that it is totally inadequate. In fact, it looks very much 
like a subdivider's bill, and it would further weaken the already 
limited enforcement powers that the Federal agencies have. Certainly 
it would not contribute anything at all to solving the question of land 
fraud. 

Mr. Chairman, the areas that my office has been concentrating on 
lately, and one that the committee should be aware of, is the extent to 
which organized crime elements have found their way into land fraud. 
It is a very lucrative proposition, and it certainly is an area with which 
we will continue to have problems with organized crime elements if 
we do not get the necessary tools to combat them. 

I would urge this committee and this Congress to enact the House 
bills that are presently before it, and to give us the parens patriae 
ability and the tools that we need to try to protect consumers, not only 
in our respective States, but consumers throughout the Nation. 

In conclusion, Mr. Chairman, as I mentioned earlier, many in my 
own State would question why I should be concerned about protecting 
consumers in other States, because the land that is beng sold is being 
sold to your constituency. But I feel as long as there is any illegal ac- 
tivity within our State, Mr. Chairman, that we should be greatly con- 
cerned about it and try to put a stop to it. 

Mr. Chairman, I have tried to just briefly highlight the contents 
of my prepared testimony. I would be happy to try to respond to any 
questions. 

[Mr. Anaya's prepared statement and a resolution adopted at the 
1978 annual meeting of the National Association of Attorneys General, 
St. Paul, Minn., June 1&-21, 1978, follow:] 



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STATE OF NEW MEXICO 

(Sffxtt of tijt ^ttinrtt^ (Sextitnl 

DEPARTMENT OF JUSTICE 
P.O. Drawer 1506 



TESTIMONY OF 
TONEY ANAYA, 
ATTORNEY GEtJERAL OF NEW MEXICO, 
BEFORE THE 
UNITED STATES HOUSE OF REPRESENTATIVES 
SUBCOMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT 
CONCERNING 
THE INTERSTATE LAND SALES 
FULL DISCLOSURE ACT 
ON 
AUGUST 2, 1978 

Thank you for the opportunity to testify concerning the 
proposed amendments to the Interstate Land Sales Full Disclosure 
Act. I comnend your efforts, reflected by H.R. 12574 and 
11265, to protect purchasers of subdivided land in the 
interstate market and to combat fraudulent land sales practices. 

EXTENT OF PROBLEM 

Land fraud is a national problem, and unfortunately, its victims 
are increasing by the day. Although the land sold is usually 
located in the "retirement" and "recreational" states of the s\in 



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belt, such as New Mexico, the victims of fraudulent land schemes 
are scattered throughout the country. In at least eight states, 
land fraud is the number one consumer protection problem and it is 
high on the list in many other states. 

A large part of the nation's subdivided land is located in New 
Mexico. We have over 1.5 million subdivided acres. Over a billion 
dollars in subdivided land sales have been made in my state alone 
within the last fifteen years. Almost a half million subdivided 
lots in New Mexico are now registered with the Office of Interstate 
Land Sales Registration. No one knows how many additional un- 
registered subdivided lots there are. If a family of four were to 
move on to each of the registered subdivided lots alone, New Mexico's 
present population would almost triple. The impact orr New Mexico 
could be disastrous. The arid, desert character of most of the land 
subdivided for sale and the limited water resources available 
clearly preclude the development of even a small portion of these 
lots for full use and enjoyment by purchasers. Nevertheless, new 
subdivisions are being carved out daily. 

Much of this subdivided land is in remote areas of New Mexico 
and consists of dry land with sparse vegetation that is, in some 
cases, not even fit for cattle grazing. One major subdivision 
in such an area includes over four hundred square miles with 
172,000 subdivided lots. The subdivision itself is larger than 
Manhattan and may be the largest subdivision in the nation. After 
15 years of land sales to predominately eastern and midwestern 
purchasers, the subdivision now has only 1,790 residents and 
is only 1% developed. The purchasers of the remaining 
99% own land for which there is no resale market. It has been 



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described as a "negative investment," given the overall cost of 
taxes and developer imposed assessments. 

This type of subdivision has generated thousands of complaints of 
fraudulent conduct to my consumer protection division. The 
saddest commentary is that the majority of those complaints are 
from elderly persons living in the east who have purchased the 
land primarily as an investment or for retirement. After ten 
years of monthly real estate contract payments, many have come to 
the cruel realization that the land they have purchased has no 
value and can never be used for their retirement. 

New Mexico now has thousands of miles of bulldozed roads crisscrossing 
the desert in neatly gridded formations leading nowhere, which 
are abandoned and unused except as landing strips for drug smuggling 
pilots. The thousands of undeveloped lots which front such roads 
are typically owned by out-of-state purchasers who have never 
seen the land but who were shown master building plans for wonder- 
ful new cities and golf courses, and colorful charts and graphs 
showing ever increasing land values, all of which have never come 
to pass. In one major New Mexico subdivision, it was projected 
that actual development would not reach most of the subdivided 
lots until after the year 3000. Such a "long-term" investment 
potential is of little consolation to a purchaser sixty-five 
years old who was promised a buildable home site for retirement 
within five years. Frankly, it is of little consolation to 
anyone who plans to live to be less than one thousand years old. 



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Land fraud has many faces. The types of schemes and techniques 
used to sell land are unlimited. The fraud occurs not only in 
the sale of the raw land, but also in the attracting of investors 
in the land company itself and in the financing of the sales 
operations. Misrepresentation of the land purchased, is, however, 
the common denominator. My office has filed lawsuits involving a 
wide variety of misrepresentations concerning, among other things: 
clear title, location of lots, availability of potable water, 
existence or promised development of utilities, oil and gas 
discoveries, investment potential, hidden costs necessary for 
utilization or access, hidden building limitations - the list is 
endless. So also is the list of gimmicks and methods of 
trickery used to sell subdivided land. These include everything 
from dropping stones down a dry well shaft with a bucket of 
water at the bottom, to bait and switch tactics, and free trips to 
visit the land which suddenly become "free" only if you decide 
to purchase the land you are to see. 

liTEAK LAWS 
Tougher state and federal land laws are needed if the problem of 
land fraud is not to become worse. A recent national study which 
examined New Mexico land subdivision laws described them as 
"procedural, giving only the appearance of regulation." The 
Inform study entitled "Promised Lands" characterized the sub- 
division activity in New Mexico as "development out of control." 
I cannot agree more. 

Present state and federal laws offer only minimal protection for 



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purchasers who are victimized by land fraud. They do not give 
law enforcement agencies sufficient statutory tools to seek 
redress for the land fraud victims. Criminal actions taken by 
my office and other law enforcement agencies may have succeeded 
in punishing the wrongdoers but in most cases the punishment did 
not fit the crime-- the only results have been short jail terms, 
suspended sentences, or corporate fines which are written off as 
minimal costs of doing business. Such results have little effect 
on the problems caused by the illegal subdivision and do absolutely 
nothing to compensate the victims of land fraud- -the consumer/purchasei 

I see little hope for tougher state laws in New Mexico. The 
presently existing weak provisions were enacted only after years 
of struggles, compromises, and concessions to subdividers by the 
state legislature. The same forces that defeated stronger pro- 
visions are still very much alive and well in our state, and, 
unfortunately, the national scope of the problem does not lend 
itself to solution on the state level. 

PENDING FEDERAL AMENDMENTS 

Thus, meaningful relief must come through federal action. I 
am encouraged by the proposed amendments in both House Bills 
H.R. 12574 and H.R. 11265. They both address the central 
question of granting more meaningful remedies to the victims of 
land fraud. The two crucial points in those bills are: (1) 
effective remedies for lot purchasers, and (2) authorization 
for state attorneys general to act on behalf of such purchasers 
under the federal law. 



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The most significant problem in the existing law is the lack of 

effective remedies. The Office of Interstate Land Sales Registration 

has limited enforcement powers and the present Act provides 

almost no meaningful consumer remedies. Many of the lot purchasers 

involved in the situations which I described earlier are without 

effective redress under the present Act against the developer 

from whom they bought their land. Their only remedy under the 

Act is a suit, which can only be filed on a limited basis for 

limited monetary damages. There are several steps which should 

be taken to correct this. 

First, the current Act requires that facts which are material to 
the consumer's decision whether to purchase must be disclosed in 
the Statement of Record and Property Report filed with the Office 
of Interstate Land Sales Registration. The Act is violated if 
material misrepresentations of fact are made in the Statement of 
Record or the Property Report. Unfortunately, developers commonly 
disclose one thing in the Property Report and Statement of Record, 
and something completely different in their advertisements and 
oral representations to purchasers , which are not now covered by 
the Act. The developer should be required to include in his 
Statement of Record copies of all printed materials used in 
advertising, transcripts of all television and radio advertisements, 
and accurate summaries of all verbal representations made by a 
developer to promote the purchase or lease of his lot. The 
developer would, therefore, be held responsible, and be subject 
to the Act's penalties, for misrepresentations not only in the 



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Property Report, but also in all advertisements and oral representations 
to purchasers. This would effectively end the abuse of inconsistent 
disclosures and statements by developers and their agents. 

Second, purchasers must be able to sue developers for specific 
performance on promises which he or his agents have made. Purchasers 
are now limited to seeking monetary damages which are often 
inadequate. 

Third, developers must be required to establish an escrow fund to 
insure completion of water, sewage, and electrical facilities. 
The majority of the consvmier complaints received by my office 
relating to land sales arise from the failure of developers to 
provide promised utility services. The current federal law and 
the New Mexico subdivision laws require neither escrowing nor the 
posting of any type of performance bond by developers who promise 
to provide utilities in their subdivisions. There is no requirement 
that water, waste disposal, or other basic services be guaranteed 
and no recourse is provided for consumers who are promised but do 
not receive these amenities. The imposition of an escrow requirement 
on developers who do promise such amenities would be a very 
important step forward in regulation of subdivision activity and 
prevention of land fraud in New Mexico and other states. 

Fourth, purchasers should be able to revoke their contracts if 
the developer fails to keep specific promises to provide such 
essential services. Purchasers have no such recourse under 
either New Mexico or federal land laws now, and revocation is 



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often the only meaningful remedy in such circumstances. 

Fifth, a purchaser who sues on his own behalf is not authorized 
under the present Act to recover his reasonable costs incurred 
in connection with such a suit for attorney's fees, appraisal 
costs, and travel expenses to and from the lot. These costs 
should be recoverable in a successful action. They can be 
substantial in bringing and maintaining any action with respect 
to land, especially when the purchaser does not reside near the 
land. Such a provision would obviously provide an incentive to 
subdividers to abide by the law and not make material misrepresen- 
tations. 

Finally, state attorneys general need additional tools to help 
enforce federal law. All of the above measures would afford 
better protection to lot purchasers. The fact remains, however, 
that the individual purchaser usually experiences great difficulty 
in bringing a private lawsuit against a land developer. My 
office has handled several major cases against large subdividers 
and they are exceedingly complicated and time-consuming. It is 
very unlikely that individual lot purchasers, especially those 
who live far from the land involved, could afford to maintain 
such private actions. Attorney's fees and travel expenses alone 
would almost certainly be prohibitive. Even if these items could 
be recovered, it is unlikely that an attorney would handle such a 
case on a contingent fee basis. For this reason, state attorneys 
general should be authorized to act parens patriae for such 



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purchasers under the Act. The granting of such parens patriae 
power is not a novel approach. State attorneys general are now 
authorized by section 301 of the Clayton Act to proceed under the 
federal anti-trust laws on behalf of citizens of their states and 
have done so successfully since 1976. 

An attorney general, acting parens patriae , should be empowered 
to sue for injunctive relief and monetary damages on behalf of 
all affected citizens of his state. Such an action would not 
only make it easier for purchasers to obtain redress, but it 
would be the most efficient way of handling litigation with large 
numbers of purchasers. It would also provide for more extensive 
enforcement of the Act throughout the United States and thereby 
encourage compliance by subdividers . And, it would greatly 
assist attorneys general in those states with weak or non-existent 
land subdivision laws as it would give them additional statutory 
authority for protecting their citizens from land fraud. 

I urge you, therefore, to grant parens patriae jurisdiction to 
state attorneys general so that we can act effectively on behalf 
of purchasers who become victims of land fraud and assist in the 
enforcement of this important federal land law. 

CONCLUSION 

I support your efforts to amend the "Interstate Land Sales Full 



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Disclosure Act" in the two House bills before you. The measures 
which I have discussed are contained in one or both of these 
bills and would go far to alleviate many of land fraud problems 
that now exist. I would urge you to select the best of both 
House bills, add whatever additional strengthening provisions you 
must, and report out a new, combined proposal. The other bill 
you are considering. Senate Bill S 3084, contains none of these 
provisions. I cannot support it for that reason. It is a land 
developer's bill that would serve only to further weaken the 
already limited enforcement powers of the Office of Interstate 
Land Sales Registration by exempting certain interstate land 
sales now governed by the Act. 

In closing, Mr. Chairman, I have been requested by the National 
Association of Attorneys General to request that you include in 
the hearing record on these bills a copy of a resolution adopted 
by the Association in June 1978 on this subject. I submit this 
resolution to you and respectfully ask that it be included in the 
record. 

I thank you for the opportunity to testify and I will be glad to 
answer any questions which you have. 



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RESOLUTION 

AS ADOPTED BY THE 

NATIONAL ASSOCIATION OF ATTORNEYS GENERAL 

1978 ANNUAL MEETING 

JUNE 18-21, 1978 

ST. PAUL RADISSON HOTEL 

ST. PAUL, MINNESOTA 

INTERSTATE LAND SALES FULL DISCLOSURE ACT, 
H.R. V»»»9 iaS'7i 

WHEREAS, fraudulent practices in the interstate land sales 
industry have become a problem of serious concern to consumers; amd 

WHEREAS, existing federal law has not adequately protected 
consumers who purchase land from interstate developments; and 

WHEREAS, state Attorneys General have played a key role 
in law enforcement in land fraud matters. 

THEREFORE, BE IT RESOLVED, by the National Association of 
Attorneys General that: 

1. We endorse in principle the concept of strengthening 
federal law which would curb fraudulent and abusive 
practices in the interstate land sales industry 

as in H.R. 1K)959 and in similar legislation; and 

2. We endorse the inclusion of a parens patriae section 

in such legislation to authorize state Attorneys General 
to bring civil actions against developers on behalf of 
citizens of the state who have purchased l2uid; and 

3. The Washington Counsel is authorized to communicate 
the views of the National Association of Attorneys 
General to the appropriate committees of the Congress. 



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Mr. GrONZALEz. As I understand it, Mr. Barnes has not testified, as 
yet. 

Mr. Barnes. That is correct, Mr. Chairman. 

Mr. Gonzalez. So that if you do have this time factor, perhaps it 
would be best to go on ahead and ask questions of Mr. Anaya. 

I have two questions, really. 

One, I also sit on the other subcommittee that had hearings on this 
same — as a matter of fact, the bill we have here is the vehicle that 
came out of that subcommittee, and we also had other attorneys gen- 
eral from other States. And if I recollect well, there was some re- 
luctance on the part of the State officials to admit that there is some 
limitation and that therefore it is incumbent upon the Federal Gov- 
ernment to provide laws and rules and regulations. 

I couldn't ever quite get the pattern, though, as to why there was 
that much inability on the part of the State-level officials. Given this 
situation two suggestions that have come out including the approach 
you endorsed which is contained in the Minish bill with respect to the 
jurisdictional ability of the State attorneys general to sue. 

As I understand it, a provision in the Minish bill we are consider- 
ing does not provide for aggregate damages or any particular method 
to assess the type of damages alleged, and^ therefore, it would seem 
that it would be left up to assess damages individually, case by case. 

Now, how helpful will that be? Is that really helpful, or is it 
necessary? 

Mr. Anaya. Mr. Chairman, let me just briefly comment on a couple 
of the other points that the chairman has raised in terms of the reluc- 
tance by States to move into this area. 

As I alluded to earlier in my testimony, since New Mexico is prob- 
ably the State with the single most subdivided land in the entire Na- 
tion, land that is being sold out of State, there is a great lobbying 
force in the real estate industry that has exercised its muscle in the 
State legislature and, unfortunately, I think, because of what the sales 
have meant to the economy of New Mexico, that has also drawn some 
constituency or some following in our State legislature. And com- 
bined, this has meant we have had very weak legislation at the State 
level. 

There is also a second problem, even to the extent that our present 
State statutes give local counties some supervision, some authority 
over subdivisions, there is a great deal of lack of expertise at the local 
level in terms of dealing with subdividers. And, in fact, manv sub- 
dividers even refuse to check in with the appropriate county officials. 

So, we do have to look at some other authority to try to get to par- 
ticularly the subdividers who are dealing in interstate sales. 

Mr. Chairman, in terms of the ability of State attorneys general to 
come in and sue, there is another reason why this would be important, 
particularly in a State like New Mexico. We have not been able to, 
even though there exists some Federal ability now for the feds to come 
in and sue some of the subdividers, we have not been able to document 
one single case where the local U.S. attorney's office has ever prose- 
cuted anyone or sought to enforce any of t6e provisions of the act. 
This again, I think, highlights the need to trv to not only find addi- 
tional authority but place additional authority in the hands of the 
State attorneys general. 



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I feel that the authority that is being granted by the provisions in 
the Minish bill parallel the provisions that we presently have under 
antitrust statutes, and I feel that it would certainly be adequate to 
initiate actions on behalf of individuals within our respective States. 

I am not sure that I completely understand the concern from the 
question of the chairman, but I feel that the provisicms are satisfac- 
tory to permit me, as a State attorney general, to bring actions on 
behalf of consumers in my State. 

Mr. Gonzalez. How much of a track record do we have of experi- 
ence under this doctrine in the case of antitrust? Is that not a recent 
Federal enactment? 

Mr. AxAYA. Mr. Chairman, the legislation was enacted in 1976. It 
was funded last year, last October. My office, for example, got one 
of the first grants to initiate an antitrust unit. We have now been in 
operation for some 8 or 9 months. 

One of the decisions, the so-called Illinois Brick decision, that 
made it to the supreme court has now perhaps left some of the powers 
under that particular provision in shambles, and there is legislation 
presently pending in the Senate, hopefully, to be able to correct that. 

But the general concept will be, I feel, extremely valuable in per- 
mitting the State attorneys general to use Federal statutes in Federal 
courts on behalf of State consumers. 

And also, an equally important provision is forcine:, in effect, the 
Federal agencies to cooperate with the local law enforcement agen- 
cies. I feel this will be extremely valuable, not only in these areas. 
but other areas, to permit a State attorney general to enforce Federal 
laws in a Federal court on behalf of his constituency. 

Mr. Gonzalez. Thank you very much. 

I just was wondering, the ongoing arsruments I heard when I last 
visited New Mexico was that Texas had brought up at least the south- 
eastern one-third of New Mexico. 

Mr. Anaya. Mr. Chairman, one thing I can say about your con- 
stituency : Thev were a lot brighter than some of the others who have 
bought — ^thev have bought up all of the land with the oil and gas. 
Other constituents are hoping to do the same thing, but have not been 
so successful. 

Mr. Gonzalez. Thank you very much. 

Mr. Kelly? 

Mr. Kelly. T thank you, Mr. Chairman. 

Gentlemen, let me ask you this. 

Aren't vou really in your testimony saying that the need for the Fed- 
oral law is to protect the mail order land purchase, the purchase by 
people from out of State, and that you are not really suergesting that 
the Federal Government attempt to police wliat are legitimately intra- 
state sales? 

Mr. Anaya. Mr. Kelly, that is basically correct, although the sales 
techniques are not strictly limited to a mail order type operation, but 
my concern is primarily addressed to interstate sales, legitimate inter- 
state sales. 

In New Mexico we refer to them as the ma-and-pa subdivisions. I 
think the ma-and-pa subdivisions, the intrastate subdivisions, if they 
are truly intrastate sales, then I believe those, the State of New Mexico 
and local authorities should be prepared to try to police. 



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Mr. Kelly. Well, let me ask you this. Don't you think that a legiti- 
mate criteria for determining whether or not it is an intrastate as op- 
posed to interstate sales is if they advertise only in local newspapers 
and if they do not solicit by mail or telephone on an interstate basis, 
so that when advertising in local papers can be used as a criteria for 
establishing it as an interstate sale, that is not the kind of recommenda- 
tion you have, is it ? 

Mr. Anaya. Mr. Chairman, the whole impact, I suppose, would be 
on the solicitation — how do the subdividers go about soliciting, and 
where do they solicit. It is probably a little bit difficult to limit adver- 
tising strictly to the four boundaries of the State of New Mexico be- 
cause even our local newspapers, for example, are sold in Texas, Colo- 
rado, Arizona, and Nevada and maybe in other States, so that if you 
get an advertisement in one of our local newspapers, that newspaper is 
sold in Texas. Conceivably, a court would uphold that as being involved 
in interstate commerce, unless it was more clearly defined. 

Mr. Kelly. But that is not really a legitimate concern, because I don't 
want to slight the Albuquerque press, but they don't get a pretty wide 
national circulation, do they ? 

Mr. Anaya. Mr. Chairman, I am glad you made the statement and 
not me. [Laughter.] 

I don't think we would find the Albuquerque newspapers would have 
the kind of circulation that the New York Times does. 

Mr. Kelly. And for instance, if the Albuquerque papers would sud- 
denly start and do something funny just to accommodate some sort of 
a land promotion deal on an interstate basis, that would not be the 
normal publication of the local newspaper. 

Mr. Anaya. I believe that any restrictions or limitations of this type 
I could certainly, personally, as attorney general, live with in terms of 
trying to distinguish between intrastate and interstate. I believe it 
would be important to give someone in an administrative capacity, 
HUD, for example, the ability to try to distinguish what is intrastate 
and interstate. 

I found that with each limitation that Congress or the State legis- 
lature places, there is always some subdivider that is going to try to 
find some way to get out from under. 

Mr. Kelly. All right, let me ask you this. 

A personal inspection, requiring f)ersonal inspection goes a long 
way toward alleviating: the really serious fraud situation, doesn't it? 

Mr. Anaya. Yes ; it does. 

Mr. Kelly. All right. Let me ask you something else. 

Is there not a legitimate market for unimproved land? I mean, 
aren't there some people that want unimproved land because they 
can't afford improved land; they don't want the paved roads an& 
sewers nmning out to the property because they can buy 5 acres of 
land, ff it is unimproved, and they may not be ab^le to buy 1 lot if it is. 

Mr. Anaya. I am sure that there is a legitimate market for imim- 
proved lots. 

Mr. Kelly. I want you to know I am really enjoying this elevation 
and status that you have bestowed on me. 

Mr. Anaya. I fully recofi:nize the position of the Congressman, and 
I was addressing my remarks through the chairman. 



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There is a legitimate market for unimproved land. I think the key 
would be, the purchaser of that unimproved land know exactly what 
he or she was purchasing. 

The general impression that I was brought up with and have only 
changed in the last 2 or 3 years was that any piece of real estate was 
a good investment, any piece anywhere, and that is not true. In New 
Mexico, much of the land, as I referred to earlier in my statement, is 
a negative investment. Some of the land that was worth $12 an acre 
10 years ago is still worth $12 an acre today, even in spite of inflation. 

So I think the key is, does the purchaser in Florida or New York 
City or Texas or wherever, does that i>urchaser know the full value 
of that land and what its potential value is, or is that person being 
sold a piece of real estate, unimproved real estate with the misrepre- 
sentations that somehow he or she is going to have a substantial 
investment. 

Mr. Kelly. But if someone knew he was buying a lot on a dirt road, 
I am betting that for political considerations you are not going to 
announce that everybody that lives on a dirt road is a dummy. 

Mr. AxAYA. Mr. Chairman, that would destroy me politically because 
I live on a dirt road. [Laughter.] 

Mr. Kelly. I just thought there might be some people in New 
Mexico on dirt roads. 

But you mentioned earlier about the lobbyists and the special inter- 
est pressures and so forth, but would you believe that there is another 
group of lobbyists and special interests that are real hot to go on 
sewers and all kinds of engineering and reports and studies and all 
of this other stuff that costs money and runs up the price of real 
estate ? 

Mr. AxAYA. Congressman, there is no question but that the con- 
sumer protection movement can be carried to such an extreme that 
the consumer is the one who ultimately winds up suffering, and I 
think we have to strike some kind of a balance between both extremes, 
and I think that that is basically what I would be asking this 
committee to do. 

Mr. Kelly. Well, you don't think this committee should mandate 
that everybody has got to l)e living on a municipal sewer system, for 
instance? 

Mr. AxAYA. No, I don't, Mr. Chairman. 

Mr. Kelly. I mean, being from New Mexico, I thought you might 
l)e able to appreciate the limitations that kind of a system would have. 

Mr. AxAYA. Again, I think the key would be in terms of the repre- 
sentations that are being made in the sale of whatever land. 

Mr. Kelly. As long as the people knew what they were buying, that 
is really the criteria we are trying to get at so that people arent 
homswaggled into believing they are going to be hooked up to a sewer 
when there isn't one for 75 miles. 

Mr. AxAYA. The big concern, Mr. Chairman, would be one of full 
disclosure and remedies in the event that those disclosures were not 
complied with. 

Mr. Kelly. Thank you, Mr. Chairman. 

Mr. GoxzALEz. Mr. Brown. 

Mr. Browx. Thank you, Mr. Chairman. 



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Do the land sale abuses that you are familiar with involve residents 
of your neighboring States or primarily neighboring States or do they 
involve residents of States like New York, New Jersey, and so forth, 
which are some distance from New Mexico. 

Mr. Anaya. Congressman, most of the land subdivisions that we 
have proceeded against have been involving residents from the east 
coast and the Midwest; very few involve purchases by New Meidcans. 

Arizonans can purchase their own worthless land, if they so wish. 
[Laughter.] 

And they are very much aware of that. 

Most of the sales are being made to Midwest and Eastern States. 

Mr. Browx. You, of course, support this legislation. It almost sounds 
as though you are more concerned about residents of other States 
than you are about residents of the same State but in a more remote 
place from the development, because, obviously, this act is not going 
to protect a New Mexican resident from a bad sale in a remote part 
of New Mexico. 

Mr. Anaya. Mr. Chairman, I am concerned, as attorney general — 
I am concerned with any illegal activities that occur within the four 
boundaries of the State of New Mexico. 

I have likened it in local testimony to when I was being pressured, 
as I testified earlier, to not bring a lawsuit against a major subdivider 
who had been making sales out of State, and I was being pressured not 
to bring the lawsuit because it was going to hurt the local tax base 
and the local economy, and just think of all these millions of dollars 
that we are bringing in fraudulently from out of State. 

I likened it at that time to another problem that I have been in 
Washington testifying on, the subject of narcotics smuggling from 
Mexico. If we want to use the two examples, your argument to the 
conmiunity that was suggesting I not proceed against illegal sub- 
dividers, their argument would te likened to my not proceeding against 
narcotics smugglers who are bringing in narcotics from Mexico into 
New Mexico and dispensing it throughout the Nation. It really wasn't 
New Mexicans that it was being sold to; it was people in other States. 

I think I have to be concerned about any illegal activity in the State 
of New Mexico that affects anybody. 

Mr. Brown. But this illegal activity that you are referring tx), 
would not be illeiral unless it involved a nonresident of the State of 
New Mexico. But, you said that your laws in New Mexico, insofar as 
they protect residents of New Mexico, are inadequate. 

Mr. Anaya. Mr. Chairman, I probablv should not have used the 
word "illegal" in that particular phrase. The fraudulent, even though 
at this point they may not be prohibited, or we may not have the rem- 
edies to go against the individuals involved — the fraud that is being 
perpetrated on consumers is there, whether it is intrastate or interstate. 

Mr. Browx. But there is no protection from fraud if you are a 
resident of New Mexico and you are not engaged in interstate land 
sales, because you have no law on the books in New Mexico, apparently, 
that would be comparable to the Interstate Land Sales Act. 

Mr. Anaya. We do have legislation on the books which I feel is 
totally inadequate at the present time to deal with the large-scale 
fraudulent practices. Were we able to distinguish between interstate 
and intrastate, and given the parens patriae powers that we are asking 



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142 

for, combined with existing statutes, and we have had to go beyond 
subdivision laws — we have had to use our securities laws, our unfair 
trade practices laws and other statutes — given all of these tools to- 
gether with the additional Federal authority, I feel that we could bring 
land fraud under control in our State. 

Mr. Brown. Under section 301 of the Clayton Act, you can bring an 
action on behalf of any individual. It doesn't have to be a class right. 

Mr. Anata. That is correct, Mr. Chairman. 

Mr. Brown. In other words, the provision in the Minish bill is com- 
parable to section 301 of the Clayton Act, as far as standing to sue. 

Mr. Anaya. That is correct. I understand that they parallel very 
closely. 

Mr. Brown. Have you looked at the Nelson bill in the Senate? 

Mr. Anaya. Mr. Chairman, yes, I have. 

Mr. Brown. That bill, of course, provides the 100-mile exemption 
provided there has been onsite inspection. 

Don't most of the abuses occur because there is not onsite inspection! 

Mr. Anaya. I believe that the two principal reasons for the abuses 
are, first of all, the lack of onsite inspection and, secondly, the repre- 
sentations that are made even with onsite inspection in terms of future 
developments or future amenities and things of this nature. So the on- 
site inspection would cure a large number of the problems but it still 
would not take care of the misrepresentations. 

Mr. Brown. Thank you, sir. 

Mr. Kelly. I have just one additional question, Mr. Chairman, if 
I may. 

Mr. GoNz.vLEz. Mr. Kelly. 

Mr. Ketly. There is no reason whv New Mexico could not have 
whatever laws are appropriate to handle purely intrastate lands sales. 

Mr. Anaya. There is no legal reason why we shouldn't or couldnt 

Mr. Kelly. And if you don't have them, it is just because you have, 
in your wisdom, decided not to impose them. 

Mr. Anaya. Mr. Chairman, I would not characterize it in the same 
way. I believe the reason, as I indicated earlier, that we dont have 
tougher laws now has been because of the strong lobbying efforts at 
the local level. 

I have not been any too bashful to come to the Congress before to ask 
for authority in other areas wliere we need it, where the States have 
failed to take care of the problem. And I suggest that is what I am 
doing today. 

Mr. Keli.y. Then, to really focus this thing, what you are saying is 
that because the State of New Mexico has not done as you think they 
should do in this area, then you think the Federal Government, 
through the device of a strained "interstate" definition, we should 
start monitoring the activity in New Mexico. 

Mr. Anaya. No, Mr. Chairman, that is not it at all. 

What I am suggesting is that, under the existing statutes, it gives 
HUD particularly — and other Federal agencies — some authority in 
the area : that, first of all, they are not doing their job. And one of the 
reasons they are not doing their job is because they don't have the 
necessary authoritv to do the job. 

And second, to the extent that the authority can be extended to per- 
mit State attorneys general to exercise that authority in court on behalf 



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143 

of its own citizens, I think the two combined would go a great ways 
toward protecting consumers in other States and in New Mexico. 

Mr. Kelly. Then, really, the extension that you are seeking is to 
give local enforcement an opportunity to enforce basically. Federal 
law in the area of land sales fraud. 

Mr. Anata. There are two thing I am seeking. 
One is additional authority for Federal agencies, for HUD. 
And second, to extend that authority to the State attorney general. 
Mr. Kelly. But not to strain the definition of "interstate" ? 
Mr. Anaya. Mr. Chairman, I am not suggesting that at all, and I 
would hope that in my earlier responses I pointed out that personally 
I could support and would be in favor of an intrastate-interstate 
distinction. 
Mr. Kelly. I thank you. 

Mr. GrONZALEz. If I could pursue just one aspect — because, in large 
measure, the reason we are having these hearings, and had the other 
hearings of the other subcommittee, was because of the experience of 
its chairman, Mr. Minish, in New Jersey, where he had a considerable 
number of his constituents involved right across the State line in 
Pennsylvania. They did have, in some cases, a chance to go physically, 
personally to visit, but were in no way protected by knowing the full 
circumstwices and limitations. Although the pitch was that sewage, 
drainage, and other facilities would te available, they found, after 
purchase, that they were far from being available, and probably never 
would be, because of some other mandatory health requirements. 

I think you said in your statement, just a while ago, in answer to the 
question by Mr. Brown, you did say, though, that it would be desirable 
to have onsite, personal inspection or viewing of the site; but that, in 
itself would not preclude some of the things that have come to the 
attention of the subcommittee, such as in the case of New Jersey 
purchasers. 

Mr. Anaya. Mr. Chairman, in my prepared statement that I did not 
read in its entirety — in my prepared statement, I made, among other 
recommendations, two that I think touch on this point. One recom- 
mendation was that the law should be amended to require the developer 
to include in his statement of record copies of all printed materials 
that would be used in advertising, transcripts of all television and 
radio advertising, and accurate summaries of all verbal representations 
which are made by the developer or his salesmen in promoting the 
business. 

Second, Mr. Chairman, we have recommended that developers be 
required to establish an escrow fund to insure the completion of any 
of the amenities that they themselves represent they are going to have — 
not that they should have all the amenities that we would want them to 
have, just that they insure that they develop those amenities that they 
claim in the representations that they are going to provide whether 
it be water, sewage, golf courses, shopping centers, whatever, electrical 
facilities. 

And this is particularly — it would be applicable to those subdividers 
who, in essence, are carving out new cities. They make all of these kinds 
of representations that they are going to have running water, and a 
sewer system, and a golf course, and they sell all the land, and then 
they are gone and nothing happens. 



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So I think the oornhiTiation of more disclosure and the escrow fund, 
I tliink would definitely solve that kind of a problem, Mr. Chairman. 

Mr. GoNZAUBz. Very good. 

I want to thank you very much, on behalf of the subcommittee, for 
f he time and trouble you have taken, and your sacrifice in coming all 
tlie way over here. 

Your testimony is very valuable. You made a very good presenta- 
tion and we are very grateful to you, Mr. Anaya. 

Mr. Anaya. Mr. Chairman, thank you very much, we have tried to 
help the subcommittee staff in the last several months, and we will 
continue being available and will be glad to appear any time the' 
subcommittee would desire. 

Mr. Gonzalez. Thank you very much. 

We have a vote pending, and those were the second bells that just 
rang. So we will suspend briefly for about 5 minutes while we go over 
and record our vote, and come back, and then we will hear Deputy 
Attorney General Barnes. 

FBrief recess.] 

Mr. GoNZAUEz. The subcommittee will come to order. We will pro- 
ceed with the hearings and recognize Deputy Attorney (Jeneral Barnes. 

And again, Mr. Barnes, you have a prepared statement We are very 
grateful to you for the time you have taken, and for your own attor- 
ney general. You may proceed as you see best. You may wish to present 
a summary of your written presentation, whicli will be in the record 
intact; or you may proceed by reading your statement. It is strictly 
up to you. 

STATEMENT OF HON. JAMES I. BABNES m, DEPXTTT ATTOBNET 
OENEBAL OF THE STATE OF NEVADA 

Mr. Barnes. Thank you, Mr. Chairman and distinguished Ccm- 
gressmen. 

As you have indicated, I have submitted a prepared statement. I 
don't think that I will go through that word-for-word, but there are 
a few points I would like to make, and I will be fairly brief today. 

First of all, I want to say that I am here representing Attorney 
General Robert List, and I ^o thank you very much for affording me 
the opportunity to appear here today and to discuss with you proposed 
amendments to the Interstate Land Sales Full Disclosure Act. 

T^et me make it clear at the very outset that I favor two major actions 
being taken by Congress. 

One is strengthening the Interstate Land Sales Full Disclosure Act, 
which would include giving the State attorneys general the authority to 
enforce tlie Federal law on behalf of the citizens of their States; and 
also, having this Interstate Land Sales Full Disclosure Act focus on 
what I think is the major problem — and that is, the large subdividers. 

We find, in our experience, that the mom-and-pop subdividers, as 
Mr. Anaya termed it, is not really the problem. It is the large sub- 
divider who comes in and subdivides 50,000 acres, primarly seUs it to 
out-of-State people, and makes all sorts of promises as to investment 
potential, as to the improvements, and the public services and utilities 
that will be put onto the property, and then the purchaser finds out 
sometime — it is several years down the road — that actually these prom- 



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145 

ises haven't been fulfilled and there was no intention in the first place 
that they would be fulfilled. 

Now in some cases, it is a case of the subdivider actually, in good 
faith, thinking he will be able to make the improvements, and then 
it turns out that he doesn't have the money when the time comes to 
put them in. 

And in other cases, the developer has no intention of putting these 
improvements in, in the first place. 

Mr. Anaya also made mention of one of the proposed portions 
of the legislation that I would strongly favor, and that is the estab- 
lishment of an escrow account which would require the developer to, 
"up front," so to speak, put all of the money into an account necessary 
to eventually effectuate each and every promise that he does make at 
the time he sells the property. 

And under these circumstances, if the developer, in good faith, felt 
that he was going to be able to make these, he would not be later em- 
barrassed and imable to fulfill his promises; and, on the other hand, if 
the individual developer actually never intended to make the improve- 
ments, of course he would be discouraged from even registering his 
land and being able to sell it. 

So I think that is one of the most important points that I see in the 
proposed legislation. 

There are a few other things that I think are also important. Mr. 
Anaya made mention of these, in his written statement, but he did not 
discuss — ^he only discussed two of them. One was the escrow account, 
and the other was the requirement of having the developer place in his 
statement of record printed copies of all of the printed materials that 
he will use, or copies of the printed materials that he will use in his 
advertising, and also transcripts of his radio and television advertise- 
ments, and also stating a summary of the sort of oral representations 
which will be made by the developer and his salesmen. 

So that, in the event that there is some problem as to the representa- 
tions that are made either through advertising or the salesmen, these 
will be stated in the statement of record, as opposed to the way it is now 
where the developer is not required to put anv of these materials into 
the statement of record. He can put one thing into the statement of rec- 
ord which is entirely different, or even perhaps diametrically opposed 
to what actually ends up in his sales brochures and on the lips of his 
salesmen. 

Now this is, again, another one of the nillars of this legislation that 
I think the Nevada attorney general's office would be greatly in favor 
of. 

A third item is the provision which would allow purchasers to be 
able to sue developers for specific performance on any promises which 
he or his agents have made. 

This contrasts with the situation which is now present. And that is, 
that purchasers are only permitted to seek monetary damages. And this 
is often inaedquate. 

Fourth, I think that purchasers should be able to revoke their con- 
tracts if the developer fails to keep promises to provide the essential 
services. This is also something that is lacking now, but we would like 
to see this included in the new legislation. 



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146 

A fifth point, which Mr. Anaya had made in his written statement, 
and with which we also concur, is that a purchaser should be permitted 
to recover his attorney's fees, appraisal cost, and travel expenses to and 
from the lot which he incurs as a result of lawsuits which he may bring 
a^inst the developer. At the present time, as you know, this is not per- 
mitted. And often, lawsuits are made prohibitive by the fact that the 
attorneys' fees and the cost of traveling from New i ork and Nevada to 
prosecute the lawsuit eat up any judgment which might be eventually 
realized. 

The single most important part, in mv view, of the legislation is the 
parens patriae section which would authorize State attorneys general 
to sue on behalf of their individual citizens in Federal courts through- 
out the country to enforce the Federal law. 

The present situation is that if a purchaser wants to sue a developer 
individually, the cost is often prohibitive. It is a complicated lawsuit. 
Most attorneys don't want to get involved in it because the recovery on 
an individual lot is not going to be enough to justify the kind of work 
they are going to have to put in, and to adequately cmnpcnsate them 
in their fees. / 

So there is a problem, from that standpoint. 

And then, under the Federal Rules of Civil Procedure, or the State 
rules, which provide for a class action, this sort of situation really 
isn't very easy either, because of the procedural obstacles to bringing 
class actions, such as the notice requirements, and all of the other 
things which are well known, and which the Congress discussed when 
they enacted the antitrust parens patriae legislation. 

I think the same items, the same factors that applied to the anti- 
trust area also apply to the land sales area — although it is true that a 
lot costs so much more than some of the consumer items that would be 
bought in the antitrust area. 

Where you have price fixing, you still have lots costing — ^the marl»t 
is running about $4,000 to $5,000, perhaps, so any kind of recovery is 
not going to be anything really substantial. 

So you do have the same considerations. We would strongly urge 
that that portion of the legislation be enacted. 

Of the three bills that are being considered here, Nevada would 
favor H.R. 12574 and H.R. 11265, or portions of both. Essentially, 
there are good points in each of them, and we would like to see them 
combined, and have those portions which do strengthen the present 
legislation culled from both of them and put together into a final ver- 
sion of the legislation. 

We don't favor S. 3084 because, as far as I can tell, all that essenti- 
ally does is weaken the existing legislation, which I feel is already 
probably weaker than it should be. 

There are two other points I would like to mention — and I think it is 
appropriate to mention this, because I would also like to urge you to 
consider two things. 

One thing is in the leirislation, which is very important^ and that is: 
Doing away with the 5-acre exemption. Currently, under the Inter- 
state I>and Sales Full Disclosure Act, there is an exemption for all 
lots 5 acres or more in size. And at least in Nevada, where land is very 
inexpensivee — specially the type that is sold, the desert, mountainous 
h d, it is very easy for the developer to put together large parcels that 
Id be in excess of the 5 acres, and then he is exempt from the act. 



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We have had one lawsuit where a developer was purchasing land, 
and purchased over 50,000 acres, and he purchased it at $30 an acre. So 
you can see that he can put it together into 40-acre parcels, which he 
did, and still be pretty close to the market — to where the market is and 
was at that time. 

And in fact, 40-acre parcels in Nevada can run for the comparable 
price to what a small lot might run in Florida or New Jersey. 

So if the act is going to help Nevada and other Western States that 
are similarly situated, we are going to have to do away with that 5-acre 
limitation. 

Now I know that the legislation does contain a provision which 
would propose a 40-acre exemption, and that is a step in the right di- 
rection, but I would urge you to do away with size exemptions alto- 
gether, because I do not think that it is really relevant to the legislation 
whether it is an 80-acro parcel or 50 acres, or whether it is a 40-acre 
parcel. The important thing is whether or not the developer is selling 
the land honestly. 

So that is one point. The other point is that I would like to see Con- 
gress consider the type of land sales act which is in effect in California 
at the present time, which is a fair, just, and equitable act. 

This, in my view, is the best of all of the types of land sales acts 
which are now in existence. This is one in which the legislature dele- 
gates to an administrative body the duty to determine whether or not 
the offering, on the whole, is fair, just, and equitable. 

In the event that it is not, then the developer is not issued a license. 
And I think if we are ever going to wipe out the problems that we 
have, some day this sort of legislation is going to have to be enacted. 

Now Nevada has seen fit not to introduce this type of legislation. I 
would hope — and I would doubt that it will, any time in the near 
future — but I would hope that the Federal Government might be able 
to institute this type of legislation in the near future. 

I thank you very much for allowing me to appear here today and to 
discuss with you some of the ideas that we in Nevada have. 

If you have any questions, I will be glad to answer them. 

fText resumes on p. 188.] 

[Mr. Barnes' prepared statement follows along with the referred to 
exhibits. Exhibit A : Supreme Court of Nevada decision entitled Lan- 
dex, Inc.^ et oH. v. State of Nevada^ et al.; and exhibit B : "The Regula- 
tion of Land Sales in Virginia," a paper by Thomas L. Stringfield.] 



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MEMORANDUM 

TO: All Members of the Subcommittee on Housing and Conmunity 
Development of the United States House of Representatives 

FROM: James I. Barnes, III, Deputy Attorney General, State of 
Nevada 

RE: Revisions to the Interstate Land Sales Full Disclosure 
Act 

I. The Land Sales Industry in Nevada 
In the period 1970 - 1973, Nevada was the primary marketing 
state in the union for the land sales industry. At that time, 
Nevada was visited by approximately twenty (20) million tourists 
a year. It was estimated, by the Office of Interstate Land Sales 
Registration, that twenty-five percent (25%) of all the subdivision 
lots sold under the Interstate Land Sales Act were sold within 
Nevada. There were in excess of 4,000 land salesmen in Nevada. 
Many large companies were operating in Nevada including GAC, 
Horizon, Cavanaugh Communities Corp. (Rotonda) , and AMREP. All 
or most of these subdividers were subsequently sued by the Federal 
Trade Commission or the Office of Interstate Land Sales Registration. 
Most of these companies entered into consent orders as a result 
of this litigation. 

One of the largest land sales frauds in the nation during the 
1970 's occurred in the state of Nevada. This involved a siibdivision 
(Lake Havasu Estates of Arizona) that purportedly met the require- 
ments of the Office of Interstate Land Sales Registration. 

Nevada's Land Sales Act, Chapter 119 of the Nevada Revised 
Statutes, became effective July 1, 1971. This act was weak, with 
no "teeth." Effective July 1, 1973, the Act was strengthened 
considerably. 



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Currently, Nevada is visited by approximately thirty (30) 
million tourists annually. Given the re-emergence of the right 
conditions, Nevada could again become an excellent market for 
land sales. Nevada has experienced living with no state land 
sales regulatory program, and it has ejcperienced living with a 
%#eak l2uid sales regulatory program. Although the present Act is 
fairly strong, it leaves a lot to be desired from a regulatory 
standpoint, and attempts by the executive department to strengthen 
the Act at the last two legislative sessions were rebuffed. At 
the last legislative session, a serious attempt was made to \feaken 
the Act. What will happen to the Act in future legislative sessions 
is open to speculation. I urge you, on behalf of the Nevada 
Attorney General's office and the Nevada Real Estate Division, to 
take measures to strengthen the Interstate Land Sales Act in order 
to provide additional protection to the citizens of the state of 
Nevada and to its many visitors. 

II> Nevada^s View of Reform of the Interstatg Land Salea fict 
Two major things are important to Nevada: (1) that the 
Interstate Land Sales Act be very strong, and (2) that the Act be 
focused on the problem developers, who generally are the larger 
developers . 

Traditionally in Nevada, the land sales industry has tended 
not to prey upon residents of the State, but it has instead tended 
to prey upon tourists. 

Nevada's state Land Sales Act (Chapter 119 of the Nevada 
Revised Statutes) is adequate when dealing with sales made only 
to local people, but it is inadequate when dealing with sales made 
to out'Of -staters. For this reason, it is important to Nevada that 



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the Interstate Land Sales Act be very strong. 

III. Some Problem Areas In Nevada's Land Sales Act 

(1) It provides for no subpoena power outside the 
state. 

(2) The Act provides for only a three (3) day "cooling 
off period" - this is not long enough for many tourists. 

By the time the tourist arrives home, his three day period 
may have expired. 

(3) The Act provides for an exemption for parcels 
40 acres or larger in size. Such parcels are subject to 
none of the requirements of the act, except that the 
advertising proposed to be utilized in offering the parcels 
for sale must receive the prior approvial of the State Real 
Estate Division prior to being so utilized. 

The Act provides for a complete exemption for parcels 
80 acres or larger in size. Such parcels are subject to none 
of the requirements of the Act# not even the advertising 
pre-approval requirements. 

Desert land in Nevada can be so inexpensive that a 
subdivider can divide land into large parcels and still 
sell it at prices comparable to or less than a small lot in 
an Eastern state. 

(4) The Act contains no fluid recovery provision. In 

a recent Nevada Supreme Court decision entitled Landex, Inc . # 
9% ttl.va. ^^^^g Q^ Nevada, et al . , (a copy of which is attached 
hereto as Exhibit "A") a trial court judgment ordering the 
offering of rescission to some 900 purchasers was reversed 
based upon the fact that none of the purchasers had testified 



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at the trial and proffered evidence that he had relied on 
the misrepreBentations made by the developer and no purchaser 
had presented testimony that he had been damaged by the 
jnlerepreaentationB of the developer. 

An Informative discussion of Nevada's Land Sales Act is found 
in an article vrritten by the present District Attorney of Elko County, 
Nevada, Thomas L. Stringfield, which is entitled "The Regulation 
of Land Sales in Nevada" (a copy of this article is attached 
hereto as Exhibit "B"). 

IV. Nevada's Position Regarding Some 
Portions of the Proposed Legislation 

There are several comments that should be made- regarding 

Nevada's position on certain portions of the proposed legislation: 

(1) Both the Minish bill and the Adjninietratloti's 

bill propose changing the definition of aubdivlsion from its 
current one, that being any division of more than fifty (50) 
lots constituting a subdivision. The Minish bill would make 
any division containing more than forty (40) lots a subdivision. 
The Administration's bill would make a "subdivision" more 
than 100 lots. 

Nevada's position is that generally most problems are 
occasioned by the large developers. Nevada would defer to 
the judgment of the Office of Interstate Land Sales Registration 
in this matter. Incident ly, in Nevada a "subdivision" 
consists of thirty-five (35) or more lots. 

(2) The Minish bill proposes to change the Interstate 
Land Sales Act lot size exemption from its current 5 acres 
to 40 acres. 



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Nevada would support this amendment. In Nevada desert 
areas, large parcels can sell for prices con^arable to, or 
less than, the price of a small lot in an Eastern state. The 
current five (5) acres exemption provides developers with en 
easy method to avoid the provisions of the Interstate Land 
Sales Act. 

(3) Requirement that developer place into escrow funds 
sufficient to complete all promised improvements - 

Nevada favors such a requirement - full disclosure is not 
enough. People seem to tend to believe that developers will 
fulfill promises. People apparently think that the government 
has approved a subdivision by issuing a property report. 

Nevada's Act requires that "adequate financial arrangements" 
be made for all prcnised improvements - Nevada has implemented 
this phrase to mean a letter of credit, third party bond, 
100% cash in escrow, or an escrow account that accumulates 
funds out of the purchaser's do%m oavment and monthlv installment 
oavments. with the develooer beinq orohibited frcm removing 
funds from the escrow account until the imorovements are 
comoleted. 

(4) Nevada would oppose any amendment which would exempt 
subdivision lots sold within one hundred (100) miles of the 
purchaser's residence. Nevada wants the regulation of large 
developers strengthened, whether or not such developers sell 

lots to purchasers who reside within 100 miles of his subdivision. 

(5) Nevada %muld support a lengthening of the right of 
rescission period (which is currently 3 days) . The 30 day period 
proposed in the Minish bill is -favored, however, even the 14 

day period proposed in the Administration's bill would be a 



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%#elcoaie improvement. 

A lengthening of the right of rescission period would 
be particularly helpful in sales made to tourists, as are most 
sales in Nevada. 

(6) Nevada favors that portion of the Minish bill which 
would give the purchaser three (3) years within which to rescind 
the sales contract under certain conditions. 

(7) Nevada favors that portion of the Minish bill which 
would extend the maximum statute of limitations under Section 
1412 to seven (7) years. 

Many of the premises made by the developers' salesmen 
concern events which are to take place in the distant future 
Generally speaking, larger statutes of limitations are desirable 
so that the consumer will be better able to ascertain whether 
promises have been, or are likely to be, fulfilled, while he 
is still able to take legal action in the event that the 
promises are, in fact, not fulfilled. 

(8) Nevada would favor the provision found in both the 
Administration's bill and in the Minish bill that would 
increase civil remedies to allow a plaintiff to recover attorneys' 
fees, appraisal fees and travel fees to and from the lot 
incurred in connection with a suit brought against a developer. 

(9) Finally, Nevada would be in favor of the passage 

of the peurens patriae right to sue portion of the Minish bill. 

Simply stated, it is difficult and costly for an individual 
purchaser to bring his own, personal lawsuit against a developer 
who has defrauded him. There are obstacles to bringing a class 
action. The parens patriae device would allow the various 



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State Attorneys General to utilize the powers of the state to 
assert the legal rights of the citizens of their respective 
states in a practical way. 

V. Conclusion 
The preceding pages contain examples of the type of reforms 
to the Interstate Land Sales Act which would be favored by the 
Nevada Attorney General's office and the Nevada Real Estate 
Division. Generally speaJcing, any reform which %rould strengthen the 
Act or would enable the Office of Interstate Land Sales Registration 
to focus on what apparently is the most serious problem area - 
that of the large subdivision and those who sell it - would be 
supported by both offices. 



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IK THE SOPREHE COURT OF THE STATE OT NEVMJA 



IMXDEX, ZHC. f a foreign corporation* 
inoorporatod under the la%#s of the 
State of Arlsona, FRANK E. GLXVOKEZSR, 
et al. , 

Appellants f 



THE STATE OF NEVADA, ex rel. ROBERT 
LZ8T, Attorney General, and NEVADA 
REAL ESTATE DZVISZON, DEPARTMENT OF 
COMMERCE, ex rel. R. E. HANSEN, 
Estate Adalnistrator, 



Respondents. 



9053 



FILED 

:JUL261973 

C. M. OAVIMTOnr 



Appeal froa jodgnents Isposlng civil penalties, 
granting injunctive relief, and ordering restitution. 
Second Judicial District Court, Washoe County i Peter Z. 
Breen, Judge. 

Affinaed in part ; reversed in part . 



Vargas, Bartlett, and Dixon, 
and Jaaws S. Beasley, Reno, 
for Appellants 



Robert List, Attorney General, 
and Jaaws Z. -Barnes, ZZZ, 
Deputy, Carson City, 
for Respondents 



P Z N Z M 
By the Court, MANOUXIAN, J. s 

On May i, 1974, acting under Nevada's Misleading 
advertising legislation, HRS 207.171, et seq. , and Nevada 
Rules of Civil Procedure, Rule 65, et seq. , governing in- 
junctions, and incidentally pursuant to NRS 119, our licensing 
and regulation of land sales la%rs, respondents cooMnced 
this action in district court against appellant Landex, 
Inc., (hereinafter *Landex*), and Frank Glindaeier,* indivi- 
dually, president and sales manager of Landex. The complaint 



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«ll«9«d tlir«« c«as«s of aetioa. TIm first cans* of action 
raquaatad aonatary civil panaltiaa against Laadax and 
Glindaeiar, porsoant to MRS 207.174 for falsa and ■twlaading 
advertising and raquastsd tha issoaaca of an injunc t ion 
pursuant to HRS 207.176 an joining appallant Landax fron 
continuing its dacaptiva praeticas. Tha s a c o n d causa of 
action sought to unjoin Landax fron using advartising natarial 
in its land salas businass which had not racaivad tha prior 
approval of tha Mavada OapartsMnt of OoHwrea, through its 
Real Estate Division (hereinafter "Division*), in accordance 
with NRS 119.120(1) (c) and 119.180(7). In its third causa 
of action, the State sought to enjoin Landax fron selling 
real estate through "registered representatives,* a proacribed 
practice (see VSS 119.180), rather than through licensed 
real estate salasaea or brokers, as requited by HS8 64S.210 
and 645.230. 

Prior to this litigation, Landax successfully 
sought, through the Division, an axeaption froa all- effects 
of Chapter 119 of the Nevada Revised Statutes, our land 
sales legislation, wtth the exception that all advertising 
used in the sale of Mountain Meadow Ranchea (hereinafter 
*MIR*) Mist be submitted to and approved by the Division 
under HRS U9.120(l) (c). 

The precise authority of this proceeding is con- 
tained in HRS 207.171, 207.174, and 207.176^. 



These statutes in relevant part provide: 

VRS 207. X7L *It is onlavful for ^y perion, fira, 
corporation or aasociatioa or any aq«rrt or e^loyae thereof 
to us«t publish or by any other aanAar or aeana, 
ladudltig but not liaited to solicitation or . . door-to- 
door contacts aq/ 4 1;^ tenant which is known or through the 
•xercisa of rvason^la c^re should b« 3uiown to be falae, 
decaptiv* or aisl^iding in ofdar to Induce *ny person to 
purchAS* . . any tit.ia or intafa«^ in ajiy real , . • 
property ... or to enter into any obligation or trapsaction 
relating thereto • . • . * 

HRS 207.174, *Any person, fixa, corporation or associa- 
tion or any other organization which violatea any proviaion 
of HRS 207.171 . . . i» Uable for a civil penalty not to 



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Zneitent to tlM first cauM of action, tho trial 
court found that on March 26, 1974, appallants, throoigh 
thair various agants, had »ad« rapresantations which *%iara 
and ara falsa or dacaptiva or sdslaading, or tandad to 
■islaad within tha aaaning of NRS 207.170 at sag." Tha 
court furthar found that *said falsa, sdslaading, or da- 
oaptiva stataaants «rara aada to twanty prospactiva pur* 
chasars," and that GlindsMiar "tias diractly rasponsibla for 
tha form and usa of such falsa, sdslaading, or dacaptiva 
stataaants." Zncidantal to thasa findings, Landax %ras 
ordarad to pay a sum of $25,000 for twanty violations of MRS 
207.170, and appallant Glindaaiar was ordarad to pay $2,500 
for tha aaaa t«panty violations. Additionally, appallants 
wars paraanantly anjoinad froa Making any furthar rapraaan- 
tations of tha natura datamdnad to ba mislaading and %fara 
ordarad to of far rastitution to all thosa parsons who purehasad 
a pareal of tha MIR subdivision aftar March 26, 1974. 

With raspact to tha saoond and third eausas of 
action, appallants wars panunantly anjoinad froa utilising 
any unapprovad advartising and froa utilising ragistarad 
raprasantativas for purpoaas of sailing tha subdivision's 
proparty. 

This appaal is takan only froa thoaa portions of 
tha judgaant ralating to tha first causa of action. Appallants 
contand tha trial court mrrmd (1) in its finding that 



axeaad $2,500 for aach violation, which shall ba racovarad 
in *. civil action brought in tha nana of th« 5^*t« of Nevada 
by tha attomay 9«ncr«l ... in a couft of covnpetant 
jurisdiction. As ua«d in this saction, th* tam^ **ach 
violation* includaa, as a single violarion « egmtinuous or 
rapatitiva violation ariaing out of tha sAioe act. 

hr£ 207*176 'The attorney genarfti « , . aay bring an 
action in any court cf coptpotent juriidiction in tha nasM 
of tha 3tatc of Nevdda or hi* ovn conplaint or on tha com 
plaint, of *ny board oitic^z ^ person- corporation "or 
aasociftion to enjoin any violation or proposad violation 
of tha provisions of . krs 207.171 to 207.177, inelusiva." 



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GUndMlsr violated MRS 207.170, eUiming th« •vidmot it 
iiisa£flei«ati (2) in eoncludisig th«t th« doctrines of ra» 
judicata and eollataral aatoppel did not apply to praeludo 
raspondants* raliaf i (3) ia ordaring Landax to aaka raati- 
tution to all purchasars of "MMR" aftar March 26, 1974 i and 
(4) ia holding that appallanta had comdttad t«#anty viola- 
tiona of ms 207.170. 

1. Sttbatantial Evidanca . 

Appallant Glindaaiar contanda that ha» as praaidaat 
of Landax, ootad not ba hald rasponaibla for unauthorisad 
stataaanta aada by individual aalas rspreBantativaa and that 
avan if it ^mrm shown that Glindaaiar was diractly rasponaibla 
for tha allagad aisrapraaantations , tha Nashoa Oistriet 
Court was barrad by tha doctriaaa of raa judicata and collataral 
astoppal frea finding that tha atataaanta aada by tha Landax 
parsoonal wara daoaiving and aialaading. Tha lattar quaatioas 
will ba diacuasad infra . 

As to appallant Glindaaiar*s first elaia« this 

Court's raviaw of a trial court's datarainatioas of faetaal 

quaatioas is liaitad. Zn Bavarly Entarprisas v. Oloba Land 

Corp., 90 Mav. 363, 526 P. 2d 1179 (1974), wa statads 

Wh*f« a qtwition Of fact has baan datftrbinad 
by tha trial courts Uiiv court vill not ravan* 
ualasa tha ^ud9»«Dt it clearly arroneDUB aiut 
not basad on substantial «vidEnc«* NRCF 52\m] t 
KockoB T. aar^lt ot Nev«dA, 90 Slav. 140, S20 ^,2d 
13S4 19 74 Fletehar v. Flatchar, 89 Mav. 540, 
516 9.2d 103 (1973). 

Zd. at 365, 526 F.2d at 1179. 

Tha raco r d ahows that appallant Glindaaiar axar* 

eisad diraet suparvision .of tha salas parsonnal and thair 

proBOtioaal prasaAtaticns. Ba aay not, tharafora, aseapa 

culpabiUty by coatanding that Landax alona is liabla. Saa, 

VKS 207.171 ragarding agant and aaployaa liability i aaa 

also, Jory v. Bannight, 91 Nav. 763, 542 F.2d 1400 (1975). 

Zn addition to tha othar substantial avidanca, %fa find 

parauasiva tha fact of Glindaaiar* a tastiaony that ha par- 



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•onally instructed his salss psrsonnsl as to %fhst would 
coapriss thsir sslss prss«ntstions and also draftsd tha 
podiiai spssdiss which %fox« qivsn daring ths salas prasan- 
tations. Appallants eontand that tha salas parsonnal 
"voluntaarad* atatasttnts which wara not eontainad in tha 
praparad spaachas or aatariala. Tha racord doas net support 
this centantioa. 

Bavaral spacifie raprasan tations aada to tha pros- 
pactiva purchaaars on May 26, 1974, which «#ara found to ba 
sdarapraaantativa of tha actual subdivision ara thati lass 
than ona percent of the total land in Nevada is available 
for aala to the publici "HHR" consists of flat land with a 
few rolling hills i there %fere springs and walls throughout 
the subdivision! all water found in tha subdivision was good 
water I eoets of trips froa the purchasers* hosws to purchase 
aa well aa on a subsequent trip to determine if they desired 
to retain the p r oper ty would entitle the purchaaar to a 
federal ine oaw tax daductioni all of tha registered represen- 
tatives in the Landex salea roon on March 26, 1974, were 
approved for their selling activities and ^mrm highly qualified 
in all phases of investaenti and, that parcels in the sub- 
division oottld be resubdivided by the purchasers. 

Bvidence to establish violations of NKS 207.171 ia 
net that quaatua necessary to prove a victim* a claim of 
fraud. To prove false advertising under our statute, the 
State need only eatablish that tha defendants made state- 
ments they knew or should have known «#ara untrue or mis- 
leading in order to effect tha aala. Actual deception is 
unnecessary to create liability under NRS 207.173. Cf. 
Lubbe V. Barba, 91 Nav. 596, 540 P. 2d 115 (1975). Tha 
atandard for untrue or misleading statements is the likeli- 
hood that tha public will be misled. Sm, Double Eagle 

* 
Lubricanta, Incorporated v. r.T.C. , 360 F.2d 268 (10th Cir. 

1965). Our review of the record reveals substantial evidence 



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•upportiv* of th« trial court** tetomdnations under ims 
207.171 and further raspacting Clindaaiar'a individual 
liability. Additionally, tha trial court tiaa justified in 
entering a permanent injunction enjoining Landex frea further 
pursuit of such prohibited activities. 

2. Res Judicata and Collateral Estoppel . 

Appellants* second claia stens fron a decision of 

the Fourth Judicial District Court of the State of Nevada, 

in and for the County of Elko, rendered prior to the within 

litigation on March 15, 1974. In that action, the district 

attorney of Elko County sought to enjoin the sale of land in 

"MIR" incident to Chapter 278 of the Nevada Revised Statutes, 

opposing Landex *s claia of exesiption from that Chapter's 

application. Incidental to the primary claims, the district 

attorney alleged that Landex was in violation of VR8 207.171, 

by virtue of an alleged representation by a corporate agent 

to the effect that the marketed "open space* land had a 

reservation of water rights in Lazidex. The Elko trial court 

in a relevant part of its decision concluded t 

5. The court hac observed from the promo- 
tional spaachvs filvd vitii the ^al Estate Cooni*- 
sioD by the t>efancUnt, that Uie * Sales Fitch* ij 
that land is becoming mcarce; th«t lajid is a pnulant 
ijivestftentr and in aany c&sea in the pact has 
resulted in huge profits tor Uia land owner. As 
for exantple, land on the Lds V*ga* $tfip- The buyers 
are invited t« purchase as a speculative investment. 
^wre is nothing unlawful about this aoproeeh et 
long as there is Vfull ditcloaure > {En^phasia addad,) 

Appellant argues that as a result of the Elko 
County District Court's determinations, the Washoe County 
District Court was precluded by . the doctrines of rei Indicate ' 
and collateral estoppel fron finding that the represents tiems 
made by the sales representatives of Z«andex %#ere false ot 
misleading. 

In Paradise Palms v. Paradise Homes, 89 Nev. 27, 
505 P.2d 596 (1973), this Court, quoting from the landmark 
case of Bemhard v. Bank of America, Nat. Trust ft Sav. 
Ass*n, 122 P. 2d 892 (Cal. 1942), stated. 



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*Th« doctrine of res judicata precludes parties 

or their privies from relicig^ting i CAtu« of Action 
that has bc«n finally d«ten&in«d by a court of eonp*- 
tent jurisdiction-. Any Iesu* necessarily decided in 
socta litigation is conclusively dotenuned «& to 
the par^iee or their privies ii it i£ involved in a 
subsequent lawsuit on a different cause of action' 

'In deterainlnq the validity of a pies of res 
judicata three qucBtlona are pertinent; Was the istue 
decided in t^e prior adjudication identical vith the 
One presented in the action in question? Kas there a 
final judgment on the P«rits7 Mas the party against 
vhfvn the plea ii asserted a party or in privity 
vlth a party to the prior adjudication?' 

Id. at 30-31, 505 P. 2d at 598-99. 

Respondents concede the finality of the prior 
adjudieaticni hoi^ever, they contend that they were not in 
privity with the Elko County district attorney and that the 
issues litigated in this Mashoe County proceeding were 
different froa those litigated and decided in the Elko 
County action. Froa the record before us, «#e are con- 
strained to agree with respondents that the issues tried in 
the Elko proceeding are SMirkedly dissimilar froa those now 
before us. The Elko case involved a different form of 
advertising than the form of podium speeches and other 
personal contact. We find it unnecessary to discuss the 
privity question. 

Purthersore » the Elko County decision as to the 
t en de n cy of the questioned statesient to mislead the public 
was qualified by the language "as long as there is a full 
disclosure.* The issue litigated there focused on tdtether 
there was, ia fact, enough of a disclosure so as to fully 
infom prospective purchasers. Moreover, the representa- 
tions were of a different type and nature, «#ere made subsequent 
to the Elko decision, and were made in Bene, not Elko. 
The doctrine of res judicata proscribes the hearing of 
issues determined by a court of competent jurisdiction in a 
prior proceeding between the sane parties regarding th» same 
cause of action. Narkoff v. New York Life Zns. Co., 92 Siev. 



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268, S49 P. 2d 330 (1976). TIm doetrlM of collatwral 
•stoppttl op«rat«s to procludo tho partios or thoir prlvios 
froa rvlitigating Is soos pr« viously litigatod and actoally 
dotoxaiaod in tha prior proooodiag. Stato y. XalXie» 92 
Mot. 665, 557 P. 2d 70S (1976); Clarlc v. Clark, 80 Nov. 52, 
389 P. 2d 69 (1964). Tte trial oourt eoMdttod no orxor ia 
ruling tha dafaasaa of ro» judicata and collataral astoppal 
iaapplicabla. 

3. Raatitotion . 

Baatitntion was not oaa of tha raawdias spacifi- 
cally allagad or prayad for by raspondaata ia thair eoiplaiat. 
It ia appallant's centantion that aaauaiag arqoando tha 
ooaplaint was sufficiaat to allow rastitutioa, oa tha facts 
of this caaa an award of rastitotioa was iapropar. Ms 



Za support of thair elaiasd antitlaasnt to rasti- 
tutioa, raapoodaata raly haavily on Paopla v. Suparior Oourt 
of Los Angalaa County ("JayhiU*), 507 P. 2d 1400 (Cal. 
1973). At tha tiM Jayhill was dacidad, tha California 
Suaiaass aad Profassioas Coda providad that f alaa or aislaadiag 
advartiaiag *asy ba anjoinad* in an action by tha attonay 
gaaaral but %fas silant as to tha powar of tha trial court to 
ordar raatitution in such a procaading. Tha California 
statutas involvad ara similar to MRS -207.171, at sag . Za 
eonsidaring tha propriety of the attomay ganaral saalciag 
rastitation on bahalf of dafraudad purchaaars, tha California 
Supraas Court atatad. 

At tha tias tha caa«>laint was filed Businaas 
aad Prof«»ioni Cod* Svctlon 175 3S provided that 
falaa or nlsleadlnq advertiain^ 'nay be enjoined 
in aa •ctlon by the Attorney Generni, but w*» ttlent 
as to thu pfjwvf of the triil court to Oj^d^r fCAtitn- 
tioci ill auiCh * proceeding on tn* oth<r hand tha 
statu t* did AOt r* strict tha court *> general equity 
jurisdiction *in so aany words, or by necv9»afy and 
ljwecap4ble inference." In the absence af such 
a re^trivtloci s court of equity luy exereiae the 
full rarige of its inJi«rent power* in order to 
acco«f?liah complcta justice between the parties, 
restoring if necessary the status quo ante as 



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iMATly as aay b* «eitittv«d. In partieular; 

in ftn Action by tii* Attorney General unii«r 
tt*ction 17S3S a trial coort Iia* the inAcrttnt 
pouttr te order «■ ■ fora of eneillAry r^limt, 
tixmt the de£en^*nt« pmJce or offer to koic* 
restitutioA to the custontra fouftd to hjve 
been <3ef reuded * (Citetions OAitted; eaphaiie 
i33cd. > 

Id. at 1402. 8m also, Anaet., SS AU 3d 198 and Aanot. , S9 

ALft 3d 1222. 

Appallanta eoncad«« and v« raeognisa, that a ooort 

has tha inharaat powar, ancillary to its ganaral aquity 

jarisdletion« to ordar rastitution ia an appropriata case, 

saa » Sacuritias 6 Bxchanga Cosi*n v. Goleonda Mining Co., 

327 F.Sopp. 2S7 (8.D. H.Y. 1971); hovavar, thay coatand that 

tha Stata anat prova that parsons %fara actually dafraudad 

and suffarad injury as a rasult of tha iu.ftr«prv*ejitetic»a 

■ada. Baspondaats eontand that thay aaad only prova that a 

violation of MRS 207.171 has occurrad, without sore, aad 

eita VKS 207.173 which providaa ia part, "it is sufficiaat 

. . . that aay stataMat rafarrad to ia MRS 207.171 has a 

tandaney to daeaiva or sdalaad tha public bacausa of its 

falaa or daeaptiva or sds loading charactar a van though ao 

■aabar of tha public is actually dacaivad or misled by such 

stataaant. * Ifa ara constrainad to agraa with appellant 

Landax's arguaent. In People v. Superior Court of Ventura • 

County, 5S2 P. 2d 760 (Cal. 1976), the California SuprasM 

Court, dealing with an action brought by a district attorney 

under legislation similar to NRS 207.171 at sag., stated: 

Both OOA^lainte seek rcatitutlon to the 
invastors . . . .The People > . . are etill i 
requlTftd to proyg that restitution j.a ^pprg - 
priate cvn t^Qugr>_civL 1 penj^ties rnay also ba 
♦ appropriate in tJie absence pf such proof , '~ 
{Citation* onitted; et^phabii ailoctj/) 

Id. at 763. See alao, Kuglar v. Rosaia, 279 A.2d 640 (R. J. 1971). 

Tha coAparetiveiy limited proof raquirad to aatabliah 

falaa or deceptive advertisiag contrasts sharply with that 

aaceaaary to prove actionable fraud. To astabliah fraud 

there must be provaat 



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CI) A fali« r«pr«Kntatlon iMde by th* dfif«n- 
dantf (2! knowledge Of b*licf oji the part of the 
defendant that the rcpr«*entdtion is iaXsv — or^ 
Out h* h^s not M. tufficlent basis of information 
to make itf L31 «n intention to induce the plaintiff 
tQ «ct or to refrain from acting in reliance upon 
the ■iareprAaentatit^ni ftj jumtifiable reliance 
upon tiie representation on tJie p*rt of the plain* 
tiff in taking action or refraining from it, and 
[5] damage to tha plaintiff, raaulting from such 
reliance .... 

Lobba , aopra . at 599, 540 F.2d at 117; accord , Ach v. FinkaXstain, 

70 Cal.Rptr. 472 (1968). Viaving the question aoat favorably 

to raspondants, the first thraa alaaants have baan provan; 

howavar, «#a find no avidanca on alaaants four and five. 

Under our decision today, as to falsa advartiaing, no purchasar 

naad ba produced, or even exist. Bowavar, relative to the 

propoaitioo of actionable fraud, the record does not reveal 

who, if any, of the aosw nine hundred purchasers wrm racipiants 

of the deceptive advartiaing. Not a single purchasar of a 

*MMII* parcel was produced at trial, and there is not a 

shrad of avidanca showing reliance upon the false, deceptive, 

or Misleading pre *«n cation ■ . Siadlarly, no avidanca was 

proffered showing that all buyers %fara ainilarly situated, 

and, therefore, what asounts are owed to each. Bacause of 

like evidentiary voids ^f do not know whether reliance by 

tha purchasars is provable, as sobm purchaaers say have 

Icnown, as a raault of their knowledge and experience, that 

tha represantations ware falae or sdalaading. Evan sore 

fundaaantally, no purchaaar or repraiantative of a claas 

was joined aa a party to the procaading^and for thia reason 

alone restitution waa not an available raaedy. Mora praeiaaly, 

tha court was without tha powar to enter a judgment ordering 

an offer of raatitution or, eorraspondingly, reconveyances. 

Ooggara, Onitad States v. Parkinson, 240 F.2d 918 (9th Cir. 

1956) I m— alao, Kuglar , supra (by reason of a price uncon- 

seionability c oswon to all traaaactions , all of tha salaa 

contracts %fara held invalid and unenforceable); Jayhill , 

su£ra (holding that as a fon of ancillary raUaf to tha 



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attoriMy qmamxul attit* « court aay avard rastitution to 
all Durchasors shown to hava bean dafraudad) . 

Although Mavada ia a 'aotlea plaading* atata, our 
practica ia not ao libaral aa to panait racovary in thaaa 
cireunatancaa. Tha court balow arrad in ordering rastitution. 

4. Twenty Violations of WRS 207.170 . 

Appallanta next challenge the atiard of civil uanaltiaa, 
contending that the wording of HRS 207.170 "clearly establishes 
that it ia the act of publication and not tha extent of that 
advartiaing which dateradnes whether one violation, or a nuster 
of violations, of falae advartiaing has been cooadtted.* They 
argue that here only one violation of NRS 207.171 occurred, 
referring to ms 207.174 which atatea in parts "As used ia 
this section, the term 'each violation* includes, as a single 
violation, a continuous or repetitive violation arising out 
of the aasM act." Tha "aaaa act" language requires that there 
be aapazmta acts involved before a person can be charged with 
■ore than one violation of MKS 207.171. 

Za the instant eaaa, tha court found that the stata- 
■ants coaplained of were sada, initially, by a parson giving 
a podiua speech to a group of approxisMtaly ttienty peraona 
in a Bono "hoapitality room. " It waa further established 
that iaaMdiataly thereafter various sales represent stivti of 
Landex approached each potential investor individually and 
■ade eartaia sdarapresentations used aa a partial basis of 
the ooaplaiat. It is essentially appellants' contmitinn 
that aiaoa the alleged itiSTaprascatation* «#ere aada to the 
group, there is only one violation. We do not agree. 

Zn Jayhill . aupra , tha court interpreted siailar 
atatutory language and detersiined the nus^er of violations 
by the nuaber of victisis. There, the defendant made twenty- 
five aeparate aisrapreaentations to each custoswr in ^ir 
door-to-door sales of encyclopedias. Tha Jayhill court 
iapoaad the aaximua penalty of $2,500 for each violation and 



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THE REGULATION OF IJiND SALES IN NEV7U)A 

With the enactment of Chapter 119 of the NRS in 1971, 
Nevada joined most of her. sister states and the federal govern- 
ment in efforts to protect consumers from disreputable subdivision 
developers. Nevada has long been a target for dishonest land sale 
tactics because of our state's ability to attract vacationers 
from every part of the country. Visitors to Nevada arrive with 
cash and are usually in a "gambling mood". In addition, such 
visitors rarely have time to even look at any property they pur- 
chase m.uch less to fully investigate the persons with vhom they 
are dealing or to understand the contractual terms which they are 
agreeing to. Indeed, it was as much to protect the state's 
reputation for fair play as to protect victimized consumers that 
motivated the enactment of Ch. 119 into law. 

Although Ch. 119 has been on the books for the last 
five years / there has been a dearth of resulting case law 
interpreting its provisions. The Nevada Real Estate Division 
(NRED) , which is charged with enforcing Ch. 119, has recently 
won an important case against Landex, Inc., in the Second Judi- 
cial District. However, that case will soon be appealed to the 
Nevada Supreme Court. Because the present writer foresees a 
sharp increase in litigation pursuant to the enforcement of 
Nevada's attempt to regulate land sales practices, the follov/ing 
article is offered as a basic introduction to the scope of Ch. 11?- 



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"fair, just and equiUable" level.- Here there are no specific 
grounds for the denial of a subdivision license, rather the 
legislative body delegates to an administrative body the duty 
to determine v/hether or not a potential offering of subdivided 
land is "fair, just and equitable". California arrived at this 

level, as concerns subdivisions located outside of that State, 

4/ • 

also in 1963. The usual method of accomplishing this third 

level of regulation is simply to define the sales of land, 
located out-of-state, as being a "security" and subject to 
security regulations.—^ 

During the 1960 's many states, and the federal govern- 
ment,- expressed an interest in enacting legislation to protect 
consumers from the alleged deceitful sales practices taking place 
in the land sales business. In 1966 the Uniform Land Sales 

Practices Act (henceforth Uniform Act) v;as suggested by the 

6/ 

National Conference of Commissioners on Uniform State Laws."^ 

The Uniform Act has since been enacted by eight states and can 
be categorized within the second, or "permit" level of regulation. 

In 1960 the United States Cor.grcsc enacted the 
Interstate Land Sales Act (ILSA)-^ which is the least cun3:)itious 
of any recent attempt to regulate land sales activities. The 



4/ Ca. D. & P. fis 10249.1, 10238.4. 

5/ In addition to California, see Tcnn. Code Annotated ii 1602(5 

1613; and Ohio Revised Cede SS 1707. 01(n), 1707.33 
6/ Uniform Laws Annotated, vol. 7, p. 604. See also footnote 

No. 12 infra. 
2/ See the comment following S 7, on p. 616 of the Uniform Act, 

The eifjht enacting states are listed in footnote lio. 12. 
0/ 15 use BiJ 1701 - 1720. 



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only effective requirement contained in the ILSA is that of 
demanding that a property report be shown to purchasers before 
completion of the contract. As such the ILSA should be placed . 
on the first, or "mandatory disclosure", level of regulation. 
It should be noted that during commit tCjB debates on the ILSA 
in Congress, there was expressed a recognition that mere dis- 
closure would be insufficient protection for consumers. However, 
it \%'as felt that additional regulation ^vould be best accomplished 
by the states on an individual ba^is.-^ Since 1968 the Office 
of Interstate Land Sales Regulation (OILSR) , a subordinate agency 
of the Department of Housing and Urban Development (HUD) , has 
been continuously criticized for failing to fully enforce the 
requirements of the ILSA.-=-^ In fact, the Federal Trade 
Commission (FTC) has probably taken a more active role to protect 
consumers from dishonest subdividers than has OILSR. — ' Also, 
interviews by the present writer with California and NRED 
officials indicate their continued dissatisfaction with OILSR' s 
efforts. 

It was at this point in the history of land sales 
regulation (1971) that Nevada enacted Ch. 119. The Nevada 
Legislature had a number of alternatives, such as determining 
which level of regulation it desired to effectuate and from whigh, 

9/ "Hearings on g 2672." Before the Subcommittee on Securities 
of the Senate Committee on Banking and Currency, 90th 
Congress, First Session, (1067). See also 6Univ. of 
Michigan Journal of Law Reform 511, (Winter, 1973) . 

10/ 7 Urban Lav;ycr 215, 222 (September, 1975), and 6 Univ. of * 
Michigan Journal of Lav; Reform 511, 515, (Winter, 1973). 

11/ 12 Huston, L. R. 708 (March, 1975). 



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if any, earlier foreign statutes to drav; from. Basically, it 
chose the second level or the "permit" type of regulation, 
rejecting the more ambitious "fair, just and equitable" level. 
It also, at least by implication, rejected the Uniform Act, 
preferring to fashion a unique statutory scheme by relying on • 
portions of all the sources mentioned above. So v/hile Ch. 119 
may be unique as a v;hole, most of its language can be traced to 
prior foreign legislation. -=^ 

Scope of Ch. 119 
V?hat follows is an overviev/ of Ch. 119 which is meant 
to serve as an introduction to Nevada's statutory scheme of 
land sales regulation, 

Do^'.i nitions 

NKS 119.1^0 defines a "developer" as an ovmer of 
subdivided land v;ho offers it for sale. Also, NRS 119.175 states 



12/ Tlie following cross-referencing chart has been prepared in 
order to make researching efforts more efficient. In the 
first column at the far left is that Nl^S Section of Ch. 119 
which ir. to be cross-indexed. The second column contains 
correr.pondinq section nun^bers of the Intcrr-tate Land Sales 
Act (15 use .^ ) . The third column contains corres- 
ponding section nun.berL; of California's Subdivided Lands Act 

(California Business and Professional Code § ), The 

fourth column contains corresponding section numbers of the 
1966 Uniform Land Sales Practices 7vct as published in 
Uniforra Lnv;r. Ann otated > vol. 7, p, GO-I . This fourth column 
is particularly helpful because each section of tlie Uniform 
Act is followed by an explanatory comment, references to any 
"source" statutes used in the preparation of the Uniform Act, 
and references to statutes of those states v;liic]\ liavc adopted 



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the scope of responsibility of a developer for the acts of his 

subordinates in terms of respondeat superior rather than strict 

liability. miS 119.060 defines an "offer" as "every inducement, 

solicitation or attempt to bring about a sale". "Sale", is 

defined by NRS 119.100 as any conveyance of "an interest in any 

portion of a subdivision v/hen undertaken for profit". "Purchaser" 

is defined by NRS 119.080 as any person v;ho "acquires or attempts 

to acquire an interest in any portion of a subdivision". 

There is nothing particularly novel about the above 

definitions and all can be traced to earlier foreign statutes 

(see chart at footnote Kb. 12). The definition of the term 

"subdivision", however, is clearly unique in part. It is unique 

not because of what it adds but because of what it lacks. NRS 119.110 

defines a "subdivision" as follows: 

"Subdivision" means- any land or tract of land in 
another state, in this state or in a foreign country from 
which a sale is attempted, which is divided or proposed 



the Uniform Act. As of 1975 the follov/ing States have 
adopted the Uniform Act, sometimes v;ith minor modifications: 

Adopting State Statutory Citation 

Alaska AS §§ 34.55.00-1 to 34.55.046 

Connecticut CGSA §§ 20-329a to 20-329m 

Florida FSA gfi 478.011 to 478.33 

Hawaii MRS OS 484-1 to 484-22 

Kansas KSA g§ 58-3301 to 58-3323 

Montana RCM 1947 §?. 67-2117 to 67-2136 
South Carolina Code 1962 »'iS 57-551 to 57-571 

Utah UCA 1953 S5 57-11-1 to 57-11-21 

Althougli there imc several instances v/hcre the Nevada 
statutes were taken vcrlniliim from one of those other sources, 
usually tliey are not exi^ict equivalents. As a result, each 
corrcsixjnding statute should be carefully compared with 



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to bo divided over any period into 35 or more lots, pnrccls, 
unite or intcrcsLc, including but no'.: limited tO undivided 
intcrer.tS/ v/hich nrc ofTcrcd, V.novm, designated or odvcr- 
tiscd ar; a corriiT^o.n nnit by a common nnmo or zir. a part of a 
convnon promotional plan of advertising and sale." 

VTliile the lang\iage is not identical, ITRS 119.110 can 

be clearly traced to the ILSA (15 USC 1701(3)), the Uniform Act 

§ 1(6)) and California (Ca. B. & P. § 11000) definitions of the 



NI^S 



Ch. 3 19 before relying on the case lav/ of that correspond- 
ing statute. 

ILSA 



i 119.020 

.030 

.0^0 

.060 

.070 

.000 

.000 

.100 

.110 

.1?0 

^140 

.150 

.160(1) . 
(2) 
(3) 

.170 
.175 
.100(1) 

(^n 

(5) 
(6) 

.210 

.220 

.230(1) 
(2) 
(3) 

.240 

.250 

.260 

.200 

.300 

.330 



1701(6) 

1701(5) 

1701(4) 

1701(10) 

1701(2) 

1701(9) 

1701(5) 

1701(3) 

1702 

1705 

1714(b) 

1704(d); 1706(e) 

1703(a) (?) 

1706(a) 

1706(b) 

1707(b); 1716 



, l-^03(a)(l); 
1703(b) 
1703(b) 

1709 



1710 

1714(a) 

1710 

1706(d), (e) ; 

1714(d) 

1717 



1707(a) 



1714(c) 





Uniform 


California 


Act 


e 11013; 11013,3 


§ 




1(5) 




1(2) 




1(3) 




1(4) 




1(1) 


11000 


1(6) 


11000.1 


3; 10(el(V. 


11010 


5 


11014 


7 


11014 


8(a),(b) 


11018 


7 


11018.3 


8(c) 




8(c) 




6(b) 


10237.7^ 


16(c) 
10(b) 


iioia.i 


4(2) 


11020 


16 


11020 


16 



11022 

11013.2(a) 
11013.2(b) 
11013.1 
11001 

11019 ' 



11023; 11029.1 



16 



10(a) 

10(c),(d) 

12 

11(b) 

IMc) 



a/ T)ii 
out 



• r.cclion iipplic^r. only to r;i;b:"! ividod lands located 
,idc of D^.e .Sialic oC California. 



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v;orcl "subdivision". ^iHiat maT;cs Nevada's definition unique is 
that it lacks the key phrase "whether contiguous or not . . ," 
v/hich all other definitions usually contain. — ' The ordinary 
meaning given to the word "subdivision" is the dividing of the 
r.ainc thing, Cov/ell v. Clar k (1940) 99 p. 2d 594, 596. Under the 
rules of statutory construction the absence of such a key phrase 
raises a presumption that the legislature meant not to adopt it, 
expressly or by implication, (see Sutherland Statutory Con- 
struction, i 51. 02. vol. 2A) . This presumption is particularly 
strengthened v;hen one considers the fact that the Nevada Legis- 
lature rejected an zimendment which would have inserted that 
specific phrase into NRS 119.110, (see S. B. No. 512, Committee 
on Commerce and Labor, April 10, 1975, § 12). 

The resulting problem is this. Suppose a developer 
chose to subdivide several noncontiguous areas of land, none of 
which creates 35 or more parcels; would he be exempt from the 
regulation of Ch, 119 because of the definition given by NRS 119.110? 
Considering the fact that most developers purchase land only 
immediately i:>rior to their subdivision plans it becomes clear 
that NRS 119.110 offers an opportunity for developers to 
circumvent Ch. 119. 

The sugg'jstion has been made that such circumstances 
would not escape regulation because of the language "advertised . . 



13/ Although California's definition of a "subdivision" also 

lacks this key phrase (Ca. B. & P. § 11000), the California 
Real Estate Commissioner has been able to promulgate a 
regulation to escape the holding of Cove 11 v. Clark . See 
Title 10, California Administrative Code H 2003. 



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as part of a common promotional plan . . .". Such la«cjuacje 

firnt appears in statutory form in tlic Uniform Act (0 1(6)) and 

is cxplaj nod by a comment which follows thereto: 

"A subdividcr who offers land located in several 
different areas or states will be subject to this Act if 
the land is disposed of pursuant to a common promotional 
plan. 7Q though each case -nust be examined ijidependcntly, 
normally a common promotional .plan i:^ one v/hich utilizes 
common advertising and sales methods to the extent that the 
offeri)ig begins to take on the character of a fungible." 

It seems clear to the present vnriter that almost any 
attempt to keep separate and to retain some identity to the 
advertising methods used for each "less than 35 parcel" subdivision 
would create a trialable legal issue. Nor does it seem difficult 
to imagine a developer, appraised beforeliand, of being capable of 
offering the various parcels in such a v;ay that such offerings 
do not "take on the character of a fungible". It should be noted 
that neither the IIRED nor thc5r legal counsel necessarily agrees 
v/ith the present writer's viewpoint on this subject. 

There axc twc other possible ir.cLhods ..hich may be attc;»pt- 
cd in order to avoid Uie definition of a subdivision as set 
forth by MRS 119.110. Both of these methods are aimed at the 
"35 or more lots" qualification and will be discussed only briefly. 
First is the method which will be labeled the "internal granting" 
method. Under this method one of several partners (but less than 
35) will purchase a tract of land from v/hich they wish to create 
a subdivision. The first XDartncr v/ill grant to all the partners 
equal portions of this original la:;d. Each partner will then 
repeat the same process, thereby granting to the same partners 
an equal piece of his portion. Obviously, tliis process could 



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continue ad infinitum. \Vliile the "internal granting" method 
lacks tl^c ingenuity of the "partition" method (dencribed below) 
there has not yet been any Appellate decisions on the subject. 
Hov;ever, the California Real Estate Commissioner has success- 
fully challenged this process at the trial court level. -^-^ The 
final possible method of circumventing the NRS 119.110 defini- 
tion of a "subdivision" is knov/n as the "partition" method. 
Under this method several persons (i.e., 10) purchase a tract . 
of land (i.e., 340 acres) as tenants in common. These persons 
then seek judicial partition, (i.e., 10 tracts of land of 34 acres 
each) . Each of these persons then subdivides his parcel into 
34 lots and each claims to be exempt from the NRS 119.110 defini- 
tion on the grounds that the original division v/as a governmental 
act, not a private one. Such a method v;as specifically held to 
.be a "subdivision" . and circumvention was denied in Pratt v. Adams 
(1964) 229 C. A. 2d 602, 11 ALR 2d 524.' 

In addition it should be noted that both methods 
\irauld be vulnerable to whatever effectiveness is contained in 
the phrase "conurion promotional plan" described above. 

Exemptions 

Assuming that the subdivision has not escaped the 
scope of Ch. 119 because of the definition given by NRS 119.110, 
a developer may still avoid regulation by applying to the NRED 
for one of the exemptions provided by NRS 119.120. Some of the 



14/ 111 support of the California Real Estate Con-jnissioner see 
Caliilornia AGO, vol. 7, p. 66 (1956). 



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more important oxcmptions will be briefly mentioned, 
ICRS 119.120(1) (b) grants a total exemption if every parcel 
v;ithin the su))clivision is 80 acres or larger. ImRS 119.120(1) (c) 
grants a partial exemption where the smallest parcel is over 
40 acres in size. However, the developer must still comply v/ith 
the advertising standards as set forth by NRS 119.180/ 
(discussed infra) . Various subsections exempt most residential 
types of subdivisions. 

NRS 119.120(2) offers the developer a total exemption 
if he can prove that he is selling real estate "which is free and 
clear of all liens, encunibrances and adverse claims and every 
purchaser or his or her spouse has personally inspected the lot 
which he purchased . . .". This "free and clear** exemption is 
either met or the l-JRED will treat the subdivision as being 
covered by a "blanket encumbrance", which is defined by NRS 119.020. 
A subdivision covered v;ith a blanket encumbrance cannot be sold 
unless certain financial arrangements are taken, pursuant to 
NRS 119.230, so as to insure that the developer will be capable 
of fulfilling his contractual duties. 

Chnp>Vcr 119 Licensing R cqu iroipo nts 

As stated earlier, Nevada, has a "permit" type of 
regulatory scheme, whereby a developer must meet certain specific 
requirements or he cannot legitimately commence selling, 
(see MRS 119.130.). In order to receive a "license" a developer 
must first file an application as prcscril^cd by NRS 119.140, 



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v/hich is also known as a "statcmont of record". The Rules and 
Regulations of the Nevada Real Estate Division, Adopted Under 
Ch. 119 (henceforth "Rules and Regulations") provide a more 
detailed description of the application requirements. NRS 119,150 
empowers the NRED to fully investigate all applications and to 
perform an on-site inspection if necessary. 

NRS 119.160(2) is significant because it sets forth 
those grounds upon v/hich the NRED shall deny a license. These 
grounds were taken almost verbatim from the California B. & P. 
Code i 11018, and they are listed below: 

(a) Failure to comply v/ith any of the provisions in 
this chapter or the rules and regulations of the division 
pertaining thereto. 

(b) The sale or lease would constitute m.isropresonta- 
tion to or deceit or fraud of the purchasers or lessees. 

(c) Inability to deliver title or other interest 
contracted for. 

(d) Inability to demonstrate that adequate financial 
arrangements have been rnade for all offsite improvements 
included in the offering. 

(e) Inability to dem.onstrate that adequate financial 
arrangements have been made for any community, recreational 
or other facilities included in the offering. 

(f) Failure to make a showing that the parcels can hp. used 
for the purpose for v;hich they are offered. 

(g) Failure to provide in the contract or other \>n:iting 
the use or uses for which the parcels arc offered, togothcr 
with any covenants or conditions relative thereto. 

(h) Agreements or bylav/s to provide for mancvgement or 
other services pertaining to common facilities in the 
offering, which fail to comply v;ith tlie regulations of the 
division. 

(i) Failure to emonstrate that adequate financial 
arrangements liavc been made for any guaranty or worranty 
included in thci offering. 



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In order to enforce Cli. 119 licensing roquiremonts, 
the ITilED is armed v/ith t\%'o potent remedies. First, the NRED 
may o to a District Court and seek injunctive relief against 
any / olation of "any provision" of Ch. 119 (see NRS 119.250). 
Secon 1 the l>niED may, on its own initiative, issue a "Cease and 
Desist c I der" against any unlicensed persons "engaging in 
activitic . for v;hich they are not licensed under this Chapter", 
(see NRS 1. 9.260) . 

Chapter 11 9 . ' rcJosuro Roquirejncnts 

Li) « most states v:hich have enacted a "p- rmit" t^'pe 
of regulatory .:chcme, Nevada has retained the "mandatory dis- 
closure" requi lents of the first level. VThilc Nevada imitated 
California's su> "vision "licensing" statutes, it looked to the 
Interstate Land f les Act when it drafted its "disclosure" 
requirements. Dis -losurc is accomplished by the shov.dng to 
prospective purchast rs of a "property report", v.'hich contains 
the sajne information -"cquired by the NRS 119. l^'iO "statement of 
record". This showing prior to contract signing is required by 
NRS 119.1G0(4). NRS 1.1MG0(5) and (6) state the rights of a 
purchaser to rescind wh'. e ho has not seen the property report; 
whicli are either tliroe cic 's fro:r. the signing of a contract v/here • 
the property report was : ^ * shov/n to the purchaser three days 
in advance of such signing or three days after being shown the 
property report where it v;a.; not shov.-n until after the signing. 

An alternative rc;:tdy, in addition to recir.ion, or in 
lieu thereof if the tlircc-day ti; c liiait has passed, is contained 



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in Nl^S 119.220. This section provides an action for dajnngcs 
where there exists a misrepresentation v/ithin the statement of 
record or the property report. NRS 119.220 v;as taken almost 
verbatim from the ILSA 15 USC i 1709. This civil remedy contains 
only three of the five elements of common law deceit; — mis- 
representation, reliance and damages. The statute does not 
require that the defendant have knowledge of his misrepresenta- 
tion or that he intended to induce the plaintiff v;ith such mis- 
representation. It should also be noted that NRS 119.220(5) 
effectively precludes pumitive damages. 

Prior Approval of Advertising 

For better or for v;orse, Nevada has been one of the 
most advanced states in the area of requiring prior approval of 
subdivision advertising. \\Tiile California demands such prior 
approval of out-of-state subdivisions, — ' it has no corresponding 
statutory requirement for subdivisions located v/ithin that State. — ' 
Both the California Real Estate Commissioner and OILSR are given 



the authority to stop the continued use of misleading advertis- 

17/ 
ing, — but neither can prevent the initial "flood" of such 

material. — ' The Uniform Act allows the administrative agency 



157 Ca D. & P. Code §§ 10249.1, 10237.7. 

16/ However, the California Real Estate Commissioner has 

accomplished the same result through a regulation, without 
any "specific" statutory authority; see Title 10, California 
Administrative Code S 2319.85. 

17/ Ca. D. & P. Code S 11019; 15 USC 1714. 

18/ This lack of a "preventive" remedy has been a target of con- 
sumer protection advocates. See 7 Urban Lav/yer 215, 



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the authority to demand prior approval of subdivision ndvcrtis- 

3 0/ 
ing if it deems it necessary. — However, Nevada has the only 

statute, NRS 119. 1G0J[1) (a) , v/hich absolutely demands prior 

apx^roval of subdivision advertising of lands located in-state. 

That section reads as follows: 

1. No subdivision or lot, parcel or unit in any sub- 
division shall be sold: 

(a) Until the division has approved a v/ritten plan 
or the methods proposed to be employed for the 
procurement of prospective purchasers^ the 
sale to purchasers and the retention of pur- 
chasers after sale, which plan or methods 
shall describe with particularity: 

(1) The form and content of advertising to 
be used; 

(2) The nature of the offer of gifts or other 
free benefits to be extended; 

(3) The natute of promotional meetings involv- 
ing any person or act described in this 
paragraph; 

(4) The contracts, agroer.ents and other papers 
to be employed in the sale of such property; 
and 

(5) Such other reasonable details as may be 
required by the division. The written plan, 
or the methods proposed, may be filed as a 
part of the application under NRS 119.140 
and shall constitute and be treated as a 
part thereof. 

Nevada leadership in this area is further evidehced 

by the fact that the advertising guidelines adopted by HUD 

(24 CFR i 1715.15) were based upon NllED guidelines contained in 



19/ Uniform Act rj 10 (b) . 



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tho Rules and Regulations, (Section VI of the March 25, 1975 
publication) . 

The requirement that subdividcrs submit their adver- 
tising for prior approval was an issue in the Landex trial. That 
trial court (Dept, 7, Second Judicial District) held that 
NRS 119.180(1) (a) v;as constitutionally valid. In addition. 
District Judge Peter Brecn reprimanded the defendant and his 
attorneys for their refusal to comply v;ith that statute. In his 
Decision dated September " 29, 1975, on page 5, Judge Breen states: 

"... Rather than seek a review of the actions of the 
Real Estate Division through orderly and proper legal 
channels, the attorneys and their defendants decided, as 
it v;ere, to take the matter into their own hands, unilater- 
ally overruling the Real Estate Division's efforts to 
enforce Nevada's statutes. How can v/c expect the average 
citizen to obey our lav.'s if the substantial businessman 
and his attorney are allowed to select what rules and 
decisions they v/ill and will not follow? ..." 

As indicated earlier, that decision is expected to be appealed 

to the Nevada Supreme Court. 

Registered Represeni ative Issue 

NRS 119.180 (1) (b) authorizes a developer to employ 
persons not licensed under Ch. 645 (Real Estate Brokers and 
Salesmen) to sell subdivision parcels. Absent that section such 
use of registered representatives would be prohibited by law, 
(see NRS 645.240). In 1973 the Nevada Legislature amended 
NRS 119.180(2) so as to end the registered representative excep- 
tion on January 1, 1975. Several registered representatives 
brought suit challenging the constitutionality of tho 1973 



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amcndnjcnt. The trial court (Dcpt. No. X, Eighth Judicial 
District) ordered summary judgment for tlie State of Nevada, 
hov/evcr, it v;as reversed by the Supreme Court on grounds that 
some evidcnciary hearing was necessary. The issues are once 
again before the same trial court and in the meantime the NRED 
is enjoined from enforcing the 1973 amendment against the 
named defendants. 

State's Right to Sue for Restitution 

On the face of Ch. 119, there is no indication that 

the Nevada Legislature intended that the NRED should have the 

right to sue for restitution so as to allow victimised purchasers 

a return on their money. Even v;ithout such express authority, 

the majority rule is that a state, once in court, can request 

"complete relief", including restitution for victimized 

consumers. — ^ In any cast.', Nevada's position appears to bo clear 

because of NRS 645.215(1) and (2) which read: 

645.215 Real estate division may investigate certain 
transactions relating to unimproved land, subdivisions; 
injunction in event of fraud, deceit, false advertising. 

(1) If the real estate division has reason to 
believe that fraud, deceit or false advertising is being, 
has been or is to be pertetrated in connection with the 
proposed or completed sale, purchase, rental, lease or 
exchange of any vacant or unimproved land or subdivision 
outside the corporate limits of any city, it may investigate 



20/ Sec M itchell v. Robert Do Mario Jov/olry, Inc ., (1960) 

361 US 200, 4 Lr.d 2d 323; 005 Ct. 332; and 55 ALR 3d 190,200. 
For tlic minority rule see Commonv/calth v. Ponncy l vania 
APSCO Systems (1073) 10 Pa. Commonweal Lh 13U, 309 h2d 104. 



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the circumstances of such sale, purchase, rental, lease 
or exchange. 

(2) If such investigation reveals any evidence of 
fraud, deceit or false advertising which has influenced 
or induced or may influence or induce the sale, purcliase, 
rental, lease or exchange, the real estate division shall 
advise the attorney general or the district attorney of 
the county in v;hich the land or subdivision is located. 
The district attorney or, upon the request of the adminis- 
trator, the attorney general shall cause appropriate legal 
action to be taken to enjoin any further sale, purchase, 
rental, lease or exchange until the fraud, deceit or false 
advertising is eliminated and restitution has been made 
for any loss. [Emphasis addedj 

It should also be noted that an order for restitution v;as 

requested and granted by the Landex trial court. 



Observations 
Consumer protection is very much in fashion these 
days, yet periodically one must stand back and ask if any good 
is really being accomplished. Since the implementation of 
Ch, 119 in 1971 the NRED has prosecuted only one case to a final 
judcjjr.ent (Landex) and there are no cases prc3e:*uly being prose- 
cuted. A number 6f out-of-court agreements have been reached 
betv;een NRED and subdividers suspected of violating Ch. 119, 
but NRED officials are disenchanted v/ith the results. It is the 
present v/riter's impression, from discussions v;ith NRED officials 
that additional lawsuits v/ill soon be forthcoming. If such 
lawsuits can be completed as successfully as was the Landex trial 
court decision, then it is felt that some real headway will have 
been made in protecting consumers from unscrupulous subdividers. 
Needless to say, any decision by the Supreme Court on the Landex 
case v;ill be crucial. 



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Another aspect of Ch. 119 implementation is the f act- 
that the number of active subdivisions in the State of Nevada 
has been halved since 1971. It is hoped that this is because 
disreputable subdividers are unable to comply with Ch. 119 
requirements. However, there is the distinct danger that even 
reputable subdividers are being precluded from their occupa' ion 
because of the sheer bulk of the state and federal filing 
requirements. One remedy to this problem of duplicate filing is 
suggested by NRS 119.120(4) which allows the OILSR application 
to be utilized to the extent that the same information is required 
by Ch. 119. At present, hov;ever, the differences between the 
tv^X) applications are too great and the NRED does not accept even 
such partial duplicate filing. At one time it was hoped that 
OILSR vADuld accept state filings, v;hich are usually more exten- 
sive in scope, but little progress has b.een made here either .-^^ 

One of the most promising ansv/ers to the problem of 

duplicate filing lies in the Uniform Act which has been adopted 

by eight states (see footnote No. 12) . Section 20 of that Act 

states: 

"This Act shall be so construed as to effectuate its 
general purpose to make uniform law of those states which 
enact it." 

\T\\y Nevada rejected the Uniform Act is not clear to the present 

writer, since it appears to effect the scime results as the more 



21/ nt present the follov/ing state filings are being accepted 
by OILSK in lieu of the federal applicaLion: California, 
Florida, Hawaii and Hcv; York. Sec 24 CFR 5 1710.26. 



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coinplicaUcd statutory scheme of Ch. 119. In any case, if 
add ■ l.ional states adopt tlie Uniform Act it may be possible to 
formulate a single method of filing. It is suggested here that 
the Nevada Legislature might do well to reconsider substituting 
the Uniform Act for Ch. 119, particularly because of this goal 
of uniformity whi-ch deals directly with the nationwide problem 
of subdivision sales practices. 

Finally, there is the problem that licensing implies 
approval. Both HUD and Nevada property reports have large print 
disclaiming any such effect, nevertheless it is felt that the 
air of approval is still there. — ' The Uniform Act, Ch. 119 

and ILSA all prohibit any such representation of governmental 

23/ 

approval. — ^ However, it has been the present writer's personal 

experience that these statutes are violated with impunity. One 
subdivider has even been quoted as having found the property 
report to bo an excellent medium for advertising. — -^ Any harm 
done to consumers by this "implied approval" will only be offset 
by an aggressive enforcement of Ch. 119 by the ITRED, and 
.particularly by the successful completion of the Landex case 
before the Nevada Supreme Court. 



2 2/ 6 Univ. of Michigan Journal of Lav/ Reform 511,521 

(Winter, 197 3). 
2 3/ ILSA (13 use 1716), Ch . 119 (MRS 119.170), Unifom Act (S 6(b)) 
2-1/ "Consunor Protection in Land Development Sales" by 

Ron V7alsh, 44 Conn. Bar Journal 403 (1970). 



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18& 

Mr. Gonzalez. Thank you very much, Mr. Bames. You have been, 
in my opinion, a most valuable witness. And you, yourself, I think 
give the reason why, in your prepared statement. And that is: You 
come from a State that, as you picture it, was considered the chief 
State involved in that type of interstate land transaction. 

You have also come from a State where you had no legislation to 
speak of, statewide; then you had a weak provision; and then you 
had strengthening factors. But also, I think you report that current 
efforts are to weaken that law. 

Mr. Barnes. That is correct. 

Mr. Gonzalez. So it reflects a very valuable experience track record 
that we should welcome, and perhaps follow through with specific 
questions subsequent to these hearings. 

And so I, for one, would ask unanimous consent that we keep the 
record open on these hearings for that purpose, subsequent to your 
appearance. 

We may wish to submit some questions to you, which you would 
reply to at your convenience for the record. 

Mr. Kelly. Mr. Chairman, reserving: the ricrht to object, I would 
certainly have no objection, if I could have some assurance that when 
the questions go out and the answers come back, that each member 
of this subcommittee have delivered to his office a copy of both. 

Mr. Gonzalez. Well, I assume that this has been the case in the 
past — ^that is, if they are done expeditiously and within time, before 
the transcript is closed. Well, of course it becomes part of the record, 
and that is available to us as soon as it is printed up and available. 

Mr. Kelly. Well, I understand, Mr. Chairman. But while the rec- 
ord is still open, I think that each member of the subcommittee ought 
to note this, because otherwise it could very well go into the record, 
and we would not be aware of it until it was down the tube. And 
I think this is fine, for us to get any pertinent information, but I think 
every member ought to know it, if it is going to be done outside of 
the duly constituted hearings. 

Mr. Gonzalez. Well, when I said "keep the record open," I meant 
within the normal, traditional period of time, as we always have in 
the case of subcommittee hearings. 

Mr. Kelly. Well, further resen'in<r the ricrht to object, can we get 
the assurance of the chairman that if the questions go out or answers 
come back, that each member of the subcommittee would get a copy 
of them? 

Mr. Gonzalez. Well, as T say and repeat, this has been my under- 
standing from time immemorial here, that when we have requested 
submitting: questions for the record to be answered by the witness, 
it is implied or understood that it would have to be within the limita- 
tions that printing of the record and the return of the transcript 
would imply. 

That is, the witness himself has to have an opportunity to review 
them and answer them, and have ample opportunity to answer for 
the record. So it would be no more than the traditional request. 

Mr. Keixy. Well, Mr. Chairman, further reserving the right to 
object, if we are going to keep the record open, without my objection 
it is going to be on the basis that if questions go to the witness, that 
I know they went, and what they were. And if he sends answers back, 



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189 

I know that they came back before I see them in the record for the 
first time. 

Because otherwise, there can be a lot going into what will constitute 
the "committee record," without the members knowing about it. And 
I don't know whether it has been going on in the past, but if it hasn't 
been happening this way, I suggest that it should. 

Mr. Gonzalez. Well, as far as my experience is concerned here, this 
has almost universally been done on almost every committee level 
that I have served on. But with the understanding, of course, that it 
would be within a reasonable time that the member would submit 
the questions. 

We have done this with the Chairman of the Federal Reserve 
Board, and the like, and what I can't answer for you is whether or 
not every member of the subcommittee was given the specific ques- 
tions asked by the particular member who requested that at the time. 

But I do Know that the individual member requesting it would 
get the answers before the record was printed. 

Mr. Kelly. Mr. Chairman, further reserving the right to object— 
I am not trying to cause this thing to get more monumental than it 
is, but what I am suggesting is that if some individual member has 
a question for the witness or the deputy attorney general of Nevada, 
that there would be no reason why he could not ask that. There would 
be no reason why he could not take his questions and answers and 
submit them to the subcommittee for insertion into the record. 

I have not question about that. But at least, at some time, each 
subcommittee member would have an opportunity to know what the 
questions were, and what the answers were, before it constitutes a part 
of the record. 

And so this is the predicate for my objection to keeping the record 
open, with the idea that the record could be built out in Nevada where 
we would not have an opportunity to know what is coming and going. 

Mr. GrONZALEZ. I cau assure the gentleman that that fear is ground- 
less, and there would be no reason why 

Mr. Kelly. No objection, Mr. Chairman. 

Mr. Gonzalez. I thank the gentleman. 

They have rung the second set of bells and we have to go over and 
record our votes. So we will suspend temporarily for about 5 minutes 
and get that chance and return. 

[Recess.] 

Mr. GrONZALEZ. The subcommittee will come to order and we will 
proceed with Mr. Barnes. 

I noticed that Attorney General Anaya referred to the presence 
of, and he seemed to be impressed by the extent of it but we did not 
follow by asking him specific questions, the presence of organized 
crime in the fraudulent land sales incidents. 

Has that been the experience in Nevada to any substantial degree? 

Mr. Barnes. Not to any substantial d( gree. We have had rumors 
that the financing for one of the developers was related to — ^the com- 
pany was related to organized crime but other than that, that is the 
only thing that I have heard. 

We have not gotten too much of that in Nevada. 

Mr. Gonzalez. You don't have any record of any substantial pres- 
ence or visible substantial presence of such a thing as organized crime ? 



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190 

Mr. Barnes. Not i-eally. The closest thiiiff to that other than this 
financing would be that there has been involvement of an individual 
named Leonard Rosen, who is a financial consultant for a company' 
called Preferred Equities Corp., which is one of the biffgest subdivi- 
sions we have going right now. And he is, I understand, being inves- 
tigated by the Federal (lovemment for these offshore tax shelters and 
I have heard rumoi's, but other than that, no solid information. 

Mr. Gonzalez. I wonder if you could give us a little bit more of an 
explanation, a little bit more detail on the Nevada law requiring ade- 
quate financial arrangements for all of the promised improvements. 

Mr. Barneys. The adequate financial arrangements have been inter- 
preted and implemented in basically four dift'ei*ent things. 

One would be 100 percent escrowing of funds for all promised im- 
provements at the outset of the licensing of the development. The 
second would be a third-party bond of some sort for the full amoimt 
of the improvements, so that we would not let the developer himself 
issue a bond, but if a lK)nding company would do it, that would be 
acceptable. 

Third, we have also had a policy of allowing a letter of credit for 
the amount of the improvements. 

And the fourth one is an escrow accoimt that is made up of percent- 
age payments of the downpayment and the monthly payments which 
are made by the purchaser into an account which is frozen until such 
time as the account reaches the full amount of the improvements. The 
developer can't touch it until that point. 

Mr. Gonzalez. On this third-party bond, does your experience in 
Nevada show that they are almost nonexistent or are they available? 

Mr. Barnes. They ai*e almost nonexistent. Most bonding companies 
won't undertake something like that. 

Mr. (lONZALF^. Does this requirement apply to all developei'S, re- 
gardless of size ? 

Mr. BarnfvS. Yes. My understanding is that the i-eal CvState division 
applies that to all developers, i^ecrardless of what size they are. 

^Ir. Gonzalez. Does the record show that this practice has limited 
or impaired activity in the sale of land? 

Mr. Barne«5. That is very haixl to say because you never know why 
someone — well, first of all, you don't know if someone doesn't register, 
oftentimes, and if you do know that, you don't know why they didnt. 

I know the land sales industry, basically, has l)oen impaired sub- 
stantially since 1973, when we first got our strong I^and Sales Act. 

Whether that is due to the ivquirements that are now placed upon 
developers prior to IxMng licensed, or whether it is something due to 
the economv. I don't really know. But I would assume that it probably 
has dissuaded some developers who would have come in if they did 
not have to make these adequate financial arrangements. And, hope- 
fully, it has been ones who would have caused i)roblems if they had 
lx»en licensed. 

Mr. Gonzalez. Who determines the adequacy? 

Mr. Barnes. That is determined by the administrator of the State 
real estate division. 

Mr. Gonzalez. In your opinion, do vou think that that could be done 
as easily or as exjx>ditiously or satisfactorily on the Federal level as 
it can on the State level ? 



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191 

Mr. Barnes. I would doubt that that would be true for purely intra- 
state developments. Probably the people in the State itself would be 
more able to adequately determine that. However, for the large devel- 
opments which are sold throughout the United States, I think probably 
the Federal agency could do it better than we could in Nevada or 
New Mexico could in their State. 

Mr. Gonzalez. I think that the experience some of us have had 
with the present Federal law would indicate the difficulty there. 

Now as I understand it, the Nevada act has an exemption for real 
estate sold free and clear of all liens and which has been inspected by 
the purchaser. 

What, if any, is your experience under that provision regarding 
continuing land sales abuses? 

Mr. Barnes. That is one of the provisions that we are most unhappy 
about in our own law because it doesn't prohibit the developer from 
later encumbering the property and it doesn't mean that just because 
it is free and clear, that there aren't other problems that the developer 
is not going to promise that there is a river on the property when there 
isn't, in fact, or that he is going to put in certain public utilities when 
he, in fact, won't. 

So that is one of the things that we would like to see taken out of our 
own law. However, I doubt that the State legislature would go along 
with it. 

Mr. Gonzalez. With respect to the parens patriae doctrine and its 
inclusion in the Minish bill and its applicability to interstate land 
sales transactions, the fear has been expressed by some associations 
and individuals that this would give rise to unnecessary lawsuits and 
would proliferate frivolous or harassment lawsuits by the State attor- 
neys general. 

It is true that the Federal presence in the case of antitrust, as was 
brought out earlier, is of recent date. But I would like to know, since 
you endoi-se the idea also in your statement, I would like to know 
your thinking is on that. 

Mr. Barnes. Well, I know that when the discussions were held on the 
antitrust parens patriae provision, this same objection was raised 
and there were some statementvS on that by then Attorney General Mil- 
ler after that act was actually signed into law. I think I would pretty 
much agree. He was at the time the Virginia attorney general, by the 
way, and I think I would pretty much agree with what he said, and that 
was that it never makes good political sense to bring a frivolous law- 
suit. 

People at that time, opponents of the parens patriae portion of the 
bill, said that attorneys general throughout the country would use these 
things for politically motivated reasons and that there really wouldn't 
be anv basis for that. 

It is my experience that it always hurts you more politically to file a 
lawsuit that is not justified in fact that it does to not file it in the first 
place. 

So I think that really this is something that is probably raised by 
people who are concerned about the beneficial effect that this would 
have for the people of the State, and the very unbeneficial effect I think 
it would have for the unscrupulous developers. 

I don't think it is a valid objection. 



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192 

Mr. Gonzalez. I believe the biggest problem that I have seen since 
the enactment of the Interstate Land Sales Act, such as it is now, is 
that it unwittingly has come to hamstring, and to a certain extent, 
hurt, a homebuilder or a developer who happens to be wholly intra- 
state who has no intention or desire to advertise interstate or even sell 
on an interstate basis. And yet, this has been the problem in my area 
because of some peculiar circumstances. 

For example, it is a very active military base area and so we have a 
lot, if not most, of the retirees living traditionally in the San Antonio 
area. We have had cases where a homebuilder and developer attempt to 
sell to a locally stationed officer in the armed services and finds himself 
under the jurisdiction of the Interstate Land Sales Act, and therefore, 
facing such thin^ as payment of a $20,000 fee and other impediments 
where the individual purchasing, has originally had a domicile or 
home base somewhere outside of the State. But, in the meanwhile, he 
may have determined that he would like to retire in the San Antonio 
area, and naturally, is soliciting the purchase of the property by per- 
sonal inspection and purely through local advertising. 

Yet, the interstate portions of the law have been very much present 
and created some difficult situations. HUD has interpreted the law in 
strict accordance and insists on the coverage and the payment of a 
pretty expensive filing fee ; $20,000, 1 think, is pretty expensive for the 
developer. 

What is your experience with the law, with the Federal law in 
Nevada? Has it been concentrating mostly on cases of that nature 
where it is purely a local operator and not the big interstate operator? 

Mr. Barxes. I can't think of a single instance that I know of in 
Nevada where that has happened, where they have gone into a situation 
such as you have described. I just can't think of one. 

I do agree that that isn't what I would consider a proper applica- 
tion or should not be a proper application of the law. But I just can't 
think of an occasion like that in Nevada. 

Mr. Gonzalez. Well, I am still arguing with HUD because I could 
not help but agree with this particular individual, who isn't even 
really in my own district, because I have been redistricted and I have 
the core or the heart or the inner city of San Antonio and I don't have 
all of the city. 

And the home that he built is just outside of my district, And, never- 
theless, because of my position on the committee, he appealed to me, 
and I'm still trying to argue this. Because I agree with your judg ment , 
but this is not the judgment thus far by the administrators in HUD. 

T am hoping to convince somebody, but that is where we are. 

Thank vou very much. 

Mr. Kelly? 

Mr. Kelly. Thank you, Mr. Chairman. 

In your testimony,' I got the impression that you kind of used the 
criteria of size as being some sort of an evidence. I must have mis- 
understood. You didn't intend that, did you ? 

Mr. Barnes. No, I did not mean to intend that that necessarily 
followed. But in our experience, it is usually the large developers who 
cause us the problems. 

Now not every large developer does. 

Mr. Kelly. Well, that is because they are involved in interstate 
commerce and not because they are big! So that if you have a big 



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193 

developer that is legitimately an intrastate operator, then you would 
not expect the law to apply to him just because he is big? 

Mr. Barnes. No, I wouldn't. But I will say that even when we were 
talking about intrastate — ^no, I would agree with that. Right. Most 
of the problems are only the interstate. That is correct. 

Mr. Kelly. On this business about putting money up front, wouldn't 
you agree with me that that is a super suggestion, because then there 
is no worry. 

I mean I understood that to be your testimony. 

Mr. Barnes. I think that that is one of the best solutions. 

Mr. Kelly. Except for the fact that you are just almost making it 
necessary for everybody in business to be big or to be solvent. Aid 
usually, to be solvent is to be big. And that means that every little 
businessman is out. And this is a fairly typical development these days. 
We damn business for being big and then kill everybody that isn't. 
And then we wind up hating big business and all the little business 
is dead. We have to quit if we don't believe in the free enterprise 
system. 

Mr. Barnes. That is a problem and I know that it probably is 
difficult for some of the smaller developments to put all of the money 
in up front. 

There, of course, are alternatives. I could say the way we have it 
now, we do have this letter of credit and third-party bond and this 
escrow account. 

However, the escrow account, that takes in a portion of the monthly 
payments. 

Mr. Kelly. Well, let me ask you this : Couldn't it be done within — 
we've gotten by for 200 years without absolutely protecting everybody. 
Couldn't we maybe get by with just one more 200 years. If we would, 
for instance, start slamming the jailhouse door on some of these crooks, 
and that means not passing more laws but just prosecuting the ones we 
have. And then another situation that we would require these people 
to specify what they were going to do and then require them to put on 
the literature that the money to do this is not available and you are 
depending exclusively on the word of the developer that it will ever 
be done. 

It is kind of like the warning on a cigarette package. And because 
what this would do, it would open up competition and that would 
benefit the consumer because when you start reducing, as you have 
testified here this morning, the number of developers that are in the 
land developing business, that just, in itself, causes the price of land to 
go up. 

And also, putting this money up front is very expensive because you 
could be talking about money being held up for a couple of years or 
more. And with money going at 9, 10, 15 percent, that is heavy and the 
guy we are protecting is getting so much protection, he can't afford it. 

Would there be some limitation on your suggestion in the area that 
I have suggested by mv remarks ? 

Mr. Barnes. Well, first of all, Mr. Kelly, I do agree with you totally 
on your point of enforcement, because I think that that has been one 
of the biggest problems that even the current act, there have been a 
lot of complaints about it not being properly enforced by OILSR, and 
I have seen that myself. I have seen cases where we have had trouble. 



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194 

or one case where we have had trouble with the Federal authorities in 
trying to really get them to do anything. 

They eventually did, but it took a long time. 

So that is one of the big problems. But I do feel that if the develop- 
er is going to make all of these promises. I think he should be required 
to put up something to show that he really means it. 

I mean I don't think he has to make these promises. If he can't put 
up the money, fine, but he can say, here is the land, and tell them 
basically what the situation is and not make the promises. 

Mr. Kelly. If we turn you loose on the world, all of these two-faced 
companies are going out of business. Do you agree? I mean because 
what do they promise ? Happiness ever after, besides white teeth. 

But it would seem to me as though the purchaser, by law, is warned 
that, look, there isn't a dime in this world other than what is posted 
in this box. This is all of the money that this person has put up. There 
are no bonds, there is nothing. This is the only money that is actually 
in escrow to pay for what he is promising you. And you are relying on 
his word. 

Now if you do that, you can get skinned. And if you put a warning 
like that on there and then people just simply want to trust this per- 
son, why should we just simply limit competition, impose costs on 
everybody else in order to protect someone that has a fraud wish. 

Mr. Barnes. Well, one of the problems, and I do see the problems 
for the small developer in putting the money into an escrow account, 
but one of the problems that we have with the property report, and 
everything that the property report says, is that, for one thing, people 
oftentimes don't read it. For another thing, even if they do read it, 
they are assured by the salesman that it doesn't count. 

Mr. Kelly. But if you require that it be printed in half-inch red 
and then it says, don't believe the salesman or anything to keep from 
doing things that are really hurting the American consumer because 
the increase in the cost of land is one of the heavy problems about the 
increase in the cost of homes in America. 

Is that so ? 

Mr. Barnes. That is so. 

Mr. Kelly. So all of this — I mean everyone is wondering why that 
is. Well, this is why it is. Because we iust keep protecting people until 
they are not going to be able to afford it. 

All right. I thank you for your interest on that. On this business 
about the political lawsuit, isn't it a real possibility that an enterpris- 
ing attorney general, just before election, could file a suit and get the 
blast in the paper and then by the time the fact that the suit is no good 
emanates from all of the smoke and blaze, the election would be over 
and that would be a beneficial use for political purposes of a bad law. 

Mr. Barnes. Mr. Kelly, that is always a possibility. However, I 
think that the bill provides that in the case that the attorney general 
brings a suit which is not well founded or has acted in bad faith, 
wantonly, and so forth, that the court may, and I am quoting from the 
bill, the Minish bill, H.R. 12574 — it says, "the court may, in its dis- 
cretion, award reasonable attorney's fees to prevailing defendant upon 
the finding: that the State attorney creneral has acted in bad faith, 
vexatiously or for oppressive reasons." 



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195 

So, I think that is one safeguard that is in the legislation right now, 
and I doubt very seriously that most attorneys general would do it in 
the first place. But that is a safeguard. 

Mr. Keia.y. Well, let me ask you this : You and I agree that there 
are precious few crooks that have the jailhouse doors slammed beliind 
them in this area because they have so mucli money and so many law- 
yers. That I think if you will check the record, there are even fewer 
attorneys general that they slam the i ailhouse door on. 

And I think there are probably a lew here, there, and yon that prob- 
ably should have just that very thing happen to them. And courts just 
aren't realljr noted for their activity about putting the attorneys 
general in jail. 

I have another question. 

Mr. Gonzalez. Mr. Kelly, I hate to limit, but I must. We have got to 
vacate this room in less than an hour, and we have three remaining 
witnesses that liave been here all morning long. And so I would suggest 
that you submit your questions for the record and permit Mr. Barnes 
to answer for the record. 

And we will proceed. Mr. AuCoin has also come back to the sub- 
committee and he may wish to ask a question or two. 

Mr. Kelly. Mr. Chairman, we will just from this point on invoke 
the 5-minute rule? 

Mr. Gonzalez. Well, it has been more than 5 minutes. I have been 
careful to make sure that I received no more time than what you have 
received thus far. But I don't want you to feel it is an arbitrary cut- 
off. But we do have this limitation staring us in the face and we want 
to be fair to the three witnesses that have traveled many miles and have 
been waiting here patiently, and we are caught with the use of this 
temporary facility m a limited way. 

Mr. AuCoiN. Mr. Chairman, T will give up my time so we can get 
to the next panel. 

Mr. Gonzalez. Would it be possible to submit the questions that you 
have for the record ? 

Mr. Kelly. I have just two more questions, Mr. Chairman. I think 
that it probably will take 1 minute. But I will submit them if that is 
your preference. 

Mr. Gonzalez. Wliy don't we go ahead and take them. 

Mr. Kelly. All right, on this personal inspection, wouldn't it be 
reasonable to have that to include "or by a personal representative" ? 
p]specially where the lot to be purchased is valued at, say, less than 
$.5,000 ? Because the cost of transportation to seek a lot could be pro- 
hibitive — a prohibitive additional expense imposed by the law, whether 
the person wants that protection or not. 

Mr. Barnes. You are talking, now, about a presale? 

Mr.. Kelly. Yes. 

Mr. Barnes. I think I would not have any problem with that, if it is 
a personal representative chosen by the purchaser. I wouldn't see any 
problem with that. 

Mr. Kelly. And couldn't we use possiblv some criteria such as the 
value of the land, rather than the size of the lot? For instance, when 
you got into this business about the 40 acres, that if you say that the 
land is going to have to be valued at more than $1,000 an acre, then you 



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are not going to have many jjeople that are buying $40,000 worth of 
lots, even if it is 40 acres, in interstate sales. 

Mr. Barnes. So you could have an exemption for, say, 40 acres where 
the land is valued at $1,000 an acre. 

Mr. Kelly. That would just about wind up that traflSc in Nevada, 
wouldn't it? 

Mr. Barnes. Yes, that would do it. 

Mr. Kelly. Thank you, Mr. Chairman. 

Mr. Gonzalez. Thank you, Mr. Kelly. 

I have three questions that I would like to submit for the record. 

[The following are written questions from Congressman Gonzalez 
to Mr. Barnes, along with the answers of Mr. Barnes:] 

Questions from Ck>NORESSMAN Gonzalez to James Babnes 

Question 1. Do you think Federal law should cover transactions where the vast 
majority of purchasers reside in the same state as the offered property and where 
advertising and promotion is essentially limited to that same state? What should 
be done where states provide inadequate protection? And what principles should 
be established that will help HUD identify adequate state standards? 

Answer. Federal law should cover transactions in all states where the state 
protections are not equal to the Federal protections. It is irrelevant whether 
the vast majority of purchasers reside in the same state as the offered property 
or whether the advertising and promotion is essentially limited to the same 
state as the offered property. The state law and program should contain : 

(a) a definition of ''subdivision" that is at least equal to the standards set forth 
in the Federal definition of "subdivision" ; 

(b) the state law should require the developer to deliver a disclosure state- 
ment to the purchaser and the information set forth in the disclosure statement 
should be at least that required in the Federal act; 

(c) the standards for exemptions from the state act should be no broader 
than the exemption standards found in the Federal act ; 

(d) the state rescission period should be at least as lengthy as the rescission 
period in the Federal act ; 

(e) the state law must require that individuals who sell subdivision property 
must be licensed in that state as licensed real estate agents ; 

(f ) the state law must have established standards for advertising at least 
equal to the Federal requirements and the state law should preferably require 
pre-approval ; 

(g) the penalties for violations of the act, such as failure to register, mis- 
representation, etc. should be at least as stringent as the penalties contained 
within the federal act. 

If the state law in question has substantive standards that go beyond mere full 
disclosure (which, of course, is all that is found in the Federal law) then 
there should be a presumption that the state law is adequate. In determining 
the adequacy of the state law the quality of the state employees administering 
the law should not be a standard, providing that the state has a civil service 
act and recruitment and examinations, etc. for the positions. 

Question 2. The Senate bill would exempt all interstate sales within 100 miles 
of the purchaser's residence. What impact would that have on protecting 
consumers? 

Answer. In the case of those states which have a land sales act, the exemp- 
tion of all interstate sales within 100 miles of the purchaser's residence wonld 
probably have little impact on the protection afforded consumers. However, 
such an exemption would have a great impact on consumers who were pur- 
chasing land located in an exempt subdivision in a state which did not have 
an adequate land sales law. Therefore, such an exemption, if enacted, should 
not apply to those states which do not have an adequate land sales law. 

Question 3. How common is the use of installment contracts for the purchase 
of land in your state? What would be the impact on the land sa^es industry if 
Federal law provided that a devel(H)er could only provide financing for the 
purchase of the lot if the contract included the protection specified in the 
Minish pr(H>06al whereby title is transferred to the purchaser within 30 days ; 
formal foreclosure proceedings take place l)efore loss of title ; purchaser estab- 



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lishes equity in proportion to payments ; and liquidated damages may not exceed 
the developer's proven damages? 

Answer. The use of installment contracts for the purchase of land in Nevada 
is very common. The impact on the land sales industry, if Federal law did 
provide that a developer could only provide financing for the purchase of the 
lot if the contract included the protections specified in the Minish proposal 
whereby title is transferred to the purchaser within 30 days; formal fore- 
closure proceedings take place before loss of title ; purchaser establishes equity 
in proportion to payments; and liquidated damages may not exceed the de- 
veloper's proven damages, would be that the consumer would be greatly pro- 
tected, however such provisions would increase the cost of doing business and 
would drive up the cost of individual lots. 

Mr. GrONZALEz. We want to thank you again, very much, Mr. Barnes, 
for your very valuable contribution. 

Mr. Barnes. Thank you, Mr. Chairman. 

FText resumes on p. 263.] 

[The following corr^pondence was received from the office of the 
Honorable Frank J. Kelley, attorney general. State of Michigan, en- 
closing a submission "Comments on Proposed Interstate Land Sales 
Reform," with attached exhibits :] 



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STATF OF MICIilC.AN 
DKPAKTMKNT OF ATTORNFY CtNkRAL 



xm 



SrANLh^ D. Steisboks xf'^.:i 

Chief Asiiitant Attorney Gcnrral 



9 



FRANK J. KELLEY 

ATTOR>KY OIlNF.KAI. 



LANSING 
4S9 I 3 



August 9, 1978 

Honorable Thomas L. Ashley 

Chairman 

Subcommittee on Housing and Community Developments 

Rayburn House Office Building 

Washington, D.C. 20515 

Dear Congressman Ashley: 

This submission relates to the proposed "Interstate Land 
Sales Reform Act of 1978" and the impact on State regulation of 
sales of what may be loosely termed recreational land. Attorney 
General Kelley had hoped to appear before your Subcommittee on 
August 2, 1978, and offer testimony. Unfortunately, the press of 
business precluded his being able to appear. The combination of 
short notice and an airline strike prevented me from appearing in 
his stead. 

I understand that not withstanding a series of roll call votes, 
the session was productive and much useful information was provided 
to you. I am advised that the record is still open and the enclosed 
submission will still be considered. 

Once again, let me apologize for Michigan not being physically 
represented and offer my assistance should further hearings and in- 
formation be needed. 

Very truly yours, 

FRANK J. KELLEY 
Attorney General 



Frederick H. Hoff^J^cker 

Assistant Attorney General in Charge 

Real Estate and Vehicle 

Regulation Division 
1000 Long Blvd., Suite 12 
Lansing, MI 48910 
Telephone: (517) 374-9750 



».*-'>' 1 



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COMMENTS ON PROPOSED 
INTERSTATE LAND SALES REFORM 



The Michigan Legislature, in 1972, passed the "land 
sales act" 1972 PA 286, MCLA 565.801 et se£; MSA 26.1286(1) 
et seq , (Appendix A) which becaine effective October 1, 197 3. 
Pursuant to the Act, supra , the Land Sales Division of the 
Department of Licensing and Regulation promulgated rules (Ap- 
pendix B) to implement the legislation. Our law, from a dis- 
closure standpoint, was patterned after the "Interstate Land » 
Sales Full Disclosure Act" 15 USC 1701 et seq , and from an en- 
forcement standpoint embodies many of the features of the pro- 
posed "Interstate Land Sales Reform Act of 1978", HR 12574. 
Prior to commenting on the proposed Act, a brief review of the 
land sales industry vis-a-vis the State of Michigan will provide 
helpful backgrovind. 

Prior to the Federal Act, Michigan citizens enjoyed 
very little in the way of protection from out-of-state developers 
and virtually no protection, except the limited advantage of pos- 
sibly viewing the land of in-state developers. A feeble attempt 
at regulation was attempted using the Real Estate License Law, 1919 
PA 306, MCLA 451.201 et seq ; MSA 19.791 et seq , as a vehicle. Both 
the efficacy and legality of this system where suspect and the usual 
horror stories of no title, misrepresentation and outright fraud 
abounded. Attorney General Kelley and a cadre of public interest 
groups and legitimate developers worked closely with the Legislature 
and provided the impetus for our present statute. 



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TOTAL 


IN-STATE 


OUT-OF-STATE 


326 


242 


84 


119,189 


29,051 


90,138 


235 


198 


37 


366 


120 


'1,073 


1.39 


1.22 


2.27 



Michigan, without being parochial, is somewhat unique 
in that with our pleasant geography, four seasons recreation and 
relatively high standard of living, it is a development state as 
well as a market state. A breakdown of currently effective regis- 
trations reflect: 



Effective Registrations 
Lots or parcels registered 
Number of Developers 
Average nuirber of lots per 
registration 
Average registrations per 
developer 



We feel that because of our stringent registration require-^ 
ments, many developers are not marketing in Michigan. Also, out-of- 
state developers are registering only a small portion of their total 
offering. 

The complaint history, since enactment of our State law, 
reflects a relatively low number. While we could be tempted to at- 
tribute that fact to our stringent law and firm enforcement posture, 
factors such as the economy, energy crises and soft market conditions 
are of equal effect. The breakdown quantitatively is: 

IN STATE OUT STATE CONSUMER AGENCY INITIATED 

72 37 48 61 
93 24 50 67 

73 34 65 42 
41 27 40 28 





NO. OF 


PERIOD 


COMPLAINTS 


10/74 - 9/75 


109 


10/75 - 9/76 


117 


10/76 - 9/77 


107 


10/77 - 6/13/78 


68 


TOTALS 


401 



279 122 203 198 



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It should be noted that one complaint may be from a property 
owners group while for reporting purposes, it would be treated as one 
complaint. 

An analysis of the complaints breaks out as follows: 



TYPE OF COMPLAINT 

1. Offering or advertising of 
unregistered lemds 

2. Sale of unregistered lands 

3. Unable to obtain deed 

4 . Unable to record deed 

5. Unpaid taxes 

6 . Incompleted roads 

7. Inability to obtain water 

8. Inability to obtain electric 

9. Inability to obtain sewer 

10. Incompleted recreational 
facilities (amenities) 

11. Use of unapproved adver- 
tising by registered 
developer 

K2. Misrepresentation or failure 
to disclose pertinent facts 

13. Failure to comply with 
rescission right 

14. Complaint relating to 
Property Owners Assoc. 

15. Use of unapproved contract 



10-1-75 thru 
9-30-76 


10-1 
9- 


-76 thru 
30-77 


10 


-1-77 thru 
3-31-78 


TOTAL 


44 




30 




18 , 


92 


5 




3 







8 


5 




9 




3 


17 


1 




1 




1 


3 


2 




4 







6 


3 




2 







5 


















: 1 




1 




3 


5 







6 







6 



9 
45 



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TYPE OF COHPLAINT 

16. Unclassified 

17. Possible violation of 
other acts (referred) 

18. Non-compliance with 
annual renewal pro- 
visions 





PERIODS: 






10-1-75 thru 


10-1-76 thru 


10-1-77 thru 


TOTAL 


9-30-76 


9-30-77 


3-31-78 




14 


14 


9 


37 


2 


4 





6 



TOTALS 116 106 51 

GRAND TOTAL 273 

Michigan then may be cited as an atypical example in that a 
good statute and a commitment to enforcement provide adequate protection 
for our citizens and those of other states who are contemplating pur- 
chasing recreational land in the "Wolverine State". Our success, in 
large measure, is attributable to the fine cooperation we have always 
received from our counterparts in the Office of Interstate Land Sales 
Registration. Requests for information have always been expeditiously 
responded to both at the central and regional office level. A spirit 
of cooperativcness between the states fostered in part by the good 
offices of the National Association of Attorneys General has been 
another effective tool in dealing with developers located far outside 
our individual borders. 

Because of the interstate nature of the industry, it is in- 
cumbent upon the Federal Government to be in the fore front of protecting 
prosF>ective purchasers without preempting those states that have effec- 
tive regulatory systems. If every state was in Michigan's enviable 
position, then the need for a federal presence would be diminished. 



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Sadly, this is not the case. Regulations, which do not inhibit or 
stremgle responsible development and a healthy land sales industry 
is needed. It appears the market is once again improving and sales 
activities are being intensified. 

From that base. Attorney General Kelley would then generally 
endorse HR 12574 and urge its enactment. Following is a section by 
section review of the HR 12574 and a comparison to Michigan law: 

SECTION 1702 - EXEMPTIONS 

1702(a)(1) Michigan has a 25 lot threshold for registration with a 
limited exemption for up to 50 lots if fully platted, 
recorded and no amenities are promised or advertised. 

1702(a)(2) Michigan does not have a "size" exen^ition; the proposed 
40 acre requirement would provide adequate protection. 

1701(3) A "housekeeping" change. 

1702(a)(4) Michigan has a "court order exemption". This proposal, 
to capture sales pursuant to Bankruptcy Court orders, is 
extremely significant and fills a regulatory void. Because 
of the Federal posture of most bankruptcy proceedings, this 
change provides valuable and necessary protection. ATTORNEY 
GENERAL KELLEY STRONGLY SUPPORTS THIS PROVISION. 

SECTION 1703 - PROHIBITION AND RIGHTS OF REVOCATION 

Michigan provides for a 5 day "buyer remorse" period which 
begins on the date the consumer receives a legible and 
executed copy of the contract. The proposed legislation 
provides a 30 day period plus an additional 3 years in 
certain circumstances. Obviously, the longer a consumer 



33-716 O - 78 - 14 

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to consider a decision, one of two events will occur; 
either procrastination until the end of the period or 
a reasoned decision based on the opportunity to make 
inquiries and gather the necessary facts. Hopefully, 
the latter will occur. The other changes to this sec- 
tion ease the burden of proof on a consumer seeking re- 
cession or the agency in an enforcement action. 

SECTION 1705 - INFORMATION REQUIRED IN STATEMENT OF RECORD 

Michigan employs a system of previewing and approving 
advertisements and promotional materials of all media. 
The contents thereof are compared with the Statement of 
Record for accuracy and veracity and an approval number 
assigned that appears in the ad. While such a system 
is administratively burdensome, it serves as a check in 
an area historically abused. 

From an enforcement standpoint, having promotional 
material available is very desirable. While the Michi- 
gan system may be inappropriate at the National level, 
the 2U:>ility to monitor what is being said by comparison 
with what is on file is very helpful. Additionally, 
should the developer deviate from what it filed, ad- 
ministrative remedies may be imposed. 

SECTION 1708 - EFFECT ON STATE LAWS 

THE PROPOSED LEGISLATION IS PREEMPTIVE IN NATURE AND 
NOT SUPPORTED BY ATTORNEY GENERAL KELLEY. STATE REGU- 
LATIONS SHOULD NOT BE PREEMPTED UNLESS THE INCONSISTENCY 



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PROVIDES A LESSER DEGREE OF PROTECTION TO THE PUBLIC 
INTEREST. ATTORNEY GENERAL KELLEY RECOMMENDS THIS 
SECTION BE AMENDED TO REFLECT THAT POSITION. 

SECTION 1709 - DAMAGE AWARDS 

The proposed legislation tracks the Michigan system. 
We provide for 6% interest on the amount of actual 
damages from the date of payment less an/ income the 
consumer may have received. « 

SECTION 1711 - STATUTE OF LIMITATIONS 

The proposed legislation is consistent with the Michi- 
gan Statute except the maximum period is 6 years from 
the sale or lease. 

SECTION 1714 - ADMINISTRATIVE REMEDIES 

The proposed legislation is very similar to those reme- 
dies in our state law. The ability to issue a cease 
and desist order prior to hearing in extraordinary cir- 
cumstances has proven to be very successful and urges 
developers to expeditiously proceed through the hearing 
process. The developer is protected from agency abuse 
of the device by the judicial review procedure. 

(NEW) CIVIL PENALTIES 

The Michigan Statute does not provide for civil penal- 
ties. Such a device is an effective deterrent to a 
potential violation. 



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SECTION 1717 - CRIMINAL PENALTIES 

Michigan provides felony penalties of $25,000 or up 
to 10 years imprisonment for willfull fraudulent con- 
duct; any other violation is a misderaeanor subjecting 
a violator to $2,000 or a maximum of 90 days imprison- 
ment. Only two criminal prosecutions have been concluded. 

SECTION 1718 - REGULATION OF ADVERTISING 

This section is necessary to effectively deal with ad- 
vertising and is consistent with the Michigan approach. 

SECTION 1720 - PUBLIC EDUCATION 

The best form of consumer protection is an informed 
consumer protecting themsclf. No matter how good a 
registration and disclosure system is devised, too 
often the government is involved in seeking remedial 
relief. An effective program to inform and educate 
the public is the catalyst for an effective program. 

(NEW) "PARENS PATRIAE" RIGHT TO SUE 

Attorney General Kelley favors "parens patriae" legis- 
lation as a tool that benefits the public as well as 
government at both the national and state level. The 
system sets forth an effective vehicle that safeguards 
a developer from multiple recoveries or vexatious actions 
while giving injured consumers a viable recourse. As 



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seen in the "Antitrust Improvements Act", a rash of 
irresponsible lawsuits has not resulted. You have 
probably been inundated by favorable comment by the 
Attorneys General and negative imput from the industry. 
Rather than rehash the pros of "parens patriae", suf- 
fice it to say Attorney General Kelley strongly en- 
dorses this section. 

(NEW) IMPROVEMENTS DEALING WITH BASIC SERVICES 

This provision is consistent with the Michigan statute 
and has proven to be effective. Performance or surity 
bonds are also acceptable alternatives to an escrow ac- 
count. The same system is utilized for assurances that 
promised amenities will be provided and in place as prom- 
ised to the purchaser. 

All in all, HR 12574 represents a salutory effort to pro- 
vide more protection to consumers without being unduly burdensome on 
developers. With the exception of the preemption issue. Attorney Gen- 
eral Kelley enthusiastically endorses the bill. Conversely, S 3084 
is in the nature of a "developers bill" and docs little to enhance 
consumer protection in this area which has been subject to abuse. 
Many consumers buy this type of land for retirement or recreational 
purposes. They should be assured of reality and not "pie in the sky". 



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-p-'-y-r-'—r- r 



LAND SALES ACT 



ACT 286 OF 1972, AS AMENDED 



PRINTED JUNE 1974 



:(g^ff STATE OF MICHIGAN 




Department of Licensing and Regulation 

LAND SALES DIVISION 

1008 & Washington Ava. Lanting. MIehlgwi 48K* 



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NOTICE 

The statutory provisions and rules contained in this booklet are not to be 
considered the final authority on the current law. While every effort has been made 
to insure the accuracy and completeness of this booklet, it is impossible to include 
changes in the law which occur after this booklet has been printed. 

This booklet contains the law effective on June 1, 1974. 

Revisions to the statutory provisions and rules contained in this booklet may 
be obtained from the Michigan Department of Licensing and Regulation, Land 
Sales Division, 1008 South Washington Avenue, Lansing, Michigan 48926. 



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TABLE OF CONTENTS 
LAND SALES ACT 



ACT 286 OF 1972 

565.801 Short title 

565.802 Definition 

565.803 Subdivisions, disposition of lots, 
partial, units, or interests 565.819 

565.804 Offers and dispositions of in- 565.820 
terests in land, inapplicability 

565.805 Excluded dispositions 

565.806 Registration; property reports; 565.821 
unfair acts; voidability of con- 
tracts; recession; form of con- 565.822 
tract; third parties 

565.807 Application, filing, forms, execu- 
tion, contents; registration fee, 
payment 

565.808 Property report, form, contents 565.823 

565.809 Prohibited uses of property re- 
ports 

565.810 Alteration or amendment of 565.824 
proposed property reports, ap- 
proval, incorporation in reports; 
advertising and disposition pend- 
ing approval 

565.811 Consolidation of subsequent 565.825 
registrations with prior registra- 
tions, same promotional plan, 
amendment of property report; 
effect of failure to timely reject 
consolidation of registration 565.826 

565.812 Material changes in information 
contained in application for 565.827 
registration, reporting 565.828 

565.813 Conditions for registration, 565.829 
enumeration, examination to de- 
termine compliance with condi- 565.830 
tions 

565.814 Notice of filing of application for 
registration; orders of registration 
or rejection; amendments of ap- 565.831 
plications; certificates of registra- 
tion; property reports 

565.815 Developer's reports, form, con- 
tents, time of filing; renewals of 
certificates of registration 

565.816 Conditions for sales of units or 565.832 
interests within subdivision sub- 
ject to blanket encumbrance 

565.817 Advertising material, submission 
for approval, orders, failure to 
timely reject; filing of amend- 
ments to applications for ap- 565.833 
proval of advertising 

565.818 Material used to induce prospec- 565.834 
tivc purchasers to visit subdivi- 565.835 
sion, contents; developer's par- 



ticipation in campaign, disclos- 
ure, assurances that obligations 
can be met 

Rules, promulgation, contents 
Investigations of subdivisions, 
necessity, extent, form, ex- 
penses, waiver 

Contracts for disposition of sub- 
divided land, contents 
Penalty for failure to pay registra- 
tion and inspection fees, amount, 
grounds for imposition, collec- 
tion; suspension or revocation of 
registration, unpaid fees 
Investigations, authorization, ex- 
tent, purpose, statements, oaths, 
subpoenas, proceedings 
Cease and desist orders and 
orders to take affirmative action, 
grounds for issuance; temporary 
cease and desist orders, notice, 
hearing 

Revocation of registration, 
notice, hearing, grounds; findings 
of fact, necessity, statement of 
underiying facts; cease and desist 
order as alternative 
Injunctions, ground; receivers; 
conservators; bonds 
Offenses, enumeration, penalties 
Other violations, penalties 
Service of process, methods, 
nonresidents 

Registration fee, time of pay- 
ment, amount; annual renewal 
fee; inspection expenses, pay- 
ment 

Deceptive acts or false state- 
ments and omissions, liability to 
purchaser; joint and several liabil- 
ity; contribution; tender of re- 
conveyance, time; limitation of 
actions 

Subdivided lands within state, 
subdivider's principal office in 
state, or offer or disposition of 
subdivided lands made in the 
state, applicability of act, juris- 
diction of circuit courts 
Repealed by P.A. 1973, No. 184, 
immediate effect January 3, 1974 
Condominiums 
Effective date 



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LAND SALES ACT 

P.A. 1972, No. 286, Eff. Oct 1, 1973 

AN ACT to regulate the disposition of lots, parcels, units or interests in lands 
within real estate subdivision; to require registration; to protect the purchaser from 
unfair and deceptive trade practices; to provide for the filing of bonds and 
performance assurances; to regulate advertising, promotions and sales contracts; to 
provide for the payment of fees; and to provide penalties. 

The People of the State of Michgian enact: 

565.801 Short titio 

Sec. 1. This act shall be known and may be cited as the 'Mand sales act**. 

585.802 Definltiont 

Sec. 2. As used in this act: 

(a) ** Advertising** means the publication or causing to be published of all material which 
has been prepared for public distribution by any means of communication. The term does 
not include stockholder communications such as annual reports and interim financial 
reports, proxy materials, registration statements, securities, prospectuses, applications for 
listing securities on stock exchanges, and the like; prospectuses, property reports, offering 
statements, or other documents required to be delivered to prospective purchaser by an 
agency of another state or the federal government; all communications addressed to and 
relating to the account of persons who have previously executed a contract for the 
purchase of the developer*s lands, except where directed to the sale of additional lands. 

(b) '*Agent** means any person who represents, or acts for or on behalf of, a devek)per 
in disposing of subdivided lands or lots in a subdivision, and includes a real estate broker 
as defined in Act No. 306 of the Public Acts of 1919, as amended, being sections 451.201 
to 451.219 of the Michigan Compiled Laws, but does not include an attorney at law whose 
representation of another person consists solely of rendering legal services. 

(c) **Blanket encumbrance'* means a trust deed or mortgage or mechanics lien or any 
other lien or financial encumbrance, securing or evidencing money debt and affecting lands 
to be subdivided or affecting more than 1 lot, parcel, unit, or interest of subdivided land; or 
an agreement affecting more than 1 lot, parcel, unit, or interest by which the developer 
holds the subdivision under an option, contract to purchase, or trust agreement, except a 
lien or other encumbrance arising as a result of the imposition of a tax assessment by a 
public authority so long as no portion thereof is past due. 

(d) "Contiguous land** means any additional subdivided land adjacent to or adjoining the 
subdivided land included in any earlier subdivision for which a certificate of registration 
has been issued and which is offered under the same common subdivision name and the 
same common promotional plan of advertising and disposition. 

(e) "Department** means the department of licensing and regulation. 

(f) "Developer** means a person, or his agent, who, directly or indirectly, offers 
subdivided land for disposition, or who advertises subdivided land for disposition. 

(g) "Director** means the director of the department of licensing and regulation or any 
person designated by him to act in his place. 

(h) "Disposition** means a sale, lease, option, assignment, award by lottery or as a 
prize, or any offer or solicitation of an offer to do any of the foregoing concerning a 
subdivision or any part of a subdivision. 

(i) **Notice** means a communication by mail from the department. Notice to developers 
shall be deemed complete when mailed certified return receipt requested to the deveIoper*s 
address currently on file with the department. 

(j) "Offer** means every inducement, solicitation, or encouragement of a person to 
acquire a lot, unit, parcel, or interest in subdivided land. 

(k) "Option** means, and is limited to, an offer to sell or to purchase respecting which a 
consideration of not more than 15% of the total purchase price is exchanged to guarantee 
that the offer will not be withdrawn or revoked for an agreed period of time. 

(1) "Person** means an individual, corporation, government or governmental division or 
agency, business trust, estate, trust, partnership, unincorporated association, 2 or more of 
any of the foregoing having a joint or common interest, or any other legal or commercial 
entity. 

(m) "Purchaser** means a person who acquires or attempts to acquire or succeeds to an 
interest in land. 



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(n) "Subdivision** and **subdivided land** means any land, wherever located, improved 
or unimproved, which is divided or proposed to be divided for the purpose of dispositioD 
into 25 or more lots, parcels, units, or interests, and includes any portion thereof. 
Subdivided lands include land located outside this state which is promoted by mail, 
telephone calls, solicitation, or advertisements within or directed into this state. The terms 
include any land, whether contiguous or not, if 25 or more lots, parcete, units, or mterests 
are offered as a part of a common promotional plan of advertising and sale where 
subdivided land is offered for disposition by a single developer or a group of developers 
acting in concert. If the land is contiguous or is known, designated, or advertised as a 
common unit or by a common name the land shall be presumed, without regard to the 
number of lots covered by each individual offering, as being offered for disposition as put 
of a common promotional plan. 

565.a03 Subdivitiont, ditpotltion of lots, partial, units, or Intarattt 

Sec. 3. The disposition of lots, parcels, units or interests in land from subdivisions is sulgect 
to regulation and control pursuant to this act which is to^be administered by the department. 

565.804 Offers and ditpotltlont of intaraatt in land, Inappllcabnity 

Sec. 4. Unless the method of disposition is adopted for the purpose of evasion of this act, as 
the procedure for application for and approval of exemption is determined by rules of the 
department, this act does not apply to offers or dispositions of an interest in land: 

(a) By a purchaser of subdivided lands for his own account in a single or isolated 
transaction. 

(b) If fewer than 25 separate lots, parcels, units, or interests in subdivided lands are 
offered or to be offered after September 30, 1973. 

(c) On which lot, parcel or unit there is a commercial or industrial building, shopping 
center, dwelling unit, or apartment, or as to which there is a legal obligation on the part of 
the seller or his assignee or agent to construct such a building within 2 years from date of 
sale, lease, option, assignment, award by lottery, or as a prize. 

(d) For cemetery lots or interests. 

(e) A subdivision as to which the plan of sale is to dispose to 10 or fewer persons. 

(f) To any person who acquires such lots for the purpose of engaging m and does engage 
in, or who is engaged in the business of constructing residential, commercial, or industrial 
buildings for the purpose of resale; or constructing commercial or industrial buildings lor 
his own use; or the lease of such lots to persons engaged in such business. 

(g) Pursuant to court order. 

(h) Securities currently registered or securities transactions exempted by order of the 
corporation and securities bureau of the department of commerce. 

(i) By a person electing to make offers or dispositions under any 2 or more different 
exemptions. 

(j) A campground devek>ped pursuant to Act No. 171 of the Public Acts of 1970, being 
sections 325.651 to 325.665 of the Michigan Compiled Laws or a mobile home park 
devek>ped pursuant to Act No. 243 of the Public Acts of 1959, as amended, being sections 
125.1001 to 125.1097 of the Michigan Compiled Laws. 

(k) In a subdivision which has fewer than 50 lots, parcels, units or interests and which 
has been fully recorded under Act No. 288 of the Public Acts of 1967, as amended, being 
sections 560.101 through 560.293 of the Michigan Compiled Laws, in the office of the 
registrar of deeds and in which no amenities are promised or advertised. Nothing in thb 
subsection shall limit the application of section 27 to a devek>per or agent of a devek>per. 

565.805 Excludad dispoaltiona 

Sec. 5. Unless the method of disposition is adopted for the purpose of evasion of this act, 
as the procedure for application for and approval of exemption is determined by rules of the 
department, the provisions of this act do not apply to: 

(a) Offers or dispositions of evidences of indebtedness secured by a mortgage or deed of 
trust of real estate. 

(b) Offers or dispositions of securities or units of interest issued by a real estate 
investment trust regulated under any state or federal statute. 

(c) Offers or dispositions of any interest in oil, gas, or other minerals or any royalty 
interest therein if the offers or dispositions of such interest are reguhited as securities by 
the United States or by an agency of this state. 

(d) Condominiums located in Michigan and regulated by the corporation and securities 
bureau of the department of commerce. 



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(e) Offers or dispositions of an interest in lands by a Michigan state agency, city, village, 
township, county, or any other governmental unit, or United States governmental unit, 
body or subdivision. 
565.806 Registration; property reports; unfair acta; voidability of contracts; rescission; 
form of contract; third parties 
Sec. 6. Unless the subdivided lands or the transaction is exempt by this act: 

(a) A person may not offer or dispose of any interest in subdivided lands located in this 
state nor offer or dispose in this state of any interest in subdivided lands located without 
this state prior to the time the subdivided lands are registered in accordance with this act. 

(b) A person may not dispose of any interest in subdivided lands unless a current 
property report is delivered to the purchaser and the purchaser is afforded a reasonable 
opportunity to examine the property report prior to the disposition. 

(c) A person may not engage in any unfair or deceptive act or practice in the conduct of 
and disposition of subdivided lands. Disposition of subdivided lands by option on an 
option or by assignment of less than the total options held by the seller, is presumed to be 
an unfair and deceptive practice. Disposition by instrument purporting to be an option is 
presumed unfair and deceptive if the stated consideration for the purported option exceeds 
15% of the purchase price of the subdivided land or if the option does not separately state 
the purchase price. 

(d) Any contract or agreement for the disposition of a lot, parcel, unit or interest in a 
subdivision covered by this act, where the property report has not been given to the 
purchaser in advance of the time of his signing, is voidable at the discretion of the 
purchaser. In addition, the purchaser has an unconditional right to rescind any contract, 
agreement or other evidence of indebtedness between the purchaser and the developer, or 
revoke any offer within 5 days from the date the purchaser actually receives a legible copy 
of the signed contract, agreement, or other evidence of indebtedness or offer and the 
property report as provided in this act. Predating of a document does not defeat the time in 
which the right to rescind may be exercised. The burden of proof the document was not 
predated is upon the developer. An act of the developer in assigning or pledging a contract 
or agreement shall not waive the purchaser's right to void or rescind the contract or 
agreement as provided by this subsection. Each contract or agreement shall be 
prominently labeled and captioned that it is a document taken in connection with a sale or 
other disposition of lands under this act. 

Each contract or agreement for the disposition of a lot, parcel, unit, or interest in a 
subdivision shall prominently contain upon its face the following notice printed in at least 8 
point type which shall be at least 4 point bold type larger than the body of the document 
stating: 

NOTICE TO PURCHASER 

YOU ARE ENTITLED TO CANCEL THIS AGREEMENT AT ANY TIME IF 
YOU HAVE NOT RECEIVED THE PROPERTY REPORT IN ADVANCE OF 
YOUR SIGNING OF THIS AGREEMENT. IN ADDITION, YOU ARE 
ENTITLED TO CANCEL THIS AGREEMENT FOR ANY REASON WITHIN 5 
DAYS FROM THE DAY YOU ACTUALLY RECEIVE A LEGIBLE COPY OF 
THIS DOCUMENT. 

The contract or agreement shall contain sufficient space upon its face in immediate 
conjunction with the above notice for the signature of each person obligated under the 
instrument acknowledging that the person has read the notice. A third party who is 
unrelated to the developer may, in connection with the purchase of, or the making of a 
loan secured by such contracts or agreements, rely on a document furnished by the 
developer, and signed by a purchaser acknowledging receipt of a property report in 
advance of signing a contract or agreement. 

Rescission occurs when the purchaser gives written notice to the developer at the 
address stated in the contract or agreement. Notice of rescission if given by mail is 
effective when it is deposited in a mailbox properly addressed and postage prepaid. A 
notice of rescission given by the purchaser need not take a particular form and is sufficient 
if it indicates by any form of written expression the intention of the purchaser not to be 
bound by the contract or agreement. 

(e) No act of a purchaser shall be effective to waive the right to rescind as provided in 
this section. However, the right of rescission terminates 5 years after the date the 
purchaser signs the contract or agreement. 



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565.807 Application, filing, fonnt, execution, contents; registration fee, payment 

Sec. 7. Before subdivided lands are offered for disposition, the developer shall file with the 
department an application upon forms to be supplied by the department. A registration fee 
shall accompany the application. The application may be filed before a plat has been recorded 
as provided for in section 172 of Act No. 288 of the Public Acts of 1967, being section 560.172 
of the Michigan Compiled Laws, provided the plat has received final approval of the 
preliminary plat under section 120, as amended, of that act. The application shall be fifed as 
prescribed by the department's rules. The application shall be signed by an authorized agent 
of the applicant and include, but is not limited to, the following documents and information: 

(a) An irrevocable appointment of the department to receive service of any lawful 
process in any civil proceeding arising under this act against the developer or his agent. 

(b) The applicant's name and address, and the forms, date, and jurisdiction of the 
organization; and the address of each of its resident agents, officers, and directors in tite 
state; the name, address, and principal occupation for the past 5 years of every director 
and officer and each owner of 10% or more of the shares of the applicant and any person 
occupying a similar status or performing similar functions; the extent and nature of his 
interest in the applicant and the subdivided lands as of a specified date within 30 days of 
the filing of the application. 

(c) A legal description of, based on a survey by a professional land surveyor, and a 
statement of the total area included in the subdivision, and a statement of the topography 
thereof, together with a map showing the division proposed or made, the dimensions of the 
lots, parcels, units, or interests and the relation of the subdivided lands to existing streets, 
roads, and other off-site improvements. 

(d) The states or jurisdictions in which an application for registration or similar 
document has been filed and any order, judgment, or decree entered in connection with the 
subdivided lands by the regulatory authorities in each jurisdiction or by any court. 

(e) A statement, in a form acceptable to the department, of the condition of the title to 
the land comprising the subdivision, including all encumbrances and deed restrictions and 
covenants applicable thereto with data as to recording. 

(0 Copies of the instruments by which the interest ii\ the subdivided lands was acquired 
or proof of marketable title to subdivided lands. 

(g) Copies of instruments which will be delivered to a purchaser to evidence his interest 
in the subdivided lands and of the contracts and other agreements which a purchaser will 
be required to agree to or sign, together with the range of selling prices, rents, or leases at 
which it is proposed to dispose of the lots, units, parcels, or interests in the subdivisions. 

(h) Copies of instruments creating, altering, or removing easements, restrictions, or 
other encumbrances affecting the subdivided lands. 

(i) A statement of the present condition of access to the subdivision, the availability of 
sewage disposal &cilities and other public utilities, including water, electricity, gas, and 
telephone facilities, in the subdivision, the proximity in miles of the subdivision to nearby 
municipalities and the nature of any improvements to be installed and by whom they are to 
be installed and paid for and an estimated schedule for completion, together with a 
statement as to the provisions for improvement maintenance. 

(j) A statement of the current zoning and any existing tax and existing or proposed 
special assessments which affect the subdivided lands. 

(k) If there is a blanket encumbrance against any subdivision or portion thereof, a 
description of the encumbrance and a statement of the consequences for an individual 
purchaser of a failure by the persons bound to fulfill obligations under the instrument 
creating the encumbrance and the steps, if any, taken to protect the purchaser in such 
eventuality. 

(1) A narrative description of the pronK)tional plan for the disposition of the subdivided 
lands together with copies of all {idvertising material which has been prepared for public 
distribution by any means of communication. 

(m) Such financial statements of the developer as the department may require. 

(n) The proposed property report. 

(o) A statement that the devek>per has or has not been subject to any injunction or 
administrative order entered within the past 10 years restraining a &lse or misleading 
promotional plan involving land dispositions. 

(p) Such other information and such other documents and certifications as the 
department may require as being reasonably necessary or appropriate for the protection of 
purchasers. 



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866.808 Property report form, contents 

Sec. 8. The property report shall disclose fully and accurately the physical characteristics of 
the subdivided lands offered and shall make known to prospective purchasers all unusual and 
material conditions relating to noise, health, safety, and welfare which affect the subdivision 
and are known to the developer. The proposed property report submitted to the department 
shall be in a form prescribed by its rules and shall include the following: 

(a) The name and principal address of the developer. 

(b) A general description of the subdivided lands stating the total number of lots, 
parcels, units, or interests in the offering. 

(c) The significant terms of any encumbrances, easements, liens, and restrictions, 
including the current zoning classification and the name and address of the governmental 
office where a complete current copy of the zoning ordinances may be inspected, affecting 
the subdivided lands and each lot, unit, parcel, or interest and a statement of all existing 
taxes and existing or proposed special assessments which affect the subdivided lands. 

(d) A statement of the use for which the property is offered. 

(e) Information concerning existing or proposed improvements, including streets, water 
supply levels, drainage control systems, irrigation systems, sewage disposal systems, and 
customary utilities and the estimated cost, date of completion and responsibility for 
construction and maintenance of existing and proposed improvements which are referred 
to in connection with the offering or disposition of any lot, unit, parcel, or interest in 
subdivided lands. 

(0 Such additional information as may be required by the department to assure full and 
fair disclosure to prospective purchasers. 

565.809 ProMbited uses of property reports 

Sec. 9. The property report shall not be used for any promotional purposes. A person may 
not advertise or represent that the department approved or recommends the subdivided lands 
or disposition thereof. A portion of the property report may not be underscored, italicized or 
printed in larger or heavier or different color type than the remainder of the statement unless 
the department requires it. 

565.810 Alteration or amendment of proposed property reports, approval, incorpora- 
tion in reports; advertising and disposition pending approval 

Sec. 10. The department may require the developer to alter or amend the proposed property 
report in order to assure full and fair disclosure to prospective purchasers and a change in the 
substance of the promotional plan or plan of disposition or development of the subdivision 
may not be made after registration without prior written approval of the department nor 
without approval of appropriate amendment of the property report. A property report is not 
current unless all amendments are incorporated. The department may allow, in writing, 
continued advertising and disposition pending approval of amendment. 

565.811 Consolidation of subsequent registrations witli prior registrations, same 
promotional plan, amendment of property report; effect of failure to timely 
reject consolidation of registration 

Sec. 1 1. If the devek>per registers additional subdivided lands to be offered for sale, he may 
consolidate the subsequent registration with any earlier registration under this act offering 
subdivided lands for sale under the same promotional plan, and the property report shall be 
amended to include the additional lands so registered. The consolidation of registration of 
additional subdivided lands shall be deemed registered after 30 days unless a rejection is 
entered issuing a specific statement of the deficiencies within 30 days thereof or a delay agreed 
upon. 

565.812 Material clianges In information contained in application for registration, 
reporting 

Sec. 12. The developer shall report immediately any material changes in the information 
contained in the application for registration. 

565.813 Conditions for registration, enumeration, examination to determine com- 
pliance witli conditions 

Sec. 13. Upon receipt of an application for registration in proper form, the department shall 
initiate an examination to determine compliance with the following conditions for registration: 

(a) The developer can convey or cause to be conveyed the interest in subdivided lands 
offered for disposition if the purchaser complies with the terms of the offer and when 



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appropriate, that release clauses, conveyances in trust or other safeguards have been 
provided. 

(b) There is reasonable assurance that all proposed improvements will be completed as 
represented. 

(c) The advertising material and the general promotional plan are not false or misleading and 
comply with department rules and afford full and fair disclosure. 

(d) The developer has not, or if a corporation, its officers, directors and principals have not, 
been convicted of a crime involving lands dispositions or any aspect of land sales business in 
this state, the United States or any other state or foreign country within the past 10 years. 

(e) The property repon requirements of this act have been satisfied. 

505.814 Notic« of filing of application lor reglttratlon; orders of rogiatration or 
rafaction; amandmants of applications; cartlflcatas of raglatraHon; proparty 



iaauanca of notica; tima for antry of ordars; jaiiura to timaly rajact, 

affact; filing datas of amandmants to applications 

Sec. 14. (1) Upon receipt of the application for registration in proper form, the department 

shall issue a notice of filing to the applicant. Within 60 days from the date of the notice of 

filing, the department shall enter an order registering the subdivided lands or rejecting the 

registration with notice of specific deficiencies therein. If an order of rejection is not entered 

within 60 days fi-om the date of notice of filing, the land shall be deemed registered unless the 

applicant has consented in writing to a delay. If any amendment to the application for 

registration is filed prior to the time when the land shall be deemed registered, the application 

shall be deemed to have been filed when the amendment was filed except that an amendment 

filed with the consent of the department or filed pursuant to an order of the department stiall 

be treated as being filed as of the date of the filing of the original application for registration. 

issuanca of cartlflcata of ragistratlon and approval of form 

of proparty raport, grounds 

(2) If the department affirmatively determines, upon inquiry and examination, that the 
requirements of this act and the rules promulgated pursuant to the act have been met, it shall 
issue a certificate of registration registering the subdivided lands and approve the form of the 
property report. 

Corractlon of application for ragistratlon; rajaction of ragiatratlon 

(3) If the department determines upon inquiry and examination that any of the requirements 
of this act or the rules promulgated pursuant to this act have not been met, it shall notify the 
applicant that the application for registration must be corrected in the particulars specified 
within 15 days from receipt of notice unless extended in writing by the department. If the 
requirements are not met within the time allowed, the department may enter an order rejecting 
the registration which shall include the findings of fact upon which the order is based. 

Changes, amandmants to cartlflcatas of ragistratlon, suspension of 

certificate of rogiatration; raporta of material changea; 

registration of amendments 

(4) If at any time subsequent to the issuance of the certificate of registration, a change 
occurs affecting any material fact required to be contained in the application, the developer 
shall file an amendment thereto within 30 days. Upon receipt of any amendment or report of 
material change, if the department determines such action to be necessary or appropriate in 
the public interest or for the protection of purchasers, it may suspend the certificate of 
registration until such time as the amendment shall be deemed registered. The amendment 
shall be deemed to be registered after 30 days unless a rejection is entered or a delay agreed 
upon. 

Untrue statements or omissions In applications, suapenalon of 

registration after notice and opportunity for hearing; 

cessation of suspension 

(5) If it appears to the depanment at any time that an application, for which there has been 
issued a certificate of registration, includes any untrue statement of a material &ct or omits to 
state any material fact required by this act or necessary to make the statements not misleading 
or deceptive, after notice and after an opportunity for hearing at a time fixed by the 
department within 20 days after the notice, the department may issue an order suspending tlie 
registration. When the application has been amended in accordance with the order, the 
department shall so declare and thereupon the order shall cease to be effective. 



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Compliance with subdivision control act, nocessity 

(6) The department shall not issue a certificate of registration if it is determined that the 
offering is for a subdivision of land until the developer complies with the provisions of Act 
No. 288 of the Public Acts of 1967, as amended, being sections 560.101 to 560.293 of the 
Compiled Laws of 1948, if the director determines that the subdivision is required to conform 
to that act. 

565.815 Deveiopors* reports, form, contents, time of filing; renewals of certificates of 
registration 

Sec. 15. (1) Within 30 days after each annual anniversary date of an order registering 
subdivided lands, the developer shall file a report in the form prescribed by the rules of the 
department. The report shall reflect any material changes in information contained in the 
original application for registration. 

(2) The department may permit the filing of annual reports within 30 days after the annual 
anniversary date of the consolidated registration in lieu of the annual anniversary date of the 
original registration. 

(3) A certificate of registration which has not been revoked or is not suspended shall be 
renewed annually upon compliance with this act. 

555.816 Conditions for sales of units or Interests witliin sulKllvision subject to blanlcet 
encumlKance 

Sec. 16. The developer shall not sell lots, units, parcels, or interests within a subdivision 
subject to a blanket encumbrance unless 1 of the following conditions or the equivalent as 
determined by rules promulgated by the department is met: 

(a) All sums paid or advanced by purchasers are placed in an escrow or other depository 
acceptable to the director until the fee title contracted for is delivered to the purchaser by 
deed together with complete release fix>m all financial encumbrances; or the developer or 
the purchaser default and fail to perform under their contract of disposition and there is a 
final determination by a court of competent jurisdiction or the director as to the 
disbursement of such moneys or they be voluntarily returned to the contract purchaser. 

(b) The fee title to the subdivision is placed in trust under an agreement or trust 
acceptable to the department until a proper release from each blanket encumbrance 
including all taxes is obtained and title contracted for is delivered to such purchaser. 

(c) A bond, cash, certified check, or irrevocable bank letter of credit issued by a bank 
authorized to do business in the state is furnished the department in the name of the state 
for the benefit and protection of purchasers of the lots, units, parcels, or interest, in such 
amount and subject to terms as approved by the department. The bond shall be executed 
by a surety company authorized to do business in the state and which has given consent to 
be sued in this state. The bond or agreement accompanying the cash, certified check, or 
irrevocable bank letter of credit shall provide for the return of moneys paid or advanced by 
any purchaser, on account of purchase of any lot, unit, parcel, or interest if the title 
contracted for is not delivered and a full release from each blanket encumbrance is not 
obtained. If it is determined that the purchaser by reason of default or otherwise, is not 
entitled to the return of the moneys, or any portion thereof, then the bond, cash, certified 
check, or irrevocable bank letter of credit may be released by the department in the 
amount of moneys to which the purchaser of a lot, unit, parcel, or interest is not entitled. 

(d) The blanket encumbrance shall contain provisions evidencing the subordination of 
the lieu of the blanket encumbrance to the rights of those persons purchasing fi-om the 
developer or evidencing that the developer is able to secure releases from the blanket 
encumbrance with respect to the property. 

565.817 Advertising material, submission for approval, orders, failure to timely reject; 
filing of amendments to applications for approval of advertising 

Sec. 17. (1) All advertising material not accompanying the original application shall be 
submitted to the department for approval prior to its use in the state. 

(2) Within 15 days from the date of receipt of the proposed advertising, the department 
shall enter an order approving or rejecting the advertising. If an order of rejection is not 
entered within 15 days from the date of receipt, the advertising shall be deemed approved 
unless the applicant has consented in writing to a delay. If any amendment to the application 
for approval of advertising is filed prior to the time when the land shall be deemed approved, 
• the application shall be deemed to have been filed when the amendment was filed except that 
an amendment filed with the consent of the department, or filed pursuant to an order of the 
department, shall be treated as being filed as of the date of the filing of the original application. 



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565.818 Material used to Induce prospective purchasers to visit the sulKlhflslon, 
contents; developer's participation in campaign, disclosure, assurances that 
obligations can be met 

Sec. 18. The director may require that any material used by a developer or his agent to 
induce prospective purchasers to visit the subdivided land contain certain additional pertinent 
information. The information may include but is not limited to, terms and conditions of the 
offers and the nature and extent of the developer's participation in the campaign. The director 
may require reasonable assurances that such obligation incurred by a developer or its agents 
can be met. 

565.819 Rules, promulgation, contents 

Sec. 19. The department shall promulgate rules in accordance with and subject to Act. No. 
306 of the Public Acts of 1%9. as amended, being sections' 24.201 to 24.315 of the Compiled 
Laws of 1948. The rules shall include but need not be limited to: 

(a) Provisions for advertising standards to assure full and fair disclosure. 

(b) Provisions for escrow or trust or trust agreement or other means reasonably to assure 
that all improvements referred to in the application for registration and advertising will be 
completed and that purchasers will receive the interest in land contracted for and full and fair 
disclosure in the property report informing the purchaser. 

(c) Provisions for operating procedures. 

(d) Provisions requiring instruments to be executed in recordable form. 

(e) Provisions relating to apportionment of taxes. 

(f) Other rules necessary and proper to accomplish the purpose of this act. 

565.820 Investigations of subdivisions, necessity, extent, form, expenses, wahrer 
Sec. 20. The department shall investigate every subdivision offered for disposition in this 

state and may: 

(a) Rely upon any relevant information concerning subdivided lands obtained from the 
federal housing administration, the United State veterans administration or any other federal 
agency having comparable duties in relation to subdivision of real estate. 

(b) Accept registrations filed in other states or with the federal government and cooperate 
with similar agencies in other jurisdictions to establish uniform filing procedures and forms, 
uniform property reports, advertising standards, rules and common administrative practices. 
If a statement of record has been filed with and the property report accepted by the federal 
office of interstate land sales, and department may accept a copy of that statement of record 
and property report as part of the disclosure requirements under this act and accept an 
addendum to the statement of record and property report which shall satisfy the additional 
requirements of this act. 

(c) Require the applicant to submit reports prepared by registered or licensed engineers as 
to any hazard to which any subdivision offered for disposition is subject in the opinion of the 
department, or any other factor which affects the utility of lots, units, parcels or interests 
within the subdivision and require evidence of compliance to remove or minimize all hazards 
stated by competent engineering reports. 

(d) Make an on site inspection of each subdivision prior to its registration and periodic on 
site inspections thereafter. The developer shall defray all actual and necessary expenses 
incurred by the inspector in the course of the inspection. 

(e) Require the developer to deposit with the department the expenses to be incurred in any 
inspection or reinspection, in advance, based upon an estimate by the department of the 
expenses likely to be incurred. 

(f) Where an on site inspection of any subdivision has been made under this act, an 
inspection of a subsequent application for registration of contiguous land may be waived and 
an inspection thereof shall be made at the time of the next succeeding on site inspection. 

565.821 Contracts for disposition of subdivided land, contents 

Sec. 21. Every contract for disposition of subdivided land shall state clearly the legal 
description of the lot, unit, parcel or interest disposed of and shall contain disclosures as 
required by the federal truth in lending act. Public Law 90-321, and the rules promulgated 
thereunder. 

565.822 Penalty for failure to pay registration and Inspection fees, amount, grounds 
for imposition, collection; suspension or revocation of registration, unpaid 
fees 

Sec. 22. Any developer who foils to pay when due, after written notice by the department. 



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the registratioii and inspection fees provided in this act and continues to dispose of or offers to 
dispose of subdivided lands, is liable civilly in an action brought by the attorney general on 
behalf of the department for a penalty in an amount equal to treble the unpaid fees. The 
department may suspend or revoke a registration for which any application or inspection fee 
provided in this act is unpaid, after written notice by the department. 

585.823 lnv««tlgationt, authorlzallon, extent, purpose, ttatementt, oaths, subpoonss. 



Sec. 23 (1) The department may: 

(a) Make necessary public or private investigations within or outside of this state to 
determine whether any person has violated or is about to violate this act or any rule or order 
hereunder or to aid in the enforcement of this act or in the prescribing of rules and forms 
hereunder. 

(b) Require or permit any person to file a statement in writing, under oath or otherwise as 
the department determines, as to all the facts and circumstances concerning the matter to be 
investigated. 

(2) For the purpose of any investigation or proceeding under this act, the department or any 
officer designated by rule may administer oaths or affirmations, and upon its own motion or 
upon request of any party may subpoena witnesses, compel their attendance, take evidence, 
and require the production of any matter which is relevant to the investigation, including the 
existence, description, nature, custody, condition and location of any books, documents or 
other tangible things and the identity and location of persons having knowledge of relevant 
focts, or any other matter reasonably calculated to lead to the discovery of material evidence. 

(3) Upon fiiilure to obey a subpoena or to answer questions propounded by the investigating 
officer and upon reasonable notice to all persons affected thereby, the department may apply 
to the circuit court of Ingham county for an order compelling compliance. 

(4) Except as otherwise provided in this act, all proceedings under this act shall be in 
accordance with Act. No. 306 of the Public Acts of 1969, as amended. 

555.824 Cease and desist orders and orders to take affirmative action, grounds for 
• issuance; temporary cease and desist orders, notice, hearing 

Sec. 24. (1) The department may issue an order requiring a person to cease and desist from 
the unlawful act and to take such affirmative action as in the judgment of the department will 
carry out the purposes of this act, if it determines, after notice and hearing, that a person has 
done any of the following: 

(a) Violated any provision of this act. 

(b) Directly or through an agent or employee knowingly engaged in any false, deceptive or 
misleading advertising, promotional or sales methods to offer or dispose of an interest in 
subdivided lands. 

(c) Made any substantial change in the plan of disposition and development of the 
subdivided lands subsequent to the order of registration without, obtaining prior written 
approval from the department. 

(d) Disposed of any subdivided lands which have not been registered with the department. 

(e) Violated any lawful order or rule of the department. 

(2) If the department makes a finding of fact in writing that the public interest will be 
irreparably harmed by delay in issuing an order, it may issue a temporary cease and desist 
order. Prior to issuing the temporary cease and desist order, the department whenever 
possible by telephone or otherwise shall give notice of the proposal to issue a temporary cease 
and desist order to the person. Every temporary cease and desist order shall include in its 
terms a provision that upon request a hearing will be held within 30 days to determine whether 
or not it becomes permanent. 

585.825 Revocation of registration, notice, hearing, grounds; findings of fact, 
necessity, statement of underlying facts; cease and desist order as 
alternative 

Sec. 25. (I) A registration may be revoked after notice and hearing upon a written finding of 
fact that the developer has done any of the following: 

(a) Failed to comply with the terms of a cease and desist order. 

(b) Been convicted in any court subsequent to the filing of the application for registration of 
a crime involving fraud, deception, false pretenses, misrepresentation, &lse advertising or 
dishonest dealing in real estate transactions. 

(c) Disposed of, concealed or diverted any funds or assets of any person so as to defeat the 
rights of subdivision purchasers. 



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(d) Failed foithfully to perform any stipulation or agreement made with the department as an 
inducement to grant any registration, to reinstate any registration or to approve any 
pronK)tional plan or property report. 

(e) Made intentional misrepresentations or concealed material facts in an application for 
registration. 

(2) Findings of &ct, if set forth in statutory language, shall be accompanied by a concise and 
explicit statement of the underlying &cts supporting the findings. 

(3) If the department finds after notice and hearing that the developer is guilty of a violation 
for which revocation could be ordered, it may issue a cease and desist order instead. 

565.826 Injunctiont, grounds; receivers; conservators; bonds 

Sec. 26. If it appears that a person has engaged or is about to engage in an act or practice 
constituting a violation of this act or a rule or order hereunder, the department, with or 
without prior administrative proceedings, may bring an action in circuit court of Ingham 
county to enjoin the acts or practices and to enforce compliance with this act or any rule or 
order hereunder. Upon proper showing, injunctive relief or temporary restraining orders shall 
be granted and a receiver or conservator may be appointed. The department is not required to 
post a bond in any court proceedings. 

565.827 Offenses, enumeration, penalties 

Sec. 27. Every developer or agent of a developer who authorizes, directs, or aids in the 
publication, advertisement, distribution, or circularization of a false statement or 
misrepresentation, made with knowledge of its falsity, concerning a subdivision offered for 
disposition or who knowingly fails to comply with the terms of a final cease and desist order 
and every person with knowledge that an advertisement, pamphlet, prospectus, or letter 
concerning a subdivision contains any written statement that is false or fi-audulent, who 
issues, circulates, publishes, or distributes the same or causes the same to be issued, 
circulated, published, or distributed or who knowingly fails to comply with the terms of a final 
cease and desist order, is guilty of a felony and may be fined not more than $25,000.00, or 
imprisoned not more than 10 years, or both. Each violation constitutes a separate offense. 

585.828 Other violation, penalties 

Sec. 28. Any violation of this act other than as provided in section 27 is a misdemeanor and 
every violator may be fined not more than $2,000.00 or imprisoned for not more than 90 days, 
or both, for each offense. 

585.829 Service of process, methods, nonresidents 

Sec. 29. (1) In addition to the methods of service provided for in any other provision of law, 
service may be made by delivering a copy of the process to the office of the department if the 
plaintiff, which may be the department in a proceeding instituted by it, does both of the 
following: 

(a) Sends a copy of the process and of the pleading by registered mail to the defendant or 
respondent at his last known address. 

(b) Files its affidavit of compliance with this section in the case on or before the return day 
of the process or within such time as the court allows. 

(2) If any person, including any nonresident of this state, engages in conduct prohibited by 
this act, or any rule or order and has not filed a consent to service of process and personal 
jurisdiction over him cannot otherwise be obtained in this state, the conduct authorizes the 
department to receive service of process in any noncriminal proceeding against him or hn 
successor which grows out of the conduct and which is brought under this act or any rule or 
order hereunder, with the same force and validity as if served on him personally. Notice shall 
be given as provided in subsection (1). 

565.830 Registration fee, time for payment, amount; annual renewal fee; Inspectloii 
expenses, payment 

Sec. 30. (1) Except as provided in subsection (2), a registration fee shall be paid with the 
application for registration and shall be set by rule which shall provide a basic fee of $250.00, 
plus an additional fee of not more than $50.00 for each 50 lots, units, parcels or interests 
included in the offering. 

(2) A registration fee shall be paid with the filing of an application for registration 
consolidating additional lots with a prior registration and shall be set by rule which shall 
provide a basic fee of $200.00. plus an additional fee of not more than $50.00 for each 50 lots, 
units, parcels or interests included in the offering. 

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amendments to the initial filing, unless the department determines the amendments are made 
for the purpose of avoiding the payment of a fee, in which event the amendment may be 
treated as an application for registration consolidating additional lots with a prior registration. 

(4) A fee not to exceed $25.00 shall be paid with each submission of advertising for 
approval. 

(5) In addition to the payment of inspection expenses as provided in section 20, an annual 
renewal fee set by rule shall be paid. 

565.831 D«oepCiv» ads or false statomenls and omisaioffit, liability to purchaaar; Joint and 
aavaral liabMty; contrllNition; tandar of raoonvayanca, tima; limitation of actkma 
Sec. 31. (I) A person who disposes of subdivided lands in violation of section 6 or who, in 
disposing of subdivided lands engages in a deceptive act or practice, makes an untrue 
statement of a material fact or omits a material &ct required to be stated in a registration 
statement or property report or necessary to make the statements made not misleading, is 
liable as provided in this section to the purchaser unless in the case of an untruth or omission 
it is proved that the purchaser did not rely on the untruth or omission. 

(2) In addition to any other remedies, the purchaser under subsection (1) may recover the 
consideration paid for the lot, parcel, unit, or interest in subdivided lands together with 
interest at the rate of 6% per year from the date of payment, property taxes paid, costs and 
reasonable attorneys* fees, less the amount of any income received from the subdivided lands, 
upon tender of appropriate instruments of reconveyance. If the purchaser no longer owns the 
lot, parcel, unit, or interest in subdivided lands, he may recover the amount that would be 
recoverable upon a tender of a reconveyance, less the value of the land when disposed of and 
less interest at the rate of 6% per year on that amount from the date of disposition. 

(3) Every person who directly or indirectly controls a subdivider liable under subsection (I), 
every general partner, officer, or director of a subdivider, every person occupying a similar 
status or performing a similar function, every employee of the subdivider who materially aids 
in the disposition and every agent who materially aids in the disposition is also liable jointly 
and severally with and to the same extent as the subdivider, unless the person otherwise liable 
sustains the burden of proof that he did not know and in the exercise of reasonable care could 
not have known of the existence of the facts by reason of which the liability is alleged to exist. 
There is a right to contribution as in cases of contract among persons so liable. 

(4) Every person whose occupation gives authority to a statement which with his consent 
has been used in an application for registration or property report, if he is not otherwise 
associated with the subdivision and development plan in a material way, is liable only for false 
statements and omissions in his statement and only if it is proved he knew or reasonably 
should have known of the existence of the true facts by reason of which the liability is alleged 
to exist. However, if the person is a registered professional licensed by this state whose 
statement was part of his representation of another person in rendering professional services, 
liability hereunder shall not exceed that resulting from a duty to exercise a reasonable degree 
of care and skill ordinarily possessed and exercised by members of that profession similarly 
situated. 

(5) A tender of reconveyance may be made at any time before the entry of judgment. 

(6) An action shall not be commenced pursuant to this section later than 3 years from the 
time performance of all promises, statements, or representations contained in any registration 
statement, property report, purchase agreement, contract, option, or other evidence of a 
disposition of subdivided lands is to be completed. Where the cause of action arises out of any 
deceptive act or practice or the omission to state a material fact, the action shall be 
commenced no later than 3 years from the date the person discovers or should have 
reasonably discovered the deceit or omission. An action shall not be commenced by a 
purchaser more than 6 years after the sale or lease to the purchaser. 

5e5.832 Suixllvidad lands within atata, autKlivldar's principal offica in atata, or offar or 
diapoaitlon of subdividad landa mada In tha atata, appiicability of act, 
Jurisdiction of circuit courts 

Sec. 32. Dispositions of subdivided lands are subject to this act and the circuit courts of this 
state have jurisdiction in claims or causes of action arising under this act, in the following 
cases: 

(a) The subdivided lands offered for disposition are located in this state. 

(b) The subdivider's principal office is located in this state. 

(c) Any offer or disposition of subdivided lands is made in this state, whether or not the 
offeror or offeree is then present in this state, if the offer originates within this state or is 
directed by the offeror to a person or place in this state and received by the person or at the 
place to which it is directed. 



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565.833 Repealed by P.A. 1973, No. 184, ft 2, imd. Eff. Jan. 3, 1974 

This section, added by P.A. 1972, No. 286, ft 33, contained a saving clause applicable to 
preexisting registration and allowed 90 days for the effecting of the consolidation of prior 
registrations. 

866.834 Condominiums 

Sec. 34. No portion of this act shall have any effect on or take precedence over the 
application and enforcement within the state of Act No. 229 of the Public Acts of 1963, as 
amended, being sections 559.1 to 559.31 of the Compiled Laws of 1948. 

565.835 Effective date 

Sec. 35. The provisions of this act shall take effect October 1. 1973, except that section 19 
shall take effect April 1, 1973 and the department shall make available such rules, and all 
necessary forms and instructions for and may accept and process applications for registration, 
applications for approval of exemption, applications for approval of advertising and 
applications for consolidation of registrations and may make examinations, investigations, and 
conduct inquiries incident to such applications prior to October I, 1973 so that persons 
regulated by the dct can be in compliance therewith on October I, 1973. 



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CEPARTMENT OF LICtNSING AND REGULATION 
DIVISION OF LAND SALES 
GENERAL RULES 

K-. leo wnh Secretary of State, July 27, i973. 

Tne.^' rules lake effect 15 days after filing with the Secretary of State (by 
author ty conferrea on the department of licensing and regulation by section 19 
of Act No. 286 of the Public Acts of 1972, as amended, being section 565.819 
of the Micniyan Compiled Laws). 

TABLE OF CONTENTS 



General Provisions R 338.3201 - R 338.3219 

Exemptions from the Act R 338.3221 

Registration of Non-Exempt Subdivided Lands. . . R 338.3231 - R 338.3238 

Protection of Purchasers R 338.3241 - R 338.3259 

Advertising and Sales Promotions R 338.3261 - R 338.3317 

Means to Assure Receipt of Contractual Interests R 338.3321 - R 338.3327 

Means to Assure Completion of Improvements . . . R 338.3331 - R 338.3335 

Taxes and Assessments R 338.3341 - R 338.3345 

Declaratory Rulings, Investigations and Hearings R 338.3451 - R 338.3466 



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Part 1. 


5 


Part 2. 


6 


Part 3. 


10 


Part 4. 


]6 


Part 5. 


31 


Part 6. 


33 


Part 7. 


J5 


Part 6. 


36 


Part 15 



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MICHIGAN DEPARTMENT OF LICENSING AND REGULATION 
DIVISION OF LAND SALES 

PART I. GENERAL PROVISIONS 

R 3J'{.j?ai. Definitions A. 

.^u'lc- ;. (1) The terms and definitions used in the act have the same meaning 
givcr tncrein when used in these rules. 

(2) "Act" means Act No. 286 of the Public Acts of 1972, as amended, being 
sections 565.801 to 565.835 of the Michigan Compiled Laws. 

(3) "Advertising material" means the pamphlet, circular, form letter, 

fact sheet, sign, radio, television, telephone presentation, newspaper or magazine 
advertisement, or other sales literature or advertising communication addressed to 
or intended for distribution to prospective subscribers or purchasers, not otherwise 
excepted under section 2(a) of the act, and includes radio and television scripts. 
Multiple listing books and other publications, the distribution of which is 
restricted to real estate brokers and salesmen licensed by the State of Michigan 
and their employees shall not be considered "advertising" within the meaning 
of the act or these rules. 

(4) "Advertising submission" means a single piece of advertising material, as 
defined in rule 1(3). 

(5) A common promotional plan shall not include a multiple listing service 
or real estate brokers offering unrelated properties in their regular course of 
business, unless such plan Is adopted for the purpose of evasion of the act. 

R 338.3202. Definitions 1 to S. 

Rule 2. (1) "Interest in land" includes a certificate of participation in. 
Interest in, share, membership in a corporation, profit or non-profit, whose 
purpose is to develop or make available real property and impro/ements thereto 
for recreational, vacation or second home site unless such inter-est, certificate 



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of participation, share or membership is registered and in compliance with 1964 
PA 265, as amended, being sections 451.501 to 451.818 of the Michigan Compiled 
Laws, unless such interest, certificate of participation, share or membership 
plan is adopted for the purpose of evasion of this act. 

(2) "Person authorized to appear to represent a developer" means a person 

who is an employee of a developer, the developer, his agent, or an attorney at law 
who files an appearance on behalf of a developer. 

(3) "Subdivision" and "Subdivided lands" includes condominium projects 
consisting of 10 or more units and any portion thereof not included within the 
terms of Act 229 of the Public Acts of 1963, as amended, being sections 559.1 
to 559.31 of the Compiled laws of 1948. 

R 338.3204. Documents. 

Rule 4. (1) A document to be filed with the department shall be typewritten 
or in legible handwriting on 1 side of the paper only. One copy of each exhibit 
or document shall be submitted, unless the director requires more than 1 copy. A 
document shall be reduced or folded to a size not to exceed &^ by 13 inches. All 
papers filed pursuant to these rules shall become part of the department's records. 

(2) The use of verified photographs as part of documentation is permitted, 
except that the photographs shall not be permitted in lieu of proper legal 
descriptions of real property or other required written documents. 

(3) The use of verified copies of original documents is permitted. 

(4) An affidavit or affirmation as prescribed in the department forms shall 
be executed for each of the following documents: statement of record; partial 
statement of record; consolidation registration; registration amendment; annual 
registration renewal; application for advertising approval; partner, officer, 
director or principal disclosure; consent to service to process; and broker's 
application. 



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.X 238.5206. Fees. 

Rule 6. Ine following fees shall accompany documents submitted for filing: 

(a) Registration fee - $250.00 plus $1.00 for each lot, unit, parcel or 

interest included in the application. 

(b) Consoiirlation registration fee - $200.00 plus $1.00 for each additional 

lot, unit, parcel or interest added to the original application. 
;c Annual registration renewal fee - $100.00 plus $0.25 for each lot, unit, 

parcel or interest included in the application. 
(a) Advertising submission fee - $15.00 for each submission, which was not 

suDmitted with an original registration or a consolidation, except 

tnat a fee for a classified ad of 2 column inches or less shall be 

$0.25. 

R 338.3208. Address of director. 

Rule S. Tne official address of the director for delivery and receipt of all 

mail, telegrams, information, filings, registration, fees, and other material 

requirea Dy the act or these rules is: 

Director of Land Sales Division 

Michigan Department of Licensing and Regulation 

1008 South Washington Avenue 

Lansing, Michigan 48926 

R 358.3218. Modification of rules. 

Ru.e 18. The director, in order to achieve the purpose intended by the act, 
may add to, waive, modify or otherwise condition, or change any requirement 
created by these rules in case of particular factual circumstances. 



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13B.3219. ciecission of Emergency Rules. 

^'•Ic: 19. 'hf^ emergency rules promulgated by the Department of Licensing and 
•^o.'\»t:')n. (,'ivision of Land Sales and filed with the Secretary of State on 
r •' /f^, W:-', are rescinded. 

' -s <>7.' ' 'f •rin.eii'' to Comply with rules. 
II ■; :> A.. ii.pMcation for registration for wMr.h a i.or.ire of filing has 
. ^ ».n.>,, = ,,., . > ;•; (> .effective date of these rules, shall be amended to comply 
:♦:•■• these ;-/l^-:'; . 

!"\ RpoKi) ^iticiis tn effect on the effective date of these rules shall be amended 
, : . -: . : ' . I" ? i ' t ra t J on or the annual renewal » whichever comes first. 



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PART 2. FXEMPTIONS FROM THE ACT 

R 338.3221. Statutory exemptions. 

Rule 21. Except as otherwise provided by rules promulgated by the department 
as duthori7ed Dy the act, the act shall not apply to offers or dispositions of 
inrerp^ns in land specified in sections 4 and 5 of the act unless the method of 
disposition is adopted for the purpose of evading the act. 



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PART 3. REGISTRATION OF NON-EXEMPT SUBDIVIDED LANDS 

R 338.3231. Statfiments of record and property reports; contents and filing. 

Rule 31. '1,^ A developer shall apply for a registration of non-exempt 
su'j'Jivided la-^c^ by means ?>' a statpnent of record and nropprty report in 
accor^^ance wUh the act and this part. 

(?* A statement of record shall be madp on the form supplied by the department. 
A proD'^rty rpnort shall bp in thp fom prp^rribed by thp department. They shall 
be ^u'^y cyeculed. 

(?) ^ statement of record and property report shall include, but not be lir»1ted 
to, :^^ >>forration required by sections 6 to 10 nf the act. The property report 
sha«! ^icluoe on its face the foilowlnn language In 12 point bold capital type: 
"THF DEVELOPER DOES NOT DISCRIMINATE ON THE BASIS OF RACr, 
COLOR, RELIGION, SEX, OR NATIONAL ORIGIN IN THE OFFER TO SELL, 
SALE. FIfiANCIMC, OR OTHER 'JlSPOSITION OF LAND INCLUDING THE 
rVlKING AVAILABLE OF ALL IMPROVEMENTS, OR OTHER AMENITIES OF 
ins SUBDIVISION. " 
'/) A ■;'w^tP-n»ent of record and a property report shall be filed with the 
director by personal delivery at, or certified mail to, the address set forth 
<-. rt-V 8. 

(b^ The rpqistration fee shall accomr»any a stjtemer.*: o^ record and property 
ron< -t, ard shall uc oaid by check or ^nontv '^rde- , riy.ble to the "State of 
••^ichln;*". ** 

"? ■?3S.?;:?r. statement*; and reno***': rff'T.tive dr*.'^s. 

R-.!)(^ 3". '•; The property r-rr.-^» i ^t^M -i..1M<>rpd ? part of the statement 
of r^cr>r(i fo*" tnc purpose o^ d*'terr -.''fi'i Kac • jctive date and suspension of 
the ►^ffect^ve date. 

/; y^^' p'fcctiv*^ d^tr of the st3te*rent o' recor ^hall bp no later than 



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60 days after the date of notice of filing which shall be issued to an applicant 
within 10 days of receipt of the application by the department unless: 

(a) The applicant has consented In writing to a delay. 

(b) The dppartnent has entered an order of rejection with notice of 
specific deficiencies therein. 

(c) If any amendment to the statenent of record Is filed before the time 
of the registration, the statement of record shall be considered to have be^n 
filed when the amendment was filed, unless the amendment is filed with the consent 
of or pursuant to order of the department. In such case, the amendment shall be 
con<;1dered as filed as of the original notice of filing date. 

R 338.3233. Statements; rejection. 

Rule 33. (1) A notice of deficiency and order of rejection with respect to 
a statement of record or an amendment may be issued by the director within 45 days 
after the date of notice of filing, if before Its effective date the director 
has reasonable grounds to believe that the statement of record or ainen<hient Is 
on its face incomplete or inaccurate. 

(2) An ordrr of ^^ejection with respect to a statement of record may be Issued 
to an applicant if it appear; to the director that the developer has attempted or 
made ir.tpnlional mi'sreprr^ent^tions, or concealed or omitted material facts In 
t>ic starrimont, or has attempted to Qw»6e or has evaded the provisions of the act, 
or has raric nislead^'-g or dpcpptlve statements. A developer may correct the 
particulars specified in an order of rejection within 15 days after receipt of 
the order unless othorwiso extendpd by the department. 

R 33R,3?34. ^t.^temonts and rpj)*rts; amen-' -rt, suspension and consolidation. 

Pule 3^. r») An an-ndment to ^n offt • o statement of record shall be 
filed within IC days after a cn^nqe wh1c» < Tfects a naterlaUfact. If the 



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department considers It necessary or appropriate In the public Interest or 
for the protection of purchasers, it may suspend the certificate of registration 
until the amendnent Is considered registered and an intent to reject is entered 
or a delay agreed upon. 

(2) If a developer registers additional subdivided lands to be offered for 
sale, he may consolidate tlie subsequent registration with any earlier registration 
offering subdivided lands for sale under tiie same promotional plan and the 
property report shall be amended to Include the additional lands so registered. 
The consolidation of registration of additional subdivided lands shall be 
considered registered after 30 days unless an Intent to reject Is entered with a 
specific statement of deflclences within 30 Uays thereof or a delay Is agreed upon. 

(3) If, In connection with lots previously offered for sale and covered by 
an effective statement of record, the developer Intends to offer additional lots 

as part of a common promotional plan, either a new or a consolidated statement shall 
be filed. The developer shall answer specifically each question In the statement 
and submit a new property report. The developer shall not Incorporate by 
reference answers to questions In the previous filing. Supporting documentation 
may be Incorporated by reference where it applies to both the original filing and 
to the additional lots to be offered. In all other respects, the consolidated 
statement shall confonn to tl»e requirement s of an initial statoment filed in 
accordance with these rules. 

R 338.3235. Registration under othe»* law. 

Rule 35. (1) A registration of a subdivision In effect under any other act 
of this state shall remain in full force and effect, except that within 30 days 
after the effective compliance date of the act in section 35, the developer shall 
comply with the additional requirements of the act. 



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(2) If a statfiment of record has bei'n filed with and accepted by the Office 
of Interstate Land Sales Registration, Department of Housinq and Urban Develop- 
ment, U.S. Government, the department may accept a copy of same as part of the 
disclosure requirements under the act if the material Is accompanied by a 
statement under oath by the developer, certifying that the copies are copies of 
all documents upon which the federal statement of record was based and stating 
the effective date of the federal filinq. An addendum fom prescribed by the 
department shall be fuMy executi^d and submitted to the department In addition 
to the certified federal statement of record. 

R 338.3P36. Investigations and certificates of registration. 

Rule 36. (1) After receipt of a properly executed statement of record, 
the department shall examine and investigate the matters therein In accordance 
with sections 13 and 20 of the act. 

(2) After inquiry and examination, the department shall Issue a certificate 
of registration if the requirenents of the act and these rules are met. The 
department shall also approve the form of the property report. 

P 33fc.3238. Annual reports. 

Rule 38. A ricv«»loppr shall file an annual report In the form prescribed by 
i. <e oepartment witi.ir 30 days after each annual anniversary date of an order 
registering subdivided lands. The report, as a minimum, shall reflect any 
naterial changes in information contained in the original statement of record 
and property report. An annual report of a consolidated registration Is permitted 
within 30 days after the annual anniversary date of the consolidated registration. 
Paynent of the fee required by rule <■ shall accompany the annual report. 



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PART 4. PROTECTION OF PURCHASERS 

R 338.3241. Unfair acts and practices; documents. 

Rule 41. (1) It Is unfair for a person to use a contract, agreement, deed, option 
or other evidence of disposition of lands under the act which contains provisions 
vfhereby a purchaser or prospective purchaser agrees, without his written consent 
thereto in a separate document or by conspicuous type In any such Instrument! 

(a) To waive a right afforded by the act; the Interstate Land Sales 
Full Disclosure Act (82 Stat. 590; 15 USC 1701 et. se^.); and the Consumer Credit 
Protection Act cotrmonly known as the Federal Truth In Lending Act, and any rules 
or regulations promulgated thereunder. 

(b) To assume all risk of loss to the property without title passing to 
the purchaser or actual possession being In the purchaser. 

(c) To a prior or subsequent sale of the optioned or purchased property. 

(d) To waive as against an assignee of the developer, a mortgagee, or 
subsequent holder, a claim or defense arising out of the transaction that the 
purchaser would have against the developer. 

(e) To forfeit all prior payments upon default. 

(f) To acceleration of the unpaid balance of a contract upon default. 

(g) To lose possession of the property without notice of and a prior hearing 
in a court of competent jurisdiction. 

(h) To waive a right to redeem the property after default. 

(i) That an assignee, mortgagee or subsequent holder of the developer is 
not obligated to perform as to the purchaser. 

(2) It is unfair for a developer, his agents, servants, employees or others 
acting on his behalf: 

(a) To offer to or induce a purchaser to execute a document, paper, or 
writing without all spaces filled in or inapplicable spaces clearly stricken. 

(b) To alter or deface a document, paper, or writing without the knowing, 
intelligent, and voluntary consent of the parties thereto. 



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R 331^.3242. Unfair acts and practices; discrirination. 

Rule 42. It Is unfair for a developer, his agents, servants, enployee^, 
or others acting 6n his behalf to discriminate on the basis of race, color, religion, 
sex, or na/ional origin in an offer to seli, sale, financing, or other disposition 
of land including making available the use of all improvenents, or other aai^ities 
of the existing or proposed subdivision. 

R 338.3?43, Unfair acts and practices; general 

Rule 43. (1) It is unfair for a person to use a nethod of rebate of Interest, 
or finance charge which reauires or results in a purchaser paying a greater 
amcun; of interest or finarce charge upon prepayment than he would have paid if 
he had financed for thdt s^iorter period up to the time of prepayment. 

txampie: Use of "Rule of 78's* of "sum of the dig1t>" methods. 

(^} ft '.s unfair tt>- n developer, his agents, servants, employees, or 
others acting on his behalf: 

(a) To maKe a pr-jmise with no present intent to perform it. 

(b) To fail to revral to the purchaser or prospective purchaser all 
torms, ronditions, nr'tUes, and amounts of any contract, agreement, option, deed, 
property report, or other evidence of the purchaser's indebtedness. 

\z) "o 'iubstitute dr-other lot» unit, parcel, or interest In land for 
^hai purcndser* or optioned without the kr>Dwing, intelligent, and voluntary consent 
thereto by tne purcnaser 

(j) 't is unfair for a aeveloper to fail to afford to a purchaser all 
rights, privilpgos, or acvantdges that ere represented or implied are available 
to H purch.**er as the result of the purchase. 

R 338.325i. i/eceptivc <»ct^ anc practices. 

Rule '»!. The methods. Acts, and '^r.jctires listed in rules 52 to 59 are 



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deceptive, and a developer, his agents, servants, employees, or others acting 
on his behalf shall not engage in thetn. 

R 338.3252. Deception; approvals and memberships. 

Rule 52. (1) Representing that the developer, his agents, servants, employees, 
or others acting on his behalf, have sponsorship, approval or certification they 
do not have. 

(2) Representing that land has been inspected by the department and/or received 
approval whether in fact it has or has not. 

(3) Representing the necessity, desirability, or the advantage to a prospective 
purchaser of dealing with a developer, by a false connection with or endorsement by 
the government, nationally known organization, or membership in a professional 
association. 

R 338.3253. Deception; availability of land and utilities. 

Rule 53. (1) Representing the availability of land without clearly and 
conspicuously disclosing in immediate conjunction therewith any limitation on 
availability, location, or quantity. 

(2) Using the developer's personnel to repeatedly announce that lots are being 
sold when in fact this is not the case or to make false repetitive announcements of 
the same lot being sold. 

(3) Representing a utility service as "available" or some similar representation, 
unless such utility service is installed in the subdivision and ready for use, or use 
is assured under financial arrangements made for Installation, and such arrangements 
are disclosed. 

R 338.3254. Deception; access to subdivisions. 

Rule 54. (1) Representing or implying that a subdivision is restricted to owners, 
purchasers or their families by means of guards or private roads or facilities, the 
use and enjoyinent of which require special identification, unless this Is true. 



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;2) Representing that d prospective purchaser has to pay a refundable or 
non- refundable temporary nembership fee In order to visit, tour, or Inspect a 
subdivision for the reasons that such Is restricted to members only when In 
fact such offer is made systematically and on a regular basis to all persons 
solicited for purchase. 

R 33C.3255. Deception; visits and free goods and services. 

Rule 55. (1) Fallinq to reveal In ar offer to induce a person to visit, inspect, 
or t&ur a Subdivision all terms, cond1t<ons or prerequisites that have to be met 
by any person. 

{2) Offering or representing that goods or services are "free" without 
clearly or conspicuously disclosing In Immediate conjunction with the offer or 
represpf.tatlon all terms, conditions, or prerequisites to the receipt, retention, 
or use of the goods or services. 

R 338.3P56. Deception; price, value and credit. 

Rul#» 56. (1) Representing or Implying that a prospective purchaser has to 
act quickly to purchase land at a savings since the price thereof Is about to 
increase unless In fact a decision has been made to Increase the price and that the 
increase does take effect. 

(2) Representing that the price of land to a prospective purchaser Is a 
discount or reduction from a regular price unless In fact the represented 
regular price was tne customary and regularly sold-at price for a reasonable 
prior period of time. 

(3) Representing or suggesting that the p«>ice of land Is a savings wh^n compared 
to other prices sold at by conpet1tr»rs of tr.fi developer unless such other land 

with f^€ higher price has the same cH^racteristlcs, attributes and qualities of 
the offered or advertised land ino ; en compared-to prices are not fictitious. 
Lxamp'.e: "Lake front lots this weoi S5,000. Compare at $8,000." 



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(4) Failing to reveal the cost of the land to the developer where it is 
represented the purchaser is making an investment, which will increase in value 
due to the sole efforts of the developer. 

(5) Representing that a purchaser is making an investment in real estate 
which will increase in value as the result of the effort of the developer unless 
this is true. 

(6) Offering or representing that credit availability is easy when in fact it 
is not. 

(7) Offering or representing that credit terms are easy when in fact they 
are not. 

(8) Misrepresenting or causing others to misrepresent the interest rate or 
finance charge as other than it actually is. 

R 338.3257. Deception; repurchases, refunds, consideration for referrals. 

Rule 57. (1) Representing to a purchaser or prospective purchaser that the 
developer will buy back, resell, list, or otherwise dispose of purchased property 
unless, in fact, this is true. 

(2) Representing or inducing a purchaser or prospective purchaser to buy land 
or execute a contract, agreement, option for a consideration, or other evidence 
of indebtedness on the basis that if the purchaser is not satisfied a refund will 
be made, unless this is true. 

(3) Representing or promising a commission, bonus, discount, reward, over-ride, 
or prize for referring other purchasers to the developer, where such promise or 
representation Is similarly made to those referred. 

R 338.3258. Deception; promotion schemes, documents. 

Rule 58. (1) Representing that a developer, salesman, agent, servant, employee, 
or other acting on behalf of a developer is conducting a survey, contest, poll, 
or other similar inquiry, when in fact it is a systematic marketing approach in an 



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effort to sell property. 

(2) Representing to a prospective purchaser that he or she is specially selected, 
when in fact they are not. 

(3) Obtaining a prospective purchaser's signature to a contract, agreement, 
option, or other evidence of indebtedness by representing it is only a reservation, 
receipt, or temporary membersnip certificate. 

(4) Failing to clearly and conspicuously inform a purchaser that a contract, 
promissory note, or other evidence of indebtedness could be assigned. 

R 338.3259. Deception; miscellaneous. 

Rule 59. (1) Misrepresenting the necessity, desirability, or advantage to a 
prospective purchaser of dealing with a developer, by misrepresenting a developer's 
alleged advantages of size. 

(2) Offering or representing to sell or lease lots, units, parcels, or interests 
in land which in truth the developer does not intend or want to sell or lease. 

(3) Knowingly making a statement or illustration which creates a false impression 
of the kind, quality, nature, and value of the land offered when later, the purchaser 
may be routinely switched from the advertised land to other land. 

(1) Failing to clearly and conspicuously disclose the use to which contiguous 
lar.d has boon ;)Uc whore tne disclosure is material to the use of the lot or subdivision 
ir: I .rhi v,f rr-L Dositive representations made. 

(5) Engaging in any other method, act, or practice which has the capacity or 
tendency to deceive. 



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PART 5. ADVERTISING AND SALES PROMOTIONS 

R 338.3261. Effect of standards. 

Rule 61. Precise rules to determine that material Is misleadinq, or that 
a pl*n of nele or development lacks adequate safequards and assurances to 
prospective purchasers, cannot be made which will be applicable in all situations. 
Without an intent to l^mit its consideration or determination to the general 
standards set forth in these rules and without an attempt to compel any particular 
form or method of advertising, promotion, development, or sale of subdivided 
lands, the standards in rules 62 to 70 are guides for a person preparing to 
file advertising material and for department personnel. These standards are not 
considered to be all-inclusive for the department in evaluating advertising 
to determine whether it is false, deceptive, or misleading and fails to make full 
and fair disclosure within the Intent of the act and these rules. 

R 338.32C2. General standards. 

Rule f;2. (1) Claims and representations contained In advertising shall be 
accurate and provable. 

(2) Advertising shall net misrepresent farts or create misleading impressions. 

(3) Advertising shall not contain a statement which, though true. Implies 
an untruth. 

{Ay Advertising shall not make a derogatory or unfair reference to comnrtitlvo 
developments, subdivisions, or properties. 

[h) Advertising shall not reprint published material unless information 
contained in the reprint is representative, truthful, relevant, and pertinent to 
the property being offered. 

(6) Advertising shall not contain a statement, photograph, or sketch portraying 
the use to which land ran be put unless the land can be put to such use without 
unreasonable cost. 



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(7) Advertising shall not contain an asterisk or any other reference symbol 
as a means of contradicting or substantially changing a previously made statement 
or as a means of obscuring a material fact. 

(8) Advertising shall not use a name or trade style which implies that the 
advertiser is a non-profit research organization or public bureau or group, when 
such is not true. Advertising of such an organization is prohibited when the 
true nature of the plan of sale or ownership is misrepresented or concealed. 

i'j) Maps, plats or representations shall clearly indicate the estimated date 
that development will be completed. If completion dates are over a period of years* 
then a series of shadings, outlines, or coding may be used to indicate estimated 
dates of completion. 

R 338.3263. Distances. 

Rule 63. (1) Where a conmunity is referred to, advertising shall state the 
location of the subdivision and the mileage from the approximate geographical 
center of the subdivision in road miles to the approximate downtown or geographical 
center of the community. 

(?) Where an amenity or improvement is referred to, advertising shall disclose 
with reasonable specificity, the location of such amenity or improvement In 
relation to the size and location of the subdivision. 

(3) Advertising shall not use such terms as "minutes away", "short distance", 
"only miles", "near", and terms of similar import to indicate distance, unless 
the actual distance in road miles is used in conjunction with the terms. 

R 338.3264. Sketches and pictures. 

Rule 64. (1) Advertising shall not contain an artist's sketch to portray 



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a proposed improvement or non-existent scene without an indication that the 
portrayal is an artist's sketch and that the improvement is proposed or the 
scene does not exist. An artist's conception of an existing improvement or 
scene shall be representative and state that the rendering is an artist's 
conception. 

(2) Advertising shall not contain before and after pictures for comparative 
purposes without the analysis of the pictures. 

R 338.3265. Improvements and facilities. 

Rule 65. (1) Advertising of an improvement to a subdivision or any specific 
part thereof which is not completed shall not be made unless it is stated in 
unmistakable terms that the improvement is merely proposed or under construction 
and the estimated date of the promised completion indicated. 

(2) Advertising shall not describe land as a homesite or lot if potable 
water is not available. Advertising shall give reasonable assurance that a 
septic tank will operate or a sewer system is in existence unless facts to the 
contrary are included in each advertisement pertaining to that property. 

(3) Advertising shall not contain a statement, photograph or sketch relating 
to a facility for recreation, sports, or other convenience not presently in 
existence, unless it is stated that the facility is not on the land and the 
distance thereto in miles is given, or that the facility is merely proposed. 

(4) Advertising shall not refer to a governmental facility, wherever located, 
unless money has been budgeted for actual construction of the facility and is 
available to the public authority having the responsibility of construction, or 
an actual disclosure of the existing facts concerning a governmental facility 

is made. 

(5) Advertising shall not refer to a governmental facility under study, unless 
it is fully disclosed that the facility is merely proposed and under study and 



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no reference Is made to the location or route of the facility until such has 
been decided by the responsible public authority. 

R 338.3266. Roads, streets, waterways, and floods. 

Rule 66. (1) Advertising which refers to "roads" and "streets" shall make 
affirmative disclosure as to the nature of the roads and streets, such as paved, 
gravel or dirt. To be described as improved or paved, a road and a street shall 
be constructed and surfaced according to county, city, or other acceptable 
authority specifications, or satisfactory guarantees made for such construction 
and surfacing. 

(2) Advertising shall not refer to property as waterfront unless the property 
being offered actually fronts on a canal or other body of water. 

(3) Advertising which uses the term "canal" shall disclose the approximate width 
and approximate depth of water in the canal and whether or not it provides access 

to open water. 

(4) Advertising shall disclose if the land or any part of it is regularly 
flooded or substantially covered by standing water for extended periods of time 
during the year, unless adequate drainage is assured by bonding or other means 
acceptable to the department. 

R 338.3267. Access and easements. 

Rule 67. (1) Advertising of land which does not have available legal access 
to the purchaser shall disclose that fact and its effect. 

(2) Advertising which refers to legal access shall be accompanied by phraseology 
to indicate whether the access is usable as a passage for conventional automobiles. 

(3) Advertising shall not refer to the exis.ence of a road easement or a 
road right-of-way unless the easement or right-of-way has been dedicated to the 
public or to appropriate property owners and recorded in the public records of 
the county where the property is located. 



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(4) Advertising which indicates the size of the tract offered shall 
indicate the size and kind of all easements to which the property may be subject. 
If the property is subject to easements which are unusual in size, this fact 
shall also be noted. Maps, plats, representations, or drawings shall indicate 
the dimensions of the tract and all easements. 

R 338.3268. Consideration, prices and values. 

Rule 68. (1) Land shall not be advertised as "free" if the prospective 
purchaser is required to give any consideration therefor. Land shall not be 
advertised for "closing costs only" when these costs are substantially more 
than normal, or when additional land has to be purchased at a higher price or to 
render the land usable. 

(2) Advertising which refers to a property exchange privilege shall state 
clearly any qualification concerning the exchange privilege. 

(3) Advertising shall not refer to a pre-development sale at a lower price 
because the land has not yet been developed unless there is a plan of development, 
and a subdivision plat has been recorded, or reasonable assurance is available 
that the plan will be completed. 

(4) Advertising shall not indicate a discount on property that appears to 
effect a price reduction from the advertised price. A discount may be given 
for quantity purchases, cash, larger payments, or for any reasonable basis. The 
purpose of this standard is to eliminate the use of fictitious pricing and 
illusory discounts. 

(5) Advertising shall not contain false statements concerning future price 
increases by the subdivider. 



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(6) Advertising shall not make predictions of specific or inmediate price or 
value increases of lots, parcels, or units of advertised lands when the subdivider 
does not have control over such price increases. 

(7) Advertising shall not compare land values unless it is clear who is 
making the comparison and it is relevant and fair. 

R 338.3269. Taxes and assessments. 

Rule 69. (1) Advertising containing statements regarding taxes and the 
amounts thereof shall employ the latest available figures. 

(2) Advertising referring to the purchase price of land shall also Include 
any additional compulsory assessment or cost to the prospective purchaser, that 
are known, or should have reasonably been known, at the time of disposition. 

(3) Advertising referring to a promised improvement for which a prospective 
purchaser will be assessed shall disclose that fact. 

R 338.3270. Miscellaneous standards. 

Rule 70. (1) Advertising shall not represent that the land offered for 
sale may be subdivided or resubdivided unless it includes necessary and relevant 
information regarding the estimated cost of future subdividing. 

(2) Advertising shall not infer or imply that the subdivider will resell 
or repurchase the land being offered at some future time unless the subdivider 
has agreed with the department to resell or repurchase land for or on behalf of 
purchasers and has given reasonable assurances to the department to demonstrate 
his ability to perform this agreement. 

(3) Advertising which refers to oil. gas, or mineral rights shall disclose 
all pertinent facts pertaining to such rights. 

(4) Advertising which refers to gifts, bene'us, or vacation certificates 
shall disclose the terms and conditions of offers therein iQ conspicuous print. 

(5) Advertising may contain the unqualified term "development" only to 



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de<icribe « subdivision, the plat o^ which has been rocordcd. 

(6) Advertising shall not contain the tenns "guarantee or guaranteed refund" 
unless the refund is unconditional. 

(7) A newsletter giving information as to a place, facility or nyent more than 
10 miles distant fron land involved, or make a prediction applicable to an area 
greater than the land involved^ as for instance, fijturo population of an entire 
state, shall carry a disclaimer as follows: 

"Information contained In this newsletter is general to 
(name of state). Property for sale by (development company) may not 
be affected at any foreseeable time by any pldcj, facility, event, 
or prediction described." 

(8) Advertising which forecasts a future event or population trend shall 
be by a qualified person and pertinent to the offering. 

R 338.3?81. Visitation programs; general disclosures. 

Rule HI. (1) The terms, conditions, and prerequisites to use and enjoyment 
of a visitation program shall be disclosed in promotional natcrial, advertising, 
and on any certificate. This includes, but Is not limited to, the developer's 
participation in the program, the nature of any gift or other benefit, including, 
but not limited to, what the prospect will actually receive, when he will receive 
it, the obligation he is under, if any, and the fact, if t»-L'e, that the participant 
is to pay his own transportation, food, lodging, or other fMcidental 'jxperses, and 
all ctf-er conditions or linitations placed op tl'c r.ift or benefit. 

(2) Material for a visUation program, wh.>''(r written, television script or 
radio prescrtatlon, s^.all disclose, in immcdiu'.r conjunction with the offer of 
a visit to land, the expenses of whic ./ill be paid in wholn or in part by others, 
that a person enjoying the visit will r.r subjected to a sales promotion for land 
•jni'i^jr, ^* ^jch is not trwo, fi"jrr is 3 disclosur** that >* p«»"'>n?» is not o«.l i'],it"d 
rr** rpquirec' as a tenn or corjition of the use and oninyro? t of the visit, to 
p-irticipat*? in, listen to,- or othrrwisi* he subjected to a «^alps promotion for 



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land and such is in fact honored. 

R 33P..378?. Visitation pronrans; specific di<iriosures. 

Rii1t» ?,?. (1) In th*» nrorotion of a visitation plan, the developer or his 
»^prrsentative shall clearly identify themselves. 

(?) The names of certificate companies with whnm the developer has contracted, 
if any, sh^r bo disclosed. 

(3) Promotional material including advertising and certificates shall disclose 
the identity of hotels, motels, places of lodging, transportation companies, 
restaurants, attractions, or other similar establishments which honor, subscribe 
to, or participate in the visitation plan. 

(4) A certificate or other written material evidencing the riqhts of a donee, 
I)€nef1c1ary, or certificate holder shall contain a fixed expiration date for the 
rights. 

R 33a.3?R3. Visitation programs; guarantees. 

Rule ti3. (1) Promotional material for a visitation program. Including 
advertising and certificates, shall disclose the guarantees made by a developer 
to insure a participant's use and enjoyment of a v.isit. 

(2) A program which uses as a part thereof the granting or giving of a 
discount coupon or other similar discount program shall disclose In Iracdiate 
cnnjuricLion ti:ert>wilh the Guarantees that have l>een made to insure the participant's 
use and enjoyment thereof. 

R 338.3284. Visitation programs; procedures. 

Rule P4. (li A visitation program shall b«» "'escribed as part of the 
statement of recorrf or described S'^narately a'. .rrtlsinn material. 

(?) A certificate to be used in a visitation f-rogram shall be submitted to 
the department and shall meet the advertising standards as set forth In this part. 



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(3) The department shall be advised of a material change, including identity 
of the certificate companies, hotels or facilities before institution of the 
material change. 

(4) When a participant in a visitation program is obligated to listen or be 
subjected to a land sales promotion, the developer shall supply, a copy of the 
property report and forms of agreement as provided in the act. 

R 338.3291. Promotional plans; general provisions. 

Rule 91. The department will not enter an order registering a subdivision 
and will consider the general promotional plan false and misleading, and the 
plan of sale or development lacking adequate safequards and assurances, if: 

(a) The fee title holder is not bound by part 6. 

(b) The plat or plan of the subdivision by which lots, tracts, or parcels 
are offered for sale has not been duly recorded in the plat records of the county 
where the lands are located if required by law, and the streets, roads, alleys, 
easements, parks, and other public areas shown thereon have not been dedicated to 
the appropriate private or public authority. Sales maps which are not so recorded 
may be used if they are not designed to deceive or would not tend to deceive 
prospective purchasers, state in conspicuous print that they are maps only and 
not plats, and include additional disclaimers in conspicuous print to prevent 
misleading purchasers. 

(c) The contract or agreement given to a prospective purchaser by the 
developer upon payment of the first money by the prospective purchaser is not 
sufficient in fonn to immediately vest an interest in the land in him and to 
afford notice to all persons of his interest by recordation thereof. 

(d) The developer does not provide adequate safeguards, approved by the 
department, reasonably assuring contract purchasers who have complete refund 
privileges for more than 30 days, that if the refund privileges are exercised 
the developer will be in a position to refund in accordance with his agreement. 



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R. 338.3292. Promotional plans; encumbrances on land and contracts 

Rule 92. The department will not enter an order registering a subdivision 
and will consider the general pronotinnal nlan false and misleading and the 
plan of sale or development lacking adequate safeguards and assurances, if: 

(a) Title to the subdivision is so encumbered that the lands to be offered 
cannot be used for any purpose expressly or impliedly represented in the plan nf 
sale and advertising without the removal of the encumbrance, unless adequate 
safeguards are c*;tablished to reasonably assure the encumbrance will be removed 
before the time the subdivider promises to deliver the interest contracted for 

(b) The developer allows a mortgage, lien, or encumbrance to be placed 
and remain on the subdivision, or a part thereof, other than specific lots upon 
which improvements are constructed, and other than those in existence at the 
time of registration of the subdivision, without notifying the department and 
furnishing adequate safeguards reasonably assuring each purchaser that upon 
payment of the purchase price provided in the sales agreement, title to the 
property v;ill br delivered with all promised improvements as contracted. The 
$;«fegnards shall be subjt-rt to review and approval by the departjnent at its 
discretion. 

(r) The f.v;ner transfers, assigns, selH, pledges, or oives as collateral 
^ecui^ity, '.lies contracts on a subdivisinn without notice and snlimi^^ion to 
the departmrnf of evidence of adequate safeguards to reasonably assure that each 
contract purchaser, upon paymont of the purchase price provided in the sa^cs 
agreement, wtll recievo tMf» tit.lr. to the lands as promised and improvements, if 
any. The safeguards shall be s-nject tr, •••vie-.v and approval by the department a. 
its discretion. 

R 33n.3?<<fj. Promotional plans; "roup nieetinr- 

Rule 9b. (1) If an advertisinn or promotional plan inrluc*ji promotional 



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group meetings, the standards In thi«; rulo shall hr iis<»d as ? nuld" hy tho 
director In determining whether or not the nature and rnaoner o^ conduct inn the 
•neetings ^rp such as to fully disclose all si(jnific<!nt facts c^ncrrrinn the 
subdivision. 

(2) The department shall be notified in writing of the meeting not less than 
15 days before its date. Notice shall consist of the date, hour and place of 
♦^he meeting and the nawes of the developer and real estate hroker involved. 

(3) The meeting shall be conducted in a place open to department personnel 
fo*" inspection and monitoring. 

(4) Department personnel as authorized by the director shall have free 
access to the meeting and sales presentations. 

(5) The advertising in the meeting is subject to the standards of advertising 
contained in these rules. 

(6) A false or dunwny buyer shall not be used to initiate sales or buying climate 
or for any other purpose, nor shall it be indicated that lots, pat^cels, units or 
interests have been sold, when in fact, they have not ^>€en sold. 

(7) An oi^al statement to a prospective purchaser at t>e "'eetine shall he 
completely consistent with written material approved by the departrert. 

(8) A prospective purchaser who expresses a desire or intent to leave the 
meeting at any time during o*' after the meeting may not in any manner be impeded 
from departing, pressured to remain, or denied any benefit promised in exchange 
for attending the meeting, including any transportation. 

R 338.3301. Inferences; effect. 

Rule 101. An inference reasonably to be drawn from advertising or promotional 
n^aterial v/ill be considered to be a positive assertion unless the inference is 
negated therein in clear and unrist •• ^^I'le terr*. )r urHess adequate safeguards 
have been provided by the drveloper to reasonably guarantee existence of th« 
thing inferred. Advertising and pror.otional material v/ill be judged on the tasis 



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of the positive representation contained therein and the reasonable Inferences 
to be drawn therefrom. Unless the contrary affirmatively appears In advertising 
or promotional material, the Inferences set forth In rules 102 to 104 Mill be 
assumed to have been intended. 

R 338.3302. Inferences; homes Ites and building lots. 

Rule 102. When homesltes or building lots are advertised without qualification 
the Inferences are that: 

(a) The lots are usable for such purpose without any further Improvement 
or development by the prospective purchaser. 

(b) There is an adequate potable water supply available. 

(c) The lands have been approved for Installation of septic tanks or 
that an adequate sewage disposal system Is Installed. 

(d) No further major draining, filling, or sub-surface Improvement Is 
necessary to construct dwellings, eicept for reasonable preparation for construction. 

(e) The Individual homesltes or building lots are accessible by automobile 
without additional expense to the purchaser over an existing rlght-of-wi^f. 

(f) No other fact or circumstance exists to prohibit use of the lots 
as homesltes or building lots. 

R 338.3303. Inferences; other lands. 

Rule 103. When lands are advertised without qualification as usable for a 
particular purpose other than homesltes or building lots, the inference Is that the 
land is immediately accessible and usable for such purpose by purchasers without 
the necessity for draining, filling, or other improvement before putting the lands 
to use for such purpose, except for reasonable preparation for construction, and 
that no fact or circumstance exists to prohibit use of the lands for such purposes. 

R 338.3304. Inferences; miscellaneous. 

Rule 104. (1) When title insurance, abstract, or attorney's opinion Is 



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advertised, the Inference Is that the seller can and will convey fee simple title 
free and clear of all liens, encumbrances, and defects except those which are 
disclosed in writing to the prospective purchaser before purchase. 

(2) When a recreational facility, improvement, accommodation, or privilege 
is advertised, the Inference is that it is on the land at the present time and 
available to the purchasers of lots at no additional expense, unless otherwise 
specified. 

(3) When an Improvement is advertised, the Inference is that It is completed, 
unless It is advertised as proposed, and sufficient guarantees have been made 
for its completion. 

R 338.3307. Presumptions. 

Rule 107. It will be presumed by the director that: 

(a) Advertising filed for approval will be that used to offer for sale 
or to Induce persons to acquire an Interest in the title to all lands which are 
described in or referred to in the material or supporting data filed with the 
department until changes in advertising for this purpose are submitted to and approved 
by the department. 

(b) Advertising published, disseminated or broadcast by or in behalf of 
an owner or entity owning more than 1 subdivision Is being used to offer lands 

in all subdivisions registered by that owner or entity unless an express limitation 
is made by that owner or entity to the department or by the department. 

(c) Advertising published or disseminated by or on behalf of a sales 
agent is being used to offer lands in all subdivisions for which the person is 
a sales agent unless an express limitation is made to or by the department. 

R 338.3311. Letters of transmittal. 

Rule 111. Each submission of advertising to the department, either as part 



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of « Statement of record or as a subsequent suNnlsslon. shall be acca«ipan1#d by 
a letter of transmittal which given a brief, written description of each 
advertisement to assure that all future correspondence and orders conceminq it 
win clei»ny identify it. The letter of transmittal shall be signed by the 
developer or his authorized representative and shall verify that the statements 
naiie and the representations contained therein have been reviewed and the 
advertisement is truthful and correct to the best of his knowledge and belief 
with regard to thp statement*^ contained therein. 

R 338.3312. Identification of material. 

Rule 112. (1) Advertising submitted to the department, either with the 
original statement of record or by sub«;equent filing, shall be assigned a 
numlier «;o thp department or the applicant may refer by the number to a specific 
piece of advertising. Advertising relating to more than 1 subdivision owned 
by different persons but being sold through a common sales agent shall foe 
assigned a designated number. However, this designation does not permit filings 
relating to separate subdivisions or parts of subdivisions without payment of 
the appropriate fee for each parcel, tract, or subdivision to which It relates. 

(2) The developer shall print on advertising material approved for use, the 
numl)er assigned by the department to that specific piece of material. 

R 33a. 331 3. Material with statements of record. 

Rule 113. (1) advertising material submitted with a statement of record 
shall J)e considered in accordance with part 3. 

(2) Advertising material not suhnitted with a statement of record shall be 
siibnitteri to thp departnrnt frr ipproval befr.ro Us use in this state. This 
advertising will hp approved or rejected by ♦.•'. d»fpartment within 15 days after 
Us recp^pt. Where ar order rf rojection is »iot entered within that time, t»ie 
advertising will ht^ deemed approved unless the applicant has consented in writing 



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to a d^'lay. If an aRiendment to th#» Application for approval of advert U1 no <s 
filed before the time when the land Is registered, the application shaM he 
considered filed vihen the amendment was filed, unl#*ss an anendnent Is filed 
with the consent of the department or pursuant to Its order. In such rase, the 
application shall be treate<J as filed on the date of filing the original 
application. 

P. 338.3314. Oeterml nations and rejections. 

Rule 114. In reviewing any advertising submitted by an applicant, the 
department shall determine whether It makes a full and fair disclosure or Is false 
and misleading within the Intent and meaning of the art and these rules, by 
examining the form, language, and content of the advcrtislno and supporting 
data and any other available Information to ascertain wliethcr the express and 
Implied representations therein are true and make a full and fair disclosure. 
If It appears that the representatlftns are not true and do not make a full and 
fair disclosure as to all subdivided lands to which the filing relates, the 
department will enter an order of rejection or take such other action as It 
rc>"sider< neces*.3ry. 

R 338.3317. Out of state advertising. 

Rule 117. When advertising approved by the department is disapproved In 
another st?te or jurisdiction, the advertising may he channcd to meet the 
requirements of that state or jurisdiction without prior approval by the 
department if: 

(a) The department 1$ inwediAtcl" rotlfled of the change. 

(b) A copy of the advenlslr.o .- s 'tanged Is filed with the department 
w< thill "10 days. 

(c) A copy of correspondence from the oti'er state or ju'-lsdictlon 
requiring the change is filed with Ve department within ^^ days. 

(d) The changed advertising <s rsed only in the state or jurisdiction where 
the change v^as required. 



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PART 6. »t£ANS TO ASSDRC RECEIPT OF COMTRACTUAL INTERESTS 

R 338.3321. Subordination of blanket encumbrance liens. 

Rule 121. A blanket encunbrance shall evidence subordination of Its lien to 
the rights of persons purchasino from the developer and that the developer is 
able to secure releases frori the blanket encunbrance with respect to the property. 
The provisions shall be acceptable to the department. For purposes of this 
rule, subordination of the lien is satisfied by a release clause Mhlch by Its 
terms unconditionally provides for the releasf^ of contiguous and non-contiguous 
s<>parate lots, units, or parcels being offered to purchasers, so th«t the purcha^#»r 
or Ipsspp of a lot, unit, nr parcel shall obtain legal title or other Interest 
contracted for» frpr- ard clear of the blanket pncumbrance upr»n conpl lance 
with tenns and ronditions of the purchase or lease from the developer. 

R 338.3324. Trust and esrrow accounts. 

Rnl#» 124. If f^^n pnnBThpri nrj instrumrnt does not contain adiHfuate r^lMse 
clausc<i, the lien, mortgage, or other cnciinbrance shall be considered obJecflooahlA 
upIpss adequate reserves are maintained in a trust or escrow account. In 
determining adequacy of the account, the department will be guided by the 
farts and rircumstanr.es of each individual case, but the account shall comply 
with the following: 

(a) Funds «:hal1 be kept and maintained in an account separate and apart 
from the owner's personal ^unds. 

(b) The acrount shall ^^ establis'.oJ in a bank or trust cnnpany doing 
lu«;ine*,s in this state, or another state wtic-re the account is required to be 
maintained there by the laws of that state arKi approved by the department. 

(r) Monthly statements shall be furnished to the department for a new 
acrount for the first t months, and in the '!' rartment's discretion, quarterly 
or semi-annually thereaftnr. 



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(d) The trust or escrow agreement «ha11 state that Us purpose Is to 
protect the purchaser or prospective purchaser In case of default on a lien, 
?rortgage, or other encunbrance. and shall authorl7e the dcpsrtnent to Inr.peft 

the records of the trustee relating thereto, and that upon order of the department 
or a court, the trustee shall release and pay over the funds to the department 
or a purchaser^ or the holder of the blanket encumbrance. 

(e) The department, by Its director, shall execute an acknoMledgrent on 
the face of each agreement. This acknowledgment Indicates approval of the form and 
content of the agreement, but shall not be construed to make the department a 
party thereto. 

P 338.3327. Instruments of sale. 

Rule 127. An Instrument evidencing sale or disposition of an Interest In a 
subdivision shall be executed In a recordable form In accordance with the laws 
of the state where the land Is located. An applicant has the burden of an 
affirmative showing of this compliance. 



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PART 7. MEANS TO ASSURE COMPLETION OF IMPROVEMENTS 

R 338.3331. Improvements for public use, convenience or necessity. 

Rule 131. A subdivision or a part thereof on which construction of a promised 
improvement for public use, convenience, or necessity has not been completed, 
shall not be registered for disposition. However, an incompleted improvement 
does not constitute an objection if completion of the improvement is assured by 
substantial completion, an irrevocable bank letter of credit, bond, or similar 
undertaking posted with a public authority and acceptable to the department, or 
by adequate reserves established and maintained in a trust or escrow account. 
In determining adequacy of the account, the department will be guided by the 
facts and circumstances of each individual case, but the account shall comply 
with the following: 

(a) Funds shall be kept and maintained In an account separate and apart 
from the owner's personal funds. 

(b) The account shall be established in a bank or trust company doing 
business in this state, or another state where the account is required to be 
maintained there by the laws of that state and approved by the department. 

(c) Monthly statements shall be furnished to the department for a new 
account for the first 6 months and in the department's discretion, quarterly 
or semi-annually thereafter. 

(d) The trust or escrow agreement shall state that its purpose Is to 
protect the purchaser or prospective purchaser in case the owner falls to 
complete construction of promised improvements or to satisfy any obligations 
or liens encumbering the purchaser's title by reason of the construction, and 
shall authorize the department, to inspect the records of the trustee relating 
thereto. 



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(e) The department, by its director, shall execute an acknowledgment 
on the face of each agreement. This acknowledgnent indicates approval of the 
form and content of the agreement, but shall not be construed to make the depart- 
ment a party thereto. 

R 338.3332. Improvements not for public convenience, use or necessity. 

Rule 132. A subdivision or a part thereof on which construction of a promised 
Improvement not for public use, convenience or necessity has not been completed, 
shall not be registered for disposition to the public. However, the Incompleted 
Improvement shall not constitute an objection if completion Is assured by: 

(a) An adequate plan of development, including financial resources 
cownitted to carry out the plan as provided in rule 135, which plan is subject 
to the department's continuing review and approval. 

(b) In case of failure of a developer to establish an adequate plan or 
to adhere to the plan once established, the department may require establishment 
of a trust or escrow account. 

R 338.3335. Financial security. 

Rule 135. (1) The department may accept surety bonds, escrow accounts, 
irrevocable bank letters of credit, or any other financial security which it 
considers adequate In assuring a plan of development has adequate safeguards and 
assurances. In determining the security required, the department shall examine 
the status of Improvements, the over-all cost of Improvements, the terms of 
purchasers' contracts, the financial condition of the subdivider, and such other 
data as it considers necessary. The department shall consider whatever financial 
security has been posted with other governmental authorities in making its 
determination. 

(2) A surety bond will not be approved by the department unless it is on the 
form provided by the department. 



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PART 8. TAXES AND ASSESSHENTS 

R 338.3341. Developers' duties. 

Rule 141. (1) In « transaction for the sale of land under the act in Mhlch 
taxes are to be paid by either party, a developer shall: 

(a) Certify that there are no taxes, other than current taxes, owing 
on the property Involved at the date of filing the statement of record, a 
consolidated statement of record, or an amendment to either. 

(b) Provide a form of escrow accounting satisfactory to the department 
In accord with (2) If part of the purchasers' funds paid In or payable 1^ the 
terms of the Instrument disposing of the land Is to be used for payment of taxes. 

(2) In order that a purchaser will receive the Interest In lands contracted 
for, If the developer apportions real property taxes prospectively and requires a 
purchaser to pay such taxes In a lump sum or on a periodic basis, the developer 
shall place In the escrow account 100X of the payments, with which to pay taxes 
when due. 

R 338.3345. Purchasers' responsibilities. 

Rule 145. (1) A purchaser Is not responsible for payment of taxes or assess- 
ments levied before the effective date of his agreement with the developer or his 
agent, unless such taxes are prospective In nature. If so. they maty be prorated 
and the Instruments evidencing the sale or disposition of an Interest in a 
subdivision shall so state. 

(2) A purchaser shall not be assessed a service or collection fee or be required 
to pay a consideration for the assessment or allocation of taxes on the land involved 
In the transaction. In excess of that charged by a unit of government. 



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PART 15. OECIARATORY RULINGS. INVESTIGATIONS. AND HEARINGS 

R 338.3451. OecUratory rulings. 

Rule 251. (1) Th€ department, on request of an interested person, way issi": 
a declaratory ruling as to the applicability to an dctual statement of facts of 
the act or a rule herein when he subnits to the department the following: 

(a) A clear and concise statement of the actual statement of facts. 

(b) If the interested person desires, a brief or other reference to 
legal authorities upon which he relies for determination of the applicability of 
the act or a rule to the statement of facts. 

(2) The department. If It determines It will Issue a declaratory ruling, 
shall furnish the person with a statement to that effect and set forth the time 
In which the department will Issue the ruling. 

(3) A ruling shall repeat the actual statement of facts, the legal authority 
on which the department relies for Its ruling, if any, and the ruling It makes. 
A ruling once Issued Is binding on the department and the department may not 
retroactively change the ruling, but nothing In this rule shall prohibit the 
department from prospectively changing a ruling. 

R 338.3455. Officers to administer oaths and affirmations. 

Rule 255. The following officers of the department are designated to administer 
oaths and affirmations du-lnrj any investigation or proccf'lir.n undor the act: 

(a) Director of the department. 

(b) Director, land sales division. 

(c) Assistant director, land «:ilos division. 

(d) Chief investigator, land s •i*>s division. 

(e) Presiding officer of a hca^i .n. 



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R 338.3456. Officers to Issue subpoenas and Institute discovery. 

Rule 256. (1) The following officers of the department are designated to 
subpoena witnesses. Issue subpoenas duces tecum, and Institute discovery 
proceedings. In accordance with Michigan general court rules In any investigation 
or proceeding under the act: 

(a) Director of the department. 

(b) Director, land sales division. 

(c) Assistant director, land sales division. 

(2) Nothing In this rule shall be construed to abrogate the authority of a 
presiding officer prescribed in the administrative procedures act of 1969, as aaended 

R 338.3461. Rejections by department. 

Rule 261. (1) The department may reject an application for advertising 
approval or a statement of record, including a property report, for a subdivision 
if the developer fails to comply with the act or these rules or the departiMnt's 
requirements thereunder. Before entering an order of rejection, the departnent 
shall notify the developer by certified mall of its decision In a notice of 
intent to reject for deficiencies. This notice shall toll the running of the 
60 day period if the developer shall undertake to correct the deficiencies. 

(2) The final decision shall be by further order. 

(3) An order of rejection shall automatically be entered after 15 days follOMing 
the date of mailing of the notice of Intent to reject unless the developer 
corrects the deficiencies to the department's satisfaction within that time or the 
department extends the time to correct to a day certain. 

R 338.3463. Hearings; notices and conduct. 

Rule 263. (1) Parties shall be notified of a hearing by certified mall at 
their last known address, which shall be sent not less than 20 days kefore the 



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date of the hearing. 

(2) A hearing shall be open to the public and shall be conducted In accordance 
with the adnlnl strati ve procedures act of 1969, being act 306 of the Public 

Acts of 1969, as anended, and sections 24.201 to 24.315 nf the Michigan Compiled 
Laws, 

(3) A hearing shall be conducted by a presiding officer who shall be 
appointed by the director of the land sales division of the dppartment. The 
decision of such director shall be the final decision. 

R 338.3464. Hearings; appearances, pleadings. 

Rule 264. (1) A party may appear at a hearing In person or by a duly 
authorized representetlve or attorney. 

(2) If a party falls to appear after proper service of notice, the 
director of the land sales division, if no adjournment is granted, may proceed 
with the hearing and make his decision In the absence of such parties. 

(3) An adjournment or continuance may be granted by the director of the 
land sales division or the person he designate*; for good cause shown by a party 
to the hearing or on his own motion or after stipulation and agreement betwpen 
all parties, but a request for adjournment shall be made In writing not less than 
5 days before the date set for the hearing. 

(4) A party may file a written answer to charges or claims made or may 
present an oral statement at the time of the hearing. Cople?; nf written pleadings 
and briefs shall be served on the director of the land salef 'vision and all 
other parties not less than 5 days before the date set for t e tearing. 

R 338,346S. Hearings; evidence. 

Rule 265. (1) Testimony shall be under oath or affirmation. 

(2) A deposition shall be taken only on order of the director of the land 
sales division upon a showing that it Is Impracticable or Impossible to obtain 



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necessary evidence otherwise. It shall be Uken In accordance wttli prmrltlMt 
for Uking depositions In civil cases, as set forth In the N1chl9Mi gtncrtl 
court rules or other applicable court rules. 

R 338.3466. Decisions, orders, and rehearlngs. 

Rule 266. (1) Ulthln a reasonable tine aft^r conpUtlon of • hMrlng, 
the director of the land sales division shall send by certlfltd Mil to ttm 
last known address of the parties the decision and orders uhlch shall Inclndt 
findings of fact and conclusions of law. 

(2) A rehearing nay be granted by said director upon appllcotlofi In wrltliig 
by » party to the hearing or upon his own notion in accordaiico with tilt 
adnini strati ve procedures act of 1969. as wended. A rehearing shall be 
noticed and conducted In the sane nanner as an original heerlng. 



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Mr. Gonzalez. We have Herman J. Smith, vice president of the 
National Association of Home Builders; David D. Roberts, the vice 
chairman of the legislative committee of the National Association of 
Realtors, who is accompanied by our good friend Albert Abrahams, 
who is a vice president for governmental affairs; and we have 
J. B. Belin, Jr., president of the American Land Development 
Association. 

Grentlemen, we are confronted with a factor here on the continued 
use of this hearing room. We will have access to it for about an hour, 
and then we will have to vacate it. 

We are very grateful, because each of you has perfected a very fine 
written statement. We are goin^ to suggest that, for the time that 
we conduct this as a panel, and if you would be kind enough to sum- 
marize your statements to help keep us within the period allotted to 
use this room, and of course to have a chance to ask questions, I would 
be very grateful. 

Perhaps we could start with Mr. Belin. 

STATEHEirr OF J. B. BEUH, JB., PBESIDENT, CHAIBHAN OF THE 
BOABD, AHEBICAH LAND DEVELOPHEHT ASSOCIATION; ACCOH- 
PANIED BT OABT A. TEBBT, EXECUTIVE VICE PBESIDENT, WH- 
TJAM B. INOEBSOIL, OENESAL COTTNSEL, AND OEOBOE 0. POTTS, 
DIBECTOB OF PTTBUC AFFAIBS 

Mr. Beun. Thank you, Mr. Chairman. 

Mr. Chairman and members of the subcommittee, my name is Bruce 
Belin. I am president and owner of Belin & Associates of Houston, 
Tex., a real estate development company currently developing five 
recreational, resort, and residential projects in Texas, including the 
award-winning April Sound near Houston. I am presently serving 
as president and chairman of the board of the American Land Devel- 
opment Association. 

Accompanying me today are Gary A. Terry, our association's exec- 
utive vice president; William B. In^rsoll, general counsel; and 
Greorge G. Potts, director of public aflPairs. Our association represents 
leading national and international companies which develop recrea- 
tional, resort, and residential real estate. 

In the interest of time, Mr. Chairman, I will not read our printed 
statement in its entirety, but I do request that the complete text and 
exhibits be included in the hearing record. 

It. is not our intention to hamper OILSR's efforts to help buyers 
inform themselves and to protect themselves from the irresponsible 
element which exists in real estate as, unfortunately, in every other 
business. But we do not believe such protection has to be at the expense 
of the honest, responsible developers who predominate in our in- 
dustry. We therefore are compelled to speak out against what we 
consider are perhaps well intended, but nevertheless overly restrictive 
attempts to legislate even more regulation of our industry. 

H.R. 12574, introduced originally as H.R. 10999, would amend the 
act substantially, adding more regulation. In our opinion, this bill 
would do considerable harm to developers — indeed, perhaps forcing 
many of them out of business altogether — while not producing the 
desired result of greater buyer protection. 



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One of the major provisions of the bill would ^ve all purchasers 
and lessees an "unconditional 30-day rescission penod" from the date 
of the consummation of the sales transaction. 

Apparently, the purpose of this provision is to allow a buyer a 
period to reflect objectively on the correctness of his purchase. How- 
ever, we stron^lv feel that the present 72-hour, 3-business-day re- 
quirement provides adequate and reasonable protection to any pur- 
chasers who might have acted on impulse. 

While a number of States have rescission periods exceeding the 
present 3-day Federal requirement — for example. New Jersey is 7 
days. New York is 10 days, California is 14 days — many of our 
member companies operating in those States maintain that such 
lengthy rescission periods do little more than encourage purchaser 
irresponsibility and permit overzealous sales persons to close sales by 
reminding the customer that he has "nothing to lose, since you can 
easily cancel this transaction if you change your mind." 

We must reflect that, in no other type of "arm's length" real estate 
transaction is there such a rescission period; and it seems grossly 
unfair to single out one particular industry for such treatment, par- 
ticularly when it goes beyond what would be necessary for adequate 
buyer protection. 

However, the automatic 30-day rescission period pales when <me 
considers the proposal for a 3-year period of revocation for the buyer 
given under certain specified conditions. The effect would be that the 
buyer has a 3-year "option," but the developer would be contractually 
bound. And if at any time during that period the buyer changes hfc 
mind for any reason — for example, he later decides he would rather 
have a new boat or a car — ^the developer must cancel the contract and 
give a full refund. It seems obvious, Mr. Chairman, that no business 
could operate under these conditions. 

In short, ALDA believes such provisions allowing for 30-day and 
3-year rescission periods are unreasonable, unnecessary, and would 
place an unconscionable burden upon the developer. 

Another provision of the proposed bill would mandate that tiie 
"statement of record" contain copies of all advertising used by the 
developer, giving HUD specific statutory authority to regulate 
advertising. 

Any such regulation of advertising which requires prior submission 
or approval from OILSR would t^ a bureaucratic nightmare, and 
would cripple the developer's ability to make timely changes to take 
advantage of market nuances. 

OILSR already has advertising guidelines as part of its land sales 
regulations which serve to put the developer on notice as to what is 
expected in advertising. 

The final provision of H.R. 12574 upon which I would like to com- 
ment is that dealing with the escrowing of moneys for so-called "basic 
services" promised but jj not completed, and the option granted the 
purchaser to void his contract and receive full refund if these services 
are not delivered. 

The problem these proposals are designed to correct seems obvious. 
Their objective is the right one — to require the developer to perform 
his part of the contract. However, while on the surface this might 
seem to provide significant protection to the purchaser, in reality it 
^Mi be harmful to him. 



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The cost to the developer of placing in escrow moneys of such kr^e 
amounts will have to be borne by the purchaser in the cost of the 
property because, unless the developer is permitted to use such moneys 
to keep the project viable and economically feasible, the project could 
fail. 

Such an economic burden will interfere with the developer's ability 
to perform his contract and complete these very same services. In 
fact, many present developers who already are providing such basic 
services, and more, would be forced out of business. 

There are only a few in our industry who could afford to escrow 
at the beginning of a project the full cost of promised improvements. 
In effect, the developer's entire line of credit with his lenders could 
be tied up just meeting this single requirement. 

Instead, Mr. Chairman, the common law remedy for damages appli- 
cable to failure to complete performance on a timely basis would seem 
to be a more just and reasonable remedy. 

The administration's proposals— section 421, title IV of H.R. 
11265 — also would amend the act substantially, with the apparent 
intent of alleviating some of the problems we have addressed. 

Section 421 (e) of the HUD bill would have the effect of eliminating 
completely the so-called "free and clear of liens" exemption in the 
act. This exemption — which we view as founded in logic and equity — 
was intended by Congress to provide an exemption from regulation 
for developers who have title to the land and sell lots which are free 
and clear of all liens, encumbrances, and adverse claims to buyers who 
inspect personally the offering before purchasing. 

Its repeal would not be in keeping with the purposes of the act 
and the Congress intentions in enacting it. This proposal would serve 
to permit OILSR to expand further its jurisdiction over developers 
never intended to be covered in the first place. 

One of the major provisions of the administration's proposed amend- 
ments would give all purchasers and lessees an imconditional 14-day 
rescission period. Our previously stated objections to lengthened rescis- 
sion periods would apply also to HUD's proposed 14-day period. 

In summary, we feel that both Congressman Minish's bill and the 
HUD proposals amount to added sutetantive regulation of our in- 
dustry. If adopted, they would pile unnecessary burden upon devel- 
opers already struggling to comply with myriad Federal and State 
laws. 

Mr. Chairman, OILSR has regulated segments of the real estate 
development industry which were never intended by Congress to be 
regulated. We would point out also that there have been many changes 
in our industry — especially the recreational part of it. This is simply 
not the same industry that it was in the late sixties and early seventies. 
Reports by public interest groups and the press have tended to focus 
on practices by high volume lot sales companies. Many of these 
companies and most of the objectionable practices are rapidly 
disappearing. 

Mr. Chairman, the act does need to be amended. As you know, the 
Senate has acted to do so in section 71 of S. 3084. Permit me now to 
comment briefly on the major provisions of the Senate-passed 
amendments. 

The sale or lease of condominiimis would be exempted specifically 
from the act. We do not believe Congress intended that condomir' 



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urns — or land on which a condominium is contracted to be built withm 

2 years — should be regulated under this statute, just as land on which is 
located a residential, commercial, or industrial building is exempted. 
Because they are not exempted from the act, OILfSK can ana has 
threatened to assert jurisdiction over condominium developers. 

Mr. AuCoiN [presiding]. Mr. Berlin, I notice you are reading word 
for word from your prepared testimony, and you have four pages 
of your prepared statement left. 

I am concerned only because the other gentlemen — I want to insure 
that they have an equal opportunity to make statements and to still 
allow time for questions. 

So that I would encourage you, if ^ou could, to summarize as best 
you can the highlights of the remaining part of your testinumy. The 
full part of it will be in the record, as you know, and then we can 
get into questions and answers. 

Mr. Belin. All right, sir. 

S. 3084 would provide for an intrastate exemption for the developer 
who sells less than five lots, or 5 percent of his total lots, whichever 
is greater, in one calendar vear, to out-of-state purchasei^ provided 
the developer gives clear title to the property and the buyer makes an 
onsite inspection. 

Sales to purchasers residing within a 100-mile radius — an easy 1-day. 
roundtrip drive — of the property site, again subject to clear title ana 
onsite inspection, would oe exempted, "nxis solves the problem faced 
by the developer operating on the boundary betwe^a several States, 
such as here in the Washington, D.C., area. While he may otherwise be 
exempt from the acts purview, OILSR can and does hold that sudi a 
developer is selling on an "interstate" basis, and is therefore subject 
in Federal regulation. 

Under the Senate measure, a new provision would be added to define 
the term "sale or lease" to mean occurring at the time a contractual 
relationship is created between the developer and the purchaser. In 
its latest proposed revision of the regulations, OILSR served notice 
that it considered the "sale" to continue from the date of the signing 
of the contract by the buyer until the contract is paid in full or a deed 
has been delivered to the buyer, whichever comes later. 

We feel this is a very important provision. As I stated earlier, the 
practical effect of such a definition by OILSR would be to extend the 
statute of limitations by allowing it to run the entire length of the 
contract period, with the concept of a "contmiung sale" and for up to 

3 years bevond the contract. 

Such a definition would impose the "continuing sale" upon the entire 
act, thereby extending the statute of limitations. Our case seiurch 
reveals that the definition in S. 3084 follows the prevailing opinion of 
the courts: 9 out of 11 of the cases we uncovered disagree with the 
agency's concept of a "continuing sale." 

The Senate bill would add new language to the act to clarify the 
terms "liens," "encumbrances" and "adverse claims" so that it is dear 
that they do not refer to U.S. land patents and similar Federal grants 
or reservations common to most land in the Western United States — 
an omission which OILSR has used to defeat claims by developers for 
the "free and clear" exemption under the act. Requests for exemption 
under this section are rarely granted by OILSR. 



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Finally, because of oontenticms that the amendments would not cmly 
exempt developers — ^under certain circumstances — ^from the registra- 
tion requirements of the act but would also exempt these same devel- 
opers from the antifraud provisions of the act, langua^ was added to 
the bill to assure that the antifraud provisions would m fact apply to 
those developers exempted imder S. 3084. 

Yesterday, Mr. Chairman, you heard a detailed description of how 
a purely interstate developer, specializing in off -site sales, operated 
severalyears ago to defraud thousands of consumers, many m New 
York. Tnat case, as well as several others which have been prosecuted, 
were sad and despicable. Clearly, those actions fall under the intent 
of the act and should be regulated and prosecuted accordingly. 

Today, however, we are before you asking that small, intrastate de- 
velopers be exempted from the act because it was never the intent of 
Congress to regulate them under this statute. The Senate amendments 
simply clarify the act on that point, and do not call for substantive 
re^atory dianges. 

The large, interstate land companies — such as the one described 
}resterday oy Ms. Hynes and those which have been the subject of ac* 
tion by the Federal Trade Conmiission — would in no way qualiffr for 
the exemptions provided for under S. 3084. The present act, with the 
clarifying Senate amendments, properly administered and with vis;- 
orous euK^rcement and prosecution when necessaiy, would adequately 
protect consumers if such fraudulent acts should reoccur. 

Ms. Halloran of INFORM mentioned our association's most recent 
industry survey in claiming that our industry ^^seems to be riding on 
the shirt-tails of the current real estate boom," as she put it^ She cites 
our survey, which among other things, concluded that sales are on the 
upswing because 78 percent of the survey respondents had better sales 
in 1976 than in 1975. Since most of our industry continued in a deep 
recession in 1975, when sales were often nonexistent or certainly at the 
lowest ebb ima^nable, the fact that 78 percent indicated increased 
sales the f oUowmg year — 1976 — is not surprising in the least. Nor, in 
our view, does it signify anything more than the fact that the recession 
had finally come to an end in 1976. To imply that this means a return 
by our industry to the days of the 1960's and early 1970's is totally 
without merit. 

Congressman Minish, in his testimony yesterday as well as several 
months ago before the Senate Banking Committee, charged that "liter- 
ally millions of consumers continue to be defrauded by land developers 
each year." We testified before the Senate Committee, and we do so 
here today, that we are unaware of any such valid figures, and do not 
know where they come from. We seriously question the figures and 
the assertion. 

In conclusion, I want to reiterate the American Land Development 
Association's conviction that consumers should and must be protected 
from fraudulent, irresponsible real estate developers — ^the primary 
goal of the Interstate Land Sales Full Disclosure Act of 1968. 

By endorsing the interstate land sales provisions of S. 3084, this sub- 
committee could take an important step toward assuring responsible 
regulation of our industry bv clarifying Congress' intentions as to 
whom and how the law is to be applied, without sacrificing any con- 
sumer protections. We commend section 715 of S. 8084 to you. 



38-718 O • 78 • 18 

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Thank you, Mr. Chairman, for allowing us this opportunity to ap- 
pear before jrou today. We would be pleased to answer any questions 
the subcommittee may have. 

[The prepared statement of Mr. Belin, on behalf of the American 
Land Development Association, with attached exhibits, follows :] 



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Statanoent of 



J.B. BEZJN, JR. 
President and Chaixxnan of the Boazd 



Before the 



SubcGnmittee en Housing and GGnnunity Developnent 
House Oonmittee on Banking, Finance and Urban Affedrs 



Oonceming 



Interstate Land Sales Full Disclosure Act Anendments 



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Mr. Chaiznan and lumijejLB of the SiAnmiittae, ny nana is Bnioa Balin. 
I am pcesident and OMner of Belin and Associates in Houstcn, Texas, a raal 
estate developnent ocnpany currently developing five recxeational, lesort and 
residential projects in Tescas, including the AwBrd-winning April Sound p tD J ec t 
near Houston. I am presently serving as president and chaimtm of the board of 
the American Land Develo(inent Association (AIDA) . 

Aoocnpanying me today are Gary A. Terry, our Association's executive vloe 
president; William B. Ingersoll, general counsel; and George G. Potts, director 
of public 2if fairs. 

nie American Land Develoiinent Association r epresents leading national and 
intematicnal ocnpanies which develop recxeational, rosort and residential real 
estate. Our m erob ers build and sell vacation hemes, condominiums, planned unit 
developnents, destination resorts, new and retirement oonnisiities, mobile home 
parks and recreational vehicle parks and campgrounds. Vtiile our meatership in- 
cludes the real estate developnent subsidiaries of some of the nation's Innjesl 
corporations operating in ^JStfifigJialfi oonmeroe, many of our menber conpaniss are 
family-owned or are limited partnerships and can be classified as email, intrastate 
developers. Some of our menber firms, large and small, are considered builders 
of primary residential homes, and a few operate as real estate agencies. 

Nevertheless, the Interstate Land Sales Full Disclosure Act (U£ED/hst) of 
1968 aiffects directly most, if not all, of our members. I hasten to point out, 
however, that in our opinion the ILSTO/Xct was not intended to regulate some of 
theee oonfsanies — namely those operating primarily on an intrastate basis or as 
home builders or real estate brokers. 

Background and Explanation of the Act 

It would be appropriate at this point, Mr. Chairman, to provide the Suboondttee 
with a brief background and explanation of the Act, its intended scope and how it 



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has been adtainistflrad — f xcn our point of viav — for nearly ten years rem by 
the Department of Housing and urfoen Develqpnent (HUD) . HcMever, in the interest 
of time, we have attached this infoonation as Ebdiibit A, and I respectfully re- 
quest that it, as well as sevend other exhibits related to that information, be 
included in the hearing record. 

Since the enactment ten years ago of the Interstate Land Sales Full Disclosure 
Act, we have seen HUD's Office of Interstate Land Sedes Registration (OILSR) expand 
its regulatory authority over se^nents of our industry vihich mb f ael were not 
intended by Congress to be covered mder the Act. In our opinion, the II£FD/Act 
vas intended, and should continue to be a disclosure rather than regulatory 
statute. Yet, through its ability to vdthhold effective registration and through 
various informal requirenents, we believe OII^R has generated regulatory powers 
in eKJtiini storing the Act. 

Moreover, the oonpanies %^ch the law was intended to cover are suffering 
unduly today f ran %iihat often seems to be isteven formal and informal rules and 
procedures enplpyed by OILSR. The agency's registration policies — %4hich we 
feel are too stringent and lack flexibility and predictability — as well as the 
sheer oonplexity of the rules themselves have resulted in a substantial regulatory 
burden for £dl who have had to cope with the Act, especially for anall developers. 

We are aware that much of OILSR' s expEmsion of its regulatory role, and 
many of the attendant problems, were those inherent in administering a new program 
with new people. In fairness, we feel that the agency and the Act have in fact 
stopped many abuses by a few unscnpulous developers and have liJcely prevented 
others from occur ing. 

It is not our intention to hanper OILSR' s efforts to help buyers inform 
themselves and to protect themselves frcm the irresponsible element which exists 
in real estate as, unfortunately, in every other business. But we do not believe 



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such pEOtectixxi has to bs at the eaqpenae of the hcnsst, responsible dewslopers 
who predominate in our industry. We therefore are ormpplletl to apeak out against 
what %e consider are perhaps %#ell intended, but nevertheless overly r e s t r ictive, 
attenpts to legislate even more regulation of our industry. 

I would liJce now to aomnent on the three major proposals which have been 
put forth to amend the ILSFD/Act. 

H.R. 12574, "Interstate Land Sales Reform Act of 1978" 

Ihis proposed legislation, introduced originally as H.R. 10999, would aoend 
the Act in several veys, with the apparent intent of strengthening the law to 
provide greater protection for real estate buyers by increasing the regulation 
of land sales. Unfortmately, under many of its provisions, the measure would 
not produce the desired results and would do considerable harm to developers — 
indeed perhaps forcing many of them out of business sdtogether. 

nie bill would extend the Act's coverage to include subdivisions of 40 or 
more lota , replacing the threshold of 50 or more lots in the present Act. Ad si ttedly, 
analler developers, often the very ones viho least deserve regulation and can least 
afford the additional burden, would be brought in under federal regulation. In 
short, this seems to be just another exenple of expanding the Act's jurisdiction 
with little or no corresponding benefit to the consuner. Mbuld it be 30 lots next 
year? And 20 by 1980? 

The Act's jurisdiction would also be expanded, under this proposal, to cower 
lots which are less than 40 acres in size, i.e. eliminate the pr es e nt exeniytion 
for lots five acres or larger. Proponents of this provision point out, perhaps 
correctly, that the so-cedled "five acre exenption" often tenpts irresponsible 
developers to subdivide property into larger unusable lots in order to escape 
regulation; attracts "fly-by-night" subdividers; and results in the subdividing 
of narginally usable land. Conversely, consviners purchaising lots in excess of 



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five acz«B in sias genecally hawa the f Inasicial aeans and ta t o wl edjg — gt the 
ability to fdre an attcmey with such expertise — to buy such property withont 
the need for the disclosure pcotecticn aiffocded wider the Act. Also, as one 
AIi3A manber points out, such extension of jurisdiction oould hanper certain 
developers* ahilitifts to disprwp of surplus property not a part of its oaman 
pronotional plan. Moreover, since it is often a practi c al necessity that such 
larcye lots be offered with fewer inprowenents than is offered with aranller lots, 
the sale of such inoosplicated property (raw land in many cases) hardly requires 
the extensive disclosures required under the Act. 

Uhder H.R. 12574, court-ordered sales of lots in connection %iith bankruptcy 
proceedings would no longer be exempted, sdthough presumably all other types of 
court-ordsred sales would continue to be exenpt. While AIDA agrees %n.th the 
apparent intent of this provision, to inpoee auboantically a regulatory burden 
upon such a distressed situation may be unfair to the creditors. Moreover, such 
a prevision may well be unconstitutional since the rights of bankruptcy are estab- 
lished in the Oonstitution. 

Gne of the major provisicns of the bill would give edl purchasers and lessees 
an i«oonditioncd 30-day rescission period from the date of the consmation of the 
sales transaction. J^pparently the purpose of this provision is to aHau a buyer 
a period to objectively reflect on the correc tn ess of his purchase, especially 
%dhere he might have been subjected to a "high pressure" sales presentation. How- 
ever, we strongly feel that the pr ese nt 72-hour (three business days) requirenent 
provides adequate and reasonable protection to any purchasers who might have cKrted 
on inpulse. Miile a ninber of states have rescission periods exceeding the 
present three-day federal requirenent, e.g. New Jersey seven days. New York ten 
days, California 14 days, many of our menber coipanies operating in those states 
maintain that such lengthy rescission periods do little more than encoureKje 



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purchaser irresponsibility and pennit over-zealous salespersons to close sslss 
by reninding the custcmsr that he has "nothing to lose sincae you can easily osnoel 
this transaction if you change your mind." 

Here are scrae artiitionni undesirable results of lengthy rescission pe r iods 
based on the eocperienoes of seme of our nenbers; 

— it is very difficult for individual property OMners 
to abt£dn financing for hone construction and othsr 
djifjcovements to their properties, since lending in- 
stitutions %#ill shy aHoy frcn such oonnitnBnts %d.th a 
rescission period of this duration due to "prolonged 
exposure ; 

—developers %«ould find it very difficult to obtain 
financing of the "paper" generated by the on-going 
sale of properties; 

— the developer cannot recognize a "sale" for aooo u n t- 
ing purposes until the rescission period is over, 
creating severe pcoblcns for his financial statoe- 
ments; and 

— it requires the developer to invest in and carry 
a substantially higher muter of lots in inventory. 
Because of the seasonability of our business, it 
is not uxxxmon for 50 perce nt of a developer's 
sales to occur in a two or three nonth period (par^ 
ticularly in the mid-west and northeast) . If the 
buyer has a 30-day period to cancel the sale, that 
buyer's lot must remain in linbo for the full period 
and all monies received held in escrow. Ihis in 
turn necessitates having perhaps double the noEmal 
supply of lots in inventory, and at a development 
cost which often amounts to several thousand dollars 
per lot, an excessive amount of the developer's 
capital %«ould be tied up in inventory. 

Me nuBt reflect that in no other type of "arm's length" real estate transaction 
is ther^ such a rescission period, and it seems grossly unfair to single out one 
particuleur industry for such treatsient, particuleurly when it goes beyond what would 
be necessary for adequate buyer protection. 

However, the autcmatic 30-day rescission period pales v^ien one considers the 
proposal for a three-year period of revocation for the buyer given under certain 



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apecifiad oonSitiaMl It appears Ukaly that naarly aU developen would £aU 
vflthin one of the three mfwUHmnl areae ti i yija ii ng a throe yoar reaciaalon 
period — a penalty that at best oust be considered extraordinary when applied 
to the pnctioBS of any business. Fbr eoean|>Ie, many developers raqiuire a nrinliam 
10 peroGnt down peiynant and most bnq/ers do not and cannot p^^ full cash for the 
pr o perty . The effect would be that the buyer has a three-year "option", but the 
den^Blaper %«ould be oontractually bound, and if at any time during that period the 
buyer changres his ndnd for any reasons (e.g. he later decides he would rather hove 
a nev boat or car) , the den^elaper nust canoel the contr a ct and give a full refund. 
It seems obvious, Mr. Chalzman, that no business could operate under theee conditions. 
A developer's sales contracts are an i j uxact ant asset of his coqpeny and are the 
basis for his financial agreements with his lenders. 

More specifically, the predictable results of this provision would be to pro- 
hibit any purchases on the same day a oontract is preeented to the buyer — despite 
the fact that many buyers may live within a day's drive of the pro j ec t , personally 
inspect the p rop erty and are given ample opportunity to study the Property Report. 
It %iiould also do awey with installment contracts in land sales — a cGonon and 
««11 accepted means of purdiasing today and maybe the only means available to the 
buyer to finance his purchase. 

Vnaeac this legislation, there is p ro p os e d a requirement that title be trans- 
ferred within 30 days. Ttds is mreaaonable and inpracticad since the paper work 
alone nonnally takes at least that long. The present HUD exnfytion (24 CFR 1710.11) 
allows for 120 days, a reasonable time for title transfer. Another provision voild 
aeemingly deny the developer the right to charge interest on any loans he malces 
to the buyer. This is a ocmnon and acceptable pratioe in husinftss today, well 
regulated by federal truth-ln-lending laws. It is sonetimes argued that, since 
the buyer does not get full use of his p rop er ty until the installment loan is paid 



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in full, the developer shcxild not be permitted to charge ixtterest on the loon. 
Me disagree %d.th this proposition, however, because the buyer still has "oHner^ 
ship" rights en the property itfhile the loan is being paid off, and mere oftan 
than not he gets full use of the project's facilities and recreational amities. 
Also, the use for which the land is intended in nany projects is for outdoor 
camping and recreational vehicle parking. OSiere would be no fairness in allGMing 
the installment purchaser full use of his purchase, Kihile denying the seller the 
right to reaacnable charges for extending credit. 

Me vKuld generally suqpport the provision regarding forfeitures. Most developers 
will do everything possible to prevent a forfeiture, and will work witii the buyer 
yto nay have enoountered unexpected difficulties in paying for the property. Onoe 
a lot is sold, ocmnissians paid and recordings made, a forfeited lot presents 
mnerous problems for the developer and a forfeiture is the last thing he wonts 
to happen. The ooninon belief aniong casual critics of this industry that developers 
make a "killing" on forfeited lots is sijqply false. 

In short , MJA believes such provisions allowing ft)r 30-day and thr ee ye ar 
rescission periods are unreasonable , unneoessary and would place an mconscionable 
burden upon the developer . 

Another provisicn of the proposed bill would mandate that the Statement of 
Reoord contain copies of all advertising used by the developer, giving HUD specific 
statutory authority to regulate advertising . Any such regulation of advertising 
i4iich requires prior submission or approval from OII^SR would be a bureaucratic 
nightmare, would cripple the developer's ability to institute an effective advertising 
progran, and %«ould greatly han|)er his ability to make timely changes to take advan- 
tage of market nuances. Advertising is a flexible product which must be changed 
often on short notice, depending upon changing market conditions, seasonal variations, 
etc. Tte advertising industry %#orks on strict deadlines and «dth the tiae it 



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pccbably %«111 requiza to get it approved, effective and useful advertising by 
developers would no longer exist. Bear in ndnd that OII£R already has adver- 
tising guidelines as part of its land sales regulations which serva to put 
the registrant on notice as to what is e x pe cted in advertising. Used properly 
by OUSR, the present guidelines would aocGmplish the apparent purpose of 
this pTGpoeed pcovisiGn — to insure that developers* advertising is not 
false cr deceptive. One final %iccd on advertising: the provision that changes 
in sdvertising would not be considered "material" unless it reflects "substan- 
tial changes in the representation made by the developer. . ." would not be 
effective since OII^R's past reoord indicates a preoonoeived notion by the 
agency that every change is material . 

fd£A supports the genend principle of recovery by injured buyers of 
reasonable court costs, attorneys' fees, appraisal costs and travel costs, as 
well as the right of specific performanoe in lieu of damages, as the bill pro- 
poses. However, practical experience says that such previsions tend to en- 
couraige unwarranted laweuits and add further to the work of the already over- 
burdened court system. If there is any deterrent now to spurious lawsuits, 
it is that deterrent which arises fran the prospec t of having to pay court 
costs, attorneys* fees and other such expenses. To establish the prospect 
of such expenses being reooverable by the purchaser could lead to abuses by 
purchasers and their attorneys in launching legal action of a ecale not %«ar^ 
ranted by actual daneqes. Instead, what might be oonsidered is a provision 
for additional recoveries if it is proven that the developer intentionedly 
disregarded his obligations to ths purchaser. 



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H.R. 12574 Mould Mt ttm etatute of lindtatlcni tar all oauns of aotloi at 
three years after diaoovery of a vioLatlcn — but no noKe than asvwi yean afbar 
the sale or lease. In our opinion, lengthening the tern of the etatni of liaita- 
tions would only enoourage pcocrastination on the part of the buyer, iten he 
should be reaponslve and attentive to his obligations as a buyer. AUoidiig ttia 
statute of liaitatiGns to run for as long as seven years after the "aale" or 
"lease" nay be almost the same as having no statute of linritatione at aU. m^ 
Bnnnuse OII£R is presently pcoposixig a nev definition for sale or lease, sAintain- 
ing that the sale does not occur until the oontract is ocnpleted, all psa—i>B 
made in full and title is p ass ed to the buyer. Sinoe eany developers xegolarly 
finance installment oontracts for 10 years or nore, the statute of 1 ImitaHrwe 
oould ronain in effect for at least 17 years. This would be di s astn o us to busi- 
ness and surely oontary to public policy that there be finality to huainaei tKane- 
actions. I will ocanent in more detaU on the definition of "sale" later in w^ 
testimony. 

under tie bill, the Secretary of HUD would be authorised to issue osms and 
desist orders against developers, and new civil pfwwilties would be eetabliihad 
in the fonn of fines up to $5,000 for each violation and finee for orialnal 
charges of up to $10,000 anVor inpriaonnent for one to sevwi years. Qiweu— lit 
regulation of our industry is already so prolific and the risks so great esen for 
accidental violation of soma rule or requircMnt that it is hard to belisee that 
stif fer penalties would even be an effective deterrant. Civil and criaiiial pen- 
alties, it seens, should be viewed in li^^ of the confusing pcoliferatiGD of sag- 
ulation. It is nearly inpossible for a developer today to be in strict ocapli- 
anoe with all regulations at all times. Yet, under this provision, the develflper 
is faced with penalties oonparable to an individual %iho willfully oosadts a aeri- 



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CKV falfliy, ••9* , au Md Tdtitmcy, Hm penalty, ne mdkmdJt, Mnild te in h—ping 
with the danags to nci«ty and tiis intait of the violator. Thus, KUi feels 
sucii additicnal poiiers and fines axe unRBoessary sinae the pissmt penalties 
seen s e waia enou^ to act as a deterrant. QZIfiR's pr e s e nt poMsr of suapension 
ahould affoKd purchasers adequare pcotecticn. Finally, a oease and daeist 
order issued %«ithout justif ioaticn can heeler seriously a legitinate dsvelflpar 
Wiile the issues axe faeijig Utigated. If this authority is to be given to the 
Secxetaxy, the developer ehould also be given the right of xeoowecy for daaegee 
when such ccdexs are iapccperly issued, or when pxanatuxe itdblAc mmcunoeaBt± 
of intention to issue a oease and desist ocder is meds before a hearing on the 
issue is first held. 

A new section of the Act, auttaprizing state attorneys general to bring 
civil actions en behalf of their residents, has bsen prop o s ed in this bill. 
Althou^ it is difficult to perceive this as a legitinate function of a state 
attorney general's office, ym find it equally difficult to cippuse such a provi- 
sion in principle. However, we wonder if it is txuly a proper use of taxpayers* 
fmds. It would seem to give the attorney general a great esomt of new poli- 
tical "cLout" %^th oonsunexs, but it could also create a problem in txying to 
decide which civil actions should be brought of the several oonplaints filed 
yritti them. As the many govemnent bureaucracies which are unencunbered %d.th the 
concerns of tine, effort and eoqpense in such actions, they could cater to almost 
any ocnplaint filed with than, harxassing businees and clogging the courts even 
further. 

l!he final provisian of H.R. 12574 upon «hich I would like to oj u ntaiL is 
that dealing %^th the escrowing of ■enies for so-called "basic serviQes" promised 
but not ooRfOeted, and the option granted the purchaser to void his contract and 
receive full refund if these services are not delivered . The problem these pro- 



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ponds ar« designad to oocxect wibim obvious, and thair ol^Jactive is tte rii^ 
one — to require the developer to perfoon his part of the co ntra c t . HoMBvec, 
Wiile on the surface this ndght seem to provide significant protsotion to the 
purchaser, in reality it can be haznful to him. The cost to the deveLaper of 
placing in escrow monies of such large amounts will have to be borne by the pur- 
chaser in the cost of the pcoperty because, unless the dswalaper is panaitted 
to use such monies to keep the project viable and econoaiioally feasible, the pEO- 
ject could fail. Such an eoonanic burdai will interfere witii tha deveIoper*s 
ability to per f orm his ccntract and conplete these very sama servioas. In fact, 
many present developers %iho already are providing such basic sarvioes, and sdes, 
vKXild be forced out of business. There are only a few in our industry ite> oould 
afford to escrow the full cost of pconised incxovemants, bearing in mind that 
many developers have several developnents undaruey at ttia same time. In effect* 
the developer's entire line of credit %^th his landers could be tied up just aset- 
ing this single requirement. And, bonding is generally mavailable to oowar 
such situations. 

As to giving the btyer the option to void his coi iU acL and receive fiill 
refund, please consider theee points: 

—providing the purchaser %ath such a quick, convenient 
means of getting out of his co n t r act is freug^ with the 
same inequities as a developer %iho cancels the biker's 
interest if the buyer falls a month behind in his nonthly 
payments on lot purchase (an action no legitimate, 
responsible developer would take) ; 

~cert2dn OGnstructicn delays are unavoidable and certainly 
beyond the control of the developer, e.g. , strikes, 
material shortages, iaius\ially inclement weather, tnapomry 
restraining orders and, as in the case of one of our meoe 
bers in the %#est, the bankruptcy of a road contractor doe 
to the national fuel crisis several years ago; 



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—if "ary othar anenities" lAiich the Sscratary any apadfy 
ahould include reczeational facilities. It ahould be 
pointed out that delays may not have a material effect 
upon tie buyer's use and enjoyment of his property, e.g., 
ocnstruction of an outdoor awimning pool at a midMestem 
or northeastern project scheduled for oonpletion by Novem- 
ber 1 but not ooapletBd until Oeoenisr 31 (also, the 
Secretary's discretion of what constitutes "any other 
aaenities" ahould be restricted to t h os e declarations in 
the Property Report, with a grace period, relating to the 
size and oost of the inprovenent, available to the devel- 
oper); and 

— again, developers oould find it difficult to obtain pco- 
ject developgnent Loans %d.th such a provision available to 
prospective buyers. 

Instead, Mr. Chairman, the ocmncn laa remedy for dnmaqes applicable to failure 
to oonplete perfotmanoe en a timely basis would seem to be a more just and 
reasonable remedy. 

Our Association readily accepts and supports the need for reasonable regu- 
lation where it is shown to be required. However, we feel that this bill amounts 
to a "shotgwi" approach to regulation and is not the desired solution. The prob- 
lem developer can be regulated and eliminated without the total industry — and 
ultimately the consuner — bearing the costs. Ihe federal lar can be made to 
do %iiat it was intended to do, equip the buyer %^th the facts needed to enable 
him to make a rational purchase. 

The Actainistration's Proposed "Anendtaents to the Interstate 
Land Sales Full Disclosmre Act" 

The Adninistration's proposals — Section 421, Title IV of H.R. 11265 — 

would amend the HSFD/Act in a minber of %«iy8, %<ith the apparent intent of 

alleviating some of the problems we have addressed, %«hile at the same time 

strengthening the Act to provide greater protection for real estate buyers by 

increasing the regulation of land sales practices. However, under seme of its 

provisions, these proposals vrould liJcely not produce the desired results and 



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would do oonsidaEabla hacm to developors — indsid parhflfw fcrdxig any of thai 
out of buBinass altogether. I Mculd like to ouuubuL an ssveral of the HUD- 
Gndorsed propceels* 

HUD*8 pcopoBals would raise the thxeataold of jurisdiction under the Act fn» 
50 lots to "100 or more lots." ftiile KDk would sinport this proposal, we axe 
not at all oertain it would in fact lessen an£R*s ragulatocy hold oi snail, 
mostly "intrastate" developers. So long as OILSR continues to interpret the tam 
"ocnrnon pronoticnal plan" as they have in the past (described in Ebdiibit A) , lots 
vfill be aggregated by the agency as a maans of bringing nBwllfir developers undsr 
the purview of the Act. Hius, this a na ito e nt at beet would only serve to dalay 
the time when oertain developers were brought under OUSR's regulation. If this 
amencknent were ooipled %d.th the requirenent that "oonnon pconotional plan" be 
defined as follows, perhaps it oould pros^ wodcable: "the offering for sale or 
lease of subdivided land, inoorporating the use of the following ooanan elaoents 
at the same time: (a) oonnon sales staff; (b) and oonnon ownerflhip; (c) and oon- 
mon advertising or subdivision identity or oontiguity." 

Uhder the Adninistraticn proposaQs, oourt-ordered sales of lots %iiould no 
longer be given a blanket exenpticn. Viiile flDk might be inclined to support 
this change, it may well create a "oonflicts of laws" problem so far as bankruptcy 
p roceedings are oonoemad. On the other hand, \nder the existing uJUBtiliciiy a 
develcper who files for banknptcy oould, throu^ a trustee, sell property %d.th- 
out a HUD registration. If so, financially successful developers are then put in 
a disadvantageous position. Me are aware that there have been abuses of this 
exenpticn, and we view the proposed change as constructive. However, \m would 
urge langu2ige to require OII^R to accept registraticn of such a subdivision, or 
othezwise authorize court-crdered sales ytuere it can be shown that not only czod- 
itor but biiyer interests are protected. 



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Section 421(e) VDald have tte effect of eliminating aai|)iLetely the eo- 
cellBd "free and clear of liene" eaoBBpticn in the Act. Thie exemption, idilch 
we view as fcxnded in logic and equity, was intended by Oongzees to provide an 
eaoEMSptiai frcm regulation for developers %iho hawe title to the land and sell 
lots which are free and clear of all liens, encwiairaDceB and a d v erse claims 
to buyers %iho inspect perecnally the offering before purchasing. an£R has 
never favored this men^im and rarely grants it. Nevertheless, its repeal 
would not be in k ee p i ng %^th the purposes of the Act and the Ocngress' inten- 
ticns in enacting it. In short, this pcqposal would serve to permit QII£R to . 
eospmd further its jurisdiction over developers never intended to be co v e r ed 
in the first place. PILA opposes such an amendknent. 

One of the major provisions of the AdBdnistratlcn's proposed amendnents 
would give all purchasers and lessees an uncxnditional 14-day res c ission period 
from the date of the oonsumation of tiie sales transaction. Apparently the 
purpose of this provision is the same as that intended inder the extended 
buyer rescission period called for in H.R. 12574. Our objections to that 
bill's rescission period would apply also to HUD's proposed 14-day period. 
Moreover, even a 14-day rescission period would not track %fith moet state re- 
quirements, since the majority of states have periods of less than 14 days.. 

Another provision p roposed by the Administration vould delete the statu- 
tory reference to a maximun filing fee of $1,000. In addition, there would be 
specific authorization granted for OILSR to charge fees from developers who 
make exenption requests. MLA %tfould not oppose swich an amendnent, if the agency 
can demonstrate a real need to lift the $1,000 maximiQ fee — paving the %«iy 
for higher registration fees — and charge for exenption requests. 



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Ttm section of tiie Act relating to oaop e r ati on with tkie stota (abc. 1409) . 
would be a oBnded by theae pcoposale to provide that ttia Sscrstary of BDD my 
aooept state filings as a sdostitute for the fadoral filings. But, if the 
Secretary has not aooepted a state*s filing reguiraneRts, then the fedaral 
Property Report would "be used in lieu of any state disclosure d o a ns mt de- 
livered to purchasers.** Aside frcra %iiiat migfat teoome very serious oonatita- 
tional pcoblcns here, such an a t U apt by OII£R bo taeoinjL state reqjuizsHBnts 
is sure to be opposed by state regulatory agencies. Ebr wcant^le, Califomia 
has a niinber of substantive land sales reguiranents which, if not net, prohibit 
the sale of subdivided land. If such reguironents are already in plaoe and 
being enforced at the state Level, why should the federal agency (HUD) hecue 
authority to preanpt. then? Diis p ro p o oo d amendknent rtiould not be adopted. 

A niinber of other provisions in the HOD bill are identical or slnrilar 
to anendtaents proposed in H.R. 12574. Since I have already adrtituBBed thai ear- 
lier in ny testimony, I %fill not repeat these oomnents here. 

In sunnary, we feel that in general the AdDdnistration proposals reoose 
mended by HUD amomt to added substantive regulation of our industry. If 
adopted, they would pile unnecessary burden upon developers already struggling 
to oonply vdth nyriad federal and state laws. 

Section 715 of S. 3084, "Interstate Land Sales Full Disclosure Jtaendtaa nU of 1978" 

Mr. Chaiznan, MIA was founded in 1969 as a direct result of the en aclm e nL 
by Congress of the Interstate land Sales Full Disclosure Act in 1968. At the 
time, the Association's founders were concerned that the new law would plaoe 
enannous regulatory power in the hands of the federal goverment (in this case, 
a new agency at HUD called OILSR) to the detriment of hundreds of ocnpetent. 



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honest land dBvelqpers, both large and oaall. Nothing in the nearly ten years 
ainoe has eased that oonoem. 

In our opinion, GUSR has eaqp a nded its regulabocy authority otver ae9Bents 
of the real estate develoEnent industry which ii#ere newer intended b^ Congress 
to be regulated. He would point out also that there have been nany changes 
in our industry — eepeciedly tha recreational part of it. This is sis^y not 
the same industry that it was in the late 1960's and early 1970*8. Reports by 
public interest groups and the press have tended to focus on practices fay high 
volune lot aalea ooiiianies. Many of these oGncanies and most of the objection- 
able practices are rapidly disappearing. 

Mr. Chainnan, the n^FD/Act does need to be anended, and as you know the 
Senate has acted to do so by including such anencknents in legislation (S. 3084) 
passed on July 20. Permit me now to oonment briefly on the major provisions 
of the Senate-pessed ODenteents, Section 715 of S. 3084. 

The sale or lease of oondaniniims lould be exenpted specifically from 
the Act. We do not believe Oongress intended that oondominiimB (or land on 
which a oondoroiniiin is oontracted to be built %d.thin two years) should be regu- 
lated under this statute, just as land en which is located a residential, com- 
mercial or industrial building is exonptad. Because they are not eioenpted in 
the Act, 0I1£R can and has threatened to assert jurisdiction over condaniniiin 
develcjpers. 

In addition, the Senate bill specifically exonpts ccomercial or industrial 
develofment property, even if such property is located in a municipality with- 
out zoning authority. Although the Act was amended in 1974 to provide for such 
an exenption, OILSR apparently refuses to grant such eooenptions in oomnnunities 
which do not have zoning powers. This amendnent Mould remedy that inequity. 



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S. 3084 vDuld pcovite for an intragtate CNoqptlon for ttm dev^Iopar ydio 
sells less than five (5) lots or five (5) percent of YdM total lots (lAiiGfaBW 
la greater) in one calendar yaar to out-of-state purchaaera, pvoiddad that 
the developer givee clear title to the pro pe tty and the buyer waiaaa an op^aita 
inapectixai . Although the five percent rule is nov in the regulatory SMaptionB, 
it is unworlcable, especially for the email developer. Hi ePBwple ia the devel- 
oper %iho sells nine lots, only one of %iAiich is to an out- o f-state fai^Br. Ihe 
five perce nt rule does not exen^ this baaically intrastate developer — OHfiR 
considers him in violation %ath 11 perce n t of hie aales being nade out-of-state. 
The addition of the five lot limit makes the intrastate eweaption a realistic 
and workable one. 

Sales to purchasers residing td.tiiin a lOO-ndle radiua (an easy on e d y < 
rcundtrip drive) of the property site, again subject to clear title and on-site 
inspection , viould be exenpted by the bill. This SQlves the problaBi fSaoad by 
the developer operating on the boundary between several statea, aixfti as here in 
the Washington, D.C. , area. Miile he may otherwise be eoceRf>t frcai the Act's 
purview, OILSR can and does hold that such a developer is selling on an "inter- 
state" basis, and is therefore subject to federal regulation. 

under the Senate measure, a new proviaion %«ould be added bo define the 
term "sale or leaae" to mean oocuring at the time a oontractual relationship is 
created between the developer and the purchaser. Sec.l402A5 U9C 1701 (11) would 
be amended to read: "'ssde or lease' means the entering into of a legally bind- 
ing agreement by a purchaser to buy or lease a lot in a aubdivisiOD. His dats 
of sale or lease shall be the tine a oontractual relationship is cre at ed batwean 
the developer and the purchaser;". In its latest p ro r oe u d revision of the zagulat: 
OII^R served notice that it considered the"sale" to continue from the date of the 
signing of the contract by the buyer until the contract is paid in full or a deed 



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has been dalivorad to ttia buyer, whichefver oons later. As stated earlier, 
the practical effect of such a def initlcn by QHSR would be to extend ttm statute 
of lindtatiflns by allnwinj it to run the entire length of the contract period, 
vfith a concep t of a "cantinuing aale," and for up to three years beyond the end 
of the contract. OII£R has indicated that it needs this provisicn to "clarify 
the Agency's position** viith regard to policy and practice in one type of liti- 
gation — the proeecuticn of fraud cases. However, such a definition would im- 
poee the "continuing sale** upon the entire Act, thereby extending the statute 
of limitations. Our cese eearch reveals that the definition in S. 3064 follows 
the prevailing opinion of the Courts. Nine of 11 oeses we unoo^^ered disagree 
with the agency's oonoept of a '*cQntinuing sale." Gnly two cases, in our opinion, 
could possibly be cited to suqpport OIIfiR's propose d definition of "eale" — 
and even they are aonewhat questionable. 

Still a not h er problem energes in this area. As I indicated earlier, a 
large segnent of the real estate develcpnent industry relies upon being able to 
finance awineicial "peper" (i.e., notes and installment contracts) resulting from 
sales. But due to the increased and prolonged expoeure that would result if the 
"sale" period (and the statute of limitations) is extended, financial institu- 
tions are unlikely to be %d.lling to provide such financing to the developer. 
Moreover, such a situation would discriminate against the cash purchaser . While 
he has the traditional and accepted two-year statute of limitations, the install- 
ment buyer would enjoy on extended period. Ihe definition contained in S. 3064 
is a realistic and f2dr aoluticn to the problem. 

The Senate bill vrould add new language to the Act to clarify the tenos 
"liens," "encvntsrances" and "eKtverae claims" so that it is clear that they do 
not refer to U.S. land patents ani similar federal grants or reeervations oonmon 



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to moBt land in tha westecn ttiited States — an qiriaaion which COXSR hM uMd to 
dafaat clains by devslopers for exenption inder Sec. 1710.11 of the Act. D iq u a ef 
for exaiptinn under this section are rarely gr an ted by onssu The foUcMing re- 
strictions, OGSBDn to land %#est of the Mississippi River, are ooneidsBsd "llsne#" 
"enofltarances" or "advesse claims" by OUSR: unspecified eacpLoEation rig^hts, 
mineral rights, %«itar rights, railroad ea s eme nts (specific) and unspecified rail- 
road "wondering" easements. Nmiy of these are not even oonsldeced by title in- 
surers to be liens, encmfarances and adverse claims. 

Finally, because of contentions that the mnendDents %«Guld not only eocennpt 
developers — under certain drcunstanoes — from the registration raqjuizsHmats 
of the Act but wcxild also exeiDpt these same developers from the anti-fraud pco- 
visions of the Pet, language %iBs added to the bill to assure that the anti-fraud 
provisions vould in fact apply to those developers eBoenfited under S. 3064. It 
vms never the intent of our Association or of any of the bill*s q:ai saK 's «nd 
si^sporters to exen^ such developers from the Act's fraud pcovisions. 

In conclusion, I vant to reiterate the American Land Oewelofannt Aseociatiop's 
conviction that consumers should and nust be protected from fraudulsnt, inesprn 
sihle real estate developers — the primary goal of the interstate Land Sales 
Full Discl o su r e Act of 1968. By endorsing the interstate land sales pcovisions 
of S. 3084, this Suiaoonmittee could take an important step tOMard assuring rnnwn 
sible regulation of our industry by clarifying Ocngress' intentions as to item 
and hoifir the law is to be applied. We uumieiid Section 715 of S. 3064 to you. 

Thaaok you, Mr. Chairman, for allowing us this opportunity to app e a r befiOKe 
you today. Ms %<ould be pleased to answer any questions the Suboaenitbee may hew. 



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EXHIBIT A 

BACKGROIND and EXPUMA3I0N of the II^SFD ACT 

Title XIV of the Housing and Urban Development Act of 1968 is the 
"Interstate Land Sales Full Disclosure Act.** As Public Law 90-448, it took 
effect on April 28, 1969, following seme five years of on-again, off-again 
Oongpressional hearings and insucoessful attenpts to enact legislation. The 
purpose of the Act was to protect the oonsuner from deceptive and fraudulent 
land sales prskctioes in interstate oomneroe . It is a full disclosure law that 
aims to provide the potaitial buyer all the pertinent infomation needed to 
make an informed, rational purchase of real estate. 

The Office of Interstate Land Sales Registration (OII£R) is the agency 
within HUD delegated the responsibility for administration of the Act. Ihe 
duties of this office include receiving from developers Statements of Record 
and other sipportive materiad, responding to consumer inquiries, inM3Stigat:ing 
consiiier conplaints, field inspecting of propertd.es and informing the public 
of certain ri^ts granted them under the Act. llie office is not e39>ected to 
pass judgement on possible future appreciation, the fair market vzdue of, or 
the general qualit:y of real estate. 

The Act requires the developer or (his) agent, v*iose prospective siiDdi vision 
meets certain criteria (e^lcdned below) , to file with 0II5R a "Statement of 
Record" about the siixiLvision before any lots are to be offered for sale or 
lease. The Statement of Record contains such information as a financial 
statement of the develcapment oorpany; a copy of the corporate charter; copies of 
deeds and mortgages; any conditions set down in local ordinances and regulations; 
the availability of or proposed plans fiar installation of facilities (i.e. schools, 
churches, hospitals), basic services (i.e. water, sewage disposal, roads), 
utilities (i.e. electricit:y , gas) and recreational amenities (i.e. swinming pools, 
tiennis courts, golf courses, hUcing trails, etc.); and any necessary supporting 
documents such as sketch plans, plats and area maps. The developer or (his) 



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agent is also requixad to pcepaxe a "Pzopexty RepGrt" to be gLven to pco^paetlvs 
biyers. Aie Prop er ty Itep ort oontalnB infozmatiion drawn fzcn tiie Statsnant 
of Raoord that will be helpful and infioxnative to the persGn coRbeeplating 
the puzchaae, including such infamation as the dlntannft to neadOy orwmitiee; 
existence of an/ nortgagies or liens on the pi x yeiLy ; the availabilityr location 
and oosts of present and proposed facilities, servioes, utilities and 
anenities; soil and foundation conditions; and the present muter of dwellingB 
occqpied. 

Gbvered under the Act are all subdivisions "divided or proposed to be 
divided into fifty (50) or more lots, %ihether oontiguous or not, for the 
purpose of sale or lease as part of a ocnraon pronotional plan.. .." Thus, 
an individual or axpany which awns 50 or more lots whether located in cne 
contiguouB plot or scattered throixrhout a county or oooities nay be 8ii>jact 
to the Act, depending !:(X]n cne's interpretation of the tern "caoRDn pcomotional 
plan.** Uhder OII^R's interpretation — which has oontribubad to bringing many 
aroedler subdivisions inder the Act's registration requLmmants — lots axe 
presvned to be sold \nder a cGmnon proRDtion2d plan if the following criteria 
exist: a "thread** of oonmon ownership; cannon ad\«rtising or pronoticn; ooBHon 
name or identity; connon sales agents; cannon sales offices or facilitiesi ooBHon 
sales inventory; etc. The statute itself only describes a oomaon prosotional 
plan for land %«here the land is "contiguous or known, dssi^uitBd, or adwsrtised 
as a connon unit or by a ccnnon name . . . . " 

Certain exenptions from full registration are provided in the statute and 
in the regulations prcnulgated by OII£R. Ihe statutory exen|>tiionB, with but 
one excepticn, require no formed %#ritten determination and, most significantly, 
exanpt the following types of subdivisions from the Act: 
— subdivisiors consisting of less than 50 lots; 



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^«MLvisiam oamistixig of lots, all of idiich ate fiv« 
aczes or more in size; 

— the sale of lots on %#hich there is a oonpleted building 
or a ooRtractual cbligatlcn on the part of the ds^loper 
to ocnplete a building ifithin two years fron the date of 
salei 

— the sale of lots to persons engaged in the oonstruction 
of residential, aisnercial or Industrial buildings; 

""lots aoned for uuiiuBrcial or industrial develofinent/ 
provided oertain criteria are net; and 

— the sale of siisdiviBion lots lAiich are free and clear of 
all liens, encwfarances and adverse claims, provided each 
purchaser inspects personally each lot E»:ior to signing 
the oontract. This latter exenption requires a favorable 
detemdnEition by OII£R, howe^^r, before it is available 
to developers. 

In addition, there axe four regulatDry exenptions, one of which 

requires the issusnoe of an "BBBR|>tion Order" by OEZfiR. Ihe exBqpticns for 

%Aiich no action is required by the developer or onSR are: 

— lots sold for less than $100 including closing costs; 

— lots leased for a term not exoeeding five years; and 

— the sale of less than 50 lots (which are also not more than 
five percent of the develcper's total lots) when the remainder 
(95 percent) of the siisdivision is otherwise < 



The fourth regulatory exenption requires that a subdivision meet several criteria, 
inclixling: less tlian 300 lots; location entirely within one state and offered 
entirely or almost entirely within the state where the siisdivision is located; 
all advertiBinj and promotion confined to the state; and no more than five 
percent of the sales in any one year made to nonresidents of the state. In 
order to obtain this exenption, however, the developer must first provide OII£R 
with certain facts, including basic information about the ownership and size of 
the siixdvision and ary other similar filings with federal or state authorities; 
a statement identifying the lots to be exenpted and the reasons for the request; 
a description of the pranotional methods to be used and whether an/ principals 
of the developer have interests in other subdivisions; and finally, siftmission 
of a filing fee of $100. 



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Even thouc^ no specific deterndxiaticn by onfiR is xequixed en the ether 
exenpticnB, thB developer may obtain an "Esoenption Advisocy CDpinion," pccvidad 
he subidts a ncniefundable $100 fee, a et a teroant of facts and lof whenby 
the developer believes himself exsaapt, and certain basic adtadnistzative 
infosnation. 

Finally, the Act prohibits develcpers froni using "any means or instztmnts 
of transportation or ocnnunication in interstate oomiBZoe, or of tiie mails. .." 
to sell or lease lots without oonplying with the registration provisione of 
the Act, or to defraud purchasers. 

ACMirgglW^TICN of the ACT by OIIfiR 

When the Act and regulations thereinder first took effect in 1969, €he 
prooess vias relatively sinple and filings %«eze often prooeeeed and made 
effective in a matter of days. But the regulations have been revised sevBral 
times since then and have beoane increasingly technical — each revision 
requiring more extensive and detailed disclosures, and in scse oases Goeplete 
refiling with OII^R. Itie most significant revision to the regulations beoane 
effective on Deoenber 1, 1973, and OII^R is again revising the regulations to 
beooroe effective probably sometime this year or early in 1979. These nm 
revisions, first proposed a year and a half ago in January of 1977, were finaUy 
reissued for a seocnd ooromen L period on June 1 of this year. Ihe latest prop os e d 
regulaticns covered 46 pages in the Federal Register — almost a oonpLets zevision. 

A copy of ALOA's oral statement on July 17 at the first of three pi*>lic 
hearings on the proposals is attached as E^diibit B. Itie Associatian %#ill w^tmit 
to dLSR more detailed %m.tten oonments before the August 31 deadline, and we 
%d.ll be happy to provide the Subocmnittee with a copy of that statenent when 
it is oonpleted. 

As the regulations now stand, it takes 60 to 90 days for an ei^ert in the 
registration procedure to prooess a oopplete filing through QU^SR. For the 



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dev«Ic3[>ar tiio, for fiMndal rawnm or othBKwlae, drafts and prooMMS his am 
xegistxaticn, the t ».ooB M pcdaably idll take nine nasths to a year. But until 
tiie dewalopar is ^ ' ant e d an effective date on the ragistxatlon, he cannot sell 
a single lotr tiiile he still has to oope with oonsidarabls cngoing ■ qp a n saa. 
Briefly, the folloMing steps are neoassazy to the 0II8R zegistzatian 



(1) The aastntJaga of Urn infoanatian neoeeeazy to prapare the State- 
msnt of Raoocd and Property Report required by Urn Act anA iapLeawiting regule- 
ticn. Ihis involvee providing Urn an awora to maarous quastions and Urn ooapila- 
tion of hMdrads of pagae of foxaed docinents, including: audited anA owrtlfiefl 
financial stateoBnts for the developer and any other entities involved; ooaidsK 
legal title doa n entation, including title policiee and legal opinionsi anginsar 
ing dooanentation; letters fron looal anA atata govermantal bodies regarding 
the installation of various utilitieei etc. InfooBatian and docuantation re- 
quived in nany cases is not clearly aet out or eaq>lained in the regulations, 

ao that the average person unfoniliar with the agency and ita requizcaoRts 
%«ould not know ithat to include. 

(2) Preparaticn of the doaaaentatiGn in the fonaat required by the 
agency. This includaa the fGonal drafting of the narrative, the form and 
subBtanoe of which can be vital to obtaining filing appro^sd. 

(3) Sutndtting and prooeesing the registration doonents through 
on^R itself. This includaa negotiations over the structure of the narrative, 
the included doconentaticn and the language of the apecific disclosure. Much 
of the OILSR review is based en internal agency policy and individual exeBdnar 
diacretion — with the result that nany of the filing requireoBnts are unwritten. 

(4) Negotiating %«ith the agency over additional docmentation and 
changes in disclosure language and fonnat. This can take aeveral months of going 
back and forth between the developer and the agency and produce much paperwork. 



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It is astiMted by 0II8R itself that lass than £ivs (5) paennt of wll tiXtaqB 
clear the agency en original sutasLsaion. 

Onoe a rogistraticn is effective, hoMBver, the pEOoass does not and there. 
on^R requires that amenteBRts be medb to the filing within 15 dayu of a "tetaar- 
ial change" in the status of the subdivisicn. 0II8R has neRwr issued guidalinss 
en %dhat oonstitutea a "material change" and adtadnistrative law decisions on the 
subject show a wide range of disclnsures onnsiderad to be "wtsrlal.* Ftr esasK 
pie, OILSR has maintained that the foUowing itaas were arterial and reguized 
that filings be s u spended for failure to disrinsp than: a change in Urn assistant 
aecretary of the developer'a oocp orat io n y a five peroant (5%) iirireasn in the 
OQSt of bottled gasi and a $5,000 danage suit against the developMRt ujnaiy 
%«iich had a net worth in eoooess of $30 million. One fairly reoant oass had Ollfit 
and a developer diaputing over whether a p ro p o se d riding atahle ahoold be di»- 
cloeed as a "recreaticnal facility* or as a "nuisance." Gn the other hHid, 
undoubtedly OII£R can cite acme serious def idancies in disclosures — but it 
seems fair to say that minor deficiencies which have been considered amterial 
by On^R have been at least equal to the major ones. 

fiiat may be a genuine dif f erenoe of opinion bet ween 0IL8R and the developer 
en the materiality of a diacloeure can result in lengthy and costly adainistre- 
tive proceedings. Many of the developer'a reoocda may be suft}poanaad, as may 
the developer himeelf . He may be required to come to Nashington to defend hiae 
self or else make the requested changes irithout regard to their amrit. If he 
oppoeee OTLSR dictates, he risks having the registration a u apendad — which has 
the effect of stopping all sales at the developer's subdivision until the — il 
mants are made. If the developer decides to defend himself through the adaini- 
strative hearing process, it can be nearly three (3) months before his case ia 
heard by the HLD Adninistrative Law Judge, and up to 24 months before a final 
de c isio n is r ender e d. This means that after the developer haa undergone the 



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adtadiiiatzirt±«B pcooadlansv blM filing My atiU te murirtarl and 1» mUI stiU 
hawe to amend it. In the ■amtiBe, no wHbb Bay te mndb tntil tfaa a — nfled filing 
is again mate effective. 

Cn zeviBKing aont 19 Adniniatrative Lav oaees involving OZI£R, we find that 
the length of tine involved from the date of onfiR first notifying Urn dswelqper 
of alleged vioLaticns to Urn date of Urn final decisicn ranges fron 30 daiys 
(in one case only) to about 20 mnths, %«ith the average for the 19 oeses re v ifl w ed 
being about five and a half nontfas. However, this tine period does not include 
the tine the developer's filing nay be s u spended after the decision is r wdered 
and the tine it talces th& developer to prepare and sutnit the disclosures re- 
quired as a result of the decision, 

Ttae Deoaber 31, 1973 regulation revisione by dLSR required that all filings 
effective prior to that date nust be brought into ooBplianoe with the new rules 
at the tine an^ other anendnent %ies neoeesary. For eocanple, if the developer 
needed to amend his registraticn to ahow that a p ropoe e d golf oourse idould not 
be ccapleted vntil a year later than originally plamedr he %iould be required 
to anend his entire filing. The latest picjtxa sed OII£R regulation revisions con- 
tain a similar provision. In the case of both the 1973 rules and the forthooming 
revisicns, the foneat and ^laracteristics of the registration were and probably 
%dll be changed radically, making even thoee familiar %d.th the prooees releam 
the entire procedure through trial and error. 

OILSR, however, is not the only agency with which the developer must be 
involved. If he %fiahes to sell in more thai one state, he faces poesi b le regis- 
tration in most or all states where he %iiahee to market his subdivision. Aooord- 
ing to a 1976 survey (updated through June of this year) by the Land Developnent 
Institute, Ltd. — a oopy of which is attached as Exhibit C — 45 of the 50 states 
have some kind of registration requirement for developers offering or eelling 



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land to residents of a givn state «lwn the land offired mm not Inwffl wUhin 
the boKdezs o£ that state. State ragistzatian zequizcaeRts range frcM tte sul^ 
ndssion of basic informaticn about the subdivisicn, to ragistzations eqnillinfj 
or surpassing tte scope of the federal registzatlon. 2h additlGn, iw—tniB 
states have substantive regulatory reqpiirasRts, such as the pasting of bonds 
to assure conpleticn of project i nttt c w e m ents. And in several states, oofc-of- 
state land is considered a "security" and the dsvelaper met mdsrgo a fbll- 
soale securities registration in order to sell it. 

Gnly about ten of the states %«ith registration raqpiiroBBRts will aooipt as 
a natter of course the entire OUSR filing (Statenent of Raoocd and Pzoparty 
Report) in lieu of their own registration. As many as 15 additional states 
nay accept part of the OILSR filing, nay aooept it for one developer but not 
for another viithin their discretion, nay accept tte HUD Property n e p o tt but re- 
quire a separate "RBgistraticn Statenent" neeting certain state requizcnsRts, 
and other coBobinations. On tte other hand, although such states as Califnmia, 
Flxaridar Illinois, Michigan, Mimeeota, New Haopahire and New Yock have regis- 
tration requlreDBnts that either neet or eNoeed tte standards set by OUSR, 
tte federal regulations p rce e nt ly provide that only one state filing -* CSlifor* 
nia's — is aoceptable as neeting GU£R requireoBnts. And this casie about with 
reject to California only after OILSR, on Deua i Lex 5, 1975, l e w e iLa e d a dscisifln 
nade a year earlier in %ihich tte agency said it idould no longer aooept any filing 
made %d.th and accepted by m^ state. A nore detailed flMplanation of tte situa- 
tion in California is provided fay Mr. Sid M. Karah, preeident of Dart Itosoils 
and president of tte Western Developers Council, an association of Califooila 
real estate developers and land developmnt related oqipanies, in a letter earlier 
this year to tte Senate Select Ocmnittee on Staiall Business. Mr. Karah*s letter 
is attached as B}diibit D. 



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But what are the ooets tnvQlved to the developer of all this regulation? 
ften all is said and done, we estinate the developer probably will have qpent 
$25,000 to $100,000 on the registraticn procedure, including legal, aooounting 
and engineering expensee, staff tine and other ndsoellaneous expenses. That is, 
if he can afford a registration attorney > which mny snail developers feel they 
caimot. If he does the work hineelf , ithat he eaves in attorney's feee he will 
more than likely loee in time qpent on the registration. 

Attorneys tell us that tteir fees for registration for a snail developer 
camot be substantially less than for a large developer because the basic re- 
quirements for registration are the eame. Thus, the registraticn cost, on a 
per lot basis, is much higher for snail developers than for large developers. 



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OFFICE OF INTERSTATE LAND SALES REGISTRATION (OILSR, THB AGENCY) 
STATEMENT OF THE 
AMERICAN LAND DEVELOPMENT ASSOCIATI(»f (ALDA) 
PROPOSED REGULATIONS POLICY HBARIIK3 
JULY 17, 1978 

OPENING REMARKS ! 

I am William B. Ingersoll^ General Counsel for 
the American Land Development Association (ALDA, THE ASSOCIA- 
TION). Accompanying me today is George G. Potts, Cirector 
of Public Affairs for the Association. He appreciate this 
opportunity to testify on behalf of the Assocation concerning 
the OILSR*s proposed rules for registration of interstate 
land sales, as they appear in Part V of the Federal Register 
of June 1, 1978. 

The American Land Development Association (ALDA) 
represents leading national and international companies lihich 
develop recreational, resort, and residential real estate. 
Our members develop homes, condominiums, planned unit develop- 
ments, destination resorts, new and retirement communities, 
tinesbarin? facilities, mobile home parks, recreational 
vehicle parks and campgrounds. I should also point out 
that some of ALDA's member companies are lending institutions 
which provide financing for the industry or are actively 
engaged in developing properties of their own. You will 
undoubtedly receive testimony from many of our members in the 
course of these public hearings and by written statements 
during the comment period. 



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Sine* our tiae is liait«d, «m int«nd only to 
generally focus on a few areas of the proposed Regulations 
and followup this testiaony with more conprehensive written 

COBSMntS. 

I. Redefinition of "Sale" is "Ultra Vires " 

ALDA believes OILSR's redefinition of the term 
"Sale" as now proposed is without legitiaate legal basis. 
Uhen the redefinition of "Sale" was first published in the 
January 31, 1977 Federal Register, the stated rationale was 
for the purpose of extending the statute of limitations in 
fraud cases, based on %ihat OILSR termed a "theory" of an 
ongoing sale. Extending the statute of limitations so as to 
remove from an alleged perpeur^tor of fraud the benefit of 
his %n:ongdoing is a commpn judicial jremedY to be iisposed When 
circumstances of fraud warrant its use. 

. However, OILSR has not limited the redefinition to 
sales involving fraud only, but it has, in a most extraordinary 
fashion, expanded its "theory" to apply generally, thereby 
expanding the statute of limitations in every transaction. 
We believe this to be an arbitrary departure from judicial 
policy and one not supported by the legislative history of 
the Act. AIi)A previously addressed this issue in its 
written comments to the proposed regulations dated April 30, 
1977. 

In its newly proposed regulations, OILSR states 
no supportive judicial precedent under its o%m Act and it has 
no support in its o%m legislative history for the esqpanded 
definition of sale. Nevertheless, in attempting to support 



33-716 O - 78 - 20 

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its position, OILSR asserts for the first tine that its posi- 
tion is supported by cases under federal securities laws. 
ALDA would be pleased to have the citations for these cases, 
even though they are admittedly not based upon the Act itself, 
so that they may be reviewed by all interested parties. 
Particularly, it would be edifying to learn in what respects 
OILSR considers these security cases as precedent for the 
redefinition of **Sale**. lie believe, in fact, that OILSR 
may be erroneously dependent on cases and precedents based 
upon another statute administered by another federal agency, 
wholly without applicability to OILSR* s subject area. 

In summary, ALDA strongly opposes the proposed 
redefinition of "Sale" as unconsciencable, arbitrary, and 
without legal precedent. 
II. 24 CFR 1710.11 Extinction ; 

We think the proposed alteration of Section 1710.11 
eliminating the 120 day rule to deliver deeds is an unfortunate 
example of agency overkill without adequate factual substantia- 
tion. OILSR finds a potential danger to purchasers because 
sellers may encumber lots after the exemption is currently 
granted and the contract to purchase is signed. This is the 
first time that the Association has become aware that the 
OILSR 's current policy has generated problems of the type they 
refer to at all. OILSR has not shown statistically or other- 
wise that the benefits of its proposed rule will outweigh the 
harm to legitimate developers, especially small developers. 
This statutory exemption has been basically untouched since 



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the statute was first implemented. Nowhere has the Congress 
stated or even suggested that this exemption was being 
improperly used or adj&inistered. We would request that the 
agency carefully reconsider its proposed regulations regarding 
the crippling of this exemption to the point of practical 
extinction. 

Nevertheless, AIi)A applauds the agency decision to 
limit the annual filing requirement associated with this 
exemption and finds this new proposal both protective from 
the purchasers viewpoint and workable by developers. 

III. "Scattered Lot" Exemption (I7I0,I3j^b}(7j is step in the 
jp-i gb t _d i r e ct ion ■ 

The Association commends the OILSR for the effort 
expended in review of its existing regulations and policy 
concerning exemptions from the Act. We feel that the proposed 
new "scattered lot" exemption in Section 1710.13(b)(7) is 
a step in the right direction to solving one of the developers' 
and agency's most perplexing problems of coping with the con- 
cept of a "common pirQinotional plan", especially as it relates 
to the small (scattered site) developer. We feel that there 
are still problems which will require further explanation by 
the agency regarding this exemption and we intend to point 
these out in our written comments. 

IV. New "Limited Offering" Exemptions are Unduly Complicated i 

We find the new exemptions in Sections 1710.14 and 
1710.15 of the proposed regulations as unduly complicated, 
confusing, and restrictive. In light of the fact that these 



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proposals will rsplacs ths sxisting "liaitsd offering" 
tion, which is currently the easiest and most popular exsaptioa 
used by the small developer, we feel that these proposals should 
be broadened and sinplified. 

For example, ALDA believes the intention in Section 
1710.14 to limit the exemption to 150 lots is arbitrary and 
unnecessary. As with the current Section 1710.14(a)(2), 
the limitation should be at least 300 lots. The 300 lot 
limitation was previously believed by OILSR to be fully 
protective of consumer interests and we are not aware of any 
problems which should further limit the availability of this 
exemption. 

A. 14~day rescission period is outside of statutory 
authority . As to the 14-day cooling off period, ALDA is 
imaware of any statutory provision which grants OILSR the 
authority to provide for any rescission period not specifi- 
cally granted by Congress. 15 U.S.C. 1702(b), the only provi- 
sion granting OILSR authority to provide for exemptions, states 
that such a determination shall be based on two elements and 
two elements only: 

a. "The small amount involved, or 

b. The limited character of the public offering." 
OILSR, in stating its rationale for the 14-day rescission 
period, as **time necessary for a purchaser to determine whether 
the lot can be used for the purpose for which it is being 
acquired** establishes for the record that the rescission 
period is not proposed, even remotely, for either of the two 
permissible purposes. Furthermore, it is inconsistent with 



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thm entire vchMie of exmpting certain subdivisions for the 
expressed statutory purposes and siaultaneously imposing an 
arbitrary, and probably illegal, 14-day rescission period. 
V. New Filing Foraat — Good idea to simplify language, but 
cost to coBply not commensurate with proven benefits to 
purchasers . 

As to the new registration sections, including the 
new format and requirements for the Property Report and State- 
ment of Record, ALDA commends the efforts of the agency to 
simplify disclosure because we share a common believe that 
consumers should be able to understand disclosures to the 
greatest possible extent. 

While we concede that the new narrative disclosure 
format could be somewhat more understandable , we continue to 
seriously question the agency taking this course of action 
without first measuring the extraordinary costs associated with 
and the economic impact of requiring complete re-registration 
of all filings, at a cost of many millions of dollars to 
the industry- as a whole, weighed against the ultimate benefit 
to consumers. Simply stated, the OILSR has yet to produce 
any valid empirical evidence to support a rewriting of the 
registration requirements. 

A. Elimination of Financial Statements a Good Idea . 
Quite frankly, we feel that the most beneficial proposal in 
the new disclosure format is the elimination of complicated 
financial statements from the Property Report. We feel that 



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this simple proposal will do more to make tbm Property B^port 
readable and understandable to the consumer than all the other 
changes in format requirements. 

B. Cost Sheet Too Complex and Subject to Abuse . 
Furthermore, we must protest against the use of a "cost sheet" 
as being unworkable from the developers* perspective and 
misleading to consumers. 

C. "Red Warning" Provisions are Simplistic and 
Directly Contradictory to the Proposition of 

Cutting Down on Printing Costs . 
We must also protest the new proposals of boilerplate multiple 
red letter warnings to appear in the Property Report. We 
feel that numerous warnings throughout the Property Report 

will remove the intended emphasis to the consumer and will 
increase substantially the printing costs of the document, 
thereby more than offsetting the printing cost reduction 
realized by the one color cover page which OILSR realistically 
cited as justification for such a change. 
VI. Conclusion; ALDA Favors Real Simplification . 

This concludes our oral statement regarding the 
major concerns of the Association with the proposed regulations. 
We compliment the agency for having implemented many of our 
suggestions in these proposals. The Association will submit 
to the OILSR more detailed comments in writing prior to the 
August 31, 1978 deadline as extended. Thank you again for 
allowing us this opportunity to express the Assocation's 
views on the proposed rules and regulations. With an under- 
taking as important as this, we would suggest and pray that 
the final draft involve a much closer participation by the 
industry which will be most immediately impacted. 



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EXHIBITC 
IRBMBaCMI IMD CeVELOBBCr ASSOCIMTION 




m 



1. C T L C t C^T-3 



jL_C_T 



.t_L: 



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r-cLi.**-°^^ pu. 



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.£-3_UL 



t::n;r 



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LC-T*1 






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TTTT 
AL- 



KEY TO ABBKgVIATIOtil i C~Provlslens apply to cendoMlnlwHi Daela.-- DlscUlMri 
Dis. — Discretionary; pi--f«« footnota listad by statai L— Proviaiona apply to 
•ubdivldad landi OXLCll— Office of Zntaratata Land ialaa Kofiatration, aaaa raqulrmaanta 
aai OOS— Out-of-statat P/R— Patfaral Property Raporti Prehb.— Prohibited 1 T— Proviaiona 

apply to tiaa aharin^. .«„^ . AI — /^diticnal InfocitBticsn 

~*^ *'*-"'^'~"' required. 



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KEY TO ABBKgviATIOtiS t C— rrovlalons apply to eendoMiiilwHi Oaela.— Olaelalawt 

Dis.--Diacr«tionaryi r^'-9— footnote listod by atatoi L — ProvlalwM apply t« 

aubdividotf landi OILSR— Offiea of Intaratata Land Salo« »•« la trot Ion. mm m««1v 

aai oos--Out-of-atat«i r/K— PoMral Froporty Haporti Prehb.— Pt«iaklt««t T»Pff«vUiMC 

apply to tiM .barln,. ..^^ -c- ...„«« Aj - MdiUcml InfoOMtKl) 

requizvd 



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trrtKEflCE-COHPJ^ItJSOH CHART 

roomoTM 
(ty atat* or proviso* ) 



^llfomi* fllin^o for sitvo •ubdlvlaion* My bo *po«M« throofh* to 
OXLSIl/mo previdod eortola roqulroaonto aro aat. 

^Tbo loMl •tottt* of tiao ahorlnf anlto luidor tho Otocfio toevrltlo* Act !• 
untfotonilnod at this tiMot howovor, eortoin typos of offorinfs asy bs 



^sMoii sttthoritiss hsv* not snforesd eoaplsincs with foe. 4M*f R.ll.t 

Annual PspartI 
'Ail aspscta ot ^^roantional plana ars carsfuily ■onitorsd pursusat to 

tsc. 4l4-5(al(13) H.R.S. 
^Oirrontly, Wo. 



^•oe. 372A of tha Zllinoia Land Salsa Act haa boon intsrprotstf (ss of this 
writing) to sasopt condoaiiniuai and tiaw sharing units «fhich srs stsnd- 
inq and coavlsts or aa to «fhlch thsrs is a ls«ai oblifstien on tho part 
of t)M asllar to construct a buildinq within two ysars fron dots of 
diapoaition. 



^rroviaion appiicabl* only to offsrinqs which sro also oubjset to tho 

rsgistrstien roqvirsawnts of ths Xntsrststo Lsnd tslss Pvll Diselositro 
Act 15 U.f.C. 1701 St 22^. 

2yss, unlsss ths proMtion la apscifically dssignsd to rssch ths Leoisians 
■arkst. 



^Ths statua of tiaw sharing is not yst dstsrvinsd undsr ths Nsins toevritios 
Act. 

* New IJM cr ragulJitiorM qavmming Ivd mOm mmetmA during 1977. 

•* New laws or requlations governing land sales enacted so far in 1978. 



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*lm; tiM te«»lep«r can adirvrtiM in national poblieationa, tat mif •mhm 
LunaiMMiiil toy Naina raaidanta voald ba in violation of tlw toooritiaa 
Act unlaaa tlia davalopar ia ragiatarad. 

^ MRXCO 

^lla«iatration ia alac raquirad for eondeainivM and tiaa ahriaf if ttmf aia 

daaaad aacuritiaa. 
^Ne, if tha of faring ia a aaeurity. 

^llaaiatration oay ba raquirad for eondooini«M and tiaa ahariaf if tiMy ara 
hald to ba aacoritiaa. Ona "rifht-to-oaa* tioa-ahara of faring haa baaa 
ha Id to ba a aaeurity in OklahOM. ' 

Iforaai annual raporta ara not raquirad. but OM f2.MS previdaa that fllinf 

ioforaation for aubdiviaiona wat ba kapt currant, gacuritiaa rofia- 

trationa auat ba ra na wad aaeh yaar. 
2fai«a to Oragon raaidanta raaulting froo advartiaaaanta in national publi- 

eationa would ba in violation of tha law if tha davalopar ia not 

ragiatarad. 

PcmifYLVMilA ^ . 

iDavalopara ara allowad to ragiatar only an invantory of lota, unita or 
intaraata which thay can actually aall during an ll-aMnth pariod. 

^fubdividad land and condooiniuMa locatad within Tannaaaaa oay ba raquirad 
to ragiatar if tha of faring, takan aa a whola, involvaa tha of far or 
•ala of a aaeurity. 

^If condooiniuMa or ti»a aharing involva aaeurity intaraata, thoy oay ba 
raquirad to ragiatar with tha Taxaa Sacuritiaa Cn i i aaion. 

^ondoMiniwua would ba raquirad to ragiatar if tha offaring ia an "invaat- 

■ant contract* aaeurity. 

^iaa-aharad condooiniuiaa ara raquirad to ba ragiatarad. 

^Uxketemdned at this tine 

^Developers registered with OILSR or HUD nust sukinit a oopy of their HUD filing 
as part of the Virginia registration. 

ksondeminiiJiB are required to register unless the buildings are alzBady oQnstxuctad 
or there is a contractual obligation on the part of the aeller to OGnstxuct with- 
in two years. Tine shauring offerings may be required to register under the 
Securities Act if they are held to be securities. 

2 Ttiis type of advertising may not result in any part of a sale taking place 
in the state of Washington, including negotiations. 

CRNMft 

CKEARIO 

CXirrently, tiire sharing offerings are not permitted in the pcovinoe. 



TEXAS 



VASHINCTTGN. 



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RgpsiiiiiCE coNPARzsoii ouunr 

OOBSTXOHS MID ZNSTIIOCTXOIIS 



Liatad balow ar* tiM qusstlons which tmv subnlttad to th« stat* 
•aanclM in th« Onitad st^ta* «n4 C»n*d« which hav* juried iction or petontial 
juriadiction ovar tha ««:* ot 4ubdlvid*d land, condominium and tiwa aharing. 
A briaf axplanatlon of hew Anvwri hiv* b»n aat forth In tha Raforanca- 
Conparlaon Chart on pagaa 5-7 follows aach quaatlon whara naeaaaary. 



1. la thara a ragiatratlon raquiranant for tha of faring or aala of tha 
following, if loeatad 

Within tha Stata ~ 
Outaida tha Stata 



Titia 6h*riitq (T^ 



CHART: If th*r« i« * raqiitPAtlen raqulr«n«nt coLunn 1 will ihov 
"I," for subdividBd l«nd ^C far condomlntuniB ^ and *T' for tlPia 
aharing, a« applicibV* 1 th«ra ia no auch raquiranant for any 
of thaaa, tha column will show "No." 

2. Mut Buiwbar «r lota, units or intarasts trigger registration raquiramanta 
for subdivided I'nd ^ cofidoniiniuins (•)__ ^p tima aharing (>) 7 

CHAttTi column 2 will slkov tht fwlnlmum numbgr af lota, unita 

ar interasts for which ragiatrfttion is rsquirad «nd, aa naeaaaary, 

tha nujnbac for each typa of offering ^L< C. T> - HOTEt Sosia 

atates have different nusibers for in-atate and out-of-atata 

projecta. 

3. Are on-aite inapactiona required before an effective regiatration can be 

granted for subdivided land , condosiiniuMa , ti»e aharing 

7 

CHART ; Column 3 will show "Yes", "Ho" or "Dis." (Discretionary). 

4. Must annus 1 reports ht filed for regietered subdivided land » 
condoniaiufni » time sharing ? 

CKAflTi Column 4 will show "Yes", "Ho", "Dis," or the periodic 
occurrence of reports (e.g. every 6 months, 2 yeara, etc.). 

5. Is there a reecission period for purchaaere under the governing atatuta 
or reguletions for subdivided land « condominiuma » time 
sharing ? (If there is eny rescission period, whether conditional 
or unconditional, responae should be~TE8.) 



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i. MMt adyrtitiif iiaf riala b« approvtd or rm^immi prior to tiMir «m im 
tiM »^^ gpg laMiTJaoJ i«iid ooti^eiiiiiii— tlao ilr-'-- 

7 (Too, No, Dia.) 

7. Con • dovolopor iioil advortiooKonto into tho ototo tttm ootoido tiM 
without rofi«trotioo~7ne ooapony roprooontotivo it proooot io tiM ototolt 

I. Can o dovolopor odvortioo in notioool oobliootioiw (i.o. wai Jtroot Jwmt" 
nol, Tioo ) wittoot rofiatrotioo in yo«r •tSlo7 

/-Tyis /"Tnt mm nhtt oxscuoMn 
'-^ '^ <yo« w/ Docio.) 

f . Can • dovolopor oliooo <«oeh •• oaing • MMt lino) odvortiOMWito into tiM 
•toto froM ootaido tlio atato vithoot rogiatration (no Bowpinf roproooatotivo 
ia proaont in tha atata)? 

10. Do you prohibit or lioit tho offoring of gifta, prisoo, vooatioo oorti- 
f icataa or otkor aioilar incontivos to proapoctivo pvrohaooro? 

/"7»rohibit /"Tygs /"7i to 

2^iadt J^VW 27*10 

II. Will you aceapt a cartified copy of a davalopar'a affaetivo OXLfll/IIID 
Statoaont of Rooord and Property Roport aa a aubatituto far tlM ototo *• 
aubdiviaion rogistration roquirooonta? 

/TTES rj^ /"TblSCRCTIOIIARY /T^ROPCTTy RBTOKT OMLy(P/E) 



12. Can tha davolopor auboit an affoctiva Bxaaiption Advioory Opiaioo ia 

by OZLSR/HUD in liou of a full and eoaiplata atata aubdiviaion rogiotratioat 

^tt& iZ^ ^^ISCRETXOHARY 

13. Can a "raaarvation", "deposit", "option* or sioilar *indioation of 
intaraat* agraaoant bo uaad prior to porfoeting a rogiotratioA in yo«r ototo 
if auch agraoMnt providaa both that purehaaara nay withdraw freai tho ogroo- 

oont at any tioa without penalty and that all funda roooivod — "^ ^^ 

pent are placed in an independent truat or oeerow oooowtt? 

^VeS {ywO ^^ISCRETiaURY 



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EXHIBIT P 



750 Welch Koid, Suite 300 
Palo Alto, (A. 94304 (415) 329-1048 

WESTEfM DEVELOPERS COUNOL l» 



United States Senate 

Select Committee on Small Business 

Russell Senate Office Building 

Room 424 

Washington, D. C« 20510 

RE: OILSR Rules and Regulations 

Gentlemen: 

The following comments are submitted on behalf of Western 
Developers Council, an association of California land developers 
and land development related companies dedicated to responsibility 
in land development, and on behalf of its members and non^member 
business entities, both large and small, engaged in the develop- 
ment of land within California. 

In 1969, when the Interstate Land Sales Full Disclosure 
Act became effective, the question posed to the real estate 
industry was "Can we afford to not protect the vacant lot 
purchaser from fraud and misrepresentation perpetrated by 
the irresponsible land developer?". Today, the question is 
"Can we afford all this protection?". 

In California, we have watched the law expand to preempt 
State rights and to impose its filing requirements on small 
developers never originally contemplated to be under the purview 
of the Act for what seems to be the pure joy of expansion and 
imposition. 

Effective January 1, 1975, despite the protestations of 
the State of California Department of Real Estate, this association, 
and the real estate industry. Section 1710.26 of Part 1710, Title 
24, was amended to provide that no initial filings filed with 
and accepted by any State would be accepted as meeting the require- 
ments of OILSR. Previously, materials filed with and accepted by 
California, both for initial filings and amendments and consoli- 
dations, had been acceptable to OILSR. This amendment was adopted 



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750 Welch Ro.id, Suit* 300 

Palo Alto, (A. 94304 (415) 329-1048 ^^ 

WESTEfM DEVELOPERS COUNCIL I l Of w i i ww e er . ju if e m ■o o wm h w toi c o wr t m i i » H i ut m i ^% 

Page Two 

notwithstanding the fact that the substantive requirements of 
the California Department of Real Estate for issuance of a 
California Subdivision Public Report far exceeded the full 
disclosure requirements of OILSR in providing protection of 
the lot purchaser. Only after major concessions were made 
by the California DRE in the format and content of its Public 
Reports were initial filings made with California reinstated, 
on December 5, 1975, as federally acceptable. 

As part of its concessions, California agreed that all 
Public Reports for subdivisions which were required to be 
filed with OILSR, whether initial filings or amendments would 
be in the new format and contain the disclosures required by 
OILSR. However, due to a lack of consistency among OiLSR 
examiners as to what constitutes an acceptable disclosure in a 
California Public Report, and a lack of cooperation between 
OILSR and the State, the developer has on many occasions been 
faced with nitpicking of disclosures, rejection of Public Reports 
for minor deficiencies in disclosures, resultant delays excessive 
documentation, and added costs involved in satisfying OILSR 
directly or by re-2Uiiendment of the State Public Report. 

At tiroes it would seem that the success or failure of a 
developer is dependent upon the whim of the OILSR examiner. 
As a case on point, a material amendment was recently submitted 
to OTLSH after acceptance by the California DRE. As review of 
the material was not completed until the 30-day examination 
period had nearly expired, the examiner sent out a Notice of 
Suspension requesting additional information, rather than sulking 
such request by telephone as he had initially agreed to do. 
An explanation and additional documentation were sent to the 
examiner only to be met by further repeated delay in the review 
process even though the material submitted would have required 
not more than one hour of review time. 

What do these delays, rejections and requests for additional 
documents mean to the small developer? They mean escalating 
holding costs, added legal, accounting and consultant fees, loss 
of sales personnel, loss of potential sales and in many cases 
the cost of refiling with the DRE which includes both paysMnt 
of additional filing fees and the costs inherent in reprocessing. 
It is not unusual for these costs to be in the tens of thousands 
of dollars. Now, due to a recent OILSR policy decision, the 



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750 Italeh Rond, Suit* 300 
Palo Alto, CA. 94304 (415) 329-1048 

WESTBW DEVELOPERS COUNCIL liw f IW S i mt r . iU ll l t» MLWiW I U. UUJ^. WH4 ff T q>»y.llH ^jj^ 

Page Three 

developer also faces the added frustration of being unable to 
even obtain a status report by telephone. 

hs to the matter of the imposition of filing requirements 
on small developers, during the past year OILSR has had an 
investigative task force inspecting projects throughout 
California. Now the results of that investigation are being 
experienced as numerous developers of small projects are 
receiving notices that they are subject to the jurisdiction 
of OILSR. Who are these developers over whom OILSR has chosen 
to exercise jurisdiction? Among them are the following: 

a. A small developer who developed a subdivision of 
20 lots, all of which were sold out 2 to 3 years ago, and 
who has now developed another subdivision of 40 lots. OILSR 
contends there is a common promotional plan to sell 50 or 
more lots. 

b. A small developer who presently has 30 lots all 
of which are over 5 acres in size and therefore exempt 
from registration. The OILSR investigation disclosed 
that in the developer's previous subdivision, located 
approximately 20 miles from the present subdivision, and 
also consisting of approximately 30 lots all of which 
were supposedly 5 acres or more in size and all of which 
were sold out about 3 years ago, 2 lots were fractionally 
under 5 acres. 

c. At least 5 developers of small subdivisions within 
city limits, on the basis of over 50 lots, when the developers 
would not agree to sell not more than 20% of the lots as 
vacant lots. 

What does it cost a small developer to file with OILSR? 
Depending upon how much of the work the developer does, it may 
cost from $10,000 to $50,000 per filing. This includes account- 
ing costs that a small developer would not otherwise incur, such 
as costs for audited statements and budget projections, engineer- 
ing and legal fees, title costs, and the innumerable costs incurred 
in assembling the necessary information. 

In the final analysis, who suffers and who benefits from 
the all-encompassing protection of OILSR? The developer of 
course suffers. But so does the public - in the cost of the 



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750 Utleh Road, Suite 300 
Palo Alto, (.A. 94304 (415) 329-1048 

WESTBM DEVELOPERS COUNCIL uu/ tf iw Bimt l . SUl l t m WLMWt i iu. tauf . W iw t t W I < t 



Page Pour 

property which must be increased to cover the costs inposed on 
the developer. Who benefits? That is less easily an s w e red » 
and perhaps can only be answered by cost effectiveness studies. 

There comes a point in tine where we reach what econosdsts 
call the point of diminishing return. I believe we have reached 
that point and exceeded it by far in the matter of 0IL8R regula- 
tion. 

Sincerely, 



^/Jc 



S. M. KARSH 
President 



skKjC-am 



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Box 1006 

Ulw iMbdU. Cdilomk 

July 25. 1978 



Rules Docket Clerk 

Office of the Secretary of HUO 

Room 5216 

451 - 7th St. . S.M. 

Washington, D. C. 20410 

Dear Sir: 

Since 1964 we have developed and almost completely sold 517 lots; there 
are no partners or stockholders involved in any of our activities. We 
paid cash for all Improvenients and we bonded ourselves to the county and 
state to assure completion. 

All advertising snd promotional means were confined to the State of 
California. The 4 or 5 lots we did sell to California non-residents were 
visitors from other states vUUIf^^ frfehds and/or relatives and thay 
wsre given a complete vliual tour of the property. In fact lOOt of all 
buyers see the property before buying. 

There were several ways In which our tracts could have been exempted, two 
of which are as follows: 

1. Exemption because we had less than 300 lots, but because of 
some additional land I had which I might possibly develop. 
Mr. McDowell, Acting Dir. of OILSR,'Ttnes he definitely would 
not exempt. 

2, Statutory' exemption - If land Is free and clear, which ours was, 
but portions of the mineral rights are owned by the Federal 
Government, HUD will automatically deny It on these grounds. 

We offere<] to have HUO come and Inspec t the tracts and go ov«r out hooks 
If they wnted to. but under no clrcumitance* would t^ey consider tn 
eicci^ptlon even though It might appear that we are reputable developers. 

We have sol<l all lots at a reasonable price and all have appreciated 
from 25X to 75X and no more than a 10S comnlsslon has ever been paid to 
any realtor. 

We were notified, after all arguments were presented, that they 
DENIED each of our 3 tracts. 

We feel that small developers, such as we are, who do not highly 
advertise, do not pay high sales comnlsslons, do not sell to out-of- 
state residents but only to people who actually see the property, 
should be exempt and should not come under the Act. 

Sincerely. 

. SOUTHLAKE ESTATES 

Mb. Joughin, Owner. 



33-718 O - 78 - 21 



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316 

Mr. AuCoiN. Thank you, Mr. Belin. I appreciate your cooperation. 

Mr. Roberts, you are serving as vice chairman of the legislative com- 
mittee of the National Association of Realtors, and are accompanied 
by Al Abrahams. 

Do you intend to provide testimony, as well as Mr. Abrahams t 

Mr. Roberts. No, I will be providing testimony, Mr. Chairman. 

Mr. AuCoix. I welcome you to the subcommittee and look forward 
to your testimony. 

STATEHENT OF DAVID D. BOBEBTS, VICE CHAIBHAN, BEALTOBS 
LEGISLATIVE COMMITTEE, NATIONAL ASSOCIATION OF BEAL- 
TOBS, ACCOMPANIED B7 ALBEBT E. ABBAHAMS, STAFF VICE 
PBESIDENT 

Mr. Roberts. I will be brief. I have deleted a considerable propor- 
tion of my prepared remarks, in the interests of time. 

My name is David D. Roberts. I am a I'ealtor in Mobile, Ala., and 
vice chairman of the Realtors Legislative Committee of the National 
Association of Realtors. 

Accompanying me today is Albert E. Abrahams, staff vice president 
of the government affairs office of our association. 

Real estate brokerage, appraisal, management and other services 
have historically been provided by small enterprises. The 1974 Bureau 
of Census report on county business patterns shows that 91 percent of 
real estate establishments have less than 9 persons, and 80 percent have 
less than 4 persons. Moreover, the best estimates available to the in- 
dustry indicate that less than 20 percent of the business is concentrated 
in the 9 percent of the industry having more than 9 persons. 

Our own figures show that nearly 80 percent of the National Asso- 
ciation of Realtors is truly made up of small businessmen that are in- 
volved in numerous and varied activities, one of which is land 
development. 

We are opposed to the burdensome and complicated rules and ref- 
lations promulgated by OILSR which make interstate land sales regis- 
tration extremely difficult, expensive, time-consuming, and virtually 
impossible without costly legal, engineering, geological, and account- 
ing help. 

Furthermore, we are opposed to the manner in which OILSR has ex- 
tended the act to cover purely intrastate developments and the small, 
local land developer coverage never intended by Congress. 

The National Association of Realtors has testified several times this 
year before both Houses of Congress on how the administration of the 
act by OILSR adversely effects both the land sales industry and con- 
sumers alike — and especially consumers. 

This association strongly endorses Senator Nelson's amendments 
to the act, now section 715 of Senate-passed S. 3084, as a means of 
focusing OILSR's finite resources on the true interstate con artist, 
and as a means of limiting OILSR's assumed jurisdiction over intra- 
state and locally promoted subdivisions — those subdivisions never 
contemplated by Congress to be regulated. 

OILSR has also testified on this matter this year, and stated before 
the Senate Small Business Committee, that, quote: "We also have 



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317 

looked to the legislative history of the act for ^idance in jurisdic- 
tional questions" in reflating intrastate subdivision sales. 

The National Association of Realtors has also researched the com- 
mittee reports, the conference report, the floor debate, and the act 
itself, and finds no justification to support OILSR's regulatory in- 
trusion into the sale of intrastate or locally promoted land sales 
transactions. 

For the most part, the proposed regulations continue to ignore the 
fact tlwtt intrastate and locally promoted subdivisions were never 
intended by Congress to fall within the purview of the act. 

Section 715 of Senate bill 3084, the Nelson provisions of the Senate- 
passed version of the 1978 Housing and Community Development 
Act amendments, would let OILSR know just what Con^^ in- 
tended with resi^ct to intrastate sales when the act was originally 
enacted. 

Section 715 would require OILSR to administer the act as it was 
originally envisioned by Congress by codifying exemptions from 
registration imder the act for activities substantially conducted 
intrastate. 

Specifically, the Nelson amendments would exempt developers who 
sell substantially all their lots to purchasers residing in the State 
where the land is located. A developer may sell up to the greater of 
five lots or 5 percent of lots sold during a calendar year to out-of -State 
purchasers and still retain the exemption if the following conditions 
are met : 

First, the lot is free and clear of all encumbrances and liens; 
second, the purchaser has personally inspected the lot; and third, the 
seller submits himself to the jurisdiction of the courts of the pur- 
chaser's home State. 

The second exemption applies to the sale of lots to persons residing 
within 100 miles of the lots being purchased, but who happen to 
reside in another State. 

It simply gives the opportunity to the developer who lives in the 
environs of one or more additional States to use a normal market 
area in the same way that a developer selling lots in a strictly intra- 
state setting would have. 

In order to qualify under the 100-mile exemption, the developer 
must also meet the three conditions set out above and, in addition, 
must file a statement with HUD affirming that the conditions have 
been met 

Mr. Chairman, let me say that the Nelson provisions in S. 3084 do 
not attempt to rewrite or significantly amend the Interstate Land 
Sales Full Disclosure Act, as does the Minish bill H.K 12574. 

We have brought here today a brief comparison of the two bills 
that has already been distributed to subcommittee members and you 
will note from an examination of this comparison that there are very, 
very few, if any, conflicts between what the provisions are in the 
Nelson bill and the thrust of the Nelson bill, as opposed to the thrust 
of the Minish bill. 

The Nelson provisions carry out the basic intent of the law that 
was enacted in 1968, and no more. .These provisions are simple, and 
self-executing, and yet at the same time they provide the consumer 
with all of the protections against fraud now found in the act. 



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318 

Let me state further that this association has no objection to re- 
writing the act in order to get at the con artists who are fleecing the 
American public. However, the small, honest developer needs relief 
now, and that is why we urge this subcommittee to accept section 716 
of S. 3084 in conference. 

The Nelson provisions do nothing to detract from OILSR^s fraud 
jurisdiction over anyone engaging in fraudulent or deceptive land 
sales practices, be they interstate or intrastate. 

Under the current administration of the act, OILSR views itself 
as the "approver" of all subdivision development in this country. 
OILSR views itself as the "protector" of every potential lot pur- 
chaser in the United States. 

While that is admirable, it is an impossible feat. And by attempting 
the impossible, OILSR is doing very little to protect the consumer 
most vulnerable to interstate land sales fraud. 

The administration has requested additional enfo rcemen t powers 
for OILSR; however, this association contends that HUD now has 
adequate enforcement authority to prevent and prosecute fraud in 
interstate land sales transactions. But HUD's authority has not been 
used to prosecute violators, because OILSR has been too preoccupied 
regulating those never intended to be regulated. 

Under the current act, HUD is given powers to investi|2[ate, enjoin, 
and prosecute any violations of the act. In addition, section 1404(2) 
contains one of the broadest fraud provisions found in the United 
States Code. 

Even more striking, when analyzing the question of whether HUD's 
record in this area is due to inadequate powers or inadequate admin- 
istration, is that under the act, HUD has exactly the same enforce- 
ment powers as the Securities and Exchange Commission has under 
the Securities Act of 1988. 

The Commission, usin^ the same powers as HUD, has frequently 
prosecuted sale of stock in violation of the registration procedures, 
or in a fraudulent or misleading manner; has, under the courts' equity 
jurisdiction, asked for receivers for companies perpetrating a nuud 
on its shareholders; and obtained disgorgment of fraudulenUy 
^ined profits for investors and in oases of particularly abusive oon- 
auct; and has helped the Department of Ju^ice to criminally punish 
perpetrators. 

Again, this has been done with the same tools HUD currently has, 
the same access into the courts, and the same investigatory and subpena 
powers. 

I personally heard the testimony of a group of consumers before 
the Subcommittee on Greneral Oversight and Renegotiation on April 11, 
1978, on how they were victims of alled^ed fraudulent land sales in 
the Pocono Mountain area of Pennsylvania. We are very sympathetic 
to their grievances, as our membership is to any fraud victim. 

It is our understanding that those consumers were involved in sub- 
divisions which were registered with OILSR. That being the case, we 
ask: Why did not OII-/SR do something about such a fraud-prone 
development ^rea to verify completion of prcmiised facilities? And 
why did not OILSR utilize its existing enforcement authority to pros- 
ecute those violators ? 



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319 

This association, again, supports prosecution of all land sales con 
artists to the fuUest extent authorized by the law. 

And incidentally, Mr. Chairman, before I conclude — ^let me make 
this additional statement, which is not in our prepared statement. 

Even though it is not in our prepared statement, we want to go on 
record as being in full support oi the amendment offered by my Senator 
from Alabama, Senator Sparkman, exempting developments which are 
already regulated by local government agencies. 

Again, we appreciate this opportunity to express our views on this 
important matter, and that concludes my testimony. 

I Text resumes on p. 437.] 

[Mr. Roberts' prepared statement, on behalf of the National Associa- 
tion of Realtors, appears with the following additional material : A 
comparison of Nelson provisions of S. 3084 with Minish proposals of 
H.R. 12574 ; a statement of Albert E. Abrahams, staff vice president. 
Government Affairs Department, before Senate Committee on Bank- 
ing, Housing and Urban Affairs, May 26, 1978; and a statement of 
Mr. Roberts before House Committee on Banking, Finance and Urban 
Affairs, April 11, 1978, with attached correspondence.] 



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m 



NATIONAL ASSOCIATION OF REALTORS 

Tom Grant Jr. H. Jackson Ponttus 

idani EmmuIm Vloa PiMidOTi 

Alboft E. Abrahams, 8M Vios PiMidOTi 



REALTOR Govw»mant AfWrs 

92S 15lh SIraM. WasNnglon. O.C. 20006 
Talaphona 202 637 6800 



STATBKEMT OF 

DAVID D. ROBERTS 

VICE CHAIRHAM OF THE REALTOKS* LEGISLATIVE OOIMITTEE 

NATIONAL ASSOCIATION OF REALTORS* 

Before the 

House Coondttee on Benking, Finance and Urban Affairs 

Subcooalttee on Housing and Conaunlty Developaent 

HEARINGS ON THE INTERSTATE LAND SALES 

FULL DISCLOSURE ACT AND LEGISLATIVE 

PROPOSALS TO AMEND THE ACT 

August 2, 1978 



The NATIONAL ASSOCIATION OF REALTORS* Is co^>rlsed of sore then 
1,712 local boards of REALTORS* located In every state of the Union, the 
District of ColM^ia and Puerto Rico. Coabined aeabership of these boards 
is in excess of 600,000 persons actively engaged in sales, brokerage, ■enagMent, 
counseling, and appraisal of residential, coaaercial, industrial, recreational 
and fam real estate. The Association has the largest aeaibership of any 
association in the U.S. concerned with all facets of the real estate industry. 
Principal. officers include: Toa Grant, Jr., Preaident, Tulsa, Oklahoaa; 
Donald I. Hovde, First Vice President, Madison, Visconsin; and H. Jackson 
Pontius, Executive Vice President. Headquarters of the Association are 
at 430 North Michigan Avenue, Chicago, Illinois 60611. The Vashington 
office is located at 925 Fifteenth Street, N.V., Uashington, D.C. 20005. 
Telephone 202/637-6800. 



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My aaae is David D. Roberts of Mobile, AlebaM. I aa a BEALIOB* 
and the Vice Chairnan of the REALTORS^ Legislative Coomittee of the 
NATIONAL ASSOCIATION OF REALTORS*. Accoiq>anyiiig ae today is Albert 
E. Abrahams, Staff Vice President of the Government Affairs Department 
of our Association. 

The NATIONAL ASSOCIATION OF REALTORS* is pleased that you have called 
this hearing to receive testimony on the Interstate Land Sales Full 
Disclosure Act (ILSFDA) , the actions of the Department of Housing and Urban 
Development, Of f ice of Interstate Land Sales Registration (OILSR) , 
in JidmiD is taring that Act, and legislative proposals to amend the Act. 

The NATIONAL ASSOCIATION OF REALTORS* is comprised of 50 state 
Associations, and more than 1,712 local boards of REALTORS* located 
in every state of the Union, the District of Columbia, and Puerto Rico. 
Combined membership of these boards is in excess of 600,000 persons actively 
engaged in sales, brokerage, management, counseling, and appraisal of 
residential, commercial, industrial, recreational, and farm real 
estate. The activities of the Association's membership involve all 
aspects of the real estate industry, such as mortgage banking, home 
building, conmercial and residential real estate development, including 
development, construction and sales of condominiums. The Association haa 
the largest membership of any association in the United States concerned 
with all facets of the real estate industry. 

Real estate brokerage, appraisal, management and other services 
have historically been provided by small enterprises. The 197A Bureau of 
Census report on County Business Patterns shows that 91Z of real estate 
establishments have less than nine persons and 80Z have less than four. 
Moreover, the best estimates available to the industry indicate that 
less than 20% of the business is concentrated in the 9X of the Industry 



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322 



having aore tlm 9 persons. Our own figuros sliow that nearly 801 of 
tha MATIOMAL ASSOCIATION OF RSALTORS« la truly aada up of omII bualDasSMn 
that ara involved In nuneroua and varied actlvltiea, one of which la 
land developaent. 

This Association generally supported enactaant of the aiaple 
dladosure requireaents of the Interstate Land Sales Full Disclosure 
Act to protect consuaers froa fraudulent and deceptive Interstate land 
aales tranaactiona, especially Intaratate sales where purchasers had no 
opportunity to inspect or exaalne the land prior to purchaalng and no way 
of knowing whether the developer waa financially reaponslble for fulfilling 
coaaltaents proposed with respect to developing the land. 

We are, however, opposed to the burdensoae and co^>llcated rules 
and regulations proaulgated by OILSR which aake Interstate land aales 
registration extreaely difficult, expensive, tlae consualng and virtually 
iapossible without costly legal, engineering, geological and accounting 
help. Further, we are opposed to the aanner in which OILSR haa extended 
the Act to cover purely intra-state developaents and the saall local land 
developer, coverage never intended by Congress. 

The NATIONAL ASSOCIATION OF REALTORS* haa test if led several tlaea 
this year before both Houses of Congress on how the adalnistratlon of the 
ILSFDA by OILSR adversely effects both the land sales industry and 
consumers alike. This Association strongly endorses Senator Nelson's 
aaendaents to the Act, now Section 715 of Senate-passed S. 3084, as 
a aeans of focusing OILSR* s finite resources on the true Interstate coo- 
artist And •« a Mans of liaiting OILSR' s aasuaed Jurisdiction over 
intra-state and locally proaoted subdivisions — those subdivisions 
never conteaplated by Congress to be regulated. 



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OILSR has also tastlfUd on this asttsr this yosr and statad bafora 
tha Sanata Saall Buainaaa CoHilttaa that "Wa also have lookad to tha 
legislative history of tha Act for guidance in Jurisdictional quaatlona*' 
in regulating Intranstate aubdlvlslon salaa. We have reaearchad the 
CoHilttee reports, tha Conference Report, the floor debate and tha Act 
itaalf and find no Juitiflcatioa to support OILSR*s regulatory intrualon 
into the aala of intranstate or locally promoted land aalaa tranaactions. 

On June 1, 1978 OILSR publiahad in tha Federal Register revised 
rules and regulations to ImpleMnt tha ILSFDA. Before publication OILSR 
proniaed aimplification of the registration process and a reduction 
of the paperwork burdens now laposed by OILSR on those seeking to conply 
with the Act. That is sinply not the case with the proposed regulation. 

While it appeara that the revised rules and regulationa are better organized 
in format and readibility, overall there is little re4l»ction of the oneroua 
disclosure requirements and paperwork burdena in the proposed regulations. It 
appears that the cost of compliance has not been reduced to any meaningful 
extent. For example, just the simple proposed provision to require additional 
red-ink consumer warnings throughout the property report alone would add 
administrative headaches and additional cost to the already harrassed 
developer and without any additional meaningful protection for the consumer. 

For the moat part, the proposed regulationa continue to ignore the 
fact that intranstate and locally promoted aubdivisions were never 
intended by Congress to fall within the purview of the Act. To illustrate 
how OILSR continues to ignore the law, the proposed regulations would 
require a 14 day purchaser' a right to revocation aa a condition for 
two of OILSR' s proposed regulatory exemptions. This Association seriously 
questions under what authority OILSR is acting since Section 1404(b) of the 



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Statute provides for a 3 day revocation period. OILSR is sMsre of this 
statutory requirenent and, in fact, as a part of the Adadnistratioa^s 1978 
Housing and Conmunity Development legislative package, has requested 
a statutory increase to a 14 day recission period. By regulation OILSR 
is again attempting to legislate by administrative fiat, just es it has 
in its assumed Jurisdiction over intranstate land transactions. Congress 
must take action to rein OILSR* s runaway administrative authority. 

Section 715 of S. 308A, the Nelson provisions* -of the 
Senate passed version of the 1978 Housing and Conmunity Development Act 
amendments would let OILSR know Just what Congress intended with respect 
to intranstate land sales when the Act was originally enacted. Section 715 
would require OILSR to administer the ILSFDA as it was originally envisioned by 
Congress by codifying exemptions from registration under the ILSFDA 
for activities substantially conducted intranstate. Specifically, the 
Nelson amendments would exempt developers who sell substantially all 
their lots to purchasers residing in the state vhere the land ia located. 
A developer may sell up to the greater of 5 lots or 5Z.of lots sold 
during a calendar year to out of state purchasers and still retain this 
exemption if the following conditions are met: 

(1) The lot is free and clear of all encumbrances and liens, 

(2) The purchaser has personally inspected the lot, and 

(3) The seller submits himself to the Jurisdiction of the 

courts of the purchaser's home state. 

The second exemption applies to the sale of lots to persons residing 
within 100 miles of the lots being purchased but who happen to reside in 
another state. It simply gives the opportunity to the developer who 
lives in the environs of one or more additional states to use a normal 
product area in the same way that a developer selling lots in a strictly 
intra-state setting would have. In order to qualify under the 100 mile 
exemption, the developer must also meet the three conditions 
set out above and, in addition, must file a statement with HUD affirming 
that the conditions have been met. 



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Mr. Chairman, let mm say that tha Halsoo provialona in S. 3084 do not atteaq>t 
to re-write or significantly aaend the Interstate Land Sales Full Disclosure 
Act, as do the Minish bill, H.R. 12574, and the Administration request 
contained in H.R. 11265. The Nelson provisions carry out the basic intent 
of the lav as it vas enacted in 1968 and no more. These provisions are 
simple and self -executing and yet at the same time they provide the consumer 
with all of the protection against fraud now found in the ILSFDA. The 
Nelson provisions do not require a battery of lawyers to administer nor do 
they require volumes of regulations to put them into effect. 

I might Just add parenthetically that perhaps one of the reasons there 
is objection to the Nelson amendments is that they are simple; simplicity 
does not seem to be readily understood in this overconplex world in vrhich 
we live. 

The Nelson provisions give the smaller developer a chance to remain in 
existence while retaining OILSR Jurisdiction over that developer. As 
Just one example, there have been any number of criticism made of the 100 
mile radius exemption. For years. Federal Savings and Loan Associations 
have been prohibited by law from making loans more than 100 miles from the 
S&L's main office. As far as we are able to determine this self-executing 
statutory requirement on S&L's, has never posed any great difficulty 
for the Home Loan Bank Board in carrying out its regulatory authority 
over those institutions. 

Let me state further, this Association has no objection to re-writing the 
ILSFDA in order to get at the minority of those con-artist that are fleecing 
the American public. However, the small honest developer needs relief 
now and that is why we urge this Committee to accept Section 715 of S. 3084 
in conference. 



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Pennsylvania. Uc arc very syapathatlc to their Kti evmcee as omt 
■eabershlp la to any fraud vlctla. It la our onderstandlag tliat 
thoae conauMara vera Involved In aubdlvialona which were regiatered 
with OILSR. That being the ceae, we eak vhy did not 0IL8R do 
aoaathlng about such a fraud prone developaent area to verify 
coapletlon of proalaed fadlltlea and vhy did not OILS! otllise 
Its existing enforceaent authority to proaecute thoee violatorat 

Aa I have already auggeated, OILSR takea the attitude that if 
It reglatera all subdivision developaant In the United Statea, 
fraudulent land aalea practlcea will be ellalnated. 8o«aver» ea 
ahown by the Pocooo Mountain caae, regiatratloa with HDD In aad 
of Itaelf doea not prevent coasunera fros loalng their laveataaata. 
In fact. In caaea auch aa thla, only quick and coovlaclng 
proaecutloa of fraud can hope to atop or at leaat m< »«<■<*• counmttT 
loaaea. Viewed In thla- perspective, the lelaon ■■■■tif lian do not 
deprive the conauBer of any of the atroog fraud protectiooa provided 
by the law today. It la not the fault of the law that proaecutloo 
failed: the failure caae froa the Inability of the hvreaocrata to 
exerdae their power end carry through with the proaecwtioe. 

Only through the cooadcntloua cnforccaeat of the Act* a civil 
and crislnal fraud provlalona can frandulcnt aad deceptive lead 
sales practices be eradicated. OILSK now has adequate eaforcaamt 
powers and it la tlae that those pcwers be effectively utilised. 

This Asacclatlon supp«?rts prosecution of all Land aalea 
coo-art lets to the fullest extent autborlxed by Law. 

As stated, this Assoc iat ice teat if led tefore on the ILSfttA and 
the acticos c>f the ST? Office of Interstate Land Sales leglscntioo 
la a±aiaist«riag the J^t. 1 wwtli like to cffer for the record thia 



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m 



NATIONAL ASSOCIATION OF REALTORS 

Tom Qrwt. Jr. H. Jwhson P cnBMt 

•idsni EMGuCtfc Vim PimMim 

ABMrt €. Abrahamt. Siif VIM PiMidwi 



REALTOR 92S iSlh SliMt, WfetNnglon. O.C. 20006 

T«lipho(w202 837 6800 



STATBHEMT OF 

ALBERT E. ABIAHAMS 

STAFF VICE PRBSIDEIIT 
GOVERlMBirr AFFAIRS DEFAR1MEMT 

NATIOMAL ASSOCIATION OF REALTORS* 

B«for« th« 

Senate Coialttee on Banking, Houalng and Urb«n Affalra 

OVERSIGHT HEARINGS OH INTERSTATE LAND SALES 

May 26, 1978 



The NATIONAL ASSOCIATION OF REALTORS* la co^rlacd of aora than 1,712 local 
boarda of REALTORS* located In every State of the Union, the Dlatrlct of Coluabia and 
Puerto Rico. Conblned Beaberahlp of theae boarda la In exceaa of 600,000 persons 
actively engaged In aalea, brokerage, ■anageaent, counaellng, and appraisal of 
residential, coaBercial, Induatrlal, recreational and fern real aetata. The Association 
haa the largeat Beaberahlp of any aaaociatlon in the U.S. concerned with all faceta 
of the real eatate Induatry. Principal officera Include: Ton Grent, Jr., President 
Tulsa, Oklahoma; Donald I. Bovde, Flrat Vice Preaident, Nadlaon, Ulaconain; and 
H. Jackson Pontlua, Executive Vice Preaident. Headquartera of the Association are at 
430 North Michigan Avenue, Chicago, Illlnola 60611. The Washington office is located 
at 925 15th Street, N.V., Waahlngton, D.C. 20005. Telephone 202/637-6800. 



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Hj iMM is Albert B. AbralMM «ad I «■ Staff Vice PrMidmt of BATIOHAL A8S0CIATIGM 
OP RBALTOtS, CCTvri— nt Affairs Dapartant. AccoHpaajlng m today la Dudley L. 0*Maal,Jr., 
of the staff of tha Co vma ant Affairs OapartaMit of our Association. 

Tha HATIOMAL ASSOCIATIGM OF RBALTORM la coaprlaad of SO Stata AaaocUtlona, and 
■ore than 1,712 local boarda of RBALTORM located In every State of the Onion, the 
Dlatrlct of Coluabla and Puerto Rico. Coeblned nenbershlp of theae boarda la nearly 
600,000 peraona actively engaged In aalea, brokerage, tsanagaaant, counaellng, and 
appralaal of realdentlal, coaBsrclal, Industrial, recreational, and fern real aetata. 
The actlvltlea of the Aaaoclatlon'a asaberehlp Involve ell aapecta of the raal 
eatate Induatry, such aa nortgage banking, hoaa building, coaBsrclal and realdentlal 
real estate developaent , Including developaent, conatructlon and aalea of condoalnluaa. 
The Aasoclatlon haa the largeat asabershlp of any aaaoclatlon In the United Statea 
concerned with all facets of the rsal eatate Induatry. 

While I do not wlah to leave the lapreaalon that every asaber of our Aaaoclatlon 
la Involved In land developaant, nany REALTORS* are Involved In aelllng hoaMltea In 
their own cosaunltlea and Statea, and are deeply concerned ebout the Interatate Lend 
Salea F^ll Dlaclosure Act (IL8PDA) and the edalnlatratlon of that Act by the Office 
of Interstate Land Salea Reglatratlon (OILSR) . 

The HATIOMAL ASSOCIATION OP REALTORS* would like to take thla opportunity to 
conpllaent this Cossd-ttee for including the provisions of S. 2716 In S. 3084, the 
Housing snd Coammlty Developaant Act Aaendnants of 1978. 

Tou have struck a rsallstlc blow against assuaed adalnlatratlve authority, 
regulations, paperwork and bureaucratic red-tape which aerloualy lapede and fruatrate 
the saall buslnessnan. 

It la not Just a President of the United States, Mr. Chalman, who nay uaurp 
authority not expressly granted hla by the Constitution and by atatute. The Pederal 
bureaucrat has done his own fair share of that, sway froa the llaellght of public 
attention, burrowing deep in the lapcnetrable Pederal Reglatcr. 



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Hmm fnMtratloMsrc »$gnmfd cvm worm iiImb maall liiiliiii—i mn >rmi|Pir vater 
• h»mwj IMsral haod not by Controssienal lat«at, hat by nlAtiirtly i«>rH1i< ■ialBliiriltw 
lAtti>T«utlMi* of th« Um. CoBgroM, M wtll M FTMidoDt CsTtsr, 1« OS tM r«G«vi 
with tho oxprcoood dooirc to lift this Fodorol yoko fros tho mall \nMiiM9mmm la 
portlcttUr. By lacludlag tho provision of tho Moloon bill la S. 9064, this Coandttoo 
of foro tho Coagrooo tho opportimlty to troaolato nordo lato octloo. Warn aoay othor 
tlaoo hovo you doao thot this yoor, vlth • chaaco to aoko yovr actioa rWlly otlekT 

Wa ap^oclato this oddltlonsl opportualty to proooat tootlaoay oa tho ZLSTIMk oai 
Soaator MoUoa's bill, S. 2716, ovoa thoogh It la ovr hopo that thia hasrlag 
vlll not boeoM s woapon fsshloood to rcjoct at a lator tlas irtMt tho OosBittaa baa 
alroady doao In ouch oa ovomholalat aad poaltlvo faahloa. 

ma aaad for roglstratloa aad laforaatloa on proapaeUva lataratato land aalaa 
traaaactlooo aaa justlflad whoa tho Act croatlag OZLSR paaaad la 19M. It oppllaa todoy 
aa nail. Tho orlglaal atatato appllad to tho lagally oaprotaetad raaidaat of om atata 
1*0, far rMovad froa tha acaaa of a pro ap o c tl^o load pvrchaaa, aaa aapcotaecad by tha 

laws of hia or bar ova stata. Maqr of tha lota ianvalvad «bm raoraatlaaal aad niiii 

la eharactor, thoo addlag to tha petaatlal hardship for tha paraoa la daafsr of baiat 
dafravdad. Accordiagly, tho lAIKMAL AggOCUnOH GV UALXOBta s a pportad tha erigiaal 
purpoooo of tho 19M Act. Ho coatlauo to do so. 

As our vltaaoooa havo told tho Booss of lapraaoatatlTos, aa aro villiat to coaaidar 
holpful changss that doal with roal fraud In Intarststo trsaaactloaa. 

iut without say llaitatlon on HDD's llaitloss horlsoaa, no offaetlwa oaforcoaaat 
eaa caault today abort of sa sray of oaforcoasat officials waarlag fadaral badysa aad 
saakiag to protact avary tlay trsaaactioa la tho SO otato^ thara la aad eaa ba ao 
offactivo asana of oaforclag tho aoro coaplos aad difficult latarotata caaaa. 

HDD's rasourcos today caaaot haadlo tho hard-tn aonsgs latarstata fraad caaaa. 
HDD could do hotter if thoy Just Uft tho latr»*atata fiald to tte atatac. 

Tho HATKXAL ASgOCIATIGM Of RBALTOKM addrassad thaaa aattars la dataU aad la 
dopth whoa wa sppasrod boforc this fnaalttas In coaaactloa with tho ROD sathorisatioa 



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UMXmUtlam for f!Ueal 1979 m Mtfch U. 1978. Ili MspMCfeUy x«f«r tte OoMdttM 
CO our vrlttoa otacoMOt oad oddoada oubalccod ot thot tlm. 

Tho IUID4 which to odBliilotorod hy tho BOD Of f leo of latorototo Uad Siaoo 
loglocrotioo (OlUt) «M lalclally oaaetod la 1968 to protaet cooouanra froa fraad- 
uloat aad dacaptivc lataratata laad aalaa traaaactloaa. 

Tha aala objactivaa of cha Act warat 

1. To protaet cooaoaara purchaolng laad axclualiraly la lataratata coaaarea 
hy raqairlng that aach porchaaar ba provldad vlth a dlaeloaora atataaaat ratndlag 
tha paoparty; aad 

2. To allow cooauMra who aay hava lagal clalao agalaat out of atata davalopara to 
•aa tha davalopar la tha coaauaara'a raaldaat atata. 

Coagraaa racopilsad that thaaa two coacama vara aot ralavoat la puraly latra-atata 
aalaa of lota aad accordingly graotad BOD authority to axaapt thoaa aalaa which 
wara llaJrad la aatura. 

Addltloaally. tha aala or laaaa of raal aatata lAlch la fraa aad claar of all 
aacuabraacaa aad which tha purchaaar or hla or har apouaa aada a paraoaal oa-^lta 
laapactlon of tha proparty to ba purehaaad la corraatly axaapt froa tha Act* a 
raglatratlon raqulroMnta. It waa ballarad by tha draftara of tha Act that tha on-alte 
laapactloa aad tha fraa and claar title wara aofficlaat la provldiag adaquata laforaatlon 
aad protactlon for tha buyer. 

Theae aseaptlona ware to pemlt nail davelopara aalllag lota to their local 
dlaatele to be unlapedad by aubataatlve dlacloaura requlranenta- either becauae their 
offering waa of a Halted nature or bacauaa needed Inforaatloa could be dlacemed 
through peraonal on-alte Inapactlona. In eaaance, thaaa exaaptlona ware to allow 
local aalaa oparatlona, thoae never Intended to be regulated, to fall outalda tha 
raglatratlon and reporting Jurladlctlon of OILSR. 

In the 10 yeara aince enactaant, however, there haa been little. If aay, Congreaaional 
review or overaight of the Act or of the adainiatration of tha Act by OILSK until thla 
year. During that period, OILSX haa by Ita own perceived authority extended the Act to 
cover all land aalea, Intra-atate tranaactlona aa well aa inter atate . In fact, OILSK 



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340 



Appears to ▼!«« its role as a Federal licenaing bvrea« for all lead davelofamt. Ikim 
aaeuMOd Jurisdiction goes far beyond the Intent of Congrasa and aevaralj aai advaraaly 
effects those snail land developers never Intended to be coverad hy the Act. Ihaaa aaall 
developers are slaply being forced out of business, or they are holding thair lota 
off Che aarket, or they are narketlng their lota to honsbulldera only to avoid this 
regulatory labyrinth. Such actions adversely affect the conauaer by deriving kia 
Che right of choice or by driving up the coat of lota without any valna being a d ded. 

After hearings and careful consideration earlier thla year of OlLSl'a actiona 
Senator Nelson. Chalrnan of the Select Cossd-ttee on Snail Buainaaa, on March 10 
Introduced a bill, S.2716, to anend the ILSFDA. 

Generally, the Nelson bill would require OILSl to adniniatar the ILSPDA aa it waa 
originally Intended by Congreaa by codifying eze^>tiona fron regiatration under tha 
ILSFDA for activities aufaatnatially conducted Intra-atata. Specifically, tha Malaoo 
ansndnents would exenpt developers who sell onba tan tiaUy all their lota to pnrch a aa r a 
residing in the state where the land ia located. A developer nay sell up to tha graatar 
of 5 lots or 5Z of lots sold during a calendar year to out^f^tata purchaaara and 
still retsln this exenption if tha following conditions are net: 

(1) The lot is free and dear of all ancuaibrancM end liana, 

(2) The purchaacr haa peraonally inapactad the lot, and 

(3) The seller subnlts hinself to the Jurisdiction of the courts of tha 
purchaser's hone state. 

The second exeaption appllea to the sale of lota to paraona raaidiag within 100 
nilss of the lots being purchased but who happen to raalde in another atata. 
It siaply givaa tha opportunity to the developer who livea in tha anvlrooa of am 
of nor a additional statea to uae a nomal product area in tha aaaa way that a d«v«lop«r 
selling lots In a strictly Intra-state setting would have. Are there protacCiona for tha 
coosunsr in this exenption under the terns of the Helson saendnent •• adoptad hj 
your CoiMlttee? Tou bet I The sane safeguarda without the red-tape. For, in order to 
qualify under the 100 nile exeaption, the developer nuat alao aaet tha three conditiona 
set out above and, in addition, nust file a stateaent with HUD affiralng that tha conditiona 
have been net. 



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Th« Itolsoo i— ad— nf would also provld* technical chaag«fl In th« Act In ordar 
to bring aora raaaonablanaaa Into OILSK's rulaa, ragulatlona and Intarpratationa of 
tha Act. For axaapla, tha aaandaanta would (1) aaka it daar that condoniniuna ara 
not undar tha Act; (2) naka It daar tha tax«a "liana**, "ancunbrancaa** , and "advaraa 
claiaa** do not rafar to tha U.S. Patanta or othar aiailar Federal granta or raaanrationa 
which ara ainilar in affect to govarnaant'a right of aainant doaain; (3) direct OILSK 
to conduct its proceedinga in coaplianca with tha Adminiatrativa Frocedurea Act; and 
(4) define tha terwa "aala or leaaa** aa occurring at tha tine whan a contractual 
relationahip ia created between tha developer and purchaaar, thua clearing up an area 
where OILSR haa been free to uae whatever interpretation it haa found noat favorable 
to ita continuing ragulationa of land aalea. 

In addition, a technical aMndaant which ia aupported by the HATIOMAL ASSOCIATIOM 
OF REALTORS* waa added by Senator Tower during CoHd.ttae conaideration of the Malaon 



In 1974, the Act waa aaandad to exempt induatrial and coivarcial land. OILSR, 
however, refuaea to parait the exeaptiona unlaaa tha land in queation ia apecifically 
sonad for induatrial or coaaarcial developaent. Conaequently, any coaaarcial or 
induatrial developaent property in a aunicipelity without soning authority would be 
unable to qualify for thia exeaption. During Coaaittee conaideration of tha Nelaon 
■aendaenta, the Tower aaandaant waa accepted to correct thia inequity. 

Several aiaconceptiona have ariaen with reapect to the Malaon proviaiona. I 
would like now to eddreaa thoaa aiaconceptiona in an effort to aet the record atraight. 

It haa been contended that tha Melaon aaandaenta will not only exeapt local 
developera, under certain conditiona, froa the regiatration requireaente of tha Act, 
but, will alao exeapt thoaa developera froa the anti-fraud proviaiona of the Act. 
Thia waa never the intent of Senator Melaon and thia Coaaittee in edopting 
tha Melaon aaandaenta aada it clear in tha aaending language that the anti- 
fraud nroviaion of the Act would apply to the Melacn exeaption. 

It haa alao been contended that the Nelaon exeaptiona will create aiaunder a tending 
and confuaion and will cauae adainiatrative headachea with reapect to coaputing the 100 



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■lie r«dittt «seiq>tloa. The ■•Ison •xnptioM ar* siapU aai Mlf-«Meaelac aai Mvctn 
only the Isaac aaount of adalnlatratlva ovcrviov. Tbaa« •xaaptlofts will not raviira 
• fmm of lawjrors to interpret statutory daflaltlona mmi l angua ta iiliich la aaay caaaa 
laads to Intarprctationa of aa Act oppoalta fro* that lataodad by Coagraaa. It 
allalnataa tha naad for adalaiatratlva rulas and retulatlona to InplaMnt tha axaaptlana. 
Tha davalopar and tha purchaser by ualag "a string snd a asp** can datacalna irtMthar 
tha sxaaptloa la applicable. If tha exeaptlon la applicable, the davalcpar fUaa with 
HDD advising the aale has been nsde under the ftMaptlon. And, If the davalepar falla to 
conform with any of the requlrcaents of the exaaptlon he la aubjact to civil aa wall m 
criminal penalties under the Act and action aay be brought either by the purchaaar, lOD, 
or both. 

Tha Nelson saendaents, becsuse they are siaple and salf-iapleaantlag, have baaa 
described as rsising s nuaber of substsntial concama and problaaa la adalalatarlag tha 
Act. Thla argument ignorea the fact that it waa never the Intent of Coagraaa that 
sasll land developers wars to bs covered by the Act; yet, OlLgR refnaaa to racogpilaa 
that Intent. The Nelson eaendaent now seeks to codify the exaaptloaa providad la tba 
original Act so those natters ere not left to adalnlatratlva laterpatatloa, ralaa aai 
regulations but aay be diacemed by an average dtlsan without raaortiat to laayaro aai 
accountants. 

Let ae ststs sgsln, that the Nelson saendaents ere plainly wrlttoa and aalf- 
executing in order to accoapllah two valuable alaa: (1) to allow thoaa aavar lataadad 
to be covered by ILSFDA to fall outside of OILgl's Jurisdiction and (2) to raaota tha 
bureaucratic burden of exceasivs paperwork, coats, and deleys froate backa of 
aaall buainaaaaan. The Nelaon exeaptlooa apply only to thaaa aaall haalaaaaBaa. 
never intended to be regulated and not to tha typically larger lataratata davaloyara 
relying on ** interstate comaerce" to proaote their subdivisions. 

Considering that 53Z of all subdlvlsloas fUing with OILgK in tha laat two yaara 
ware subdivisions of 100 lots or less end thet these subdlvlalona, la OZLgR'a oaa 
words, "...are frsquentlT proaoted locally and are aeldoa charactarlsad by high 
pressure ssles, giaaicks, aass msil solicitatiooa and **IIATS'* line oparafeloaa. thna 



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iMrrantlat 1m« f«d«r«l iwrolvwMt («aphuls addad)**. it apTMrs to a* that OZLSR i» 
clMTly dcvlaclng fro* Its CoBtrMsienally ■■nitifd priority of protoctlag coooianro 
fro* docoptlvo and f r o tt dul o nt latorotato laad mIoo tronooeciono. IB fact, OZLSR 
haa tastlf lad that "glvan tba typical eharactarlatlca of tha proaotloo of sMllar 
aubdlTlslons and tha fact that tha nuAar of coaouMra Imrolvad la llaltad, urn hallava 
that staff tlas could ha aora af fleloatly uaad In raglacarlag and aaeurlng eoapllaaca 
with tha Act by largar auhdlTlalooa". 

Uhlla OILSK racopilsaa that tha proaotlon of anallar local aiAdlvlaloaa ara 
aaldon charactarlsad hy thoaa aalaa tachBlqoaa «hlch originally proaptad tha ILSFD Act 
end that tha nui^ar of conaunars Involvad in snallar aubdlvlslona la llaltad, that office 
coatlouaa to preoccupy Itaalf vlth the regulation of theae snallar subdivisions st tha 
coat of alloirliig conaunars to be continued to be fleeced by thoaa fraudulent Interststs 
land sales operators ubo the Act vaa Intended to regulate. 

Because the Act has never bean applied aa a flrat priority to «aad out fraudulent 
and deceptive lateratate land aales tranaactlona, thla Aaaoclatlon aaea no aarlt In OILSt'a 
poaltlon that stronger enforcenent poiiera are naaded to aacure eonpllance under the Act 
for large Intaratate land salea oparatlona. 

Itotvlthataadlng, tha RATIQiUL AStOCIATIGM OP RBALTOIS* would Ilka to naka the 
following obaenratlona reletlve to tha Adalnlatratlon*a ILSFDA anendnanta contained In 
Title IV of 8. 2637. 

Section 421 would redefine a aubdlvlslon coning within tha punrlaw of ths Act — 
land which la divided or propoaad to be divided Into 100 or nore lota, rather than 50 
In preaent law. 

Ue wlah to naka It abaolutely clear that thla Aaaoclatlon aupports steps to renove 
snail local "Intra-atate** land developnenta fron OILSl*s Jurisdiction. This anandaant 
could be helpful In achieving that aln. However, In tha abaence of the Melaon saendnent 
and ao long aa OILS! i.uaas tha so-called "coaaon proaotlonal plan". I.e., any fom of 
coBBon ownerahlp, advertising. Inventory, financing, aalea agent or aalaa offlcea, to 
aggregate lots In purely Intra-stete sltuatlona aa a aeana of bringing aaall aubdlvlslons 



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uadar ths Act, thia aMndMnc would only dmlMj thm timm la uhlcii MibdlvlaioM mn >rmi|Pir 
under eh* Act. I ••«»• you chat aoat aaall d«valop«rfl ifork out of om offictt* possibly 
thoir hoaa, «ad theroforc aro novor out of OILSE'o roach. If stops aso takon to wtmnn 
puroly intra-otatc ■ubdlviaiooa fro* OILSR*s juriadlctloo without tha futuro thraat of 
having tboaa subdlvl«ion« aggragatad by OILSl haaad on a aat of aala-orlontod i, n— rwtl itiaa 
which a HMll davalopar will alwaya aaploy, than tha pro p oaod ■■■ndint could ho aoot 
banafldal, as It would paxmit OILSR to concontrata its actions on tho lart* latacatata 
land davelopaants which was tha intsndad focus of tha Act. 

Saction 421(c) propoaod to axaapt lots la a subdiviaion in which all lota ara 40 
acraa or aore in aixe. 

This Aaaociation in pravioua teatlaony oppoaad auch an saandaant aa it appoarad that 
OILSR waa attaapting to astand ita juriadlctloo over thoaa navar Intsndad to ba covsrad. 
Howavar, with the acceptance of the Helaon proviaiona and upon review of our asaberahlp 
we Bm» no objection to such sn saendaent if such sn increaaa will aore adequately protect 
the conauaer froa deceptive interstate land salea techni<iuea proaotlag the aale of lart* 
tracts of land of queationable value in rsaote aountain and deaert arena. 

Section 421(e) requeats that the ea-aita axaaptlea aadar Ste.l403U) (10) •£ Che ict 
be repealed. Thia exeaptlon waa alaed at oaall Intra-atata or local iataratata davalopers 
who sail lots to purchasers who have an opportunity to inapect paraonally tha offering to 
judge for theaaelvea the character end quality of the land before purchaalag. OUMt 
haa never favored thla statutory exeaptlon and haa lasued rulea aai regulatloaa survoaadlag 
it that are so coaplex and vague that it la virtually lapoaalble to obtala the eaaaptloa. 
The repeal of Sec. 1403(s)(10) would be directly contrsry to the purpose of the Act aai 
would aerve to extend OILSR* s philosophy of regulating all local land deva&opera rather 
then the large interstate land salee operation aa intended by the Act. 

Section 421(g) propoaes to aaend the current 91,000 ceiling on the aaoant of faa 
a developer auat pay the Secretary at the tlae of filing a atateaent of record or any 
aaandasnf^thereto. The revision would elialnate the $1,000 celling. 

This saendaent Ignores the cost the developer and conauaer now are paying bacaaae 
of OILSR' s over-lntcrpretstlon of a siaple interstate lend sales disclosure act. If 



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onSR «ool4 focus Its AtCsatlM m frmidttlMt sad dscspclvs latsrststs sslsf , opsn smisil 
saalnistrstlvs costs would not bs asc ss ss r y. 

Bsfors coMODtlat <» ths sddltloosl saforesMUt poiisrs souglbt by 0IL8K. I 
would like io rcltcrstc two bsslc polldss of our Associstloat 

(1) dsvslopsrs who sncst* ^ trmtd or othsrwlss dssl la loss thsn sn hoasst 
Mimsr with coasuMrs should bs prosscutsd to ths full sztsat of ths Isv; sod 

(2) HUD should hsvs sdsqusts IsflsUtlvs suthorlty to prsvsat sad prosseuts frsud. 
HoMSTsr. la saslyslag ths prsssnt Act sad ths propossd s a sii d a s n t, s crucial qusstioa 
Dseds to bs soswsrsd, — has BOD fsilsd to do sa sffsctivs job ia this 

sres bscsuss it has oo suthority to prosseuts violators or has this rssult coas about 
du« to HDD's iosfficisacy ia usiag ths tools it has slrssdy bssa graatsd by Coagrsss? 
It is our bslisf that it is ths Isttsr csss. 

Undsr the currsot Act, HUD is givsa powsrs to iavsstigats, sajola and prosseuts 
say violstioos of ILSfDA. Ia additioi^ Ssctioo 1404(2) coatains oas of ths brosdsst 
frsud provisioos found. ia ths Uaitad Statss Csda. Thua, lOD eurrsatly possassss 
broad authority aot ooly to prosseuts dsvslopsrs irtao do aot coaply vith ths rsgistrstioa 
provisions of ths Act but slso to prosseuts those irtao psrpstrits frsud on ths consuasr. 

Uhst is Bors striking in saalysing ths qusstion of uhsthsr HDD's record in this 
area is due to insdecjuats poifsrs or inadsqusts sdadntstrsclont is thst uadsr ths ILSFDA, 
HUD has exsctly ths ssas enforcsasnt powers as the Securities snd Bxchsnge CoHd.ssion 
has under the Securities Act of 1933. As this Coaaittss is particularly awsre, as 
a result of its overaight rsspoasibility ovsr ths Coaaission, the SEC has done an 
efficient Job in enforcing a law which was ths aodsl for ths ILSFDA. Ths Conaission, 
using the ssas powers as HUD, hss frsqusntly prosscutsd sale of stock in violstlon 
of the registration procedures or in s fraudulent or aislssding asnnsr; has, under 
the courts' equity jurisdiction, ssksd for rsceivers for coapanies psrpstrating a 
fraud on its shareholder and obtained disgorg^Mut of frsudulently gsined profits 
for investors and In cases of particularly abuaive conduct, snd hss hslpsd ths Depsrtaent 
of Justice to crlainslly punish perpetrators. Again, thia has been done with the 



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•^m tpolB HOD curriitly h— . thm — « ace— Into ttm courf ^ fl 
md mibpomiM powrg. Ua bell«v« that this Is s furtlMr ludleatioa of ths fact ttmt 
OILSl hss not boon hsaporod by llttlo mmi rostrictod CoagroosloMl atthority la cha 
•nforcMMot ares, but by its InablUty to oao tha potoat sad ada^oata toola slraadj 
In Its hands. 

In light of this bsckfroond, wa find it particularly aorriaoaa that ■» im i 
to establish sn sntirc nav buraaucracy to isvaatitata, haar mmi J«d«i vialatiaaa la 
an adainiatrativc forua. Utadar BUD's proposals an antira adalaiatraUva lav aatauih 
would ba aatabliahad to haar aattars which BDD currsntly haa tha poaar to Uciaita 
bafora a Diatrict Court. Particularly with tha powars of lav and aqaltj in tha haada 
of a U.S. Diatrict Court Judga, wa saa no sdvantaga in alloving ■» to aatahllah a aav 
fraaawork for diacharging ita raaponsibilitias. lis halianra that with tha aaaeCMac of 
tha Malaon aaandaant, HUD will hava aora aanpowar to proaacuta fraad parpatcatora sad 
wa baliava that prosacution can ba carried out ada^aataly aad fairly throagli tha Govrta. 

In the tntacaat of protecting coaamsrs, howavar, wa haliava it aaj ha 
ap propr l ata to give the Secretary soas authority to isaua caaaa aad daalat ordara if 
all the following conditiona are aet: 

(1) The developer has sngsged in Tiolatioaa of tha Act aad thara la a rahttiarlal 
likelihood of future violation; 

(2) There ia a substsntisl l i k eli hood thet the davalopar aay diaaipata tha 
aassts of tha property ownera and 

(3) There ia a aubstantial likelihood, in the ehaeace of each aa ordar. tha 
ri^ts of the property ownera will ba irreparably haraad. 

Such authority should ba for a aingla period, not eaceading thraa rslaadsr dsja, to 
allow HUD tins to aeek injunctive relief before a Diatrict Court. If Wm ia «Mhla 
to prevail upon the court that en injunction ahould ha Itfssd, tha aaaaa aad jdatat ordar 
would ba dlaaolved. 

Uhile the HATIOMAL ASSOCIATIOM Of tEALTOIS* oupport atroag aeactiona aad paaaltiaa 
on fraudulent interstate land aalaa oparatora, we atrongly oppos e tha iapoaitioa of 
penaltiea by an appointed official which deny a citisan acceaa to thair livallheod hafora 
that cltisen haa been afforded the conatitutionally guaranteed benafite of due procaas. 



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Ha support the Aduinistratlons propoMl to tiglitaB «p tha Act** 
anti-fraud provlaiona by spadflcally prohibiting oaiaaiona of oatarial facta within tha 
Proparty Baport. Wa find thia proviaion atrictly in kaaping with tha intant of tha Act. 

Uhila thia Aaaociation doaa not objact to tha propoaad incraaaaa ralating to tha 
daaaga awarda, and civil panaltiaa, wa balieva that OILS! now haa auffidant authority 
to prohibit intaratata land frauda without atrongar panaltlaa. Aa wa hmv aald, 
we balieva that the Office of Interatate Land Salaa Bagiatration haa niadiractad 
Congraaaional prioritiea in applying tha Act, thua diluting tha Act 'a intandad ij^Mct 
upon the true interatata land aalaa con artiat. If 0IL8R adainlatara tha Act within tha 
original intant of Congraaa for a raaaonabla period of tiaa and than if tha Act doaa 
not provide the neceaaary toola to halt intaratata land frauda, let OXLOL than coaa 
before Congreaa to explain their inabilitlaa and auggaatad raMdiaa. 

Again, we appreciate thia opportunity to azpraaa our viawa on thaaa aettara. 



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m 



NATIONAL ASSOCIATION OF REALTORS 
Tom Grant. Jr. K Jadaon Porttm 

Absrt €. ittrahMW^ SMf Mas AmMM 



'^tALI \Jn 09K fnn, atrm^ Uto^^M^w), O.C. 



Tel^ihon* 202 837 6800 



STATEMENT OF 

DAVID D. ROBERTS 

VICE CHAIRMAN OF THE REALTORS* LEGISLATIVE OOMMITTBB 

NATIONAL ASSOCIATION OF REALTORS* 

B«fore the 

House Conmittee on Banking, Currency end Housing 

SubcoMiittee on Oversight end Renegotietion 

Oversight hearings on 
the Interstete Lend Seles 
Full Disclosure Act 

April 11, 1978 



The NATIONAL ASSOCIATION OF REALTORS* is co^rised of aorc then 1,712 local 
boerds of REALTORS* locsted in every stete of the Union, rhe Dlntrlrr of foliMbis end 
Puerto Rico. Coabined aeabership of these boerds is nesrly 600,000 persons 
sctively engeged in seles, brokersge, aanegcaent, counseling, and eppreisei of 
residentiel, coaeerciel, industriel, rccrestionel end fera reel cstetc. The Association 
hes the lergest aeabership of eny essocietion in the U.S. concerned with all facets of 
the real estate industry. Princiapl officers include: Toa Grent, Jr., President, 
Tulss, Oklehoae; Doneld I. Hovde. First Vice President, Medison, Wisconsin; and H. 
Jackson Pontius, Executive Vice President. Hcedquarters of the Aasocietion are at 
430 North Michigsn Avenue, Chicego, Illinois 60611. The Weshington office is located 
at 925 Fifteenth Street, N.W., Veahington, D.C. 20005. Telephone 202/637-6800. 



I •!» M mmmmm 



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Hy BMM is David D. lob«rts froa Hobila, Alabawi. I am m UALTOM and ths 
Vica-Chainan of tha RIALT018« Lagislativa OoMittaa of tha MATICMUL ASSOCIATION OF 
IEALTOftS«. Accoiipanyiiic aa today ara Albart I. AbrahaM, Staff Vica Praaidant, and 
Dudlay L. O'Maal, Jr., Diractor, Ugislativa Liaiaoa of tha staff of tha Govanusant Affairs 
Dapartaant of our Association. 

The NATIOHAL ASSOCIATIOM OF UALTOftS* is co^>risad of 50 State Associations, 
and Bore than 1,712 local boards of REALTORS* located in every state of tha Union, 
the District of Coluabia, and Puerto Rico. Coabined aead>ership of these boarda is 
nearly 600, OOd .persons actively engaged in aales, brokerage, aanageaent, counaeling, 
and appraisal of realdential, coaaercial, induatrial, recreational, and fara real aetata. 
The activities of the Aaaociation's aead>erahip involve all aapacts of the real aetata 
industry, such as aortgage banking, hoae building, coaaercial and residential real 
estate developaent, including developaent, construction and aales of condoainiuaa. 
The Association has the largaat aead>ership of any association in the United States 
concerned with all facets of the real aetata industry. 

While I do not wish to leave the iapression that every aead>er of our Aaaociation 
is involved in land developaent, aany REALTORS* are involved in selling hoaesites in 
their ovn coasunlties and States* and are deeply concerned about the Interatate Land 
Sales Full Disclosure Act (ILSFDA) and the edainia tret ion of that Act by the Office 
of Interstate Land Sales Registration (OILSR). 

He appreciate the opportunity to appear before this Subcoaaittee today to give 
the REALTORS* side of the story. 

We have any nuaber of concema to raise vith the Subcoaaittee regsrding tha 
adainistration of the ILSFDA by OILSR. Firat I vill preaant our concema vhich are 
based on inforaation %re have received f roa our aeiibera who have had firathaad experi- 
ence with OILSR* I vill then offer for the Subcoaaittee' s considaration a nuaber of 
reconaendatlons with respect to laprovlng the law and OILSR operations. 

In addition to the exanples I vill discuss in ay stateaent, I vould like to subalt 
for the record several cases ve have received from our aeabers that are typical of the 
nuaerous other complaints ve have in our files. 



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At tlM ootMt, I With to Mka it clmax that tte MnflHAL AtMCXAXIflil OT nftlXOf* 
■upportod •nactMut of tbo alaplo dloeloauxa go^iilfinf of tte tofwtf Lwd talas 

fttll Diaeloouro Act of 1968 to protoct eoasuaon froa ftwidiil«it and daeapciva 
iataratata land aalaa tranaactloaa, aapacially iataratata aalaa alwra t 
purchaaara had no opporttmity to inapact or axaaiaa tha land prior to ] 
no vay of knowint whathar tha davalopar waa financially raapoo^ibla for fulfiUlBt 
coatltaanta propoaed vith raapact to davalopinc tha land. 

Wa hava not altarad our poaitlon. Tha 1978 Stataaant of Policy of tha MtltmiiL 
A880CIATI0II OF UALT0K89 cootinuaa to aupport tha purpoaa for which tha Iataratata Laod 
Salaa I\ill Diadoaura Act waa initially anactad. 

Wa agraa thoroughly* with Congraaaional cooplaiata •— with you, Hr. Chairaan, 
■e^era of thia Coaaittaa and othara — that tha Act ia m^ af factiwa and ia ant 
providing tha protaction to conauaara oritinally intandad by tha Ooograaa. lawap apar a 
continua to carry artidaa about land davalopaant flaaciat oparatioaa, and wnaiiaparrlnt 
conauaara continue to find thay ara tha victiaa of fraudwlant and dacaptiwa iataratata 
land aalaa oparationa. 

Why ia tha Act inaffactiva, and lAy ia it not providiat tha daa irad protactioa 

tn tha cnnauaarT 

Tha RATIONAL ASSOCIAIIOM OF UALTOIM along with a growing auabar of awdiiri of 
Congrass baliava tha Of fica of Iataratata Land Salaa lagiatration ia ao hnay aad 
praoccupiad with ragulating thoaa whoa tha Act navar intaodad to covar that OZLSft ia 
aiaply unabla to focus on, effactivaly ragulata or waad out thoaa involvad ia dacaptiwa 
and fraudulant intaratata land aalaa oparationa. 

During tha tan yaara ainca anactaant, thara haa baan littla» if aay . fiwuraaainaal 
review or oversight of the Act or the adainiatration of tha Act by tha Offlea of Iatar- 
atata Land Sales Regie t rat ion . Ihiriag thia period, 0IL81 haa coaplataly 
Ignored Congressional intent and haa interpreted the Act to aaadata Fadaral "llraaaing** 
of all land developaent, be it interatate or intra-atata developaant, and ragardlaaa of 
the sice of the developaent . 



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For ■■■iili, mibdlTlaloiu coasistlsg of 50 lota or Iom aro oxoapt froa tbo Act. 
T«,t, uador OILSR rules, regulatioos and Intarpratatlon, aubdivisioiia coatainlng lass 
than 50 lota aarkatcd aolalT within the bordara of tha State in which the aubdiviaion 
is located are brought under the Act. 

We seriously aak under what authority ia OILSR acting? How ia this office in HUD 
allowed to ignore Congressional intent end continually pereitted to function literally 
aa if it %rere accountable only to ita own will? We have propounded tha sane questions 
to HUD end OILSR officiala nany tiaaa. We have responded on nuaerous occasions 
to ever-changing rulaa and reguletions questioning OILSR* s authority to bring purely 
intra-state land aalea tranaactiooa under the Act. Tina and again, we have been told 
if %re desired change, we nuat aeek legialatlon froa Congress. We are told that OILSR 
viewa ita aandate under the Act to regulate land aalea to be all induaive, 
and that OILSR will not be aatiaf ietf until every land aeveiopaant in thia 
country ia under the juriadiction of that office. 

Thus, while OILSR writes and re-writes its rules and regulationa to bring all land 
developaent under ita control — ita rules and regulationa now fill aeveral voluaes and 
are ao coaplicated even practicing lawyers find it extreaely difficult to satisfy OILSR* s 
deaends — local land developers are literally being forced out of buaineaa, and 
conauaara find little protection under the Act. 

Recently Congress saw fit to aaend end, in fact, repeal soas of the proviaiona of the 
Real Eatate Settleaent Procedures Act (RESPA) becauae that Act did not aerve the conauaer 
as it waa originally hoped by the Congreaa. Careful review and exaaination of the 
Interstate Land Sales Full Diadosure Act will alao prove it is not serving the consuaer 
as it waa originally intended. Aa one exaaple, OILSR' s adainiatratioa of ILSFDA has 
increaaed the coat of land for the conauaar. Local developer a have no choice when 
confronted with OILSR 'a unrealistic rules and regulationa, except either to hold their 
land off the aarket or to increeae the price of offered lota to offaet the exceaaive 
costs of coaplylng with OILSR' s deaends. Certainly these ections do not help the consuaer. 

The Congressional Coaaitteea originating ILSFDA atruggled with the 
legislation several years before it waa finally enacted into law by Congreaa. The 



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BtMtummf of clw origlaal mfotmmm, tbm iMsrlaca, Cte Oi^frf liurf , oai i 

floor doteCM Mtrroopdlng cho lcsl«latlo«, m wall m Cte Act itasif • clacrly i 

tbo Act «M lifted to OAly thoM load dovolopMiit oyrtto— ttec < 

Mtero porwmo living in states distant froa tte aitoa of Cte land vara lafl— rad Co aate 

tbair porchasos bacaoaa of fraud«aaat and dacaptlvc aalaa tactica or practleaa. Ite 

fraaars of tha lagislatlon vary carafolly provldad iiipMiwa ao ttec laad dawalofasac 

aalaa coafiood to tha booodariaa of oaa Stota woold not bo anilsr tte Act. 

Ona of tha aoat disturbing aapacta of OILSt'a ragalotioo of pwraly iaCaraCaCa aiib-> 
division davalopaaac is tha intarpratatlon givaa to a "r ii— na proaai^iattal plaa". Oaca a 
cnaaon proaotional plan ia daterainad to axlat tetnaaa aaparata aabdlviaioaa, by raaaaa 
of a thread of coaaon ownarahip, advartiaing or idantity, offlea or facUiClaa, i a aa at a al aa, 
ate, all lots within tha aaparata aobdiviaiona aggragatad, i<ithar prawloaaly nipt ar aat 
and will be conaidered •& one subdivision. Thna tte locol "iaCra-aCata" davalopar ia 
autoaatically brought under OILSt'a juriadiction. Vor tte iataracaCa aalaa apa rac io a ckia 
definition aay be reaaooable to trigger full diacloaora. B oa e v a r, whoa tte dafialciaa 
is sppliad to the aaall businaasaaa, offering lota to purely intra-acata i 
doing buainaaa froa one office, pertepa located in hla hoaa, thla dafiaCiioa 1 
unreaaonable atandard. 

By various rulea, ragulatiooa and interpratationa by OILSt cte vary lead < 
ao carefully and painatakingly exeaptad by tte fraaara of tte lagialatlea are aov balac 
brought under the Act. Let ua exaatne uliy. 

That Act specifically providea ttet aubdiviaiona coaaiating of laaa ttea SO Iocs era 
exeapt froa tte Act 'a regiatration and exeaptlon raqoiraasnta. 

But tate tte aaall CeorgU RIALTOM ttet haa a total of 60 loca ia cteaa dlffanac 
subdivisiona, pertepa 10 ailea aaparatad froa ona aaotter with oaa aubdivlaioa plaaaad for 
inexpenaive priced houaea, the aecond planaad for aore expenaive hooaaa, and tte third 
for recreational or vacation aites. In fact, tte aubdiviaiona have ao ralatioaalKLp to 
one another. Thia RBALTOW is required to file with OILSt for an axaapcloa aadar Cte 
Act regardless to whoa te sells tte lots — in-state or out of state par^Maara — » be- 
cause by aggregating the lota the tEALTOt tea for sale the total noiter or lota 
exceeds the 50 lot subdivialon exeapt by the Act. 



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TalM tlM mscoasla UALTOM that has two or thtmm wmall Mbdivlaiooa, aoM of which 
cxcaod 50 lots, and who has acvar sold to a parchasar ootsida tha Stata of Hiacoaala. 
In fact, wa ara advlaad ha haa aold no aora than S lota ootalda tha county In which hla 
subdlvlalons are situated. He uses the telephone and the nails In hla day to day 
buslnaas oparatlona. Thla REALTORi la In violation of the Act and he la raqulrad to 
file with OILSR for en asaaptlon. 

Now take the Alabaaa UALTOMi who la daveloplnc recreational altaa on a lake In 
his State soae 50 alles froa his hoaa town, and who alao la developing a aubdlvlalon 
of residential lots In hla hoaa town. Thla la a ooa aan operation and tha RBALTOM 
uaea the saaa office and the saaa local nawapapar advartlaaaent to offer lota for aale 
In hla subdivisions. Ha has never tried to narkat lota outalda hla hoaa Stata; yet 
he Is required by OILSH to file for an axasiptlon becauae ha la daaaed to uaa a "coHaon 
proaotlonal plan" to sell lots In hla two davalopaanta. 

Now take the Maryland developer that haa 75 lota In a subdivision, of which ha haa 
used 70 lots to build hoaas. The rsBalnlng 5 vacant lota ara offered for aale. Lota 
In a subdivision on which houses are coaatruetad or eontractad to be coaatrvcted wltiiln 
2 years are exeapt under the law. Thla developer, how e v e r, la required to fUa for an 
axeaptlon on the 5 lota becauae the total OMsbar of lota In tha sobdlvlalan axeaada the 
50 lota exeapt by law. 

These exaaplea, of courae, beg the question of *\fhy ao aueh eoneera If the UALTOW 
Is required to file for an exeaptlonT*' First, there Is concern becauae Congreaa did not 
Intend any of those subdivisions to be covered by the Act end aacond, let ua explore 
filing for that axeaptlon. 

Most local land davelopera are not aware they ara covered by the lateratata Land 
Sales Full Dlacloaure Act. They arc takaa by aurprlaa whan an 0IL81 official appears 
and advlaes then they aay be In violation of a Federal law and could be subjected to 
ClvU as well as Crlalnal penalties. Local developers are aatouadad whan advised to 
stop selling lots until they have filed for the exeaptlon. Others who hear by the "grape 
vine" they aay be covered by the Act and who naka Inquiries of OiLSt shout their status 
are equally astounded when they arc advised they auat caaac aalea oparatlona until an 
excwptlon from OILSR has been granted. 



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Obc« tte co^lle«t«d and co^1«k fUlat fltarts* tte nAURMi to UtmnHy t— iitii 
with foxM, _pap«r work and rnlaa and ratttUtiooa tha Imymma •imfly eamwt wateratand. If 
ba trlaa to fight tlM **a7ataB**, ha to aabpoa aa ad to appaar to Haaktogtaa with all hto 
fUaa. 

lartot nm tha gartlt of fUtog for tha ■■aayrion, tha local dawalopar to ttaa 
told he Miat sand ractoloa lattars to all thoaa porchaatog lota wtohto tha prwrtooa two 
yaars agraaiag to huy hack any lot pwrchaaad withto that ttoa. 

I do not hava ttoa to daacrlha tha uttar eonfaaloa th aaa ravtotoa lattara eaaaad to 
pttrchaaara. Brtoflji; aoaa porchaaara hallawa tha titla of tha p c op a r ty to cloudad and aaak 
raetoton. If thaahaa haan a turn down to land walua to tha araa. raelatooa ara anaghr 
In fact, ona davalopar waa forcad to buy hack aavaral tota to a ai&bdiwtotoa 4artot ■■ 
aconoato aluap to hia araa, only to aall tha tota at a totar data for aoia thaa tha prtoa 
of tba origtoal sale. That, howavar. waa an aacapttoa of tha rala bac—aa BMra thaa oftaa 
tha awai ■ULTQgp to atoply forcad toto haakruptcy. for ha caanot carry aaf f totoat capital 
to buy back tots oo irtdch ractoloa to daandad. tod all too f r a g aaa t ly local iMMlira aia 
raluctaat to axtand tha awdl UAUOli furthar cradlt whao thay haar ha to "to Cfwhto" 
with tha radaral law. 

Lat «a aaaaaa tha UALTOW ohtatoa hto asaaptloa, anccaaafoUy aarltata hto tota and 
eontimiaa to davalop laaa than SO lot aubdiwtoiona ona or two at tba tiaa ffwraaftar. 

Ivaatiaally, ha aalla 300 tota. Tha tot raquiraa fall ragtotratloa for aaMiwtoloaa 
to mMc%Mm of 300 lota. 0IL81 haa awggaatad to our Gaorgto IIALTOM that idiaa ht raachaa 
300 tota ha will ba ra^otoad to f Ua for fall ragtotratloa Inrladlag all tba lota ha baa 
aold ragardlaas of tha asaaptiona ha haa alraady baan graatad. Oar IHinHJ aow foaattoaa 
idMthar aoch aa oadartaklag to worth coatiaolag to tha toad davatopaaat buatoaaa* 

I hava pototad out apadfto ■■aaplaa of how OILSa axtaada Ita broad totarpvatotlva powac 
to bring poraly totra-stata toad davalopaaat oadar ita Juriadictlon. Tha crltarto waad by 
OILSt to iawoka Juriadtotion to: (1) aggregation to ascaad tha 30 lot otatatory asaBptloa»(2) 
applying rniiiii dafinitions of intaratata facilitiaa~tha usa of tha tal a p h oa a , local aaai 
papers and the aalla — to purely totra-state traasactiona to order to iawoka totaratata Jor- 
isdlction (tot M add parenthetically that if applied natloawida la the naaa aaaaar. a v a rylh a 



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ami Pop" boalatM in tkU camtxj couXd b* 0abi«ec to latontato Ion), and O) tho "i iihiiii 

proMtiooAl plaa". which mim^^y ■«»• ooporato mabdUtmiooB wlU b« ooootod m om if 

thore is a throod of co—nn oimorship. ad^Pttrtisinc or ld«atity» offico or facility, iar 

Yontory, etc. 

In tha casca cited OILSR, under ita interprotatioo, could hare aaaigaad any one 

of the three criteria aentionod to bring agr exaaple caaaa withia ita Juriadictioa. 

That ia the onlqueneaa of being able to function aa the proaaeutor, the Jury and 

the trial Judge. 

Let ae nov give you aoaa exaaplea of the probleae a land developer facea vhen 
seeking interstate registration. 
COMPLICATKD UGISnATIOW MQOIMBQagrS 

Vhen ooa contacts OILSR requaatiag the nacaaaary foraa to file for interstate 
registration one receives an inch high stack of papera containing: 

• Soae 95 pagea of published rules and regulations. 

• An ll-'psga reprint of ILSPDA. 

• A 27-pege Stateaent of Record for OILSR* s file, vhich requires soae 42 addandua 

eshibits, and 

• A 14-paga Notice of Diadalaer idiich auat be duplicated and one copy givaa to each 

prospective buyer. 
Rxperts are needed to coaprehend the coaplcxities of OILSR* a rulaa and regulationa 
end to file the appropriate foraa. OILSR providea no layaen'a handbook or description 
of iaportant iteae to aasist in filing and few buaineseaen are capable of filing for 
registration without the profeaaional asaiatance of an attorney. And few attomeya ere 
capable of properly filing without indapth knowledge of OILSR procedures. Not only is 
sa attorney necessary but also in nuaarous caaas sagineers, geologists and accountants 
are needed to eoaplete the so-called **8tateaent of Record". And why are these experts 
neadcdT The Stateaent of Record deaands, aaong aeny other things: 

• A deacription ot soil deposits on every lot within the developaent| 

• Detail specifications of water distribution systeae, including costs snd 

depth of well drilling, and types of puaps to be usedj 



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•l«elMt«4 eo«t and scImAiIm off eoBtlotioa off •toeerUal ItM iMtalUtiM; 

*IselMeod costs aad sehodolos of coaplotioo for ■■won lisM or —tUmtmi 
costs of septic toidtB aad drsiaffloldo; 

'Dsscripcieo of ■unlclpol ssrrieos, coersotioaol aad co^na faellltios. 
shopping fseilltios, otc, sod 

•A dotsllsd snd foil flMocUl statoMot of tho applieont or applleoats» 

Aa sppllcoat Is also roqoirod to filo with tha StatOMot of Bacord 42 lattora or 
eoploa of atataoants or roperta. ror axaapla. Joat fovr of tha adiaad— Itaaa locUida 
— lat aa latarjaet hara that I vao axaaplaa of oaly 4 of 42 addaadua itaaa ra^lrad 
boeaaaa tlaa sl^ly doaa not paiait aa to Hat all 42 Itaaa: 

1. All aagloaarlBg roporta or hydrologlcal avrvaya iadlcatlat tha ooaveo «d 
quality of vatar; 

2. A haalth offlcUl'a aaaljala of tho dialcal ^aallty aad hoctoriolotieal 
paroty of tha aatar; 

3. A local govaraiag body* a atatamat colatlva to aaiatoaaaca of tha toad 
ayataa la tha davalopaaat; aad 

4. A local haalth aothorlty'a atataaaat that oach aad ovary lot ia cIm o^^ 
divUloa haa haoa taatad aad a p proiyod for tho iaatallatlaa of aa oa-aito ■twaga 
dl a poaal ayataa. 

Vhila thaaa foor aad tha raaaialat 3t atataaaata aay ba aaooaaaiy Cor tell dia* 
alooara for tho larga Utaratata oparatlaa, thaaa papofoosfc ro^airaBaata lapaaa awiiitu 
diffiealtiaa aad aoaaroaa coapllaaca prohlaaa vpoa tha aaall daralapara. 

Aa I have ahoim, tha Uferaatioa ro^irad ia tha turaaaat of tooord ia off a 
vory coaplaa aad taehalcal aatnra. aad yo^ caa irooy of it all ia that OIUB la^iao, 
'*aalaaa otbanriaa notad, aoch ^oaatioaa ia tha Property loport aaat ba aaaaaiad ia a 
abort aarratlva atataaaat... •« aad '^all atataaaata aado...aBat ba U pUia aoaeiao 
laagaaga that an uninfovaad porchaacr caa uadorataad bat aaat diadoaa all portiaaat 
facta." 



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Nnqr tt«c« aad/vr local tvvaniat W<iM haw Um and eo4M irtiidi Mqvira land 
tov«lop«r« to filo aoeh of tte •mm UfOMotlon vo^rad hf OIUl at tha local aa4/or 
ttaco loval. OILSl, hooovor, vataaoa to aeeapc oach local filiafa. aacayt la 
California, whara aceo^ndaticM hava baan raaehad with OILS! to aceapt llaitad 
ttata filiafa. Thna tha proapactiva iafearatata land dovalopar ia aaMlad not only with 
tha hardaa of Aiplicata ffiUnta, hot alao ha ia fraMaatly aahjactad to doplicata 
iMfactioaa— <1) by local or ttata aathoritiaa aaiat a«a aat of ataadarda, aad (2) hy 
Onn vaiag aa antlraly diffaraat aat of ataadarda. tach doplicatiaa ia aaaacaaaarily 
tlaa caaoiBiBt aa^ coatly. 
TDg AW) OOtT 

Tha tiaa caoaoaad aad coat iac a rrad to coaply with OIUl nilaa aad ragnlatioaa 
eaa ha iooitaoaa mmi caa drive ap tha prieo of land ai«rtfieaatly fdr cIm aaaawMr. 
Itporta frca oar Makora iawalvad ia laad dovalafaaat iadieata that to fila for a aiivla 
anaptioa fraa OILfl eaa coat aa aach aa $1000 aad aay m aaaai ap to SO aaahnwra ia 
praparatlaa. Ia fact, airtiri rafort that by aakiat «■ apylicaciaa for aa aamptloa 
aad hariat that asMptiaa ap fc w ad ia aa way aaawraa ttet oaa will aat Utar ba aoapallad 
to filo fdr a fall ragiotratiaa oa tkm vary aaM a^hdivUioa aovarad by tht asaaptioa. 
r^U onn ragiatvatiaa eaa coat aa aaah •• $20,000 aad aay m aiaai ISO aiahmira ia 
praparatiaa. Tha aajor portioa of tbaaa cooto ara tapra a a a tad ia attavaoy faaa. If 
tha filiat af a oiapla asMptiaa ia ceapUtad withaat ateiaiatrativa dolayo, tha 
applicaat aay aapact OILSl apptwwal withia 2 aoatlMt applicatiaa fdr fall ragiatcatiaa 
withoat dif ficalty aay taha Croa 4 to t aaa th a to obtaU approval. 

It appaara to b« tha rola rathar thaa tht aaeaptioa far Oim to aaad tha 
applicaata **d«fieiaacy naticaa" iadlcatiat that tha applicaata paparwarfc ia iaaecurata 
•ad iacoaplete. Oftea tha Itiaa rafarrad to by Oim ara of a aiaoc aafeara aad ara aot 
aaterial to'Th* prospactlvc purchaaara* daciaioa to buy; ia other words, tho proverbial 
erossiag of "t's** aad dottiag **i*«". Ia additioa, Oim fra^aaatly challaagaa coat 
eatiaatea provided la the Property laport. For esaaple, laat year Oim advised 
ooe REALTOi^ that a OILSl **aottrce*' had obtaiaad a differeat eatlaate thaa was coataiaad 



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In the Property Report on the coet of exteadlag lieter IIumi tram the •evaat Co Cte 
hoaeslte. The aeaber's eetlaete vae obteiaed froa the District wetar andiorlty. 
OILSR's Inforaetion ceae froa en unldentlfleble "eource." Bventvelly* OIIJR adalttad 
Its error, but while elaleeely questioning the sstlaete, hoatslt— were beioc held off 
the aerket and the cost of the delay eventually had to be borne by the consuaer. 

Another exaaple cited was a filing In which the applicant eatlited the eeet to 
run electric power Into a project at $175,000. 01L8R inspectors esciasted the eoot 
at $180,000. When it was dUcovered the aeiiber's eetlaete was obtalaed froa tlM local 
utility coapany which propoaed to Install the lines, 0IL8R sgaln adaittad error. 

We fall to see in these exaaplee and aany others like thea how the consuaer is 
being protected. 

The reaalnder of eny etateaent will addrcae leglslstion pending before €oatrass 
that deals with the Interstste Land Sales Full Disclosure Act, i.e., S. 2716, to aaoad 
the Interstste Land Sales Pull Disclosure Act; B.R. 10999, the Interstate Uad tales 
Refora Act; end H.R. 11265, Bousing snd Coaanalty Developasat Act of 1978." 

Senstor Geylord Nelson of Wisconsin, Chalraan of the Seaate Select CoHd.teea 
on Saall Bualness, has been concerned ebout the lapaet Federel rales » regalatloas sad yepar 
work have upon aaall buslneeeaen for eeverel yeere. Tha Select CoHd.ttee kae baea ataiylas 
end holding hearings on that general aubject aatter for ebout 3 yaero. Oariag tha 
course of the etudy end the hearings, the eubject of tbe Interstate Uad Salaa ftaU 
Disclosure Act end tbe actions of ths Office of Interetate Load Sales lagiottatiaa 
were soaetlaee discueeed by witnesees. Tha teetlaoay of those witassses c— s e d fsaitor 
Meleon to bccoae keenly concerned about ILSPDA and OILSR and la Jaauary 197t, tha talact 
Coaaittee held hearinga on that apecific subject asttar. After Cba'CaatiMa]r i r iiw « i i hf 
offlciala of HUD/OILSR end othere, Senetor Neleon becaas '*coBwiaced corractiwa lagialatiwa 
action is laperative" in thie erea. 

Subsequently, on Kerch 10, Senator Nelson introduced S. 2716, to sMad ths lataratace 
Land Sales Pull Disclosure Act, which to date, haa. baea co-eponsorad by 10 additloaal 
Senators (Spsrkaan, Mclntyre, Tower, Gem, Morgan, Crsaston, trooke, Beskell, lelas sad 



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Laulc). Hi of courM, an imbm that tkna far, ao iiUfMiliia hill to t. 271« koo bow 
iatrodttcod la tho Bouao of Boproaaatativoa. ■otwiehataadiat. i»a alaearaly hopa that 
thla Sttbcoaalttaa will taka eogaltaaca of S. 271«, and irUl earafally coaaldar Ita pro- 
vlalona la tbaoa haarlaia aad at othar SobcoMittoa cooaldaratioaa of ILSnAand OILSI actlooa* 

S. 2716 asaapta davalopara who sail no aora than 5 lots or SZ of lota aold durlnc a 
cal and T yaar to out-of-atata purchaaara If i (1) tha lot la fraa and daar of all encuabrancas 
aad llaaa, (2) the purchaaar has parsooally Inspactad tha lot aad (3) tha aallcr has agraad 
to suhnlt hlaself to the jurisdiction of tha courto of tha purehaaar*s hoas State. 

Secondly, the Nelson bill would exeapt tha sale of lots to purchaaara rasldlnc within 
100 alias of tha subdlvlsloo If; (1) the lot la free aad clear of all aacuabrances and llaaa, 
(2) the purchaser has personally Inspected the lot, (3) the seller subalts hlaaelf to the 
jurledlctlon of the Courts of the purchaaar *s hoae State end (4) the developer has 
efflraed with the Secretary of BDD that tha flrat three conditions ware set. 

OILSt was never Intended to pollca ovary land davalopaaat and aalaa oparotloo la thla 
couatry; yet this Is OILSt* a ala. Thaaa two alnpla aaaaptioaa asaapta local laad salaa 
operations, provldaa safagoarda to tha coaauaar buylns an Intaratate lot froa a local baalaaaa* 
■sa aad aarrowa OILSt* a raapoaalblllty to affacttvaly protact the laad buylag eoaaoaar froa 
frauduleat Interstate laad aalaa oparatlooa. 

Tha Neleoo bill would alao provide oeveral technical chaagaa la the Act la order to 
brine aore reasoaebleness Into OILSt'a mlas, ragalatloas aad latarpretatloaa of tha Act. 

First. Laagnage has baaa added to aaka clear that tha teraa "llaaa,** "aaeuaferaacaa,** 
and ''adverse clalaa** do aet refer to U.S. Laad Fataata aad alallar graata or reaarvatloaa. 
OILSt* a Interpretation of the law on thia haa baaa uaad to briag virtually avary acta of laad 
aold waat of the Maalaalppl uader their jurladlctloa. 

Second. Language haa been added which would rehire OILSt to publish any ragnlatioa 
la accordance with the Adalnlatratlve Frocadurea Act. 

Third. The tera "aale or leaaa** haa been defined aa oceurrlag st tha tlaa whaa a 
contractual reUtlonahlp la created between the developer end purchaaar, thua clearing up 
en aree where OILSt hea been free to uae whatever interpretation it haa found aoot favorable 
to Ita continuing regulation of land aalea. 



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TiM MUoa hill would correct tte prM«at adalalatracioM of tte Act, Mch thac, 
CoafrtaslooAl Intmt and tte Uad buyias public acf b« •ffoctiv^ly mtv^. 

W« Mk this SubcoMltce* to glv* cloM attMtioo to tha provislOM of t. 2714 
and to the oritlnal Intant of tha froara of ILSFDA la thaaa ovaralght haarlac*. 

Mr. Chalnan, lat aa now addraaa your bill, B.R. 10999, and tha Adalaiatratioa'a 
ILSFDA ■■ an d —n ta containad in Title IV of B.R. 1126S. 

Sac. 421(c) and (b) of the Adainiatration'a bUl wnld xadaf iaa a aubdlTlaion coaiat 
within the punriaw of the Act aa land which ia divided or propoaad to be dlwidad into 
100 .r aore lota, rather than SO aa in preaaat law. 

We wiah to aake it absolutely clear that thia Aaaociatioa aupporta atapa to raania 
purely intra-atate land developaent froa OILSR'a Juriadiction. Thia aaaadaaat could be 
helpful In achieving that aia. However, aa long aa 0IL8R uaaa the ao-callad ''coaaoa 
proaotional plan" to agtragate lota in purely intra-atata aituationa aa a aaana of bringing 
thoaa aubdiviaiona under the Act, thia aaaadaaat would only delay the tlaa la which 
auch aubdiviaiona are brought under the Act. If atapa are takaa to raao>va purely latra- 
•Ute developaenta froa Juriadiction, than the propeaad aaaadaaat could ba aoat baaefieial. 
aa it would parait OILSR to concentrate ita actioaa on the larger iataratata lead dawalop- 
aenta which waa tha intended focua of the Act. 

Currant law providea for an asaaptioa of lota ia a aubdiviaioa where all lota era 
S acrea or aore in aisa. Friaara of the Act recogais«d thet purehaaara buying 5 acraaac 
larger aiaad lota would probably ba aephlaticatad purehaaara aaablng to ucUiaa tha lead for 
other than recreational or reaidaatial purpoaoa, aad auch purehaaara would not ba aaaaiagfall} 
aarvad by the Act* a diaeloaura reyiinainta aad thna ware asaaptod. Thia provialaa waa 
carefully conaidered and revie w ed before it waa included ia the Act aad atill filaa a 
aouad aad aaaningful provision. 

Section 2 of B.t. 10999 aad Section 421(e) of B.R. 1126S aeak to 
aaend tha S acre exeaptioo end replacea it with aa asaaptioa for lota ia a aubdiviaioa ia 
which all lota are 40 acres or aore in aisa. Ve feel thia propoaal ia aaothar asaaplo of 
OILSR attaapting to expead ita Juriadiction over thoaa traaaaetioaa never iataadad to ba 
touched by the Act, and therefore oppoee thia aaeadaaat. 



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TlM HOD lm§iBUU'99 pmekmgm r«quMt« chat thm tMwmftltm wter S«c. 1403(a) (10) of 
the Act b« repealed . This exeaptloo wm ■!— d at Mall iatra-atate or local iateratate 
derelopars who eell lota to purchaaara who have aa opporttmity Co iaapect peraonally the 
offering to Judge for tbeaaelvaa the character aad quality of the land hefore porchaalng. 

OILSR has never favored this statutory exeaption and haa iasued rules and regulationa 
surrounding it that ere so conplex end vegue| ttatit li rirtually iapoaaible to obtain the 
exeafition. The repeal of Sec. 1403(a)(10) would be directly contrary to the purpose of 
the Act and would serve toytxtend OILM's philosophy of regulating mil local Und 
developers rather than the large interstete lend seles operetioo aa intended by the Act. 
HUD* 8 sBendMnt to Section 1405(b) propoaaa to aMnd the current $1,000 ceiling on 
the e«>unt of fee e developer nust pay the Secretary at the tiM of filing e etatoMnt 
of record or eny SBendMnt thereto. The revieion would eliainate the $1,000 ceiling. 

This aaendnent ignores the cost the developer end conauaer now are paying becauee 
of OILSR' s over-lnterpretecl&n of a siaple interstate Isnd salee disdoaure act. 
- If OILSl would focue their attention on fraudulent and deceptive interetete salea, 
open-ended edainietretive costs would not be necessary. 

Section 3 of HE 10999 would provide chat contracts for the sale or lease of lots in 
e subdivision be voidable Vy the purchaser up to 30 days following the transaction. 
Such a contract would be voidable for up to three yaers if the transaction takes place 
on the day the purchaser receives aad signs the contract, or if aaj part af tlM financing 
is provided by the developer or an agoat af the davalopar, or if Cha contract does not 
contain* a precise descriptioa of the lot's bouadarias. 

The effect of this provision on the aartet will be diaastroua; real estate specu- 
lation will increase cauaing further increase in the cost of land. Eventually, developers 
will refuee to eonsuaete a sms day sale for the purchese of a lot. Purchasers will bs 
eble to personally inspect en offered lot, as aany tlaes es they deaa necessary, read 
a registered ROD Property Report covering the Subdivision in which the lot is located, 
nake inquiries into the developer's repotability, contract end consunate the lot's 
trsnsection on the seae dey end then have 3 years to void the contract. 



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■tAIlOBi* iMltovt it U «iO««tiffijkl* tm < 
• Um frMdttUat Ind mU opmntmf hav* cmm4* 

SMtiM 142S of K lOfH prwrUaa ciMt • «M«lofMr «Im Ims y— toti tH-ynvtia 
Vaaie Mnrlcaa to a •vMivltioa, oMt isfooic ia •mtcv. an mmbK M ta li t iw l iit if 
tiM fcxmfxj not 1«m than dM moimlt a^val t« tte total ooat of tiM baaU aacvlaao 
vbieh havo boaa pro^aod b«t aot eo^lota4 wltk vaafoet to tiM aoMivialoa. 

Tin vaat ■ojority of mmII land «ovalofar« i* thla m i MtKj vocfc m a ayocaa of lell- 
ovor ca* flow; at ooa or two lota an 4avolopo4 and aaU tiM pa oe a adi aia ra U f a t ad 
as froot MDoay for davalofMat of a fa« aoca lota. Aa thaia lota "Mil tiM eaali yroaaadt 
ara agaia rollad-ovar oatll tha aoMiviaioa ia aeaylatad. Zf a flaai daw a la p ar aaatcaataa 
to davalop S lota within a aubdiTiaioa aad had to dofoait U aaarcv tiM aoat of pto- 
vidiag tha axtanaiea of aaoar linos, tha astaaaioa of rc i adws rh , aa wall as ■ f ia di B t 
watar liaas to the lots, that Mall davalopo'** oforatiaa will a adsi Arrt ly fa haaknift. 
Tha provision on aaerow dapoaits for haate aanriaas will aariovaly lapada, if aec shot 
down the legitlaata aalaa oporatioa of aany saall WMiOXU^, 

Saetioo 4 and 10 of A 10f99 would raquira all advartiaaMata, wattel raffraaaacatiaoa 
Md all prUtod aatarUl uaad hf a dawalopor to prowta hia lota to ba oada part af tha 
atatoMot of Bacord. Tha tacratary wowld hava aathority to rotalata all advartiaiat 
and pvoaotiooal aatariala idiieh ara waad to praaata lota. 

Tha latloaal AaaoeUtioa of BUT.TnH> fawara diaaloaaraa of all partiaaat iafMMtian, 
inelwdiat proMtional aatarUl ralatiac to tiM aala or Uaaa off lu p ia wa d lota tm a si*- 
diviaioa aarfcatad ovar atata bardar liaaa. 

Thia ■■nitaint fMt aaah farthar than tiM rataUtiaa of aiapla diaaUaarai U faat, 
it would giva tha Sacra tary aoaplata authority aad diaaratiaa to ragalata adaartUtag. 

Thia Aaaociatioa oppoaaa graatiag tha BOD lacratary auch aathority. 

Wa alao hava aoaa coocama ragarding tha parana patriaa taetioa af tha hillidiieh %a«id 



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allow dM 30 staM* attonaya gaMMl Co ana for vioUcloM of CIm Aot. 0«r prtearj 
coaeora la agaia froa tha aaall boalaaaasMi* a polat of vlaw. With all tha othar Uw^l 
coata facad bj CIm aaall boalaaaaaaa dva to rataUtiona, thia aactloa would agala add 
to tha flaaadal laability of aoeh a boaiaaaasMi to dafaad klaaalf la a coatly ault 
baaad oa a tachAleal vtiatloa. Vhaa facad with tha powar aad raaoareaa of tha atata 
baiag aiaad at hia, tha aaall baalaaaiBaa will giva la aa a practical aattar» ragardlasa 
of tha frlveloaa nature of tha ault or any aerltorlooa dafaaaaa ha aay hava. Iha aactlona 
of tha bill s^viaf ^^ coaauaar court coata aad attoraaytf faaa adaquataly protect tha 
coaavaar aad prorlda hla with tha lacaatlva to wiadlcata hla lataraat. la addltloa, 
claaa actloa sultt broufht bj private attoraeys will auffldeatly protect the eoaeuner 
without the Involvement of en elected public official wha aay be forced to brlag a 
ault for polltcal purpooea. 

Both HS 10999 and 91 1126S propooa to glwa the Secretary two aaw aaforcaaeat powar a. 

yirat, the Secretary would ba capo wired to aorva a coaplalat oa a developer believed 
to ba la violatloa of the Act, rulaa, regalatloaa or order laauad by the Secretary and to 
aet a hearing within 20 to 43 daya after aarvlce of the eoapldlat. The davelopar would 
ba required to file wlthla 13 deya an aaawar aad aot ice to appear at tha hearing or vgives 
the right for auch a hearing. Followiag tha heariag or tha dowalopar*a failure to aotify 
the agaocy of hia lataatloa to appear, the Secretary aay iaaaa aa order effective laae- 
diately to eeaaa end datlat. 

Sacoad, 190a a detexalaetloa by the Secretary that a davelopar* a actloaa are 
''likely to aarioualy prejudice the public latere at'*, tha Secretary would have the au- 
thority to laaue a ceaae and deslat order which la effective laaediately. Such aa order 
reaeiae la effect uatil the coapletloa of the adainiatratlve proceeding unless a developer 
appliea wlthla 10 daya to U.S. District Court for auapeaaioa of tha Secretary* a order. 

While the NATIONAL ASSOCIATION OF REALTORS* support aanctiona end penalties on 
freudulent interstate land sales operators, we strongly oppose the lapoeition of penelties 
which deny a dtlsen acceee to their livelihood before thet cieisen haa been afforded 
the constitutionally guaranteed benefits of due procees. 



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It ApyMrs to «M that if cltlMr St lOtft or St llliS U < 
Im to ehMc« tiM pvrpoM of IIIPM txtm • 4ioeloo«o occ to «■ act vhtdi oi^of ilrtlj 
rogulotos tho MaMr of load dovolofMoe. Am ehoaco U oltorlat tho fMonl coU flw 

dlscloouro to •obstootlal rcsolotloo of hov load dovoloforo op if of to • raiical mm mM 
should bo otudlod eorofttllj. 

Whllo, thoorotleollj, tho choi^os eotttoiaod ia St lOfft oad St UHS wj bo ■■focfii 
to provont froudulont oporotors tram flooelat tho p«*lic, at tiM oiao tlao th&j gcaatly 
rottrlct tho oporotlon of tho vast aojorlty of dovolopora oho oro (hoaoo^. Iho rooalt of tbt 
propotolt of RE 10999 and RE 11265 oa ootllaad obovo irill bo hl^Mr eeoto fee feho coaoa 
■er, on^ a drastic docrooiio la tho OMuot of lots offorod fee feho rnnsiwof with a proaioa 
of future laprovoMnts. Tho of foot of olthor of fehaaa billo irill ba aMifeipllad aad 
■ska uafslr aad uajust burdoas upoa aMll boooot load daralepara;. 

This Associstloo fully supports tho goal of prohibltlat laad fraoda; «a baliaiM 
OILSR has sufficient authority now to do so. If OILSR adaiaiafears feha Aefe vifehia feba 
original intsnt of Coogrsss for a raasonabla pariod of feisM aad fehaa if feba Aefe deaa 
not proTida tho nacossary tools to halt iatarstata laad fraads, lafe feb«i ceaa bafaca 
Congross to csplaia thoir iaabilitiao. 

Ihitil soeh tiM that OZLSl strictly eaneaaferatas febair tapu w ai , ralaa, ragalafelaaa 
aad attitude oa wood log out docoptivo iatarstata laad sales operafeieaa, ae eeaaaaar, 
iadustry or govornosnt ana will bo able to judge edeqoately ahafeber or oofe feba Xafear* 
steta Land Sslss Full Disclosurs Act is effective consaasr prefeecfeiaa lagialafeiaa. 



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"^^^^ on TMBLB ROCX LAKi iic4i7.7»4M* 



^^^^ P.aB0«947 OK 

^^i;;;;;^;!]^,, KJMSCRUNC city. MISSOUM fSCW ikC4l7.7>Mia 

AprU 22, 1977 



Mr* H. Jackson PonClus 
Exscuclvtt Vlco President 
National A.ssoclation o£ Realtors 
Executive 0££lces 
430 North Michigan ilvenue 
Chicago. XL 606U 

Dear Sir: ' 

Owners comprised o£ a Realtor. Realtor Associate and an Investor* 

1970 purchased A80 acre £axiii and kept Intact until March. 1972* 
Developed 33 acres, sold first lot in April. 1972* Froo then until 
October 3. 1974. ne sold 35 lots £or a total o£ 1132.408.68 o£ uhlch 
all the money was invested back in development* Lots sold were free 
and clear and were sold only after on-site inspection* Was told by 
Attorney we were exempt from HUD and didn't need to file with thma* 

Jxily, 1974. one of the owners with Attorney flew to Washington and 
met with Mr* John McDowell and Mr* Sol Mosher. Department of HUD. 
concerning registration* Reason: We wanted to develop an adjoining 
tract* He were advised to register the original subdivision with a 
few remaining lots to sell, then apply for an attachment for the new 
development* 

In all cases we were assured there was no problem to file — that an 
attorney wasn't really needed* This proved untrue as we will show 
you* It is impossible to accomplish registration without at Attorney 
and a C*P*A* 

We were fortunate that we had an Attorney who gave us a firm bid to 
prepare the HUD Report* He lost quite a simi of money for actual time 
involved* His comment was that hdLs fee should have been by the pound 
on paperwork* 

We have found and will try to pass on to you the hopeless feeling we 
had in dealing not only with HUD. but once they had o\xr nmne .we were 
the target of other agencies in that department along with Missouri 
Clean Water Commission* — ^- 



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k letter r«:«lv«d by Nlsaoorl CImb llafc«r CoHBlMloa March 5» 1975i 
confffif! A paragr^ that, I quote: "^ks tlw MlsaourL CImb Vater 
CooBlsslon Is considering revising the reguletions to eLlainate 
certain sdBinlstretlve problsaw Including tlw deletion of Sectioa 
2.06, the developer could del'ej further development until the 
CooMlssion has aede Its decision''^ unquote. August 1, 197S« ve 
finally received a letter of eaocaption. 



Although your request Is for HUD I want to iaipress on you that the 
Clean Water Coanlsslon Is equally iaiposslble to coaply with. Ifo 
have been since 1975 trying to get our new addition approved and 
as of this date we- have paid ah engineer $1. 417.66 and etiU hove no 
•approval Just- RED TAPE. 

If and when \m have final approval from HUD and Clean Hater CaamL9mioa 
our costs in lots will put us out of the oMrket* It could easily be 
13,000.00 per lot. Since aost developers Ignore both agencies they 
can sell ntuch cheaper. To date they have not been repriaMnded. 
Shoiold you like a file on Clean Hater Coanlsslon we can pcovlde it* 

I hope to iaipress the financial impmttT the HUD IregMlatlons has had 
on us. In 1974 when we filed we had approxiaMtely IIS* 000.00 plxxs 
another $20,000.00 (borrowed) on our new addition and the start of 
a golf course for the area. The Red Tape of the two agencies has 
caused us to have to borrow aoney ^o fulfill our obTlgatlons to lot 
owners, and we have no incooM or sales because of their intervention 
and delays. 

Attached is a condensed Attorney's Log and C.P Jl. involvment. 

It is very difficult to relay the problems, anxieties, end reverses 
we have experienced with the agencies. In all cases "in d^aX ing with 
Govemnent Agencies we are Jixlgcd guilty until we prove i nn ocence^ 
This is the reverse of our Constitution. 

Even though the majority feel they ace subjected to harassment and 
dictatorship rule by these agencies. It U impossible to fight thos 
or even quest ton them as they take It to court. They have all the 
time and monoy needed to fight it. Private citizens don't hove it. 
My overall largest objection is having lived in this area and been 
in business \or twenty-three years vLth sizeable holdings — Charter 
member of Llc<>s, original founder of Board for our Church, e»-Seout 
Master and currently on local & mrea Council, President for «<»»^ years 
of our local School Board, and ouny more civic endeavors — yet I get 
treated like a fly-by nlg^it crook. 



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Not only has our financial sacurity baan Jaopardizad but it has 
causad butdans on anginaars, construction finns, suppliars, buildars, 
and raal astata £irms« 

Sour Politicians would talk with individuals sxich as us I'm sura 
thay would anact lagislation to put vary rastrictiva controls on all 
agancias* Otharwisa thay hava thair own dictatorships controllad 
by paopla who wara navar alactad to raprasant us. 

You will notica our initial contact was in July, 1974, and our £inal 
approval was Daccmbar, 1975. During this tlaa wa had no incoma from 
this projact* 

If you naad backup matarial or parsonal tastimony, wa will ba glad to 
cooparata* X would sand copias of tha actual fila but it is too larga 
for Parcel Post* 

I an anclosing ona of our property reports for your inspection and 
you can easily see the problems we've encountered in preparing this 
document* Would you buy a lot here after reading this report? 

Best of luck on your presentation to Congress and HUD* 

Sincerely, 

R* H* CONMELL REALTOR 



R* H. Connell, GRI 



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.ATTACHMENT #1 



C.P.A. 



HUD 



8/02/74 - Contacted C.P.A* requesting audited statements £roei 
1972 to date as per HUD request 

2/07/75 - Request £or more ixi£ozmation 

2/12/75 - Request for more information 

3/05/75 - Request for more information 

3/24/75 - Request for more infozmatlon 

3/27/75 - Request for more information * 

4/04/75 - Received Audit Reports, from C.P.A. thru I/0I/7S 

11/26/75 - Received 6 month AudiC Reports from C.P .A. 

•5/06/76 - . Requested Aiidit Report thru 3/31/76 

6/11/76 - Received Audit Report thru 3/31/76 

A\2dited Reports required each six months for. additional «3q;>«nse« 



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369 



ATEACIMEMT #2 



Correspond«nc« from Attom«y (taken froa Attorney's file) 

Jisly, 1974 - Personal aeetlng in Washington, D.C. ifith Sol Kosher 
& John McDovelL l^y one owner & A.ttomey 

Aug, 1974 - Letter frm Attorney &o Cf Jk, 

10/24/74 - Letter co HUD advlilng preparation o£ report 

11/20/74 - Letter from Attorney to owners, need Infotinatlon 

12/12/74 - Letter fr<vi Attorney to Elcctrl^c Com{>any requesting 
verL£icatLAn that they supply pov«r to Bubdlvl.»ion 

I2A2/74 "- Letter frna Attorney to Telephone Company requeatlng 
verLficatLon that they supply telephone service to 
suMiviaion 

12/16/74 - Received letter £rom Telephone Coopany 

12/19/74 - Personal nesting. Attorney yi Ovnefft 

2/04/75 - Letter to Kissouri Clean tfater Coonission with 
application for exaoption 

2/08/75 - Clean Water Conraisiion latter & application 

March, 75 - Received rejection froa dlean Water Coonission on 
exemption 

3/12/75 - Letter froa Attorney to HUD requesting OILSR*s 

current R & R 

3/26/75 - Letter from Attorney to Clean Water Coonission, appeal 
rejection 

3/28/75 - Letter, State to file Corporation papers • 

4/01/75 - Letter from Attorney to U.$* Geological Survey requesting 
Topo Maps aa per OILSR 

4/04/75 - Letter from C.PJl. with 12/31/74 Audit Reports 

4/07/75 - Letter, Clean W«ter Cooalaalon verifying exempt status 

4/30/75 - Letter co Water Quality Control concerning Registration 
with Clean Water CODsnlBsion 

6/18/75 - Letter to KUD along with Affidavit requested concerning 
Clean Water Commission 

8/01/75 - Letter from Clean Water Coonission verifying application 

8/13/75 - Letter from Attorney to Mr. Winkler, HUD, protesting 

technicalities. Confirmed he couldn't contact Mr. ■ . 

Winkler by phone. 



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AIXACnOMT #2 
P«g» 2 

1/n /77 - Letter from Kr« Sogers r«£errlag sales aate before 

registration, requesting list (ssae list as provided 
vlth HDD filing) 

3/09/77 - Letter to Kr. Sogers with list — protest on tiae 
delay of tuo years 

3A0/77 - Letter to Mr. Sogers concerning OILSK #04214-29-204 

with list. 

3A9/77 - 2nd request on lUt 9^ affidavit 

zn^m - Bequested affidavit sent 

Ull^tn - Received letter daaandlng infdnution on OXLSE 

' 04214^29-204 (wehav* return receipt in fUe dated 
^IV^m signed by Mr. Thooas) 

Uf\tt77 - Letter to'Mr. Sogers verifying we have receipt 



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371 
j^riiycHMEiiT mi^ 

Expenses Incurred eo eQaipIeCe HOD £lllng. 



Attorney Fees 

Piling Pees 

1st Xe-sutelsslon 


12,000.00 
330.00 
100.00 


2nd Re-suteisslon 


100.00 


3rd Xe-subBlsslon 


100.00 


Printing HUD Reports 
Trip to Veshington 
CPJl. Pees 
MO. Division o£ Health 


231.29 

300.00 

2,137.73 

36.00 


Engineering for Clean Hater 
Coamission 


1,417.60 


Legal Notices 
Owner Expense 


27.00 


Total Expenses 


19, 319.62 



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JaCOBSON CplpVITT 
r JKWBESgt V ^tS77 



Land DevelopeIC^PS^altors 

•070 0UINCC.SUITCI • TCLVMONC AHCA 90l*««3aS77 • OM-IAJ*^. P>. O.MRm«a • IIQIWI f . T l lli mW > 

. _ . —October?, 1977 



Mr. Albert E. Abrahams 
Staff Vice President 
National Association of Realtors 
92S 15th Street- N.W. 
Washington, D.C. 20005 

Dear Mr. Abrahams: 

The Interstate Land Sales Full Dlsclosxire Act Is seriously deficient in that there 
Is no automatic exemption for developers who develop property In metropolitan areas 
where full control of these developments is. exacted by the metropolitan authorities. 
The law is very poorly written In that It does not make any dlstlnetioa between the 
sun belt and the highly controlled developments around the cities. 

From talking to the people who have filed for exemption or complete registration, 
we understand that It Is a real ordeal Involving six month's time, and many thousands 
of dollars and fees for the many planners and lawyers required to carry out this 
procedure . The result Is that the consumer pays a higher cost for the developed lot 
than he should have to pay, and one effect of the law is that the developers are afiraid 
to sell to any Individuals and sell only to builders. Because of this, individuals are 
forced to pay a profit to the builders who become middle-men In this transaction. 

The effect of this law Is hurtful. The number of people who may be protected firoai 
Irresponsible, promoUonal developers Is small compared to the millions of hone buyers 
who are penalized by having to pay an extra price for their lots whsn all this could be 
remedied by a thoughtfully drawn amendment to the Interstate Land Sales Pull Disclosure 
Act. 

If we can help in any way, give us a call. 



_ Lloyd Lpvftt * 



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JjigFowlCTRealty 

A-^-irM REA1.TORS 



435 WEST BJZAfieTH STPEET 
BROWNSVrLLE TEXAS 7B5Z0 
Ta£PHO€; AC5tZ'&46-Z415 



Octob«r 20, 1977. 



Mr. AI Abrahams 

Staff Vice Prasidaac 

National Association of Raaltors 

925 15th Streat 

Washington, D^ C. 20005 

Dear Al: 

I have bean requested to sand you soma inforaatlon on ay 
encounter with O.I.L.S.R. I was attacked by thea In August 
of 1976. At the tlaa, I was at ay Sunver hosa In Vlseonsln 
and was forced to return to BrovnsvtLl* Texas iBBedlataly 
because a registered letter had arrived which indicated 
that ve would be forced to cease selling lots in our Rio 
del Sol Subdivisions iBaediataly. 

In the Subdivieion, ve were selling lots to individuals; 
all lots were approved by V.A. , and most had been approved 
by F.R.A. Our aarketlng plan was purely local in scope. 
With small projec-ts such as this. It would be aconoaic sui- 
cide to run large ads in national aadia or to buy television 
shows to attract an interstate aarkat. 

The letter I received from Mr. H. VilliaB Rogers, Director 
of Land Salee Enforcement Division, stated that because there 
was a possibility of a highway sign being seen by out of 
state people; because we had, in aoae Instances, used the 
telephone in the conduct of our butioats b«cau<« our local 
newspaper inadvertently gets carried acroie atacie lines and 
several other highly intelligent rcaeone, ue war* told to 
ceaae selling lots to individuals or be crialnally prosecuted. 

In the project, we sell aost of our lots to builders. This 
one, however, has 2 alias of water front. These water front 
lots generelly sell to individuals rather than builders, as 
they are. In aost cases, too expensive for speculative build- 
ing. 

The inside lots, of which ^here are many, were sold almost 
entirely to builders. I had, however. Just Invested approxi- 
■ately $200,000.00 in extending streets and utilities to 50 
newly created water-front lots and was preparing thea for 



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374 



sal«s CO individuals. Th« eeas« and dasisc ordar. oC eo«raa« 
sroppad OS in our tTaeks; hovavar. it did not scof tlia Im- 
tarasc aacar on that $200,000.00 in its tracks. It is still 
running and I still cannot sail lots to Individuals. 

Whan I cut short ay vacation in 1976 and hurriad back to 
Browns villa to consult with ay Ipcal attornay, ha inCorBad 
■a that tha Land Ragistration Foras ware so coaplicatad and 
•o vagua in soaa of thair quastions, that ha fait wa would 
be in bactar hands if va hirad a specialist who knew tha 
kind of- answers the registration people deaanded. 

I therefore contacted Mr. Ron Feferaan, an Attorney from 
Corpus Christ! , Texas and he filled out tha form according 
to tha approved O.I.L.S.R. raquiraaents. Tha cost for having 
this one fora filled out was $1,500.00. Fefarvan felt that 
we could qualify for a 300 lot exeaption in another project 
and told aa in a letter dated Septeaber 16, 1976 that tha 
legel cost to obtain a 300 lot exeaption for this other sab- 
division would aaount to $2,500.00. 

This project, as I above stated, was conceived for purely 
local consumption. It is located within 2 ailes of the Pert 
of Brownsville and is directed aarket-wise at welders, ship 
fitters, aachinists, shriapers, and other people who work 
at tha Port. 

I have six co-owners in the Rio del Sol Subdivision. It took 
weeks to contact, all of these owners and audit thair holdings 
in other projects. 

We were then required to subait a list of all sales in tha 
project with the naaas and addresses of each purchaser and 
note any out of town purchasers that happened to stumble in. 
(stuable in is precisely the phrase applicable here because 
Brownsville has a large tourist population in tha Winter, soma 
of whoa visited our site and purchased lots for futare retire- 
aent hoaes)* This, of course, is not possible now becansa wa 
are prohibited froa selling then and tha people have to boy 
A house and a lot in order to aake an investaent. This greatly 
inhibits our growth and their ability to tie down a lot at 
today's prices for a home site in the future. 



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As w« progressed in our nsgotlstlons with th« 0.r*L.8;E.« 
Bo'rs sad ao'rs rsqus'sts"cAa« in for Addclonal Inforastion. 
Each of thsss rsqussts had a vsry short tlss deadlins. In 
•ach cass, it was naeassary for us Co stop all other sctl- 
vlcy to prspara the volualnous data required by thea in 
the short asount of tiae. As I recall* ve were forced to 
sake lengthy applications for extensions of tise in alnost 
every instance. 

On January 25* 1977, ve were able to coaplete our list of 
sales and the necessary affidavits vith thes. On February 
11, ve received an offer of Settlement which stated in effect 
that ve would not be permitted to sell lots to individuals; 
but could sell to builders. We were also asked to send 
letters of recision to each of the individual purchasers of 
lots in the project. 

On March 11, 1977 » we received the original Acceptance 
Settlement Agreement, one of- the requirements of which was 
that in 90 days we were to send the Office of Interstate 
Land Sales Registration a list of all the persons seeking 
recision, the dollar amount of claim, and the terms under 
which the payment would be made. Fortunately, our project 
is carefully planned and honestly merchandised and no owners 
applied for a recision. 

I was subsequently asked to prepare the same kind of stuff 
for each of three other projects; however, I have been sit- 
ting on my hands since then and have not been attacked by 
O.I.L.S.R. with regard to the others. We have, however, 
avoided selling lots to individuals in any of the projects. 
This, of course, slows down development and creates a pres- 
sing financial burden on us and all developers. 

The fact that the owner cannot purchase a lot directly and 
build his home himself, or have a packaged or pre-f abrieated 
home, has created a hardship to a lot of lower income people 
who would like to buy lots in our lower priced subdivisions. 
As the lots must be .purchased and built upon speculatively 
by builders, these prospective purchasers are also denied 
freedom of design and other amenities to home ownership 
that I think are important to them. 



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In By opiaion» th« Office of Inters tAC« Land Seles Eegls- 
tratlon mey have a place in regulating the super-Ierge 
developers who sarket thousands of lots on a national or 
regloAal scale. 

The people In the .O.I.L.S.R. have nlt-plcked the lev to 
a point that It Is penalizing the public In ''overkill'*. 

I, as a developer, can deliver a such better-planned and 
econoBlcally prljced subdivision If I work In units of 100- 
200 acres (300-6^00 Lots) than If I am forced to develop 
less than 50 lots at a tlee and CANNOT OWN ANY OTHER DE- 
VELOPABLE LAND WITHOUT BEING FORCED INTO A LENGTHT, COSTLY 
REGISTRATION PROCESS. 

I was also very annoyed when sy attorney Informed ■« that 
O.I.L.S.R. demands a fee for . answering requests for inform- 
ation while it is re.qulring xeams of information from me 
at my expense. 

Yours very truly, 

FOWLER REALTY, INC. 



Robert E. Fowler, Director 
National Association of Realtors 




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€nnsctM of t^e tUnfteb fttaten 

AoiiKe oC iacprcftntatfliei 
■b4foBtai» 3B*C 20919 




August 17, 1977 ^\ 

Mr. Alb«rt Abrahams 
National Association 

of Raaltors 
925 ISth Strsat, N.tf. 
Washington, D.C. 20005 

Daar Mr. Abrahams: 

I talked vlth Attorney Bill Heikle by telephone this 
afternoon since he was not available yesterday following 
n^ discussion with you. 

I reviewed with Bill your statement that you would insert 
his "Statement" with your testimony to both the House 
and Senate Committees. He agreed with this procedure and 
I, therefore, enclose copy of his prepared statement. 

Please keep Congressman Guyer's office informed on this 
matter so that we may be of maxl m\im assistance to our 
constituent. 



Yours very truly. 



Mar^ e7 



ifin'^E. Monroe 
Administrative Assistant 



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Mb artt « developer in an Ohio city %4wre %#• develop sub-divisiflDS, eoe 
«t A tine, and then the lots in the sub^division are sold for zesidntiel 
purposes priitexlly. sinoe the Zhter-State Land Sales Act %«s passed, ne 
have developed several sub-divisions, sane of %4iich have beat onpyletely 
sold and sens of which are partly sold. 

T4a received an initial demand to register our sub-divisions, sinoe 
the sub-divisions in total m ocee d sd the nunter under the zntsr-0tete Und 
Sales Act, for an exonption, or that %#e should oease to sell lots or tlat . 
Me vould be sued in Federal Oourt. Each and every dBoand included a thEeet 
to onqpel al l of our reoocds to be brought to Vta^tington for e heecing# 
under the si±pocna power. 

Ma corapleted one lengthy, questionnaire. Than %«e reoaived a iscoiri 
questionnaire, most of the questions on ths ssoond being sisdlar to ths 
questions on the first. Ha %#ere given ten-day dead lines in which to 
oonplete and return the questionnaires, with the usual threat. * Any requssts 
for clarification as to what was dsnanded, was mat with about a aiif MmSf 
delay in answer, and with donands for more infonnation rather thai darifioa- 
tion. The tine limitations %#ere unreal, incliitod holidays whn no one at 
HUD was wocking, but the developer wes eaqpe c t ed to do so, and local offiboss 
were eacpec t ed to remain open dturing holidays. 

He sold most of the lots to individual oontractors, who financed and 
constructed residences one at a tine, and than sold ths residanoes to indi- 
viduals. A few lots wars sold to individuals who financed their own hones. 
HUD demanded that %#e find out, after the fact, when each houae was actually 
ooi^leteda by the contractor, even though the relevancy of this infoopatian 
was doubtful at best. When %#e received the HUD danand initially, we had less 
than 20 lots unsold. All of the lots %isra occupied by $25,000.00 and up 
residences owned by local citizens, %«ith financing for their hemes obtained 
through mortgages from the FHA and local banlcs and building and loans, all 
without any real pcoblens. 

After about a year of struggle, HUD deteimined that %#e would not heve 
any fiarther action taken against us, if future sales were %iithin one of the 
exemptions in the law, such as the exen^ption for sales to contractors. 

Now, %#e are taiable to sell you a lot, not even if you went the extra 
space of a vacant lot next door to your new heme. Ha are unwilling to spend 
the money necessary to do a ocmplate registration %dth HUD, as this would add 
to the cost of every lot. 

Query: What does any of this have to do with fraudulent inter- sta te 
land sales, which have oontinued? Ha think HUD wents to regulate evary sub- 
division in the Uhited States of Anerica, whether needed or not, at the home- 
cMners added expense. This makes no sense at all, except in tenas of additional., 
bureaucacy to be maintained %iithout regard to purpose at the taxpayer's < 



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Ma mrm wwUling to furtha: idontify outmIvw, as «« bmlimm HOD, in 
its oNn vay, %fiU sursly rtttaOiattt. itaahingtan should te cwloadaA tdtii 
dsimlopsni subpoenaed i»ith alt'Chair reoccda for HUD haarings, fcGm our 
point of visur anyiMy. 

Wa hova boen threatanad with lawsuits from angry custanars %to insist 
that thay %«nt to hay a lot from us, but «« ara forced to tell than that 
HUD is protecting than and since wa don't viant to register and stand that 
extra esqpense, they just can't buy a lot from us directly* Clearly, the 
Inter-State Land Sales Act, including its regulations, needs substantial 
revision to allow orderly developnont orresidential areas, under local 
and state planning and zoning ordinances building codes. Federal intrusion 
into this process sin^y adds to the cost, without maaningAa pro t ect ion to 
the hcinacMner* 



33-716 O - 78 - 25 

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IIIIIBHam®s^Il<!;^ 



!• 1977 

iObnrt I. AlinhiM 

Vi« Pn«id«At, O a» mi— a t Affikin 

lUtioiul Aflsoeimtiaa of Btaltors 

925 15th Strifft, IW ^- * 

ViuhliV(toa, DC 20009 

Dmt Hr. AbnOuHMX 

I rva4 u vticla ia th* Ratiooal Tnn and Land Brolwn — filnr «lwn 
baarlBsa vlll b« cantjuetid r«cardia( HOD'S OILBB. Z hep* anitlilm 
eaa b« dona to allaTUta th* hawint and dioMtaroiM •ff««t it tea 
bad on oa. 

ClUford BivhQp aad ^mU havo a mall corperatioa of diTiaLoa of 
prop«rt7. V« doTolopod avvoral projoeta aiaeo 1968. Va taava pat ia 
roada to eit7 aad atata ataadarda ate. - 

la IST'^ M raevlTvd a Itttcr tnm TSJU mt^tin% h v«r* vAdnr «*>«• and 
daaiat trvm atUing mtyf aar* propertlM In Spring UJte Estaivs^ our 
anb-diTiaioB. nil* d«Tclop««At hw-i 4tcr BO lot* tvtngiDf fiT* Bcr^i 
•aoh. Wa bad fillrd mt ■ oln* pt^e public rtport with th* rv^l eatati 
dlTlaioB. , It MB «ppnm| ^fj- th* 0»gan K*a1 Xlatats DepM-twDt^ Chla 
all took plAc« in l^TTl. Vb*B V4 nuind tb« ecu* and d«al«t, vt 
triod to tvpl^ia to HTO tb«t a public prop^rt/ wport had b«^ filad 
with tha Statt of Oregon aad e1««ii t* each provpvctlve Wfvr. ' fiat 
^^*r gtid ■• ^«T-* at ill uoiiflr their Juriadlcttoo •nd w* bad to rila 
a prop«rt7 iitate»«nt and a public report, Vt «tartad ta Jlupjat of 19r?4>i 
Wa cot tha report fiUed out after flwr 100 hour* of ti»s #p*nt disfiac 
up dataila a« the vub-dirialon vaa approved three Tear* prlQr and va 
h»d to trwce liackvarla to f»t tha LAfornatlon. Ve r*caiv*d m. Iatt*r 
ha«J( froH HITO **kin|f for BOrt InforHtloQ wd telling ua to oand HOO*00 
^flth tYtrj latEtr or the^ *ould not accept it, Thej vould not a^ mil 
the qufttiona at out* hut one or two at a tUm and v« aftiltd a chack 
*ach tlBa. thla want on for 3 j^ara* Va couldn't aell may lota ^vriaf 
thla pgriod and «« aent thH over 1^^^00.00 and a»de mweroua phdoa 
ealla ta Waahlngton D*C* It Hcaed tw*T7 tiiee we tAlk«d to thta «q. 
tha phone everrthins vu Ji»t fine. Then %n'i receive a letter ftroa 
thao aahln^ for lafonation which thaj had had for aoatha. 

Ia Fabraary we reeeltad a letter atatlnc eventhlng vaa OK aad aa 
eoold aall. In March we r*c»ived a letter ■»yin^ they aaadad thraa 
eopiaa of the rinal Report {which the; h*d In their offica), bat 
^T oouldn^t copy th*a* reporta vlthout ne aaodlng tbaa I2.9> for the 
copy. W* aant the tZ.y); th*j aaat tha eopiaa, aa aignad thM aad 



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lli§§iBHH8,®atnfty 



•MIASrrAOnCaCVO. AiAANV.OHMON 



r t t i ir at d thai t« HOD im AprU. V« pgiiwii thia mm •vtrythlag. V« 
hMTd aothiac fitter from tbmm vatil a»pt— b w iiIma tli^r wvttt and 
Mi4 tli^r did not IMTC tto siciMd eopi«« ia tteir offUa. V« know 
thmj r«eaiv«d thm ia April mm «• bava « aicaad rafiatarad lattar 
raeaipt. Alaa, thaj rntdj bava 90 daja ta aaaiiar yaar riat laipunilaaot 
aad thia had baas MMli leagar than 30^ da^rs*- 

IhU idMla thiac baa baas tba bifiaat waniimaary hirraiMnai I 
bava tmr aaaa. Zt baa broka tba a at pa t atiaa aad aatbias «aa aaid 
ia tha liO paga rapart ta HDD tbat «aa nat atatad ia tba aiaa paga 
atata rapart.- Wa'va triad ta aaU tba ragiaul afflaa ia Saattla 
far balp bat tbaj aaa't glrm jam aaj awwwra aa tbaj dan't kaaw ahata 
Saiag aa ia WbabLigtoa DC. 

If aaj Avtbar fbata aaa aaadad, ^laaaa gat ia taaeb witb aa aa tbia 
ia aaraly a briaf atataaaet mm ta ahat baa bappaaad. 



^iaearaly, . . 



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382 



.r-. 




p. O. SOX 410 



Occobsr 26» 1977 

Mr. Thonas Kraolk 
Krsnlk R««lCors 
60S **A" Scr««C 
Aachorag«, Alaska 99S01 



Daar Tom: 

Tha follovlng InforBacion ralataa to eha aaouac of tlaa aad monmy 
c^«nd«dt i« veil aa problama incurrad, wich HUD regulAtloQs aa 
TtlACcd Co OILSR requiramenc«. Tranaae waa first contacted by • 
HUD vlch ragard Co thair ragulatlona in 1975, 6 7eara after •aaet- 
oaa of a lav vlch which va vara unfamiliar. Having baan oor 
brakftT for soma Ci1ai«, you ara familiar vich Cha fact that Traaaac 
haa navar angagad in intaratata^ aalaa. 

It haa baan, and continuaa to ba, our faaling that tha OILSK 4a- 
partmant of mX) U outaide of ita boutida In raquirlng filing from 
our company. The fol loving atatcDcnt* ara anavera to tha apacifie 
quaationa aaked by ycu for uaa by the national Aaioclatloa of 
Raaltora lo hearing to ba bald involving Intraa CJta aalaa of land, 
and tha ragulation of aama by OILSR and HUD. 

1. Total eoata incurrad to data on HUD ralatad vork, involving 

tima, matariala, eopiaa, lagal faaa, ate., haa amouDtcd Co over $6,600 
ovar tha paat 1 l/l years Ic takaa approxlnaCcly 60 hours of 
vork to eompila a full Proparty Report and Scatanent of Record 
for a aubdivlsion, now chat preliminary atudies ^nd conCacta have 
baan mada. Thia doaa not include Cloa spend by aganeiaa compiling 
information aa tegueated by tha regulatinna A raquaat for aa 
axamption can faaaibly ba completed in 20 to 25 houra. 

2. A major itam of unraaaonabla action raquirad from OILSR ia tha 
raquiramant of an audit to fila on a aubdiviaion vith groaa aalaa 
over $500,000 Thia ia a major axpanaa, not to nantion tima con- 
auming and diaruptiva, that Tranaae would not otharviaa incur. 

OILSR informad Tranaae, via our attomay, that aobdiviilooa with 
lots sold vere in vioUtion and vould require filing. lo compliaoca, 
a report vaa filed (a Statement of Ricord) for Denali Subdlvlaloo, 
**• '^•^•Ivad a latter from OILSR sta Ing that since all lota vera told, 
thay Bw no raaaon to ragiatar the subdivision and would jetum Cfaa 
filing fee. Ona weak later, another letter relating to Denali Sub* 
dlviaion waa racaivad atating that tha aalaa vere "in violation" 
and raciaion latter may ba nacaaaary. Tha lattara cama from two 
different individuala. 



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383 



Huiy l«cc«rs fro« OILSR havm ladie«c«d difftttfit cue oft dmets for loc 
MlM that'voro in "violacioa.** 

V« h«v« boon unablo Co find any pare of Cbo RUD rosuUcions rolating 
CO OILSR that iadicdte uso of a *'Sotcl«aanc Of for" yac vara raquirad 
CO s«Qd out 410 laccara co buyara fro« 2 yaara back of faring co biiy 
b^cln chclr Lot«. (Thia incurrad a eoac of aVwat $1*000 and only 11 
of cha loca haira baan racumad.) 

Rapaacad latcara fro« our accomay Co 0IL8K hava raeaivad a forft laCCar 
in raaponaa chac doaa ooc anawar apacific qtiaaciona ralacing to our 
aicuacion. 

3. Tranaac baa aaincainad a policy of aalling only Co paraona who 
hava nada an on-ais inapaecion of cha proparcy. Thara ia a lina to 
chia affacc on aach cloaing acaeaBanc» aignad by Cha purchaaar. Laaa 
Chan 2Z of all aalaa aada by Tranaac, Inc hava baan to iadividuala 
vich an out of acaca addraaa. Thaaa individuala inapaec cha proparcy 
vhila in Alaaka on vacacion or buainaaa. 

4. OILSR haa adversely «£f«cted Tranaac, Inc., aa a davalopoanC 
corpuraLfon, by addine Cur Cher conplUatlons Co Cha alraady involvad 
Job of aubdividlnjt. This indudaa th« burden of extra paparvork, 
Cina cakan from eaploya«a who could ba ■(igag<*d la othar projacca, 

Cha coac Incurted and ifflpo«lrtg upon other agencies for docuaanCaCion. ' 
Siaca va do not sell out aide of Alaaka, chaaa burdana hava baan 
unjuacly iapoaad upon Tranaac. 

5. Tha baac axaapla of cha advaraa affacc OILSR haa cauaad cha 
eooiflumer arose afCar Bailing of reclAlon letters aa raquiriSl by 
the "Sactleiaent Offer." Tranaac received ^bout 100 calla for an 
axplanacion fro« buycra. Tha lac er v^s very vague and lafc aoac 
individuala wich th< f^vlLng that transAc was Crying Co caka Chair 
lattd 4way for l««d than Ic is vorth (We w«re required Co buy ic back 
ac the flane price th«y paid moa iocs havu approclated SOZ Co lOOZ 
or Bore). Anochor feeling va« that this would place a cloud on Chair 
Cicla and aooM buyers called tholr tiCle coapany and wa in Cum ra* 
caivad calls froa chaaa coapaniaa for fur Char axplanaciona. 

6. To parpacraco our coapany, va auac ba in buainaaa Co aaka a 
profic. Aa our coaca Incraaaa, va auac paaa chaao cosca along co 
Che coaauaar in order Co tu In tain 4n Incooe of a certain parcencaga. 
Aa our cosca incraaaa do Co furchar govamaant controla, inflation, 
or other iteaa, tha coat of each lot aold alao iacraaaaa. Aa tha 
builder paya aore for the lota, ha auat recoup hia aoney by raiaing 
tha coat of the houaea ha oalla. 



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384 



7. The closest scacc line to our subdivisions is sons 1»S00 sir 
■lies away, that of Washington. The only advertising dons by our 
company or real estate brokers esployed by us has bsen within Alaska. 
Since we are clearly intras tate. OILSR regulations should not con- 
cern themselves with our company. 

I hope this information will bs of hslp to you, Tom, as well sa the 
National Association of Realtors, in the struggls for clarification 
of inters tate land sales. I have attached a cost breskdown for our 
secretary's time and other costs incurred in complianco with CILSR 
regulations. 



Sincerely, 



alph'^W. Pott 
Vice President 



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385 






?7«ilisla£ry •;:udi2s and cos£ 
for iaforsui:ioa 

?ull IS.r»!^ll rapcrs 

Fill;i> fM 



C3?I2S 



fi23 Odd? 

4C 2s:.:^ 



so 



3C0 



5«Cw- 
350*00 

3o.c: 



;<laa Laaa oxAapcloa * 30 

C^nsury P^rk •xasptloa * ' . .-iSO 

Cc;:sos;;iooc Sao7«« fell 50 

^lUi&stloa L&xd full 40 

lajd faos - W&shlcscoa Atcorcoy 

2k>nna Willard, iksx;u>7A^« 

Shor^wood 

Cs?laa (Tro^arty r«?orc, flla eoplca, ate) 5CG 

riliaj f*a 

Princ property raport 

Print dsod of czuas 

Copy ?7op«7ty SApore &t /J: copy Cwncar 



Coplss 
Z:iVtslcpas 

lAl COST: $6,565.34 



500 
40Q 



30 

xo 

30 

30 

60 



70 



221.11 
75.71 

. 223.13 

221.13 

76b. C4 
1,703. 2v 

436.25 

50. 11 

5. CO 

5<^w. wv 
75.00 
17. 5C 
7C.S5 

503.^6 

3v7.«^c 

50. CO 

67.75 



Salar^v* for cina &pont by axacuslva mChLbara of Tranaae, Inc. not 

iTiClU-tid. 

Hourly raca flgurad zz $6.50 par hour, plu* 11.86Z ovarhaad 
Copiaa at ICc per copy 



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386 




Wh(TEFORD.TArLOR.. PHESTON.'TlUMBU % JOHNSTON 



109 W. PCNHSnyAMA^VlMUI 
TOfWSON. MAKriANO aoM 



October 21, 1977 



kr. Richard A. Moors . 

Gaylord Brooks XnvsstBMnt coopany 

P. O. Box 400 

Papar Mill Road 

^hoanix, Maryland 21131 

)tas GBZC - Baritaga Parm, Inc. 
^ Our Pila Ho. RT 1905.116 

Daar Dick: 

In rasponsa to your lattar of Octobar 13. 1977, 
I can provida tha following information concamiag ay - 
^aalings with OILSR: 

1. tha attomay** faas for thia officV'in 
filing for a Statutoryr Exaaiption for tha 
property known as GreuiCiald Haritaga 
Fara^ Inc vara approxijuttly $1 500.00. 
TO this total, you BUHt ad<3 tha fa« of 
Bob Kaamay Ssquira, T- Fradarick 
Paldaan, £aquLtr« and Robart M. Strieklar, 
Baquira* all of who parfomad sarvicaa 
in connaction with this prdpcdad Statutory 
Bxaaption it should b* notad that at thm 
tina work on this flLa wai tarainatad, thm 
Statutory Exemption h^d not bft«n obtained* 
t hava navei? asaamblad a coenplata registrar 
tion; but ba>td on ay mxpo*uf to thli sub- 
ject aattar* i f»i that tha attornsya* f«oi 
involvad in such a projact would aaeaad 
$10«000^0. 



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387 

Kr. Ricdiud A. Hoora -2- OetolMr 21. 1977 



'2. Aa you know, OILSR doni«d th« Statutory . 
tion for Graaafiald baaad on a iiumbar of 
Itaaui. Tha Titla Opinion on th« pcoparty pxa* 
parad toy T. Pradarick F«ldmAn cited potential 
dOMar rights of unknown vpouaea where ()eed4 
in ttw chain of titla hAd been aigned by a 
nan^ only* Tba Exemptiftn was also d«nl4d fllnca 
aov«ral pcwar compania^ bad obtain ad f igbti of 
way over portions of tha land and th* right* 
of way could not ba locatad on tha ground and 
had navar h—n. ralaaaad. 

Thaaa itau asa of ainor natura and oecur la 
•vary davalopnant. to dejiy an &ceiqption and 
raquira full ragistration dua to thaaa ainor 
■attars* la to dafaat tha purpoaa of tha law 
toy adharing to tha lattar of tha law. 

3. Zn ay opinion,, tha originiUL full . Diacloaura 
Act was intended tcr pravant. abuaaa* in tha vaoa- 
t ion or «acond*hoine oarkat. ' Graanfiald was, 
obviously Intended as a priaary naaidantial 
coRraunity with resident;! of be|th Maryland and 
Pennsyivojila puxchaaing lots. Z baliava that 
aubjef ting *t]ch developments Xo thaa# laws 
subvarts tha puipoaa of tha laws for no good 
raason. 

4. Z baliava that you would hava aora aeeurata 
inforaation concaming othar problaas oauaad 
to tha davalopar and tha consuaar as a raault 
of tha OZZiSR. 

Plaasa call if z can ba of furthar assistanoa. 

V ary truly youra, 

DBG « lav Dala B. Garbutt 



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audio mOOFG, R60llOr/326HSIfM«.Sule1.Ar>clx)iag«.Ala9l(a 99501. ph. (90?) 27^21)9 
October 28, 1977 



Albert E. Abnhav 
National Association of REALTORS 
92S ISth Street N.W. 
Washington, D. C. 2000S 

Re:. OILSR Rules « Regulations 

Dear Al: 

Earlier this year I received a letter fxxiii HUD infondng m that I mbs possibly 
in violation of the Interstate Land Sales Act and dennding that I funiish in- 
fbxnation on any subdivisions in which I light have an interest. 

I furnished the infbiiation and then was givm thirty (30) days to either film 
a Stateoient of Record or request an exem>tion on four (4) di^eroit subdivisions 
in which I was the developer. In either event considerable si^porting doasHnta- 
tion was required. 

We filed for an mm^ion on each of the subdivisions. 

The cost of asseabling the various docuMnts for each subdivision was only ap- 
proxiMtely $100.00 plus the $100.00 fUing fee with HD. However, it took apn . 
proxijnately 7S hours of mf tim which I value at considerably »re than $SO.0O 
per hour and approxinately 100 hours of mf secretary's tiae at approxiBately 
I2S.00 per hour to try to understand and convly with the regulations that were 
furnished us. 

Our request for exeaption was denied because the nuRber of lots in the four sub* 
divisions, which they claia represented a '^conaan proBotioaal plan", totaled 
302 and 300 is their upper limit for emiiptians. • "^ 

We were, however, fortunately provided %dth a Settlepent Offer i4iich we could, 
and did, sign which required us to send a letter to each purchaser of a lot 
after August 1, 197S offering then a return of all their investaent in exchange 
for their interest in the property if they so request %dthin 30 days. We sent 
the presecribed letter to the lot owners which thoroughly confUsed thai and 
while the 30 days is not quite up, no one has yet asked for the rttum of his 
investnent. 

A HUD represenutive fron Seattle who was sent to Alaska about a year ago told 
us, among nny other arbitrary rulings, that any subdivisions in the Mttaousfci- 
SUsitna Borough, where mf subdivisions were located, (soa» of which could be 
■ore than 100 miles apart) would be part of a oomaon promotional plan if one 
person was involved in both subdivisions. 



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Albert E. AbrahoB 
Pife TWO 
October 28, 1977 



Of the 302 lots in our '^coonon pronotional plan" only two (2) wtze sold to 
out-of-state residents and none were sold to wnfooB idio did not see the prop- 
erty before agreeing to purchase. 

The unwarranted rogulations of HUD will prevent ne and my other saall develop- 
ers fron any additional subdividing. 

Per w^ understanding of the regulations, I could not now evm divide one lot 
into two lots in the Matanuska-Susitna Borough without filing tuder the Inter- 
state Land Sales Ragistxation Act because it would be part ot a '^conaon prono- 
tional planf*. 

In my case nost of the lots were already sold and the increased oost dua to HUD's . 
axbitrazy rulings will have to be borne by ne and not passed on to the oonsuaar ' 
as they would surely be if I had not dacidad against any ftarther subdividiag. 

I hope w^ letter is not too Ute to be of use. I just recently returned to 
Anchorage fron a trip. 



Sincerely, 



/ludie L. MDore 
Alll:pw * 



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L.K. FELDERL. 

w^oassoeiffTES 



October 26, 1977 



National Association of Realtors 
925 15th Street » N.W. 
Washington, D.C. 20005 

Attentions Mr. Albert E. Abrahams 

Government Affairs Office 

Dear Mr. Abrahams, 

I am a member of the Austin Board of Realtors as 
well as the Austin Association of Builders. * * 

The following Is my experience In trying to deal 
with the HUD Office of Interstate Land Sales Registration. 

In 1973 I set out to develope approximately 250 lots. 
It was my Intention of building homes on many of these lots 
myself (which would be exempt from OILSR) and sell the 
rest to other home builders (which Is also exempt). Bow^ 
ever, to protect my "right" to be able to sell lots to 
anyone I decided to try to comply with OILSR -by either 
getting an exemption or registering the property. 

The following Is a brief summary of what happened i 

I contacted a law firm around January 1974 to assist ae. 
They first had to research the law. 

During the next 12 months of discussing the matter off 
and on with the law firm I was finally advised that con- 
sidering the purpose and intent of the development that I 
should submit for what was referred to as a "300 lot ex- 
emption", but they cautioned me that In view of the fact f 



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391 



L.A, F«Id«r pagA bvo 

I had previously devaloped sons adjoining land thm OZtSR 
peopla could ultlaataly decline the application for an 
exemption then Z would he hound to apply for a full regis- 
tration %fhich would require such more legal work and time 
delays* 

In considering their advise Z told a friend of nine 
ahout the matter and he advised me that a different law 
firm had obtained an exemption on a different technical 
matter by applying for an exemption under the **Zndividual 
approval** section. 

Inasmuch as Z wasn't even sure I would he selling 
lots to ln<^ividuals Z didn't want to risk the expense in- 
volved to get A full registration %fhich Z was told by me 
law firm %rould cost around $5»000« 

. Being a little disgiisted with my law firm for not ad- 
vising ne of tha third alternative Z hired the second law 
firm* The fLrat lav firm sent me a bill for $1,904.16. 
(copy -A- attached) 

IXiring the next 10 months the second law firm after many. 
confer encee with me and OZL^R people, a special trip to 
Washington for one of the lawyers, an exemption was issued 
to me from OILSR* The total legal fees of $3,06§r:7l (copies 
-B- attached) ^^ 

After two years Z thought Z had resolved the task of 
complying vrith a government require:nent However, this was 
only the beginning. One of my requlrententa %#as to file an 
acnu«hl report of sales of lots I sold to individuals. Being 
the exemption %ras not issued until July 29, 1^75 (see copy 
**C" attached) and Z had no lot sale^ that year Z carelessly 
failed to file my annual report by the dealine figuring it was 
not necessary. 

Zn March 1976 Z received a termination notice (copy mis- 
placed). Z had the law firm see if he could get me reinftated. 
He did, legal cost $150. (copy ''D** attached) 

Zn 1976 Z sold two lots to one individual. Zn December Z 
filed the necessary annual report. 

In January 1977 HUD sent two special OILSR Investigators 
here from Houston to examine all my records and related docu- 
ments. 



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392 



L.A. Felder page three. 

In March 1977 I received, through my law firm another 
termination notice, (copy attached) They «aid Z had the 
purchaser sign one of the preliminary unapproved restrict- 
ions. Z did not agree, but by this time I was too disgusted 
and tired to care. I ignored the notice. In April of this 
year I received a second notice. This time from the '*Bnforce- 
ment Division**, (copies attached) I was told to send a letter 
(of a sample they enclosed) to the one purchaser. The re- 
gulations stated that I was not to* discuss it with hin personally, 
and send it by registered mail. I am a friend of the purchaser 
and felt this was ridiculous.* 

At this point I was more than willing for theWlt>le night- 
mare to be terminated. 

Copies of my letter to OILSR and their reply in attached. 

Sincerely, 




(r 

L.A. Felder 

LAFibe 
enc. 

P.S. The law firm sent me one final bill of $25.00 for 

forwarding OILSR termination notice to me. (copy attached) 



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393 



L. A. Feld«r, Inc. D«c«inb«r 10, 1975 

537 East Woodward 
Auatin, Texas 78704 

December- 5 , 1975 - Fee for servlce» rendered in 

connection with HUD claim for exemption in- ^ 
eluding review of J\me 18, 1975 HUD letter and 
restrictio ns ; conferences with Mr. Felder and 
review of HUD rules and regulations; revise 
claim for exemption; confer with Mrs* Lai^ead, 
HUD, Washington, D.C.; prepare revisions to 
restrictions and claim for exemption a4d pro- 
ceed, with filing .exemption. - ^ T SO tOO 



yoet? 



IN ORDER TO IN8URB THAT PROPER CREDTT IS 
GIVEN TO YOUR ACCOUNT. PLEASE RETURN A COI*Y^ 
OF THE BNCIjC»EO STATEMENT WITH YOUR PAYMENT. 



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I 



394 

May 31, 1975 



L. A. F«ld«r, Inc. 
537 Bast Ifoodwmrd 
Austin, Taxas 

Xerox 

Travelling axpansa 
Recording f ••• 
Miscellaneous expense 

Total 




Q^ 



~ I 



;( 






m ORDER TO INCURS THAT PROPER CRCDIT 18 
GIVEN TO YOUR ACCOUNT. PLEASE RETURN A COPY 
OP THE ENCLOGEO STATEMENT WITH YOUR PAYMENT. 



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395 



L. K. Fald«r , ; . • 
537 East Woodward 
Austin # Texa« 

June 3, 1975 - Fee for services rendered from 
•, February through May, 1975, in connection with 
;: / : a claim for exemption to be filed with the -. 
'-" • Office of the Interstate Land Sales Registra- 
;, tion for various lota in Granada Hills and lots , 
-V. in Granada Bstatesr Section I, including initial 

• > conferences- with Mr. Felder regarding the past 

*' operations of the subdivision; discretion of . • V . . 

• •••builder's exemption and various other claims xor,,. 

'i'- exemptioni review documents received from Mr.. .. . , ^ 
'/• Felder in connection with proposed interstate 
exemption? research in HOD regulations and 
Siteistate Land Sales Registration Act regarding 
amount of lots actually includ^ld within the 
. tSbdivision and conference with Mr. Felder regarding 

onsite exemption; telephone conferences with Mr. 
• Plantz and Ms. Spivo regardint the. Poasibilities ,., 
of converting a builder's exemption to an onsite 
exemption and- telephone conferences with Mr.. 
Felder regarding samej preparation of draft ^ ^ 



statement of reservations,, restrictions, *i/ 

taxes and assessments and draft claim for . ' . 

exemption for onsite exemption; telephone confer- 
ences with Messrs. Snyder and Kelly at the ' 
title company regarding mortgagee's ti,tle policy 
and title opinion necessary for lots in Granada 
Hills; continue working on draft statement of 
reservations; title search on lots within * "^ 
Granada Hills and preparation of opinion letter 
after a trip to Stewart Title Company; preparation 
of quitclaim deed in connection with one lot 
located within Granada Hills; final draft of 
opinion letter; preparation of exhibits, including 
all plats and reservations and restrictions; work 
on final form claim for exemption and statement 
and telephone conferences with Ms. Spivo regarding - 
various problems with the claim for exemption; 
telephone conferences regarding summary of taxes 
on various lots; preparation of plats as exhibits; 
trip to Washington, D. C, to present claim for 
exemption and meetings with Mr. Plantz and Ms. 
Spivo regarding claim for exemption; and telephone 
'Conference with Mr. Felder regarding filed claim. l^SSO.OO 



33-716 O - 78 - 26 

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396 



L. A. Felder, Inc. Ootober U, 1975 

Kr. L. A. FaI<Ur 
937 UoodwArd 
Austin, TsxAt 



L 



For profettional tttrvlcet In eotmttctioa with tbm filial pr«p«r«tloii 
of reseriotiont for Granada Eatataa, aaction 1, Ineludiiit coaplata 
raviaw of raatrietiona and aaating with Mt. Faldar to ravlaiir final 
draft of raatrietiona; praparation of final draft aftar rmwUm of 
tha ra<iuiraBanta of tha Offica of Zntarstata Land Salas lastatratloa 
and praparation of ratification agraaaant in eoonactioa vlth a prior 
sala OS a lot in Granada Batataa. aaction 1. 

For aarvicaa aa abova— ————— —— ———-•— JISO, 00 



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397 



r n 

L. A. raider, Za«. Ootdber 14, 1979 

937 U6odw«rd 
■ Austin, Tttxaa 



For profettional tarvieat in eonnaetion vith Granada Rilla and tSbm 
inqidtiaa fron tha Offiea of Zntaratata Land 'Salas Xagistratlon 
ragarding prior lot aalas including ravianr of ail prior l^t^a^aa 
.and. tha lattar fron- Mr. Dlahl; talaphona confaraneaa witbHr. Faldar 
and aavaral talaphona eonf araneas With Mr. Diahl at OILSR; raaaarch 
into pravioua varaion of tha ragulation pronnilagtad by tha Offiea- 
of Zntaratata Land Salaa Xagiatration during tha pariod 197Z-1979 
to dataxaina vhathar tha now inapplieabla intra-atata axaoiption 
would apply to aooM of tha prior 16c aalaa; talaphona eonfarancaa 
with Mr. Diahl raaulting in tha datamination that only thraa of 



tha prior lot aalaa raquirad notificatloa of righta of raelaaiotti 
praparation of two. affidavits in eonnaetion vita 4Bha aala of lota 
in Granada <Batataa,.aaetion 1, and prior lot aalaa in Granada Hilla. 



reparation of two.afli 
r'anada -Batataa ,. aae 

For aarvieaa-aa aboVa———————— —--«—— ^——$229.00', 



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398 



OePARTMCNT OF HOUSING ANO URBAN OeveLOPMSNT 

OrFICI or MTntTATE LANO ULES M GISTIIATION 

WASMINOTOM. D.C. 3MM 

CPCTTPIED HAIL "'mmmm^ 

Cordoa K. MUm. Uqulr* /5^5S^ 

Bcoiiii, Kono^y, Rom, Sokar JUL 9 9 tSTS ^ * - tr^^f^Zli 

221.UBaC «lxth 8CXM6 - <202) 7S9-23M 

Att«eia» Xesos 7B701 

DMT ISr. VlMX * .. 1 . 

Sub5«ett oaSR to* 2*0980-49«99» Granada Batataa. 18 loU* 

Thla Offioa baa saealTad your GLala of ftSMptioo^ifflamtion and « ooyor 
of tha Statanaat of Baaarrstioaa, Baatxiotieaa, taoaa and Aaaaaaaaata on 
tiia o^p^QDad ■ ^^^ Y la lont 

Vo bava appxovad tha Statanaat of Basarrstieaa, Baatxlotioaa, faoaa and 
Aaaaaanaata aa to f oxn and oontant baaad oa tha infoTttton vtaioh jaa ""' 
haTa aubnittad. Thia approval ia not to ba ooaatxuad aa aa oplaioa bgr 
thla Off loa that tha' actual aathod of aala qpalifiaa tha aobdivlaioa foe 
tha azanption from, tha ftdl fning and diaoloauxa raqiai r aaa Bt a of tha 
Lutaxatata Land Salaa Toll SLaoloaura lot, but onlj that tha davalqpar 
baa oonpliad with tha prooadnzal x•q^lx«■aata for **''^^*<**g aiioh anaptloa- 
and baa rapraaaitad that tha aathod of. aala aaata tha raqiilraaanta foe 
ption. 



Thla approval la Ualtad to tha lota whloh ara tha aubjaot of tha Claim 
of Bzaaptloa and doaa aot aztand to tha xaaala of aaj oooh lota* 

kaj rapraaflitatlon that thla aubdlvlalon baa baaa xaglataxad with or 
approvad by thla Offloa or tha *V. S. Oopartaaat of Bouala^ and Qltbaa 
Bavalopaaat vould ba la violation of tha Aot. Zf aaj raaarvatloB, 
raatrlotloa, tax or aaaaaanaat, vhathar or aot oif raoord, ba^aot baaa 
follj dlaoloaad la tha Stataaaat app ro v ad by thla Offloa, aaj mIo aoda 
by aaaaa of auoh laooaplata or aatma Stataaaat voold alao ba la violatloa 
of tha Aot and ooold aubjaot tha davalopar to both olvll UabUltgr and 
orlalaal panaltgr* 

Thla approval la baaad upoa your rfpraaaitatloa that ao aalaa off ariaci 
ara bala^ aada la oonaaotloa with thla aobdlvlaloa othar thaa tha lota 
af f Iznad to by tha davalopar la tha docuaaatatloa of tha flllnc* Va alao 
raly oa tha r^praaaatatloa by you that tha ooatlniad oparatloa of thla 



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399 



subdlTlsloa %fill te la a miner ooniist«it vlth tha daia of &BH9tloa nd 
that th« aoknovlcdgad oopiat of purohasar'a atatHiaat togothar vlth tha 
dair«l0P«r*o affiLzBatloaa vlU ba filod tlaoly vlth this Offioo aa ro^iixiA 
^ Sootioa 1710.11(b) of tha Sagolatioaa. Zf you hava raliod vpoa tha 
pxovlaioaa oT Saotioa 1710.U(o}(l) of tha aaotloa to aatthUah tho tlM 
of salo, joa mat fllo vlth oaeh aoknovladgod itatoBMit nd afCLzaatloa a 
oopy of tho asplloahlo oontzaot of sala. 

Thia vlll ba tha color Botifioation of tha raporting xaqioimnt of Saotion 
1710.11(b). PSalluza to ■obait tha roq^ixod aoknovlodgad oopioa of tha 
Statooanti of Soaarvatloaa, Saatziotioiia, fizaa and AaaaaMMAta, tha 
oontxaot of ulo if xoquirod, and- tha davalopar*! ol^Md afflzaatloa vlthia 
51 days (poit aukad not latar tbaa oaeh Jannajey 51) aftar tha npixatlon 
of oaoh nalonrtar yaar will aotooatioally ravokt thia approval for tha mtira 
proooding nalamlar yaar. Suoh ravooation will aako Yoidablay at piizohaaar*a 
option, any aala aada dnriaff that oalandar'yaar. In addition* aooh 
ravooation vill naooaaitata yoor applying for a nav aiaaption. Ho w a va r, 
avan if your raqioaat for a nav aaca^tion la approvad, it la not ratroaotlva 
and loaa of tha aaca^tion dnrljig tha pravlona yaar will not ba affaotad* 
XVxrthaxaoray any nonaraapt. aalaa. would. ba.l2L .Tiolatloa of tha Aot* 

Slnoaraly* 



. 0«P«ty idamtW^^ 



'"^'^^ (Acting) 
eei .' Mr. L. A. FaUar 



jSSarafeML2id Salaa Adpiniatratoir { 



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L. A. Tmldmt, Ziio.> 

537 Woodward 

Austin r Tsxas 78704 



. TftlaphosM .tollf 4, 



n.ti 



Aug. 23, 1976 - Fe« for sarvlcas raadarad in con* , ^, 
naction with tamination notica froa BDDr 
inclxsdiag confarancas with Mrs. ftprigg at 
BUD and Mr. Faldari praparation of rains tatanwnt 
of axamption lattar; confarancas with Mr. Faldari 
ragarding convayanca of lot to Booiaownars 
Association and praparation of daad and lattar.. 



iso.ao 



tU ORDER TO 1N8URK THAT PROPER CRCOIT 18 
GIVEN TO YOUR ACCOUNT. PLEASE RETURN A COPY 
OF THE ENCIJ06EO STATEMENT WITH YOUR PAYMIHT. • 



''1^ 



■'■p- 



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401 



Mr. L. A. F«ld«r 
8016 Bl Dorado 
Austin, Toxas 78737 

0«ar Mr. Feldori 

Snelosad is a copy of tha Tarmlaation Motiea f roa BUD nhioh 
%fa iraceivad thia ■oming aad which Z duseassad with you toy talaphona. 

Lat ua know if you wiah to taka any furthar aotion la thia 
ragard. 

.Tour a truly. 



g.o^(Lxr . V 



J. Gary Barton 



JCBtlam 
Bnolosure 



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402 




DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 
OPPice or iNTcasTATi lano »ai.m kcoistmation 

WASMINCTON. O.C. 20410 

TSEMZ2AXZCDI IXJSJCZ 



MAR 8 «77 BB 

(202) 75S-2390 

lCni!g-T RECEIPT JKUUtis^rtoj 

J. Caxy Barton, Esquire 

Brown, KaronBy, Ross, Balcar & Barber 

1300 Xnerican Bank Tower 

221 VSast Sixth Street 

Austin, Tesas 78701 

Dear Mr. Barton: 

Subject: OQOSR Ho. 2-0980-49-99 

Granada Hills/States, Section 1 

You are hereby notified that the Statonsnt of Reservstions, RMtrictions, 
Texas and Assessments a^ge a v et l by tliis Office on JUly 29, 197S, is 
teaoinated. 



Tiia restrictions vihica were a^roved as part of your Statcmant- of 1 
tions, nastrictions, Texas and Assessiaents on Ttily 17, 197S, %wre not th« 
ones which you included in X3m statoaents given to purchasers in 1976. 
Actually, tley were the restrictions vAiich were paxtially disapproved fay 
this Office on June 18, 1975. 

If you wish, you my request reconsideration and present evidanoe to the 
Aiftainistrator indicating that this action is not jvMtified based on the 
requirements of the Act and the Regulations pccculgated thereunder. 

If you wish to reapply for a Claim of F^oeqption under Section 1710.11 of 
the Regulations, you mst file a Claim of Exoiption in the fiozm set forth 
in Section 1710.101 and a StatflBoent of Raaervations, Restrictions, Xbxqs 
and Assesanants in acoordanoo vdth Section 1710.102. Ih addition, you 
sust sufcxnit evidence of title, a copy of the sales co ntra ct to be used, 
a plat of the sviadivision and any proootional material which you have 
available. 



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403 



In tht altnoMtlwi^ if you tdflh to «Btir into ] 
you must: £ilA a Ststnonfe of XteosA/ t09>thBr %iitli WiBpogting doci— nti 
in aoooBdann with tfat iastxustiom «id foamt outlixwft in Wt 1710 of 
HtU 24 of thi OodB of fiiduaa nmuUtlons. FImm ladioBbB your 
infatntions within 30 d«s of your isMaipt of this W±mr. 




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404 



^ 'ttlN \ OePARTMENT OF HOUSING AND URBAN DEVELOPMCNT 

l*|]H||j]** * O^riCI or MTIMTATf LAND SALfS llieiSTRATION 

XJuiUUL/ VASMIMCTOM, OX. 3S4I0 

itfRll W7 

mmmm 

Winklor 

CEFTZFZSD MOL 

.RBT0B2I BBCBZPT B EOOB ST ED 

J. easy Barton, Bsquivo 
Bxoffiir MAzonoy,' Hoar, BalMr — 



1300 Aaoriean Bank Towar 
221 waat Siicth Straat 
Anatia, Taxaa 78701 

Oaar Mr. Bartoni 

subject > Granada Billa/Batataa« Section If 0ZL8R Mo. 2-0980-49-99 

A ravlaw of tha davalopar'a aacnowladgad stataaanta for 1976 ahoiia 
that tha davalqpar gava a non-approvad oppy of tha Stataaaat of 
RMorvationa, Raatrictiona* Taxaa and Aaaaaaaanta to that year's 
lot purchaaar. Accordingly, that aala %iaa not aada pursuant to 
the exaaption and waa in violation of the Zaterstate Land Sales 
roll Disclosure Act. 

To adndniatratively aettle this aatter and in lieu of aoy further 

agency^ action based on the present facta concerning the aala 

or lease of lots prior to your conpliance with the Rules and 

Bagulationa of the Znteratate Land Salea Full Diacloaure Act, 

we requeat that you agree to the teraa of tha encloaed adatnl atretic 

Settleaant Offer. 

Thia agraeaant will include aending a letter to the aole purchaser 
in 1976. Thia letter ahall notify that peraon that aince you 
had neither perfected a full StateMent of Record nor reefebred 
an affiraative axeaption order at the tiaa of aala, he has the 
ri^t under Section 1404(b) of the Act to void hia contract 
and receive a ooaplate refund of all aoniaa paid on acoeuat 
of the aaid contract, including principal, intereat, taawa, 
special aaaassaants and property owners association dues. 
This letter need not be sent to that purchaaar if has 1) bought 
a lot with an exiating dwelliagf or, 2} ia a contractor engaged 
in the buaiaeaa of building i or, 3) haa aubaaquently resold 
the property and can no longer reconvey the p r ope rty to you. 



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405 



«lM text of tfa* MnelMttd latter is te b« vsad. Any dumg« la 
tfa* t«xt or fon of thia lettwr raquiraa tha approval of thia 
Ottiom. tMfor* any aailin^* tto lUn ia to accompany this lattar 
ochar than a copy of a cuinenUy effactiva Proparty Raport if 
you hava oftactad a xagistTaticm with thii Offica, Tha lattar 
Shall ba «*nt cartlflaA nail, ratsim jfaeaLpt Tv^uaatad. 9m ' 
cacum raeaipt shall- ba ntalna^ in your filas* 

iTou *rm adviaad that tha thirty (30) days Mntioasd la tha ■odsl- 
lattar ia in no ^my te ba eonsi4srs4 a IlAiit^tion on tha xps^t 
of tiia purchaiar to void hia contract or to brln^ suit mdur 
the Act for a saAmd or daMgas. Haithar yo« aor this Ofttos 
eaa ^taciOgm thia ri^t. 

If yoa accapt this propoacd sattlavant a9ra«nftnt, plaaaa utaeate 
tha ancloeed Sat tin nan t Of far and ratxira It to thia Of flea vithin 
20 daya of your racaipt of this lattar. Zf ywu fail to raapond 
to thl* lattar vitM^ tha allottad tJxm, wa shall assuna that 
you hava raj«<t«d the 5attla»nt Offer and consaqiwntly, va vill 
aaauBa tha roaponfliiilllty of notifying purchaaera of thwlr rlghta 
and consider wHac tar tha r action laay ba nacaaaary to pro tact 
PQcehas«Qi and sssom fuU cmplianos vith tha profvisisas of Um 
Zatsrstete Laad Salas mil Diselosvra Act* 

t>laaaa in Com us of your Intantiona r awarding tha aubiaissioa 
of a StatadBnt of Jlacotd or an axen^tion ca<[uaat. C^iastlOQS 
concaming filing a Stataaant of Record or submitting aa 
raquaat can ba dlractad to our £xaaination Diviaian, (202) 
755-53S6f or ExBin^ption Staff , i202} 7S5-Z390* 

Za rspiy^ pUaaa zafar te Bd ViaklMS. 

Siacaraly* 




'INpiractor 

rSband Salas Baforoaaaat Oiviaioa 

Bacloauraa 



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406 

May 25/1*977 



DopnrtsBent of Housing and Urban Dovttlopnsnt 
Off Ico of Interstate Land Sales Iteglstratlon 
Washington, D.C. 20410 

Attention I Mf. William Rogers 

Reft Ed Winkler 

Subject I Granada Hllls/Sstates* Section It 
GZLSR No. 2-^980-40-99 

Dear Kr» Rogers, 

To comply with your April 11, 1977 request t I a» 

attaching a receipted copy of your. form. #FRI-376« Zt 
was given to the only purchaser of xinlnporved lots in 
Granada Estates Section !• 

Z %«ould like to add that Z am primarily engaged in the 
homo building business. It Is xsy Intention to build hocaes 
on all the remaining lots In Granada Estates, Section I« 

Sincerely » ' ' ^ 



L.A. Felder 



LAFtbe 
enc« 



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407 



f*l-J74 

Mki?^j 1977 



Dear ^JO/fV H. CgyrCH P/ &J^^ 



We are writing you at the request of the Office of IntersUte Und Sales 
Registration to infora yon of a setter of interest to you concerning your 
^.^^nt to purchase i j i '* fi 2. ^75 / jj ir/tA^AOi^ ^^TTfTlS^ 

At the tiae you entered into your lot agreeaent. there had been no effec- 
tive Stateoent of Record filed with the Office of Intarstate Land Sales 
Registration, Departaent of Housing and Urban Oevelopaent, nor had an 
exception been established as required by the Interstate Und Sales Pull 
Disclosure Act, 15 U.S.C. 1701 st seq., which becaae effective on 
April 28. 1969. 

In view of the fact that your purchase agreesent occurred prior to the 
effective date for an exemption or a Stateaent of Record in accordar.ce 
with the Rules ar.d Regulations of the Act, you say, if you wish, void 
your sales contract and any paynents aade pursuant to this agreeaent will 
be refur.ded. If you have resold your lot, however, your ri^t to car.cel 
has expired and is not transferable to the second buyer. If you have 
Bade ioproveeents to your lot %xA feel you have been daaaged , you say 
have to file suit if you wish to recover those dasages. 

So that our records aay be brought up-to-date, we ask that you notify us of 
your intention within thirty (30) days froa t^.e dat« that you receive this 
letter, after which tiae we will assume that you wish to retain your interest 
in the property. In the event your property has been deeded to you ar.d you 
elect to receive a refund within the period ir.dicated, prior to such refund, 
you will be required to execute the r.ecessary docuaents to reconvey the 
p.'^operty to us free of any restrictions and encuabratices other than those 
contained in our original Deed pf Conveyances to you. 

If you have any questions regarding this (batter, please feel tr^^ to call 
this Office and every effort will be aade to assist you. 










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408 

OCFAATMCNT OF HOUSINO ANQ UMSAN OKVCLOINiBNT 



JUN2I 877 



V WH i OFnCI OF MTCMTATLLANO SALfS MOIfnUTION 

XJ^fl^ «A»«M«TOM. A.C JNIt 



in-2M 



Mr. L. A'.~r«Idtt . _ - — 
L. A. Fttldar sad AjaoctatM 
8016 II DoTAde 
AiMtia. ItaM 7S737 

Daw Mr. r«ldws 

tabj«et: Grca«4« HilU/BsCAtM, •••tioo Z, OXLOl «o. 2-09aO-49-99 

Ihia vlll «ekaovUdf« r«e«lpc of your loccor of Nay 23, 1977 and th« 

copy of tba lottar a««e Co Mr. Cnttdifiald. Ihaak yoo for jour 

oooparaeioA la th« rMolncioa of thia aattar. 

Siacaraly, 



siacaraiy, ^ — >^ >^ 

(\j.,.Jl^ .^^-— 

m. millM lofora 
/oiraator 



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409 



Tl. a. Tmldmr, Inc. 
537 Woodward 
Austin^ Taxaa 



"1 



I 



ISXiS Application 



Fabroary 5, 1975 



B&WSSS. Through Data 



Sarvicaa ra: 

January (1974) conf. Faldar 

Fabmary (1974) Faa to Alan Mintar ra raaaarch and prap* 
aration quastion and answar ahaat 

May (1974) Conf. Faldar, Mintar and Davidaon ' ^ 

Juna (1974) Conf. Mintar, Canpball 

July (1974) Conf a. Mintar, Davidaon, Campball ra quaatiorfaira 

January (1975) Conf a. Mintar, Davidaon, Campball, Faldar 
ra. I8LS filing; axamination of quaation and anawar ahaatj and 
draft; praparation application and axamination final drift 

Talaphona Calla 



Xarox Charga 



A 



5«°y 







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410 



JUly 19, 1977 



Hr. L. A. Fttldar 

L. A. Falter » Zao. 

537 Woodward ' 

Austin, Taxas 78704 

Lagal aarvicaa randarad during March and April, 1977, 
ragarding noticaa fron tha Off ica of Intaratata Land Salaa Bag<- 
iatration and talaphona confarancaa and eorraapondanea with Mr. 
Faldar f2S.OO 



P' 



IN ORDCR TO INSURE THAT PROPER CREDIT IS 
GIVEN TO YOUR ACCOUNT. PLEASE RETURN A COPY 
or TM« BNCLOOBD STATEMENT WITH YOUR PAYMENT. 



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411 



A. RKXFORD WIUJS. Jlt. CPCU. 
^^.^ . r^^ • , ^ STKWAirr II. SMITH. GM 

BEASLEY-KEIX 





INSURANCe REAL BSTATE INVESTMENTS 

DfUWER K. 1402 NEUSE BLVD. 

NEW BERN. N. C 28660 

OctObar 21i 1<177 (919)633.3043 

nr. Dudlsy L. O'Naal^ Jr. 
Govttrnnttnt Affairs Offics NARS 
ISS ISth Str««t N.U. 
Uashington 25-. K 2QQQS 

^^^r Dudlays 

Uithout axhaustiva rcsaarch on tying down spacificsi it 
will be inpossibla for ■• to b« as detailed as I would like 
to be. I ae speaking here froii ay experience and the 
experience of ay attorney i who has carried the lion's share 
of the load of OILSR. 

1. a. The time and cost involved in filing and exeaption 

indicate a ainieue of three aonths delay and cost 
of $500Q.OO upwards* 

b> The tiae and cost involved in coaplete registration 
would span a ainiaua of six aonths tiae and in 
excess of $lQiOOO.0Q in cost. 

2. I'm not sure it is a question of being.qpreasonablei 
arbitrary 1 or bureaucratic i but aore a case of the 
instability of the Rules<Cchange before resubait>i 
lack of experience in the true understanding of 
land developaenti excessive work load not antici- 
patedi and in soae instancasi carelessness In hand- 
ling applications. If we aust have rules such as 
these, let's staff for it and budget for personnel 
before instituting. 

3. I believe this question can be answered affiraatively 
on the total issue* 

M The main burden shared by the developer^ builderi 

and financier is 



33-716 O - 78 - 27 

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Hr. Pudlay L. O'Naali Jr. -2- Octobtr 21i 1^77 



•• A burdsnsoaa and so««yh«t unraalistic set of rtquiro- 
■•nts. 

b* 9a lay in salasi tharoby incraasing land and dovalop* 
■ant cost to the consuaar* 

c« Tha tiaalinass of raturning applications and . 
corractions. 

d. Cartainly doas dacraasa coapatitioni haraby adding 
adding additional cost *to tha consuwar. 

a. Holding a Raaltor in liabo anaiting right to sail 

f« Raraly providas any aora saraguard to tha consuasr 
than tha avaraga davalopar yould do anyway* 

5. Advarsa affact on tha consuaar •• runs hand in glova 
with tha abova a«ntianed additional cost** dalay of 
land occupancy 1 uncertainty of contractt no siapla 
explanation without voLunes of reading^ and slows 
coapatitioni sinca soaa landowners and davalopars 
will not contend with it* 

b* It is possible to derive considerable data froa tha 
above 1 which would substancially increase cost as 
well as being detriaental to tha tiaa of purchase* 

I would like to recoaaend two approaches relative to 
these regulations 1 being: 

1* To those local 1 county i or state agencie*s having 
land use or subcii vision plansi issue instructions 
as to a ainlHun nuBb«r of paraits they aust cover 
to aake their ragulatlonsi when coapliad witht Hfi- 
aaterially axaapt from OILSR. 

2* Uherein we we have adequate regulations at local 

level 1 have a dapdrtncnt within HUP that could and 
would expeditious y raviaw saav and approve for 
satisfying compiiar><:a with Federal regulations* 

Land control and land use Just basically are not a function 
of national govamaanti as we •r^ t^ all devious in what wa 
consider good use {i.e* progress vs poverty>* Our statast and 



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413 

nr. Dudlay L. O'Naal^ Jr. -3- Octobar 21<i 1^77 



•van countiasi should ba vastad yith this rasponsibility* Thay 
could handla it* 

Lat*s start punishing tha bad guysi and ancouraging tha 
good guys to procaftd in thair bast of land usa controls* 



I hopai ^udlayi this will ba of soaa halp* 

Sincaraily^ 



CBB:bw 

xc: Dan Hanrahan 
Al Abrahams 




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414 



REcnvrC- \^v 



KfCNIK INC^REAIJORS 606 A 8TFCETANCH0RAQE. ALASKA 00901 TBJEPHQNE OKV) 2m4«» 

1 OctobMT 25, 1977 

^ Albert B. Abrahams, Staff Vica Praaidaat 

2 HationAl AsaociAtlon of Raaltora 
P OovarniDBntAf fAlcf 

a " 925 15th Str«*t 

^ WA«hingtDn, Q. C, 200005 

3 . RBt Intaratata Land Salaa Ragulations 

J Gantlaman: 

Q In ragarda to your call to action datad Saptaabar 

. 29, 1977, which I waa juit iud« awara of, I woold Ilka 

s to provid« the following information for your usa at 

^ hearings r«g«rding Interatata L^nd Sale*, 
m 

P Being frov ALaftka, wa hava particular proof that 

9 0IL5R ia regulating Intra state lands aale* in that our 

X advertiming madia d«ea not oroaa state linaa Our neva^ 

^ papers have less than a two percent out ot state cir" 

o culation. I am enclosing a itateoient fcom a develop- 

< sent corporatign^ TJtanaac Inc. which we have represented 

g on several occasions on subdivision salai. The Statement 

p speaks for itsalf. 

* >iy company specializes in land salas la tha Hatanuska 

P Vallvy of Alaska, which i« located fifty miles north of 

g Anchorage- Although wa have not had the occasion to do a 

^ EtUD filing oureelves> many of our clients hava I would 

5 like to pass on soma of thtt thoughts and axpariancas sroa 
of our cliants have had. 

_, I, first, would lika to aantion that 0XL8R has only 

m enforced their regulations in Alaska for the past two years, 

m They originally came in with a bang and iamadlately tried 

± to put a stop to all illegal subdivisions. Thay ttven went 

Q ao far as to issue ceaa« and desist orders and aubpeoned 

m devel<3pers to Hashington^ D,C. The developers Iti our araa 

fwere npt aware of the regulations and did not faal thay 
were in violation since they were selling aalas vithia 

u Alaska and with one it* inspections. 

g Through our local Association of Raaltora and pras- 

IJ suras applied through our congraaaional dalagatioa, OZLSft 
sant a representative to Alaska to give a abort talk on 
tha regulations at the local HUD office. All along, tbe 



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415 



local BUD of £ic« imi initructed by OZLSR not to qiv« any 
IrDformation out tegardinq the regulations, but raCar ftll 
Inquiroa to their Washington, D.c. office. At thii 
particular meeting the conaenauc of the developers present 
*fas they reaily don't want to be breaking the law And 
would like to coinply^ however, the instructioaa for filing 
were extremely complicated and ambiguous » They requested 
that 0IL5K send a representative to Alaska to hold a seminar 
on how to file* OILSR responded that they did not have the 
manpower or the budget to send someone for that purpose . 
They informed us that we would have to work directly with 
the Washington, D*C* office like everyone «i«e., 

As a result of thia, sevsral Charlatans appearad in 
Alaska who claimed to be experts in HUD filings. One, for 
instance, « Hr, Bob Andrea, charged anywhere from 55,000- 
*2 0,000 to do HDD filiags for local Developers. OltSU at 
that time w«« very tight and granted very few exemption** 
In fliontha following, our congrssBlonal delegation applied 
pressures, plus the fact that data was produced to prove 
our media did not cross state lines and as a result, in 
recent months DILSR has been more liberal in granting ex* 
•fflptione in Alaska. A4 it stands right now, the going 
rate to have aodteone do a filing for you in Alaska is $L000 
for an exemption and $5000 for a complete filing. 

In answer to some of your questions on your call to 
action, Z would like to provide the following information* 

In regards to the time and co«t involved in filing, the 
regeatration fee and the cost of preparing the filing are 
insignificant when compared to the costs sncountered by 
Isold ing a fully developed aubdivision off the narkat for 
six months, A current subdivision we are now marketing 
called funmerwoods Subdiviaion, was developed by LOiMA PRIETA 
Developinent Corporation, They started working on the appli- 
cation Cor an exemption in March of 1977, Between corres- 
pondence and unanswered questions and delays of OILSR, the 
«xemption was not granted until September 1977, a period of 
six months. The coet o£ holding that one and a half million 
dollar devalopment off the market for six aontha must be 
passed on to the consumer* 

In regards to the adverse ef facta, the OILSR rulea and 
regulations caute the consumer, the following i« provided i 

Ke have sold approximately 500 lots to cuatomsra in 
developments of Transac, Inc* They were required to send 
letters of recislon rsattlement Offer") to the buyers- 

- The value of the lota they had originally purchased had 

already doubled, when these letters went out we vere flooded 
with calls from buyer* They did not understand what was 
going on and they thought they were required to sell back 



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416 



th« property at th« original purchasa prioa and thav thought 
we vera crooked and they did not have the proper title to 
their property; many threatened legal actiom we not only 
had calls from buyers, but many had hired attorneys to 
look into the matter. It took many hours of our time 
to explain to these people what was going on. In order 
tto explain it you Just about had to explain all of the 
OILSR rules AAd regulations which are hard enough for a 
developer to understand. 

Z would also like to mention that Z have sold many 
lota and seen many sold vhere a property report is given 
to the buyer at the time of sale I have never seen a 
buyer read the complete report before ha signs the receipt 
saying that he has received and read a property report be- 
fore buying Personally, I don't think the property re- 
port has any effect on the buyer whatsoever. They look at 
it as a Government form and a requirement to purchase the 
property In my opinion. If the buying public was reading 
the reports the/ would not have bought the hundreds of 
millions of junk undeveloped property that we have seen 
sold in Florida and Arizona. 

Z feel the only possible «#ay the Government is going to 
protect the consumer is to eet standards for Interstate 
Land Sales and make it a criminal violation for anyone who 
violates them, personally do not like this kind of legisla- 
tion.) This would eliminate the unnecessary filings, paper- 
work amd red tape. There i^uld be no expense or time delay 
for the honest developer. The Government could spend their 
time and money on investigating and prosecuting the dishonest 
ones. 

Z would also like to point out that in regards to the 
attached statement from Transac, Znc. , it is possible for 
either their Washington, D.C. attorney or representative of 
their firm to be available for testimony at the hearing. 
If you need further information, contact them direct, as I 
will be on a cruise to the Miami Convention. At the Con- 
vention, Z will be staying at the Seasons Botel. 

Z would also like to mention that Z am the Alaska State 
Chapter President of the Farm and Land Institute and the ,^. 
opinions expressed here are very close to the consensus of '^ 
our membership. * . 



Cordially, 
KRENZK ZHCORPOl 




TFK/pr _ ..^^ 

Enclosure "'"" ' •*«• 

cc: Audi Moore 



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417 



goamBVY-^ 




/nce 1907 ) ] RECEIVED SEP 2 S 1977 



September 23, 1977 



Mr. Albert E. Abrahams 

Staff Vice President 

Government Affairs 

National Association of Realtors 

925 15th Street 

Washington, D. C. 20005 

RE: OILSR 

Dear Mr. Abrahams: 

I enclose the attachments of my misplaced letter of 
October 11, 1976. 

Because the size of my "confession" discourages its research 
I would point out that the OILSR had to waste their time 
and our money on an operation that, - 

1. Had no mortgage on the land subdivided and gave 
buyers free and clear title insurance policies. 

2. Paved all roads and installed water and gas mains in 
front of each lot and paid in full for these services before 
the first lot was sold. 

3. Never sold a lot to a purchaser who had not inspected 
it and usually more than once. 

4. Before signing a buyer up furnished him with a voluminous 
property report printed years before OILSR "invented" such a 
report. 

5. Who averaged sales of less than 10 lots a year since 
opening in 1964. (The Interstate Land Sales Act said the 
secretary could exempt "any subdivision. .. .if he finds 
enforcement. .. .not necessary in the public interest and for 
the protection of purchasers by reason of the small amount 
involved or the limited nature of the public offering.") 

I can only add to the history that not one lot purchaser to 
this day , two years later, has exhibited any unhappiness wTth 



2212 THIRD AVENUE NORTH BIRMINGHAM. ALABAMA 35203 
(205) 251-0225 



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418 



Mr. Albert E. Abrahams 

Page 2 

September 22, 1977 

his lot purchase at Mays Bend. And of the 38 purchasers HUD 
wrote telling them how to get a refund of cost, taxes paid, and 
interest to date not one has asked for a refund. Zn fact, all 
9 who responded wrote letters of indignation at the OILS actions 
or ~of satisfactiT>n witfa~"their purchase. (See enclosed) 

Sincerely, 



^Louie Reese Am/, ^tf^^CFifl^C^d^ 



LRApb 
Enclosures 



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419 



Route 4. Box 554 

Pell City, AlabUM 35125 

August 12, 1975 

^Mr. John R. McDowell 
Depertment of Housing end Urban Development 
Office of Interstate Land Sales Registration 
Mashington. D. C. 20410 

Dear Mr. McDowell: 

Having reviewed a letter froa The Reese Coeipany, Inc., Birmingham, Alabama, and 
the letter from youj relative- tE> the ^allLrtq ot property within tUyt Bend, Z^ogan Martin 
Laka^ St. Clair County ^ Alalhuu, I can only conclude chat BoAeane l^^ group, employed 
by HUD> U conplitely wLUwut aomethlng to do to eafn their eaLafy They apparently 
th4n hav« decided ta naJce thviceXvee a job of irrit^tin^. or Eor vie of a better verb, 
infuriating the land owners of Naye Bend and The Reese Company, Inc. 

The Reese OnpsAy, tnc- did not lell ne the lot Z purchased, Z went to them to 
buy it. I had ccmiplet«Iy lAvemtlgatad the suh-^lviKiOrt befor* dficlded to buy, or 
even to talk wlfih thair a^ent. diicovered in ny InvectlqaQion, frOA talking with 
other cotBpl«tely Aaciifled proporty owners that there wai BdaquAta 4l4Ctrlclty« $as 
water, roads, and that title iniuronce prcxv-ing free title, would be provided with the 
purchase of each lot. My mind had been definitely made up before contact with them. 

Miile I do not reside in Mayi Bend permanently at this time, Z have built a home 
with the intention of fttlring thsre in seme future year. Z look forward eagerly to doing 
this, as each time i 90 aut t flAd it a happiir place to live. Hq h*vk hed little or me 
vanderlism in this area, due to the many pemanent residents {tvclvv of sixteen homes). 
^ 

I talked with the agent on two occasions. The firet, we* with the purpose of being 
taken onto the property from the vator f rpntjqv, the second time to sign the contract to 
purchase. I had no literature mailed to me, no phone calls, or any tolitation of any 
kind. 

Z do not know the intent of the law (15 USC 1702B) , but I feel that The Secretary of 
HUD ihoQld cxeDipt this sub-division from registration under the Znterstate Land Sales 
Act, as few of the lota sold vbc* to people residing outside the State of Alabama. The 
Reeve caapany, ine hai made nof attempts to sell lots in Mays Ben to non-residonts of 
Alabama by i&4il advertising or otherwise. 

Z, as a pro party ownar in Hayd Bend, appreciate the interest of HUD in my %#elfare, 
but I feel the tiuO or^^ni^Ation has "stopped proachinq and begun to SMddle" into the 
affairs of Thp ntjs^c CQW|iany Inc. and the f«rOT>orty omarf o( Hays Bend. Perhaps as a 
citizen, I could su'itjost that there are other nwan^ by wliich to spend my tax dollars, that 
would be of more benefit to the residents of our community. 

Sincerely, ^^ 






Mr. Loui'S Rooso III 
Mr. .Jim rir.'j, .7r. 



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420 



11, 1973 



Th« H—a» Campmrtf, Inc. 
2212 3td kwrntam 
■iriiii«liMi, AlabMB 35203 

DMr MrTlttM«: ~ " 

Jiwc a uotm to rMfflm -tlM hich r«t«cd im havtt for your eoopony and le« 
poraooDol. C«ctai(Uy la deAUn^ wtcti ku la oar putctkAM 4f cha *«v«ml lota 
wo am i« Tl»!r* Ato^ *^^ tran^dc^intu luv« boon hmillvd in «ccDnl4ne* with tho 
high tchlcil *bflfid*Edi of yauf conpaay mad coBpl«C«l]^ Co ovr laCtihctleo. . 

do not vant to t>« «riCluL of uUO *M tha tnttriut* S^lu AaC* for 
I roco|Dlia ehc nacesflity of proCfcEln^ citlsafLi A^tiut iinicTu^lodJ coapanioa 
■n^Afw) In latflTittcc land salsa ^ On cha othmr tHtd* I Am vary lorry tou at* 
axptrlaoctag dlfftculcy vttli Eltft Chrouth Callurv to cevtfly ulch a tv^IicIsd 
of which, I f««l aurvf you wnra althar uotaara* or thought 6iA not a^ply to your 
Iftyi Baitd davalopBanc. KatrstEully, I 4o not htva tiaa to itudy tha riculacloii 
la dataU, buc froa fhat your l«tt«r iTidlcataa Ic would •■** to' ■■ chat du 
Cha bAiLt of yo^ic^ havlQg ^da OfUy tliraa lAtacitata t*lmm ilaca c«niicliv tfaa 
4avt;apf*«ac Iti 1965, tc would (oa* tflCMft cha txciptlon dead Thria Irtarttata 
aalaa Otft of Ona handtad and fovtcaan, OVar a parlod of tan fa*ri vich do 
•dvarcUlog Incactt^ca^ wovld **«m co brlot t*ya land vtchia cha purvlav af tba 
axeaptlon and Intont of ^ha Act, parctoularly If youf cov^ny will no* co^ly aol 
Taj^licor iflcti 1IW>, ToQp tinea you illd not oilv«rclaa IntaratJito^ th* ftr^vt aalat 
V4at havQ l>oan ^Mta to tndivtdtiali ^o hjid olthaf loan tho [iroporcy qx had flfit 
hand lofonAclon from frlandi w<io had saan It. Any parion vho has caad tha data 
which your tiaapany rapreiantatlva glvaa to a^ch Lot purchaaar^ vho vlilci th* tvil^ 
division, or Mikaa pnulaqc Inqury by Mill, could raadlly datimlna that /on nadt 
no "falsa and alslaadlng pttwlaaa ragardlng tha natura of tha land and th* typo of 
eoMuolty la «»hieh It U loeatad.** 

Again, I want you to know that iqr alatara and I ara plaaaad with all •tf*ctm 
of Miya Band. Wa ar* thoroughly ati Joying our houaa char* ind In fact, ahoold «^ 
of tha watorfrmit lots In tho first S«£tor rccurn to you aa a rasal t of tha WMk 
controycrsy, wo w«Mt1(l Ilko you Co contact us so chat «a aay dtfcuaa pirdMOO of 
additional lots. 

I hopa you will ba abla, in aoaa way, to raaolva tliia ssittar without ospoaalwo 
litigation. If Chora la any way I can ba of aaaiatanca, plaaaa lot aa know. 

Vary tnily youra. 



^^-<^1 ^ . , Vi^y -^^-^ 



CMlss) Bllostain Wright ^^'''^ r«*«- /; . • , \r^^^ * y 

124 Rastwood Orlva, l^koshora / 

RlrMinf;1i««, AUhaM 15209 
IhHiao l.«ica^lrm - Hnya Bcn»l I^fa 7 awl II. 



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421 




SuLUVAN, LoNG^HaGERIY 

' OCNCAAL CONTMACTOnS 

•MOUSTMIM. MUMKIKAL AMtl IHKktMMO COMStlMICTWtM 



BiMMiMOMAM. Ai»«c ssaea 



BiRMiNOHAM, Alabama 
August 12. 197S 



».9.ao«a*M 



• MAIM, A4.A.aS«OI 



The R*«s« Coapany, Inc. 
2212 Third Av«mM North 
Blndnghu. AUb«M 33203 



SE: Mays Bmd Subdlvlsloa 
Lot Ko. 142 



C«ntl« 



In August 1972 1 purchssod Lot #142 in your Mays Bond Subdivisioa 
for $12,300.00. I aai vary plaasad with this purchasa and I would lifci 
to axprass ay appraciation for tba pnmpt coaplatloQ of th« paving, gas 
linas and watar Unas. 

I SB still of tha opinion that Lot #142 is ona of tha aost baautiful 
lots on Logan Martin Laluu 



Sinoaraly, 



Charlas A. Long, Jr. 



CALjr/ss 



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422 



Weyerhaeuser Company 

DtorkM Division -^ 

P. O. Boxioeo 

Mot Sprtnga, Arkanaoo 71801 



June 13, 197S 
Hot Springs, Ark. 



Mr. Louie EMse '....v^-Z^ 

The Beeie Coapany, Inc. . v.:;^.*;,"* i*.'.*^" 

2212 Third Avenue North* 
Biminghaai, AUbana 3S203 

Dear Mr. Reeae: . v-.v' •••■"■.■' -. • ' .■ 'r^.:~ • "... 

. .;•.•■ ■'•-..'■■■■ ':'.■■■' "::.t^if^yr ■ ' 

I have your letter of June 9 concerning the Departiwnt of Housiog - 
and Urban Development - Mays Bend Subdivision. 

For the record, I Bust be the Purchaser referred to as a residaat "^ 
in the state of Arkansas, furthemore, I have no coaplaint with 
respect to the manner in which this lot was sold to me. Mjr dealings ' 
with your Company has left nothing to be desired. 

If I can be of any further assistilnce in connection with this matter* 
please advise« 




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423 






Kr. Loui« R«es« ••:• ■ '^;''v:::rt^,- ■ ,r'<J'-^. ■■■-■■ ' • '.h/vfx-- . :■ . • 

Th« Bmm CoBpuiy 

2212 Third Avenos Worth .J"l^ .,• 

Blrmlngh— , Alahti 352Q3 . ,, .v 

De*r Mr. Reesa: 

I r«ceiYed your latter of June 9, 1975, concToSng HUD's Interwntion 
in Toar buslntfas^ «nd I a» mat dia Appointed to l«im that «noth«r 
federal bureAucraey baa overstepped the Authority that was grAnted by 
Congreee. I vlU agree with joa that, in eona eases, the lM3t la bene- 
ficial to the pureheaer •lu), in fact^ waa neceaearr to protect people 
from fraudulent operations* ^ - v .-^ 

Aa an crwner of one of four l^ta In the Maje Band SubdivlaioD located on 
Logan Kartin l^km, I hAvv been Dost pXeaaed with your compAny's perfDrOAnca -"T 
And feel that in no way Mas there ai\j mis re present At l^nt, preaaure^ or qulc^ 
aales efforts^ I porsonall/ vielted the lot aeveral tl;i¥»a and, »t jour 
SAleemaniQ auggeation, got In hla boat and approached the property from the 
lake side to get a good idea aa to how tho water front looked, I cannot 
understand HUD'a refusal to grant you an ejcefflption in view of your coapAny's 
perfonDanca The streeta have been paved, the water aysteo ts In^ and your 
coDpany haa constructed « nice public boat launch, pier parking facilities, 
and picnic tables for the sole use of property owners Tour company even 
did aoBa extra grading for as after the lot was purchased and I never received 
a bill. I have several friends who have also purchasf^d lots and have built 
homes there I have had nothing but favorable eonnents from then eoneemlng 
your conpany. 

AdditionAlly, I believe that your conpany Bailed m& a letter after I paid -~ 
my earnest noney and before closing offering Be the opportunity to cancel ay •- 
sale. I could not looate this letter in ay file, but I believe 17 Baaory is 
correct* 

Tou Bay use this letter in any way you see fit, and, by copy of this letter and 
a copy of your letter which I aa enclosing to Representative John Buchanan 
and Senator John Sparkaan, I aa asking that they intervene in your behalT with 
HUD in Washington. - .- 

If I can be of any further assistance, please do not hesitate to call. - - 

Sincerely, 



C. B. McArthur 



^Repreaentative John Buchanan (with enclosures) . d-V^' 
Senator J ohn Sp arkaan (with enclosures) 



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424 



Contmmuionm of £ Und gaUs "eoQ. Ttit. * 

M lu^a Ka SanAMt BBcriaon WtlUuu ipoMor of a ««I1 
law obvloualy pacvar^wl by^ buf«aucratlc tiillAq^* 

If v« bat* jvu wlt2» tlM Lao^th <>£ tUa «pl*rl*, elwrga It up to 
our f**Ilag of rlgKt«ou« Lndi^AJtlon at bocosin^ «ni:AA(ii«d La tlu 
ikslns gf oo* of t^ia H^jtiin^toii lKir*«ucrftcifla vhlch v* tud r«Ad vo 
■acta About, but, for tlu fir it ^Lba, fully utpariaAcad, And vtut am 
ajeparlanea Ic nasi 

As AtlUcal laod d«««Iep«n for four gssaratlona v« a^ood aceo««4 

by ft diviiloti of thd Da^axtiaut of Se^ntLaq &M Urbui a«v«io^i«at (EOD) 
of Hllin? lot* in Intvcvtftta oaa^msrsm, and tinea ttm lav tiuy 
«dBiinivt«r v«a spAcificaily dir*ct«d &t auch aotivltiaa, virh tha 
inforaaca of cooea* tiut va ar* eonductlAg a frauduloot, hLqh praavura 
aalBA cai&^ai^ aod t»v« ohaatad oar cuftoaar* at a racraatlonaL aub-^ 
dl^iaion, Maj^a Band, ffa dany aU thaaa accuaationa . Wa tiiliJt tiUa 
ia provad by tha fact tliat hud on July 3, 1?75 wrota our lot purchaaa^a 
that bacauaa wa had oot affactiwly filad undar tha lotaratata Lani 
Salaa Sa^iatracJ-Oo Act purchaaari couM void tiiair purchaaa aod racaiva 
rafurid of all paymanta nada^ And sot on* purchaaaz aakad for rafu^ or 
cosplainad io any vay about the d*al ^ay had nda^ A^wavar, i of tha 
3B wrlttan by BCD wrota lattara ccMfiralA^ tbalr ba^laaaa vtth thale 



TJndar fra<juant 'raALLndar* of a poaaibla 9113,000 flAa ud two yaazi 
In tba Fadarai panitantiary VOO tbav raqoaatad that uadar tJvaJr intar- 
pretatlon of th« lav wa vrlta all racant lot purehaaara at^Uya Band, 
a hlgh-ciaaa athically aotd co^aunlty of racfaational hocsaa on LaXa 
Logan Maxtln, a lattar tlia amct taxt to ba dlcrtatad ttf t^«4, vith ao 
aceoKpaayinq^ lattar or "itaa". Xn it wa vara to adAit out 'guilt', 
aad offar to ra^orchaaa all lota raimburaing tiim ovnar for all principal, 
Intaratt/ tazaa, apacial aaaaanaa&ta or proparty ownara aaaociatloo duaa* 
Hhan wa cata^orifially daniad any incpropar daalljiga vitii oor Lot 
purchavar* and rafuaad to adalt any auch daailAga or aign tuch a tartar 
without at iaaat baing abla to hava oor aida of tha controvaray 
accompany it, TOD than aaot tha lat^ac out itaalf aa ootad abava on 
July 3, 197S, 4 day* aftar wa had filad for an Iniuoetlon la Fadaral 
Coort to prc^ant it^ 

tta did i«rlta our porehaaars that if thay eontvod tbat aay aatarial 
fac^a raapacti^ tha lot porchaaad by him vara alarapraaaotad to idm 
cr conoaalad fron hlii, or if ha baa any othar griavajica vith raapac^ to 
tha aannar in vhieh tUa lot waa aold to hlsr va would iUca to ba ao 
adTiaad. tf wa find that any auch caaplaint haa any aarltr va will baka 
vhatavar actlm ahall ba nacaaaary to radraaa tha auM 

lut to back up a llttla wa aho^Ld fLrat axplain that tha Intar* 
atata Land Salaa Act waa paaaad with th« Lawiatory purpoaa of aliolaatiac 
carta in practicaa In Intaratata laad aalaa which ^^nx bayond that 
anga^ad in and thought athical by avtahllahad Kaaltora vho ballarad 
that thair boalaaaaaa thrivad on aatlaflad cuat^iara. 

A larga- aagnant of thia aallinr Involvad tba anbdlTlaioo of naarly 
tba vatt, and aalaa by sail to aaatMTt 



warthlaaa Land in Florida or tba vatt, and aalaa by ,_ ^-, 

paopla vho could ill afford to go ao far to inapaot tha proparty^ wfaieb 
lack of inapaction allowad rathar wild lafaraaoaa if not alarapraaanta- 
tlona la tha aallifig litaratura. 

Aaothar aagiaaat iarolvad on aita aalaa and inapaetiona ia ahieh 
tha :ialaamaii by iataccoB radioa and othar aaana paraaadad tba purohaaart 
that aavaral purchaaari war* alwut raady to itgn up on tha lot balnf 
■hown onlasa thay aignad up at oooa* All aorta of prasluBa aad caah 
vara ofrarad to gat tha bfiyars to tha pcoparty. Fraa dinnara vara hald 

J*'? f^ *^^^"l**tlc itoogai raactad glowingly to tha aalaa aitcbaa 
and taUcad of iaaadiata naaa porcbaaaa, ate., ate, Ttanapoctation, 
lodging, ate. vara aoaatiiaa offarad. - 



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In wMny cu«a th« prosotac* did not mrmn o«m thm Uiid« or if tboy 
4iA It was •object to hmmvy nort^A^as. Aad/or thay had not /at 
Laatallad utllltla* and p&ving^ or if thoy liad, thay vara not paid for. 

la all ca«afl tha Lot; pricaa w*ca yary hi^h in ordax to covar tho 
vary ha^vy 'high praaiura*' adwctislng^:}? jattLng oxponsos, Mloaaooa 
coraBimaioni aLon« o£t«D running ■■ hiqti ma ]SI of tho MiXor pricos. 
And advoTtiaiog and pEOBotioa «ftan av*n Ugh«r. 

I£ tbalr aalas vara >uec««*ful, I pra*uA« meat of thaaa davalopar* 
pLo«ad tha caiti rac«J.v«d ovu aalling axpantaa LeitiO tha «0ianitla* 
praaiMd ind roada, utilitl»<, •tc. Ot th* othar hand. If tha projact 
was a failura, tha pcomotara had littla of thair own ^aay i;i tha projact 
and could vaUc away with a ahru^ and tall thova alraady having bought 
Xot*^ "too bad about thfl pacing and utilltiaa on your ttraat, our grood 
plaa joot dlda*t woriE oat.* 

mm t hink It intanatin? to aoto that in tho JUy 23, 1973 gporto 

Illttotratod (piotad ma aid* to Gaofgo BomotolB* OXLSR Maiaistra^^ 
tho off oet; 'Aroond hora wo rftta dO¥alopara froa to aiaao 10". 

Mr 4 B«r7tstain hijualf naa Bora ^Mtarata. *Tho grootost aorrico** 
ho Mid, *wo can p«rfoca i« to «cara hall out of pooplo. Wt'To oot to 
■ako than atop buying land aa if it w« a t? Mt." 

Mr- Barrtstain ia alio quotad In Spor*> jilu»tratad ai ioyiag, "X 
cut tho big rad «ppla_*nd t^toh th« t#6c»a ct^vi out", vhila «t onothor 
tioo ho itatod that practically all tha ahuaaa in land aaXaa voro solos 
by 0011 whjara tha buyar had not Ijiapaetad th# proparty, 

Bot why is it that tvo od* In HDD raeoqtiiia* that thor# loot sight 
bo a foir honoot oad athicaX land salaa paopla? 

Th* abora ««plan«tion of tho ovlls tho lav «oo oiaod ot ooo 
nacaaaaxy to Lllustrata wtiy I think it ao foollah for this boroott to 
ba harasalng lagltiAata Land aalas paopla^ Juch as wa fool ffo aro# 
rathar than using av*ry ounca o£ thalr snsrgy oa tho rool *flia flam* 

artiats^ But this grrmjping foe aora and aora ptfw«r sosBS to bo 
Inharajat in btu-aaucratic goramnant* 

trow for «ur slda of tha story and tha thrust of thaso raucks 
which is that a povac ^raaD^ing bureaucracy can , and gariarslly will , 

naks tsehlnical admin i.atr^r:j.vfl rulaa eg inclada tKoaa in no wy invoX^ad 
in ^j> a igipropar conducr: *t which, tiia Cotigcsss dlrsctad tha anaglicig 

In 14^3 w« votarad into a partnarship a^rsaflaat with tha Maya, an 
old> w«ll-kxiown, and highly ragsrdvd favily of Pall City^ who ownad 
without sny ttortgaga laop «cras of Laad now icnown us Hays t*ai. In 
uditioh to ag rasing that tha Kays fuiily vouLd Cumish this land and 
wu would put up 4ll davalopnant nonayn tha igreamant provldad that 
oftoa all th« Ijuid TsLua snd th« da^vlcpnant cost was tacovaradn profits 
would ba dlvldad hatw««n tha I^nd ownar and tha davaiopvr., Vid also 
for tho peot«ctloQ of our lot buyars <»nd of course ctut caputatlon} our 
agraamant with th« Kays provLdad that w* wars to ba £umish«d a titla 
policy insuring « good titla £rs< of any t ftortqaga or mctdnbrsncaf so 
that w» would^ in turti fumislTaach purchaaar such a policy at tho tima 
cf cloaiaq^ which wa hj.vs dana on a vary lot ssla ^ 

H< than« for cash ., gradod and pavod roads throughout tho first 
racordad 3«ctor of iOl lots plus half a nila of county eoada to eoiuioet 
op with county paving, fta (again for caah) built a soduri) watar systssi 
aad Baifir ^i^ axtandod Alabass $•» aaina throughout this sactor. 

Wa gavs tha watar syatsa to tha Lot ovnars subjtct OAly to our 
raeov^ry of our coat and intataat. Ha racordad rastrictiona to pravant 
any «Htaur construction or trailers, and sat up a hoawownars aasocio- 
tJ-on to allow i f*ir ^hiring of any improvcDunts tha lot o*nars night 
oara to aak* to tha d«dicatod park aad launch araa or otharyiso- 



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All this wM don* a yaar b«for« Sanator Hilttws latxodoead tbm 
Iat*r*cat« LmaA Sa1*» Act in 19<S and flva yaars bafora it paaa^d 
Apcil 2i, iSiir axi4 aiqht yaars bafora tEa March 31, 1972 ragulatioaa 

vara prontulgjtad* 

Tha intarKata iMitd aalaa paopla maka Buch of t^« ptQ party rapert 
thay dwiJwl in 1966. Za trying to aaka ruU diiclQiur* far our 
puLr<:hAaafS >m pcLntad ia 19i4 a 14-pa9a lin^la tpacad, lag^l visad - 
pceparty raporti vhich had avary thing wa could think oC vtuch would 
inta^raat th« pufcba««c of a lot with a pEaaobLa to thii af faciei 

"Ha would ba plaaaad to hava you join tho axcluaiva group at. 
Maya Band. 

Ha hav* baan in tha raal aatata businaaa aixty yaara i 
think wa know anough to laava tha 'fast buck' alooa aa 
for long ranga good will. 

Tharafoca va pub Hah thia tadioua lattar to try to ba aura 
uvmrf<nm un4ar*taada bafora thay aign up thm ia^rtuit dataila 
of thia dau'alopaant. wa will appraciata yoar wailing through it. 



Pint Lat ua «ay that wa hava no way of knovinq h«w faat or Ia 
vnat: dlr action thi* gtaat L 000 aera davaloptsant aay turn. H* 
ar a- par *uadad th^it it wLlX ba a faat noving raiidaatial da^alo^ 
aant in ita initial itagH. Ha hava at graat axpanaa atartad it 
otZ with high raatrictlona and firat daaa watar, gaa and paving 
to plaaaa our buyara. 

If tha pcpulaticn growi to whara ic 1* j^stLfiad wa hopa to, and 
raaarv* tha eight to» dvvmiop non-vatarfroat lAod anyvhaca and 
va tar front Land in 5 action 15 and th« nort^h gn«*half of 5*ctioa 
23 b oth in Tovnihip L7 South, EUnga 4 ^att far shopping cantaci* 
coBHareial a^vHa, sarvica ttationi, ootalar public narinaa, yacht 
baaina, fatiremtnt can tan, apartavitir wim \a± tsAAiJ cluba^ 
country clttba# golf eoMfiaa ^£ dthar cauuarciai or racraational 



Again raaambar thia 14-paga documant waa givan in advanca to avary 
purchaaar baginning aix yaara bafora BDO *invantad* lEalrproparty 
raport and aight yaaZF^afora tha March 31at ragulation that it ia 
claiaad took ua in waa proanalgatad. . 

Aanng tha 14 pagaa tha raport eovarads 

Facts on tha watar ayataai and ita articlaa of incorporation. . 

Tha Fadaral Powar rnmwtasiona ragulationa as to watar loval 

f luctu^tioni . 

Tha building natrictioos* 

Tha non-profit BoaM Ownara Asaociation. 

Of couraa it oaa.ttad cartain thinga «#hich BOD* a aany lawyara wara 
abia to draaoi op but would c^at a aaall, low nark-up davalopar far out 
of proportion to thair worth to kaap currants 



I of tha SOD raquirad information iat 

anca and da tail* on naaraat fira dapa 
aga duap, boapital, doitoe, dantiat, 
mg, public tranaportatioD. 

SiJ^^f ^: ^^^ ®' "^ dataila on aaaraat alaawatary, Jr. ligh 
ano nigh school. 



Oistanca and dataila on naaraat fira dapartaant, poliea station, 
garbaga duap, boapital, d«toe, dantiat, poat offica, ahopping 
cantar, public tranaportation. ^ ^ 



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Pr«a«at eeadition of aeeass.coada aad a cross aoction sad dotaila 
of eoostruetion of stroots. 

Diatanco and population and condition of roada to all eitioa and 
county soata within SO milaa. 

Watac aystan tost boringa. 

Eatimatod coat of aaptie tanka« tolaviaion recaption* foundational 4'' 

building pomita. 

Eatiaatod cost of drainaga on aach lot. Oatailad ovarall drainage pie 
Data on annual rainfall, taavaratura ranges, A»fMy*y^ ^^ hurricanaa, 
tomadoaSf aarthquakaa, sod alidaa, brush firsa, forsst firss, 
avalanchss, iFolcanic eruptions or other natural hasarda, unuaual 
noiaea, propoaed induatrial developnenta , animal pane, vehicular 
hazarda, etc., etc., etc. (Bow could there be worthwhile data on 
many of theae hasarda such as tomadoea, earthquakea, foreat firea?) 
Verification by formal letter of most of above from registered 
engineers, utlXity companIea~or varioua public officiala in charge 
of roada, water, telephone, gaa, electric, drainage. 
Financial atat amenta from moat of above utilities including an 
opinion audit (estimated annual cost 93000 to 97000) on the 
development. .». . — 

*Such further material information, documentation and caErtifica* 
tiona.... necessary in the public interest* 

This is only a sample. Theae inatructiona on the atatement of 
record alone run to 14 tremendoua pages each of which was the equivalent 
in words of 3 of these pages and in places quite techni c al. 

Za there any wonder that reliable people aa quoted hereunder 
esdmate the coat of compliance at 920,000 to $ SO, 000. .And the property 

report must be reworked every 12 montha or ao. Zf you sell 8 lots per 

year how much must be added to the price of each? 

We printed our property report and did all the other things 

mentioned as in the case of the title policy, for the protection of our 

buyers and to convince any skeptics of the legitimacy and viability o7~ 

Mays Bend as a development eight years before BUD's regulation requiring 1 
And the subdivision and utilities all built and paid for 

before the first sale. Does, this really soundr^ike the kind 

of high pressure operation the law intended HUD to be ". 
concerned trith? Zf it did th4n our very: alow salea as follows did not 
confirm it. Our subdivision map went on record in May, 1964. He sold 
no lots in this year, we sold only 2 in 1965, € in 1966, 9 in 1967, 6 
in 1968, 3 in 1969, 6 in 1970, 10 in 1971, 22 in 1972, 41 in 1973, 8 in 
1974 before being warned by HUD in mid October to stop selling pending 
a determination of our case. Does that sound like high pressure selling 
or just maybe a legitimate merchant building up his good will? 

Zn the latter part of 1972, through the press we begun to hear of 
extended new regulations of the original Land Sales Act and were concernec 

Zn April 1973, wm inquired of thm Birmingham Association of Bome 
builders as to the Interstate Land Sales Act and Mr. Tinker Cheney, the 
executive secretary of the Association, told us they had employed 
attorney James J. Odom, Jr. to look into the matter. After pushing Mr. 
Tinker several tiioes, he reported on August 29, 1973, that Mr. Odom . 
decided «ie were not under the act unless advertising nationally. 



33-716 O - 78 - 28 

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tf*v«rthal«ii. ia ^ AbtuuUnc* of caution, on Vormbmg 23 # 1973 « 
w« c«ll«<l on thfl Loc4l HUD offfic» Aod ««• r«farr*4 to Mr Jtrj 
tlQlmmm who told u> tlut a dtwlopa; tud to tiav« 30 or aor« «pplieatioa< 
^r y«4r from out ot it^ta bftfar« ha tud to r*gl«t«r- BUD*« Nr.HolaM • 
Alio sAid thAt ths 1972 r*gul4tian« bmd b««a *up«r««d4<l by aanr oaas 
OMdtt ia S«pcwqbaE 1973 («?t;ualiy d^cad u ot K^rch 31, 13721 , bat that 
ha hadn't ba«a «^1« co obtain a copy sf thmo. yat. 

Ha than, oa Auguat Ifth aod again on Hovambar 2t,1973 wrata tha 
Brolcara lActituta of Uu AaiocLation o£ Raaltora bo gat thaix views 
and quotad HUD « Kr BolaAa nc^ JKobart L. McAlIiitar Dlraetot of 
Tha National Association of Raaltors,Stata and Urban Affairs OopArtasat 
answarad us, 

*Tba anBw«r to your quaatlon is , as I ucd«r*taad Iti tha 
■>Ba as tha RUS officials gava you. ^^avac^ i bava coa-<- 
taotad tha BOO offlc* of lAtar^tata La^d Salai Staglatratioa 
ia HaahlAgtoA, D.C. * whc will ba aandlng &a a copy of thas« 
• cagulatloaa. If th«ra is mny chaaga iA this aaswac t vill 
lat you Jcaov tiamadiataXy^* 

Wa aavar haixd furthar froa UAH and knovlng v« vara a&kii^ ao 
affort to sail outiid* tha Pall City, Slrmljighju araa, oux «dTartialag 
coniiitlag of vary occasional <da ia thaia tvo eltiai local papara, h« 
aaauaad thAt if thara is tuoh a thing aa intra* tata co^i^cca (sad tb* 
founding fathari ■ aaaad to think so) v« nut ba ia it and rslueod, 

Alas on Octobar 24, 1974, through tha pcopacty ovnara, tXQSta« TIm Fi: 
Katiooai Bank of SlrvLLRgham, ir« cacaivad a long qaastiOBftlrs froa nO 
and adviaa that va sh£>uld oot sail say aora lots. 

Ouf an«w«r asda DacvLiwr IT, 1974 r tat cut hov diffarant our 

oparatlon was from thc>a at which tha law i#ai aijpad r and askad thalg 
halp to avoid tha baavy axpaasa of eoatinuad raportiag to thair 
agaacy. Ha saggastad * 

*Zf wa ara ia iatarstata i iw irea, thaa ao bosiaass 
ia Aaarica is ia intx-aatata coHiarea. But why than, 
if thara is no iatrastata c^hnafcsr did tha fouadiag 
fathars avaa rafar to iatarstata coDB*7ca7.... 

'And on this basis I ask year patlanca and iadulgaaca 
in trying to halp us aumva without tha aicpansa of 
hiring aa axpansxw law fl^m. (tha Hfational Association 
of Industrial Parki, whoa* s^la* voluina, ia nuahar of 
■alaa^ is incoaiaquazitial in ocotpaxijon to raaidantiai 
lot lalas has astupstad th« coat of covpatant ra^orts 
at 123,000 to 150,000. Saa Oacsnbar 1974 Aaal Escsta 
Atlanta) . 

*Z think you vill adsdt that tha trhcla ict and tha 
zagulatioas ara nacaaiarlly vary, wry oovpLicat^ and 
aicpaaai,Ta in ti^ia and aonay for a saall cparatioa «uch 
as va ara to ha biu-danad with, tha atataiaaat of racord 
aloaa is bayond tha girajp of tba ordinary layman »* 

Jis. Doaaldsoa of BCD callad a faw day* aftar ay lattar and 
luggastad i«a fill out a rathar coaif>ilcat«d fon davanding consldarabla 
c«**arch aa an appU(^ation for axanptlon. Thii ^m did and inciudad tha 
raqulrad $100 filing tm*. thiriag this pbona eonvanatlon I luggait^ 
that va should gat dcvn to funduiantala- tf RUD would a and an Inapactor 
to Mays Band wa would taka as such tlsa off aa it took to gat his in 
contaot wita aach of our purchasars for tbair privata intarri«w«. Aod 
va would pay all ROO^ ■ axpatisas. 



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i?i 4 i^*«"tlflq to aotft thAt throognottt tiM hrimt thm «ev«rn- 
vut fiL*d d4f finding our fln^ l4g«l action Im irrint to oot «a 
lAjunetloo) thT* v** th* inCBjcenc* thAt tho jmriiimuL haj aado « 
tho cough lavflitigatiOQ, wh«n i^j 4 aattat of fact all tho "iacriainatlAo 
Infonutioa* wai tjcurftctAd f^on our «i;c tight forward answara propoundod 
to iM in th»ir quaatiori»ir»» , 

I •" ficaly convleicad that l£ thay bad «c cap tad mir off or to 

co«a 444 if aay frauduiant, Upcopar oc unathical piracticaa wora 
XMktitq placa tl»*y nouid hava grandad ua tha ra^iiti^^tidn axaaptlon 
to quota tha Act for th« caa>a& that tha tagiatration waa "not 
aacaaaary in tita public Latacaat and for tha protaction of tha 
purchaa*ra by raaaon of tha aaall aaaust Lsvolvad or tha lialtod 
eharaecax of tha public of faring." 

Th«ir brlaf aaid. *Ia Octobar 1974 Otl^R LaariMd that a^laa wua 
t*Xing pUca at Kays B«iut and bagan «□ iovaatigaticn of thoaa aalaa 
activltiairvh^ii ■trlctl/ gpaa^cing thay laamad of It fioo u« tdian tha 
First NAtion^l Bartk Truatsaa for tha land Owr^ara forward ad to u» * SUD 
lattar <>( Octohar H, 197 4 ratify Ijig than thay night not ba In eonpliance 
and mggaatlng ao furthar lot aalaa ba nada urvtil a datanaiaatlon w« 
Bada. Qit Octobar 31« 1374 va anavarad tha TOD gua«tlonaira which had 
accoQipaalad ttia lattar. 

la fact r BQ oo-'tha^Tpot lATattlgation othor than ouoa^looa 
propoundad by sail vaa arar &v3a. , 

Thafr brlaf forthar xtl^'ad 

Plaintiff ... ."did not laAlc as aieanption from OZLSX oatll oarly 197S 
aftar OILSR had bag^m ita lavaatlgaticn** Again thair invootigatlon, 
conaxatad of Baaa guaatlona and aiuvara by aall only. 

Sut tha infar^AC* vaa tbara, wo vara hiding and through tholr 
InTaitigativa talanta thay caught aa, ^"^ 

AJ aantLonad Ln answar to our lattar of Oocaidbar 27, 1974, qnotod 
abora, Ka. Donaldaon of BOD eallod aid lug^aitad wa apply for an 
a^taAptioa vhlch r«quirad a lot of work and a 9100 faa. 

Our appUeation for ayytion was doniod robnxary 27, 197S. 

Aaoag^ tha grounda for daoial thay oltad an arhitiaxy adninlatratlva 
rula {not a part of tha Lav Itialf} thAt do axaoiptlon woold ba givan 
if S% of tha lota vara aold lae£|btata in any ona calandar yaax* 

In thia ragard wa thlnJt it intaraating chat in 3 of tha 11 yaar« 
ot «alaa va did not sail auff iciant lota Ko whara ona intaf i«ata lala 
would not hava put ua in vlola^on of chia adsinlatfativ* ruling. 

But far Dora Utportantr whan ordarad to atop tailing lota Octobaf * 
24, 19 74^ va had airaady sold fl lata and alnca va vara about raady to 
opan a nav lactor it i« con<:aivablaL that had v« >old 3 wjta lots bafora 
tha year and va vould not hava vloLatad thi« 5i ml* which wa kn«v 
oothin^ about at tii* tina- (Thia i£ not to dany va couid hava Jcnovn,} 
Aut tfho can kaap up vlth a^atytEi-ng ooming out oT^wa 3 h in^ton today? tha 
Largait huiinaaaaa vith floors full of lawyeri and CP^ don't laaa to ba 
abla to^ And as par tRXO's Kr. HoLna^and tha ffational Asaociation of 
_Slaaltors_ ratoonia froa SCti tha baaurocra^y can't Icaap cp aithar. 

'Thus par ha pa a* a'dlract 'caault of thair ocdaftng oa to eaaaa 
aalling in 1974 wa fail«d to sail anough lota in 1974 to qonllfy for 
thair axafflption^ 

tha sacond raason wa wnra danlad tha axaaptlon was that wa had an 
archltactucal control eooMittoo eontrollad by ouraalvaa. Wn ara at 
loss to undarstand vhy thla control obviously sat up to prodnca "^^^^ «■ 
valoa in tha davalopaant %r«« haaif ul to our lot buyara who had tho sobm 
flancial intaraat wa did in ■ainfaintng thnaa valuaa. And our financial 



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cl*T<ioii«ri Atm g»n*fAlly l*si Li;t#iy to ^* undttiy r«tricriv* or 

o«*i*d.. But ■varytijjuj ti^it could >» tp4Ll*<S out vat tlx«*d7 mAoA^zory 
La 4 pA^** of i«s*l siiA* 'iJE^^a »p4c«l r^mtrictidni whieii vmrv o£ 
r»COt[J «xac* H»y 1», 1*65 > * y^jji b*Jor* tj» l«w m* pU4«d 4ad % 
yvftrm b*£ar« t£i« 0«v r«7ulAt±oo vblch eQtD claiaad »Dt oa usd^c tta 
act bwr* pnBilqatad. 

Oou it rw^Iy m^krn trntitm tftat Af c«c- txyifi^ *o *^1I oat ia tlM 
rsstrietioai 4v«ry <»nc*iTahX« prvbLaa tiut ugtit cta« op, oa tlw rar« 
u&£3r«s««a probliit* th* d«v«Iop«f controllwl Lriitvit«ctural eoattol 

eooKi^t** *rtulil bft caprtciou* or unduly raitrictiv* on tii« lot bofvr 
Asd thixm lo«a 4 *a1«7 C*a you vLiuilix* Bucn 4iCrti<jB anl*» ia fSCC 
Ic «As ii«c««*Ary ts pnt«7t t4« v%lua of prior trqvm Iota m ««11 mm 
thm d«vaXop«r^ r— ilnf rnj locr 

Slit f« Bcn Loportut th* ArcMt«rtur»l Control C^Dtleta* vu 
t*t up by rftAtxlcti?fu racordvl uid sad* ad^nditory lUy 14,19(9, four 
;fUL£j li*:^» tb* L*v wu p^isAd Xftrll 3S, 19«9. W* mifbt disp^OM " 
wlttt tiU* trcbj.t*et'J^*i contwl coBaiitt»* in ■«<rtari dvr«lop«d iji tho 
futur*, w« Af« p«£nAd*d to th* d*ti:iJBMt oi lot Uiy«-i la tJM«« •«ctOn. 
Bat «#hat ds wft do vit^ tiu 42 ttt^^IiI lots in tbo ■■! luti 
bound by raatrlctioiu «lfMdy of raoord? 

And. til* third cvaaon w&-tmrt doaiod tho ^ _,- 

it vu £riuduliint oc iaprop«c for tts to soil lots doun to tlM Qatar's 
adqr* luh^^gt V3 thA fvdariJ. fo«Ax Caaaisaion'i r^guirad flood «n««aaat. 
In Qn« o£ otix subaoTOftnt f«d«r«l Court ox««a our Attaf^tay got no tnanar 
^hma. bm. a4k«d "Jod^o, thai* flood «Ai«iwAta lc« tw^uirad by tha aaa« 
tJ.S. Covaniaant nov taking axctptLoa to it- If y<ra «*r* b«ytng 4 Laka 
front lot woald yon prafor wa da«d you tba vtela lot aubjact to tba 
•■ ■— n t, or a lot down to tha flood aaaanant and oalr « riabt to cxoaa 
tha flood aassMat and gat to tba ntar 

ActsaLly, tba aat—ant waa to allow tha ovaar to gat to ttaa aatar 
i^t. aa a utility aaasBMat. And thn r«d*ral Vowar *''"— ^ttItw asad it 
aa a aaana of Imtxijtq tba poblie t*v* aecsaa to tba aatar sad still 
protaat tba Poufvc Co. Moat paopla h«d fait that t&« p«at polier of 
allovid^ ttia Powar Co. to buy a* mcb of tha vlvrallaa aa tter wishad 
vaa an undaair&i^la pubLLo poUcy. On mamt prioE p^war aivoaateoats 
tba Powar Co cavma aoat of tba l^Jcafront land and wLll not sail tha 
tioam aitaa but laaaa* trhi for 15 yaar* Aod ^alaaa tha raats aa thar 
plaasa. (Haarby aacanplast Lakaa Lay, Mitehall sad Martin). 



In othar vocda t&a Padaral Coira ma a nt 's own affert throogh tha 
'•daral Powar Co^vsion to aaXa powar ^ipauadaaatB aoca aaaabia to 
tba public is Intazpcvtad by HUD aa datriaaatal to that 9^m pablie. 

Zt isn't as if va cancaalad tb* aasaaant^ ia tha coatraty «a pat 
it oa tha nap of racord aad vamad avary purchasar fxoB lfi4 ia vritiaa 
that his hoosa Bust b« built abova this aasavant. And tha haalth aa£^ 
Esnlng paopla £aquij«d avary lot to hava aa adaqaata hoasa sita abc*a 
tba aasanant bafocv approving our aap of racocd. 

wa wuid LUca h* i i m h to rairiaw all 3 of tha Maya Band salas 
vhich by coniidarabla stratch of isAginatioa sight ha eallad iatacstafta 

salas. 

-1 .'^fi' ^^ "''^ *^^^ '^^^ V^ ■• **''^ ***• S» Halt. ilr. J,t, 
rlaiMn^ bouqbc Uit 13, AOt fraa us but trvm L.«. Edwarda vho had 

piiT«««d tba lot froa ua.. TSiB^at was naxt to Kr, flwnlaq'a 
brother *i hooaa {Thovaa K. riaaing) , tfia n*xt y«*r on May J, 19^*, 
viLiiout our.raalltin^ tb« lal* b>d iticb awaioaSa aTgtLiflcanca, Kr. 
J. I*, flaai.^^ bou^bt a Lot f ron uj Adjaini^^ hii origiJi*! purchaaa- 
™|^i£ J^iili louna Ux. ^ >oid t|iii Lot in JnttrttAtm tt— area? 
^JSIortunataiy, aoEHwa to us MrrTTLr-fTagng^a s a " aatlva oSTBaorJU. 



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Although irT«vmluit linc* th»* »l«a did not violets tlM'r«9ulAtloa 
»ad did not *f fict our Mwmgtion, t»«dua« n«Lth»c ladic^tt iny iff ore 
to ■iTT Lntarti:ats »nd *r*Tfl~T7ct <TXiMtion*bl« intic^tACft 4«l«i w« 
bri*iLy out Lin* tJn circunatajicfli of th« gtii«t two out o* our 114 lot sali 
^tAat Bigh t t>* ciilfrr^ int»ritit* «&!««, 

Our firat goaaibj* in^«rat»t« sal* vaa in i»67 b«£or« th* law 
vaa ovaa pu««d and va* no sor* an intarmtata *«!■ than tha abov*, 
Mr, a. J. Eauan waa traaa tarred by Ivij amp lay »r Hontaano Cbamicai Co. 
to AitAiaton, Alabaaa* a tcvn Z5 nilat aaat of Kayv Sand- WicJiout 
any off-tAr-aita loLicitation h* appaarad at Maya Band, iAapa«t*d and 
bought a lotj built bi* parcnanant tua« on it and livad in tba bouaa 
£oc aa^acal yaars until ratxanifarrad. ftut vhan did b* bacofta a 
^ casidast ofAlabasa? Hli«n ha wma tt»r^f*cEad, v»;i»d_^^ want tQ worle* 
~'vb*n va built a ^uaaf So wond«f you naad good and aj^anaiva lawyttra if 
JJQ3U bav* to dflKl vitb^^vamaantL 

Our only otbftr aala, not obviously intaratata *ltb«r, vaa to 
CoLonal Rlcbird A, ifaidratt of Atlanta who bought in 19 7Z* Sinca va 
badfi't ddvar^iad out of atatar diract mail^ nwapapar, oc Otbarviia, 
%ti*n uiaweriag BUD wa iwruirad oC Col- naldratt aa to bow ha had bacoma 
Intarascvd la Logan Btartin and Maya Band, fla vf^ta ua, 'Va b«^a frianda 
vho liva on tba lak*. K« llkad thia proparty ao w* loq^ad foe aooa* 
thing coopacabla-' (enphaaia oucal . Anyvay ha aI*o appaarad on tha 
propaaity without prior aoli citation and Laapaotad and bought a lot. 

Do tbaaa tbraa lalaa aound 11X« an intaratat« aalaa caopaign to 
you? AJaTuninq all thra* wacm: in fact claar cut igtaratata lalaa 

ov*raIl our iiit«ratata aalaa w«ra*T57fil"Tr"out of"^"Ji ^ ' ' 

I rmally aaad not coomant on tba fact tbat Sill Thcffipa^n, Jia 
King, Jz.t Ldula Haaaa III, Mra, ^llia Robinion or Miia Hary Azmlnda 
Hays, all of whoa at ana tlAa or aso^bAr talk ad to protpacta an 
Saturday or Sunday aftamoona, bardly qpjAlify aa high pcaaaura a^aasan. 
Tbair proapacta waUcad and rawaly*d On tba Lota thay a« lac tad bafota 
buying. And than 2/lrda of tba 69 faailiaa buying lota in tha Ciiat ' 
cwo aactocs indicatad tbair tat iaf action wltb thair lota by maJcing 
haavy in^aatisiants in bouaaa on than, Doaa t^ fact that wa only 
oannad our aalaa offica on Saturday or Sunday aftamoona and Mltlffln both» 
and alAoat navar abovad a lot ttldw««k sound lika a high proasors salaa 
or ganlxation 7 

I will atraaa bowov^r that not ona buyar has oTar oxproteod to as 
bis diaaatis faction with hi a purchaa*, nich l«*a compLainad of mls- 
fapraaantation or tbat ha waa not in avaxy v«y *^ r ^ \t ^ fairly. But t 
buy arm bAva a^tar baarin^ of our troubla takon tho tiaa to wsito as of 
^•i^ confidanca in our aalaa oathods. 

Ha bava navar triad to sail our lota aa baing daairabla land 
spaculatlons , although thay bava appraciatad In valuar aticJOn^ 
atrictly to tba truth that thay vara daairabla raeraational hona aitas 
with tha paving and watar alraadv in and paid for sad that thara vaa 
no aortqaqas or liana on tha iota. — ■"■ """~~ —" 

I tblolc it Intaraatlog that although wa had glvan B!n> cov^Lata 
information lata in Aprils I racaivad a cartlflad nail aumuaa to appaar 
bafora ttUQ in Waahin?ton on Hay f, 1^75 and to bring all tacorda. By 
thia tina i^ vaa apparant th^t wa wara haadad dcvn tha long road to 
apand a lot of aonayx and wa bad pravlcualy ampLoyad a local attomay, 
tir. Marrln Chamar> vho aftar gatting into tha nuttar advlaad that wa 
alio ampLoy a Waahington attomay, Kr. Langhoma Kaith Qt Hogan and 
Bartaon, Kr. Kaith promptly acitnowladgad to m;D tha racaipt of tha 
auAAiona and inguirad why? Mr, Kaith waa told tha lusvona was isauad 
bacauaa w« had not fumiahad a ll*t Of our purchaaan which Ljat In 
fact had baaa naiiad bo tha prop^ar parson In HUD in January , tSraa 



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moathm hmiof, milm xMotaittiag • oagf of Mmm, BD ■i Wft o rt to NT. 
loith ziSSCp? of tho liot ia Jaaamcf, 3 ■ootha boforo t^ fiBBSBi; iS& 
now nil till tho oiHBaas onat still otaSl BonnM wo BadaotmHattia 
otto ooeoB^ sobdivlaioo wo hudlo which tb^r ««AiB l««tf odidttod taoA 
boco ia thoir hnda thtoogh Caboaiso, OOhaotoa, Oacdaor* Oomo ft ontoal 
for oovoral Boatho. Xa fact, thia aattor bad boaa back aad focth to tba 
axtaat that Cahanlaa ft JOhaatoa b^ »\^^^*f roeoiirad a daaial of 
oa April 2%, 197S 



ao tb^ aaid, failod to f ilo 2or naaptiaa 

which tbv ogaia lator adaittod waa fiOad oa Jaaoarr 2« lf7S, g^SL 
bofOto tba 



a waak bofOra Z was to ap pa ar ia Ifcahtngtoa 

raeaiirad a aail tooaipt for tba tmmnnu aad Nr. Kaitb bad aokaowlodpad 
ita raeaipt by phooa Z was aorrad a daplieato tmmnnu ia ar of fico 
in tba ptoa oae o of aqr aaploraaa aad eoatoMrs by oao who idaatif iad 
biaMlf aa a O.S. llaraball, piaaiiaihly to iadioato to a >a i TOBa ia 
towa that Z bad iiwailitiil aona borribla fOdaral eriaa. 



tooh ia tba pow ar of tba Podaral Baroaoeraof today. Aad to 
iUaatrata thair iaharaat nhaaiaioa for avor aoca p owa r » Z alght aota 
that no triod by ragalatira iatarpcotatiaa to tnclorto indaitr i al 
parka oadar thair "protactiTa* ara. Bat tba Vatioaal Aaaociatica of 
Zndaatcial Parka aad tto Soeioty of Zadaatrial Baaltora* a aobotaaftlal 
part of tho aMbarihlp ia which ia iadaatryf paraoadad tba Ooofcoaa 
that tba raal aatata poopla ia ZIM, Oaaaral Blaotxle« Vord aad othar 
largo mnpanlaa who bay practically all tba iadoatrial park lota wara 
*parhapa" aoca aophiaticatad thaa thair baaafaetors ia WOO, aad i 
ao "big brothar protootioa". Aad tba Coagraaa aaaar a tr a a ag a a i 
objactioa ■aanJid tba act to apall oat a aponiflr oMapEEoa for 
iJiBBKidral parka.^ 

Ihna in tba eaaa of thia third aad laat "roaaoaa" for tba 
wo wara la fact alroadr aatitlad to aaaaptioa by tba aaw law 
Zadaatrial Parka. 



Bat bara wa wara atiU oaabla to aall lota oatil owar 20 aoatha of 
affort to porsaada BOD that wa ara oot oporatiag aa iataratata lot 



aalaa achaaM. Aad atraa after offariag to pay thair iaapaotora 
to coaM aaa oar boyara, tba final arbitar of oar traatworthiaoaa. 

Of ooarao, all BDD haa to do to briag aoat davalopara to thair 
kaaa a ia to mn-rlnno to iaaiat ao aalaa bo aada aad to oontiima to 
raqaira andlaaa aad aspaaaivo tad tapo aabaiaaioaa aad litigatiQa 
which thay caa afford aad thaa wait . Obvioaaly, a largo high piaaaar a 
orgaaiiatZoa with ita big 8alaa~^fOiiBa# big aaxlB-ap» aad big iipiai 
badgat,. eaa ataad thia "baat" far battor thaa tba laall athical 
oparator aoUiag at a alow paea at priooa aat la tba ligitiaata rathar 
thaa tba high proaaara aarkat whara oftaa lota aall for 100% or aoKa 
abowa thair valaa ia tba ligitiaata aarkat. Bat aafoctoaataly* it ia 
aaaiar for tho high praaaara poopla to ooaply with all BOD's aipamiira 
tad tapo jaat b o caa a o thair priooa ara aaeh bighar ralyiag aa tiMy ^ 
' ip rathar thaa valaa for aalaa. 



Zf BOD ia abla to daatroy tho valaa aarkat bat aot tho 
praaaara aarkatr aad thay hava failed ia tba lattar ao far» tho pablle 
will jaat ha^ to pay aoro. 



Aad whila oa tba aabjaet of coat to tho poblie wa would 

woald bo aaa^pt if wo aold oaly to boaa baildara* Za tba 



battar off to bo f orood to bay froa a boaa hnllrtai^ Toa aay \ 
aoro tba boaaa will coat aoro if it's lapoaaibla to gat a iiiwti»r oi 



Za apita of our baiag sura that our baada wara eoaplatalf eli 
at laaat iaaof ar aa tba iataat of tha lav to atop fraadalaat laad 
lot aalaa waa concara ad it *raa aot aa aaay daoiaioa to aatch oar aa 
aaaaa againat tba awaaoaa financial and lagal faoilitioa of tha O.S 



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Go^fxaMat. (TIm amiiua «ppxoprUtioa pMdiaf la August 197S £or tha 
Of flea of Zataratata Laad Salaa la $2,700,000.00). Na raad rapaatadly 
what ttaa xagiatratioa eoat la ia aoaay, aot to aaatioa papar «ork, 
awaat aad taars (baliava aal). 

TO quota a fair aoureaat 

lt*qistration prov*4 to ba both axpaaalva (about 920,000- 

f3S,00{» aod t i m m conauniji^ (Uir«a to aiaa aoatha to coaplata) • Thaaa 
axpvuac lAcraata oux ^isk uul ■xpoaoras tha capabla davalopar auat 
pass thmim ccsu aa to th« sod U4r." WiUiaa b. Bara, Jr., Bagional 
Viea Pr««id«zic of thm tfAtiloaal Ajiociatioa of Zaduatrial Parks ia 
July 13 7S a#jtl tJtata Atlanta . 

JLaotbar davmlapar irrota uai 

^Oor ioitlal fa« to tba attarnays la HubioTtoa U Sl.OQQj vid if 
wa h*v» to go to 4 cooplata ragi*tr*tion, it i% oar api&ioa tliit t^bm 
faa vlll go to f^S^OOC. if v* ira AhXn to gat &a «x*aptlon, v% **ciAata 
our total faaa la W*<fcLington at 515,000. lo *xWition to «il<, I tuva 
parioaally bad to ■paut Sl.aoo vlth ay own attoraay advlaisg ma aa to 
hw to daal aot only witb ay principal but with waabiugton." Wa. ..-Ji^ns,;, 

*Ia tba flEit. part o£ July, va cacaivad from oar WaMhijigtoa 
counaal a l50-pag« docuaanc vtUcb is tba ou^liAa vbicb va ara 4Uppoaad 
to uaa in davviapijig ou^ regiitratloa vhich wa bava baaa askad to fill 
oiit just=iJi caaa tbatr'a tha- dir*(;^on va Intand to go, I bav* oa* 
paraoD fuU-tiaa oa go^ ataff dolri>g notniog but thia wocJc. $o^ avwi 
tbougb wa ara a coKplataly tirban aubdlTtaion, hawir^g *Qld Sa,«\ of our 
lots to t04rn raaidants, our cost vill ba cosjidari^la to prova our- 
lal^rva ' iooocaat' or aot aaading to ba undar tba jurisdict;lon of tha 
act.* Sad Quota ... 

Zaddaatally, tha Local SOD offlca lad thia davalopar bo baliava 
ba also was aot cora r ad, Hban SOU can't )uap up vtt^ tbalr ova 
actlTttiaa what ehaaca do local paopla baT«? . -jjLji^ 

Aad oar own local attoroay, ktc, Harvin Cham*rH,iayB i:*giat;£a^oo 
will ooat ua a ainimim o£ SIS, 000 and amt be braugtit Mp to d*ta 
avarytlBa a road ia pavad oa tba vay totSa naaiEyschoola , or tha 
aaaraat MD aovaa, or tba hospital cbaagaa tba braadtb of its sarricas. 

riaally, wa raluetaatly dacidad that wa eould aot afford to pay 
avaA 920,000w or (2000 par lot, to lall 10 lots a yaar. Thua wa "bit 
tba buUat" aod waat into Fadaral Court oa Juaa 30, 197S at which tisM. 
wa ft lad aa in]\xactiva procaadJ-og 

Bav lfly alrvady baaa dalAyad Ln mMj^lnq lay aala* fox Ah aoatba 
Bi^MHtp ic ia oC llttla conA4qu*nc* ajtcapt to abow wby only a Cool 
vould try to daai with miO witbout good Lawy^ra aijnca QtTD lawyara will 
ua* avary tacbulcallty or D«aas to dalay a dacision to put finaacial 
praaaura oa tba davalopar, Tba action vas filad Juiia < 

30,1S75 raqu«atiAg aarrica on HOD, Tba haaring vaa aat for July IS, 
^975, Oa July 17, UTS ttOD's l4wy«ra askad for a casatting d£ tba 
haarlag to a latar data on tba grounds that SXJO had not baaa aarvad. 
tba haaring vas postponad until July 19,1#TS. At tba haaring v* 
laamad tbat^ suo had In fact baan aarvad on July 12, 1^7 s, flvg daya 
baform Lac)c of aarvlca vas uaad as grounds for dalay. AndT^wouti 
aa*H that a July 13,1973 sarvloa of a papar fil«d Joaa 30tb was itaalf 
straagaly lata. 

Of ooursa tha 3 Waahiagton Lawyara who daf andad tha Oova rna ant 
ia Judga Saa Poiatar'a Court, aa wall aa John R. HeOowall tha 
sdBiaiatrator of tha OLS, try to aaka Uttla of tha eoat and tachaieal 
problaaM of ragiatratioa. 



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Zb thAlr brl«£ Mr. NeOowvIl statad ttet aAay dmwmlopmr* makm 
tbm fllin^A UiKas«^vaa, Ani tn* lawyers in ▼•rbal ■iijimiiil bsUttlad 
our lAVY«r«' rtcocsuLdA^ion ihAn n alio ajtacia^a c^«cialiAt< ia 
this £i«l4*tii* WduB^ujifUin lAv, ti^m ot aogu and Wart^on vbcHi tbmv 
lab«Lad ^a 'ao«% vxptnaiv* 1mm tlrm. in Waahingtiu,* 

Mr. C hTHT wasn't txyinq to tii^a u tlia *aoit «xp«i:*iw«* bat 
thasa paopla who ha had a«trar haard of vara rac^Braeni^Ad by azh^i 
lawyars as tha ^»t La. tnla flald. And it*s oratty obvloas Z ->«<"■> 
that wa naadad tha bast. "— — 

Thus tha vary WJO lawyars who 4*t so voluminous and tupar 
tachnical in th a i r vrltJ-a? at tha inpLsBsntln? rag^Utions Ltut 
paopla darling vith Uiaa Bnat hlra *60-aB*haur lawya^ to try to 
daciphar, than try to tall you that any on a can handla thair own 
^•9i«trations. lu-c doa»n't thaix racord so fir and thair iu2a of 
tachnical racocds acd ■an«uw:a waxB anyoaa with itor*ial tittalli^aBca 
that thay battac gat tha bast, la^al sdvlca a^rary stap of tlu way? 

And don't forgat that thasa «ua Covarreiiantai lawyari will iJi 
t, as in oar casa, asa avary cohm in thair own raoulatioa to 
trap yoo. 

Too lata to. halp lja p«jrh4ptH bat it doas appaar that tha Coograss 
is b^coEu^g awarb ot uHj prsblaa in tha tandaney of tha baraaa's to 
attauipr ta «xpui4 thalx pow^r far bayond tha intant of Congrass. 
Savaral ncant Lavs hava pcovidad for fotura raviair of rolaa and 
r«<ril*ticaa pccniilgacad ondar tha act to 'insora tha intant of Congrass 
Is nor aaceaadad ^ * ""— — — — •— 

A quota froa Sanator Ooaiiaiccis intarasting, 'Thara ara alraady 
anough ?ovamjaantal ragulations for rhi (saall basinass) to eoatand 
with. Tbay vhonldn't hava to hira a las/yar just to know what thair 
rights ara.* 

Thoaas Ehrllch Daan of tha law school of Stanford onivarsity 
Whan a«kad tha quafltlon, *It** oot only tha ausbar of Lavs that paopla 
coaplalA abou^^ Thay &lso coB:pJ.aJji abqut tha way tlw -laws ara vcit^att- 
that thay at vary dxfflc-ilti to undarscuid This sama faallag appllas 
to opLAlonj by coorts. WoaLdn't it h«lp if tha lagal langaaga wara 
olarlfiad so tha avara^a parvon coold undar stand what it — snsT* 

*A. Yoa'ra right that this i« a probl^an vid It's ona that is 
vidaly crltlcixad. Z think law- schools tbcold put a high prsMiuB on 
th* *iji7la daclarativa santanca-whlch saans to gat lost all too 
fraqoantly.* 

And ha furthar oasnantad,'. .. ^coogriis to, eontibutas to this 
glat (of court fiqhtts and laws) which £ call Isgal polutiorv- Wa saa 
tha «ff«ct-3 in our unlvvriity. To provia our cenpllano* wich all tha 
ifadaral ml as Mtid r*guI<tiona ra^irai a buga staff, an anon&ous 
■BOunt of pspaf work, and thooaaAds of bours of axpaiuiva lawyar work." 

In closing, wa %#oald Lika to coosnnt that all this axe*s* 
ragulation (U.S. Ma«#s ft wodd Baport, Juna 30,1^75) i$ a*tlmatad to 
cost eonsuaajr* IIJO oaQ,000,aO0 la sddad cost to what thay buy. 

And to quota Prasldant Ford who das<:ribai it ai ^axcaiilTa 
iovmcnamnx. raguXatioss that itlfla productivity aLVninata coBpatitlon, 
ineraks* conauBor costs and contribota to Lnflation 

Says tha Prssidant: *Z want small businasj jcalsasad from tha 
shacklai oC fadaral rad tapa I went to and unnacassary/ ««#«^y and 
onclaar ragulations "and naadlaa* jupar work. 

Mr. rord places tha annual cost to consuoari of onnacassary and 
wastaful ragulatory poUcias at >2Q00 par f*«il.y 



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Obviously-^ th» IntAivt o£ Congc«is La stAtin? tbm s«er«tary could 
•XMBpt *«By «utidiuiil«n,, . .If h* tlnda •nforc«iaft(it....iiot n«c«as«ry in 
th« public int«r«it uid fot ui* protect ion oZ purchasers by rsasoa of 
tbs saall amount InvQiwd Qt th* LLnlt*d n«tura of tbs public of faring* 
was to aneouraga ths axanpcion ot Voc lalaa of a dif farant eharaetar 
from tha massiva - hlgli praasuca «ala l>y nail. 

And to our nathod of oparation tha only r*«l subs tan tiva obj action 
BOD could find wma that ona lot lala of doubtful intra* tit* eharaetar 
put ua in violation gf ttUD « arbitrary *S% in any ona yaar* rula* and 
that a yaar in which OUO cut of £ our aalaa laaving us lass than the 
ona yaar in which to orancoma tha Si. 

tfa think thalz antira position full of tha ridiculous and absurd 
tachaicalitlaa for vhich Hashln^oa buraaus ara now bacomlng notorlaua. 

To ?uota Haltar t. arindar, Profa^aor of Economics of Rutqara 
UniTaraity, "It ta not until tha paijpla b*qta to catch on to tha 
natiira of tha ayituaatic plundar {by tha atata) and until tha paopla 
bagin to challwiga this coloaaal con gama that tha stata doaa in fact 
turn brutiah." 

In viw of tha many ^^uotaa abora, tha-. paopla and Prasidant Ford 
ara baginnlng to 'catch on* tha.t tha stata is »"m1ng brutish. 

To put it anotbar v«y our fioa baa cartalnly hmvx tha victim of 
what Profasaor Balmut jchoak, tha Austrian aociolcgiiXr in his study 
cf locial bahavlor calls 'tha pLaaatira fait by the powerful man in the 
powar that anablaa him to be iznjuat> 

To al40 quota Sanator VillJ.*a j, ruliirlqlit on thm EntaratJte Land 
Sales Act , *Tha burdan* of tMa lagljlation fall aquUly oa ziim ijood 
as wall as tha bad operator a and this Is what inevitably happana whan 
Government seeks to singla oat an Industry and aabj«ct it to a itijui of 
p Trophy Lactic machod of regulation* instead of <»^#4p<.rg and punishing 
certain Illegal acta> 

Aapr aaantative Philip Crane baa pointed oat that oaay federal 
agencies are all in one comhinJitlon of prosecutor, judge and Jury and 
that contesting thaix rulings can be laore axpensiv* than it is worths 
£van if 4 builnaasoan w^na his case in coun , h« must pay attorney ' s 
fees and litLgation coita, axp*na«s often fer in axcas* o£ t^« fine 
he vould have paid for pL«ddxng ^no contest.* Al«o «v«n Lf be >ias 
tuccasifUuLly clearsd blaaalf of one charge, ha facsa tha pcasihlllty 
that the agency vill continue to search for viola tlona in an ef fart 
to achieve viiidication. 

Thus, as stated by Mr. Crane, «fe are now faced with the reality 
that conplianca by soar cL on rather than compliance based on the merits 
of the caaa Is becoming the rule, not the exception 

Hell; after spending 56,400.81 in legal fees alone and on the 
advice of this caun**l w» geve up and on July 8, 1976 were forced to 
accapc an on<^9it« sxiiispr^ion by making the following face saving con- 
cesi Larva to the bureaucracy. 

1. We hold an election of members of the Archltecturai Control 
Conmittae. 

2. Hathar th«n cdnvaylng tha lots in the norsvl vay vith the 
Paver Cvapany'i flood ea^sment set out as an exception vm 
convey only down to tha Power Company aaaamant uid gLv* the 
Lot pur Chaste an ea^apiftnt across tha Powar Company ^s easement. 

3- tfe obtain effldavlca from aach purchaser Chat thay bave 
parionally inapeetad tb* lot and land then to OILSK at the 
•nd of aach year (We hid navar sold a lot that the buyer 
did not walx ovar and in Joost casaa savaral times) 

*• ^T'^ ** ^v* sold 299 lota we tmst go out of buainasa or 

comply *rith the very expensive property reporting originally" 



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Of course, thm only raason vm w«rtt abl« aftar owg 20 aoatlM to 
work out this coapromisa was that OiLSR was parsuadad that tb&f ««ra 
about to writs sobm naw casa law undar aoat uafavorabla rlrniMsi aiiLiai. 
. i.a. thair parsacution of a thoroughly athical land salaa ooHpany. 



Baspactcully suhaittad, 



LH/ajr 

P.S. If sha aaans it, it is haartaning to raad tha followiag quotas 
from HOD Sacratary Carla A. Hills. 

"Thar a is no industry in Amarica that is not aneuabarad by aora 
ragulations that it can handla and snra than is naadad to gat tha job 

dona." 

* (Thar* it) A 5uBibla of ovarlapping-of tan conflicting-codas and ■ 
.rsquiationi provLdad by banavolant buraaucracias at avary laval o£ local 
axui actional gw^rnmaat > ' 

'Hhaa g9T«rnnant gati into tha act, tha consusMr pays tha priea. 
And ones Lnto tha act, tha govamiaant hardly avar gats oat, and tha 
consuaar continual to pay." 

*Tha liJcaly banafits of any fadaral regulation anst ba carafulXy 
traighad against tha costs of such axpariaants.* 

Sacratary Hills. "My whola approach to this condoainioa ragalatioa 
is a cost balance. What ara tha banafits that Z aa baying for tha 
consuaar? How auch do thay cost? 

Z can assure you that if we lay on a responsibility, it will ba 
passed through and tha consuaar will pay for it.* 

*^Kr. tundine. ^1 tend to agree with you about being as cooearaad 
with ov«rra gelation as Z aa with no regulation at all.* 

"Highly technical and voluainous disclosure stataaants ara 
complicated, costly, and, as we found during our study, often net 
raad by tha buyer." 



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437 

Mr. AuCoiN. Thank you ve^ much, Mr. Boberts* 
We will now hear from Mr. Smith. 

STATEMENT OF HEBHAN J. SHITH, VICE FSESIDENT, HATIOnAL 
ASSOCIATION OF HOHE BUUDEBS, ACCOHFANIED BT BOBEBT 
D. BARNISTEB, SENIOB STAFF VICE FBESIDENT, AND OABT 
FAUL KANE, ASSOCIATE LEGISLATIVE COUNSEL 

Mr. Smith. Thank you, Mr. Chairman. 

I am Herman J. Smith, and I am a homebuilder from Forth Worth, 
Tex., and I am testifying today on behalf of the 108,000 members 
of the National Association of Home Builders. Accompanying me is 
Robert D Bannister, senior vice president, and Gary Paul Kane, asso- 
ciate legislative counsel. 

We certainly appreciate the opportunity to testify. 

Interstate Land Sales Act passed and we supported it, and the intent 
for which it was passed. Since then we have run into the same problems 
that the Congressman from San Antonio was talking about. We have 
a problem understanding why a legitimate subdivision within a city, 
that has all of the protections of the local government, and has only 
intrastate sales has to be governed and brought under the jurisdictions 
of OILSR. 

The Congressman explained he has not received an answer to that 
question, and neither have we. This is a classic example of how an 
administrative agency can distort the purpose of well-intended legisla- 
tion over a period of years. 

OILSR's involvement in regulated jurisdictions is the area that 
most concerns our homebuilders. OILSR has extended its jurisdiction 
from undeveloped lots in remote parts of the country to the sales of 
fully improved or development lots in metropolitan areas where land 
development activities are heavily regulated. 

For example, in most of our areas — I would say this is true in Port- 
land and Fort Worth and other areas that we are concerned about — 
before a builder can even sell a lot he must gain approval from local 
and State governmental entities. 

Mr. AuCoiN. Do you think it would be true in Florida and Michi- 
gan, as well? 

Mr. Smcth. I believe it would. 

I know it is true in Orlando and Battle Creek. 

The builder's plans must be reviewed by planning and zoning au- 
thorities, environmental review boards, departments of public works, 
public health and engineering, local utility districts, school boards, 
city councils, county supervisors. We can go on and on and on with 
what happens in the local jurisdiction that has the controls within 
their area. 

There is another oddity here. Even in cases where an FHA lot is 
approved, or in an area where VA loans are approved or where Farm- 
ers' Home loans are approved, we still must file and receive an exemp- 
tion from OILSR if the subdivision was over 50 lots. In some cases 
these requirements are within the same Grovemment department. 

OILSR's intrusion into this process generally comes in the form ^f a 
letter or subpena sent to the builder, scHnetimes after house and lot 
sales have commenced. The builder is compelled to appear in person in 



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Washington, D.C. We have several cases of where a builder received a 
letter that scared him to death. He did not go to the State capital or his 
local city hall, he had to go all the way to Washington, D.C. He had to 
appear on something that, very f ranlJly, he knew little about, because 
the letter was very brief. 

As Mr. Roberts said, our people mainlv are made up of small entre- 
preneurs ; 52 percent of our 103,000 Komebuilders has 6 or less 
employees. They can hardly afford to pay, as the Congressman from 
San Antonio said, $20,000, to have a subdivision registered — approved 
by OILSR in an area already having regulations. 

We see OILSR's intervention into local regiilated jurisdiction as a 
classic example of wasteful and unnecessary Government overregula- 
tion. Consumers receive no benefit whati>oever, and builders incur 
substantial hardships. 

NAHB strongly believes that OILSR should have no authority even 
to question subdivisions regulated by local jurisdictions. 

In previous hearings in the House and Senate committees, I have 
heard a lot of testimony from others. I have never heard one c<Hn- 
ment that a legitimate subdivision that has been approved by the 
various local agencies, are having problems that would require OlLSR 
involvement. In fact, I heard Senator Proxmire say that he receives 
approximately 1,000 letters a day letting him know how his ccwistit- 
uents feel about what is going on in Wisconsin. He does not remem- 
ber receiving a single letter on the subject that we arc talking about; 
that is, consumer misrepresentation within a regulated jurisdiction. 

What are the effects on consumers? When confronted with uncer- 
tain filing requirements, potential delays, cost of a protracted dispute, 
and the potential civil and criminal sanctions, manv builders — and I 
might add, most builders — are simply refusing to sell lots whatever to 
individuals; they only sell to other builders. This can prevent a fam- 
ily which does not yet want to be tied to a particular builder from buy- 
ing a lot in a good neighborhood either as an investment or as a future 
homesite. Those families who do purchase from the second builder 
pay a higher price for the land as a result of paying two builders' 
markups. 

We believe that Federal involvement in the development of houses 
should be kept to a minimum. This area of law traditionally has been 
a concern of State and local governments and should continue under 
their auspices. 

OIIjSR regulations that came out on June 1 are over 800 pages, 
and again restress and reiterate some areas of regulation. If we were 
to go through these new regulations — and our lawyers have expensively 
gone through them for us back home — we find that, for example, in 
one area these new regulations require that Bit least 30 percent of the 
lots in the subdivision must be improved with roads and electricity 
before we file. You can see where we not only have the expense, as 
Congressman Gonzalez talked about, of the filing but we have on top 
of the $20,000 he was talking about, the expense of time delay, and 
that is getting more expensive every day. Every time the Federal 
Reserve meeits it gets more expensive. 

And consequently, we are looking at a considerable amount of 
money while we are awaiting some answer from a bureaucrat in Wash- 
ington on whether our subdivision is exempt or not. 



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439 

So, very candidly, we just flat do not register with HUD. 

Testimony last week at HUD hearings in Dallas reflected that in 
Dallas County only two subdivisions, to their knowledge, had filed. 
Neither one of those were in the city limits of Dallas, which meant they 
were selling their lots to builders only. Consequently, before an indi- 
vidual can buy, there is another price tier that can run anywhere from 
$500 to $2,000 on the lot in that area. 

The home buyer pays for it. Normally, they pay for it over a period 
of 30 years, as they make their mortgage payments. Additionally, 
home buyers cannot take competitive bids from several builders which 
could also be another cost. 

One of the things we need more of right now in our larger cities 
are more construction lots coming on stream for competitive purposes, 
not the elimination of the small homebuilder, the small developer, 
entrepreneur. Forcing him out of the business only brings the large 
corporate builders into the business. 

This is the one thing that has driven lots up within our jurisdictions 
faster than anything I know. 

NAHB strongly supports the provisions of S. 2716, now incorporated 
as section 715 of S. 3084, the HUD authorization bill. 

I will not get into the details of the Minish bill and others. I will 
.say, in studying Congressman Minim's testimony, a couple of points 
that he makes that he thinks would be good, and we concur. We concur 
with the attorneys general that have testified in these areas. 

T hope you have in front of you subchapter 3 of section 715 of S. 3084, 
which was approved by voice vote in the Senate. 

Mr. AuCoiN. This is the Sparkman amendment? 

Mr. Smith. Yes, sir. 

Pertaining to regulated jurisdiction exemption. 

If you will carefully read that you will note that Congressman 
Minish's problem of installment contract method has been addressed. 
The contract of sale requires delivery of a warranted deed to the pur- 
chaser within 180 days of the signing of the contract, and it would 
normallv take that long to get the improvements finished. 

A policy of title insurance or title opinion is issued, so it doesn't drag 
out. 

A second provision in the Minish bill requires the developer to 
promise to provide basic services, such as water, sewage disposal, and 
so forth. 

If you will note, in subchapter 3, the real estate must be situated on 
public highway which has been built to a standard acceptable to the 
municipality or county, and a bond or other surety acceptable to the 
municipality or county for the full amount of the cost. 

It goes ahead and mentions : At the time of closing, potable water, 
sanitary sewage disposal, and electricity have been extended to the real 
estate or the municipality or county has agreed to install such facilities 
within 180 days. 

In other words, this amendment exempts legitimate subdivisions 
within a city that has these jurisdictions whore bonds are posted — and 
I might add, bonds are a suretv acceptable to the Government, not 
just any bond and not just the developer's own bond. We believe this 
type of subdivision should be exempted from going through the $20,000 
OILSR filing process that the Congressman was talking about. 



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440 

Mr. AnCoiN. It would, under this amendment? 

Mr. Smtth. Yes, it would, under this amendment. 

You will note that in contrast to the Interstate Land Sales Act, 
which is merely a disclosure statute, local ordinances and reviews 
protect the customer by substantial requirements, and that is not 
changed in the Sparkman amendment. 

It will probably clear most of the le^timate subdivisions and de- 
velopers in the cities where we are actually trying to build housing for 
the consumer at a price the consumer can afford. 

The Sparkman-Tower amendment insures that the consumer will 
obtain a lully improved lot which can be used as a homesite. 

We support it 100 percent and appreciate the opportunity to appear 
in front of your subcommittee, and would be pleased to answer any 
questions you might have. 

[Mr. Smith's prepared statement on behalf of the National Associa- 
tion of Home Builders and a copy of amendment to section 716 of 
S. 8084 follow:] 



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STATEMENT OF 

THE NATIONAL ASSOCIATION OF HOME BUILDERS 

before the 

SUBCOMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT 

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS 

HOUSE OF REPRESENTATIVES 

on 

INTERSTATE LAND SALES ACT REFORM 



Mr. Chairman and Members of the Subcommittee: 

My name is Herman J. Smith, and I am a home builder from 
Fort Worth, Texas. I am testifying today on behalf of the more 
than 103,000 members of the National Association of Home Builders 
(NAHB), the trade association of the Nation's home building 
industry, of which I am Vice President and Secretary. Accompanying 
me today is Robert D Bannister, Senior Staff Vice President, and 
Gary Paul Kane, Associate Legislative Counsel. 



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We appreciate this opportunity to present our views on the 
Interstate Land Sales Full Disclosure Act, legislation proposed 
to amend that Act and regulations recently proposed by the Office 
of Interstate Land Sales Regulation (O.I.L.S.R.) • 

Enforcement of the Act by O.I.L.S.R. 

NAHB supported passage of the Interstate Land Sales Pull 
Disclosure Act in 1968 as a reasonable means to protect consumers 
against certain deceptive and fraudulent sales practices used 
by a minority of unscrupulous land developers in their interstate 
marketing of generally undeveloped real estate. A major ploy 
in the marketing of this land was usually the fact that it was 
sold to purchasers who were unable to inspect the lot site 
because of its remoteness or the buyer's geographical separation 
from the land's location. Many of the potential buyers were 
purchasing property in anticipation of retirement, or as second 
home sites, and often relied heavily upon the representations 
of the seller. 

A classic example of how an administrative agency can distort 
the purpose of well intended legislation can be observed by 
studying what O.I.L.S.R. did to the Act between the time of its 
enactment in 1968 and today. We believe that a growing nunber 
of transactions for the sale of lots are being brought within 
the ambit of the Act that were never intended by the Congress 
to be covered when it passed the legislation. O.I.L.S.R., in 
our judgment, has vastly expanded its jurisdiction through 
administrative regulation to the point it is creating financial 



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and business hardships on professional home builders, is needlessly 
increasing the cost o£ land and housing to the consuming public, 
and is wasting tax dollars through unnecessary and duplicative 
regulation. 

50 Lot Exemption Situation 

For example, the Act specifically exempts lots on which there 
is a residential structure or where a contract obligates the land 
seller to construct such a structure within two years. The Act also 
exempts small subdivisions of fewer than 50 lots. 

One situation which arises is where the builder of a 70 lot 
subdivision constructs and sells homes on 60 lots. Under the 
statute these should all be exempt sales . However, to close out the 
subdivision or because of unsolicited interest from consumers, 
the builder sells the remaining 10 lots to individuals. O.I. L.S.R. 
has taken the position that the Act's 50 lot exemption does not 
apply in this case, and that the builder must file for registration, 
counting the lots both on which homes were and were not built. 

Regulated Jurisdictions 

Perhaps, the major concern of our members is that O.I.L.S.R. 
has extended its jurisdiction from undeveloped lots in remote 
parts of the country, to the sales of fully improved or developed 
lots located in metropolitan areas where land development 
activities are already heavily regulated. 



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In most o£ these "regulated jurisdictions", before a builder 
can sell even a single lot, he must gain approval from myriad 
local and state governmental entities. His plans must be reviewed 
by: planning, zoning and environmental review boards; departments 
o£ public works, public health and engineering; local utility 
districts and city councils or boards o£ supervisors. Generally, 
lot sizes must meet certain minimums, soil compaction and/or 
percolation requirements must be met, the land cannot lie in 
an environmentally sensitive area or too close to an airport 
flight pattern, and plans must show access for fire equipment. 
And, in virtually all cases, the builder must either complete 
roads and provide water, sewer and electrical service In 
conformance with local controls, or post a bond or letter of 
credit covering the cost of such improvements. 

O.l.L.S.R.'s intrusion into this process generally comes in 
the form of a letter or subpoena sent to the builder sometime 
after house and lot sales have commenced. The builder is compelled 
to justify in person in Washington, D.C., or in writing his 
failure to file for registration or exemption. And, ultimately 
such a filing, in fact, may be required. Sales of further lots 
may be suspended in the interim, and in some cases, the builder 
may be required to send letters of recission to all purchasers 
offering to buy back their lots and homes at the original 
selling prices. 

In the current market of rising real estate values, letters 
of recission are generally not accepted. But a letter suggesting 
difficulties with the federal government clearly affects the 



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builder's credibility with past and potential purchasers and may 
affect the marketability of later lots. 

We see O.I.L.S.R.'s intervention into the "regulated 
jurisdiction" situation as a classic example of wasteful and 
unnecessary government overregulation. Consumers receive no 
benefit whatsoever, and builders incur substantial hardships* 
NAHB strongly believes that O.I.L.S.R. should have no authority 
even to question subdivisions in these jurisdictions. 

Effect on Consumers 

When confronted with uncertain filing requirements, the 
potential delays and costs of a protracted dispute, and the 
potential civil and criminal sanctions, many builders are simply 
refusing to sell any lots whatever to individuals; they will 
sell only to other builders. This can prevent a family which 
does not yet want to be tied to a particular builder from buying 
a lot in a good neighborhood either as an investment or as a 
future home site. Those families who do purchase from the second 
builder pay a higher price for the land as the result of paying 
two builder's mark-ups. 

NAHB is deeply concerned about the rising cost of new housing 
and the decreasing ability of many American families to afford 
to purchase this housing. A leading cause of the increased price 
of housing is the substantial rise in land prices. A principal 
reason land has become so much more expensive is because of 
increasing regulatory controls by all levels of government 



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restricting the use o£ land and thereby diminishing the supply 
of developable building sites. We believe that Federal 
involvement in the development of housing should be kept to a 
minimum. This area of law, traditionally has been a oonoern 
of state and local governments and should continue under their 
auspices. O.I.L.S.R.'s intervention into the hone building process 
represents an unnecessary additional esche Ion ofgovemawnt, irhich 
serves only to increase costs to the builder and ultimately to 
the consumer, without increasing consumer protection. 

O.I.L.S.R. Regulations of June 1, 1978 

The proposed regulations issued June 1, 1978, do nothing to 
improve the present situation. Under the regulations #O.I*L»S.R» 
continues to intervene in the process of reviewing even fully 
improved subdivisions in cities and counties with substantive 
subdivision regulations. 

Section 1710.15 p reports to provide an exemption for primary 
homes ites. As a practical matter, this is an exemption feWf 
if any, builders will use. First, in order to obtain the exemptlont 
a builder still must make a detailed filing with O.I.L.S.R* and 
specifically obtain approval from the Secretary. The filing must 
include each of the following items: 

(1) an application for exemption; 

(2) a comprehensive statement; 

(3) a developer's affirmation; 

(4) a sample copy of the acknowledgement of on the 
lot inspection; 

(5) a sample copy of the purchase or lease agreement; 



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(6) a sample copy o£ the deed; 

(7) a general plan of the subdivision, including a 
map and a plot; 

(8) a copy of the escrow agreement or irrevocable 
letter of credit required to assure completion 
of recreational facilities; 

(9) where applicable, documentation that: (a) roads 
have been or will be built to local standards 

and the lo<;a]. authority will accept responsibility 
for maintenance (b) adequate precautions have 
been approved to prevent flooding; (c) potable 
water is available on a year round basis; and 
(d) the land is approved for the installation 
of septic tanks. 

As we stated before, we do not believe any filing should be required 
for improved subdivisions. Builders will be no more encouraged 
to file under these regulations than they are under current 
procedures. 

Second, before the application for exemption can be filed, 
at least 30% of the lots in the subdivision must be improved 
with roads and electricity, and provision must be made for water 
and sewer. Since lot sales cannot begin until the exemption is 
approved, this means the developer must finance the cost of improving 
at least 30% of the subdivision for the period it takes to construct 
the improvements, prepare and submit the application, and receive 
the Secretary's approval. Even under favorable conditions, this 
could mean that the developer would be paying the financing charges 
for three, four, five, or even six months without any revenues. 
This could place a financial strain on many small business home 
builders, and certainly would discourage them from selling lots 
to individuals and thereby subjecting themselves to the Act. 



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In any event, it is the consumer who will end up paying the 
added cost £or these unnecessary delays in the form of higher 
housing costs. 

Finally, the regulations provide that the primary honesite 
exemption does not extend to subdivisions on which the Secretary 
has evidence or information that the approval of the exemption 
would not be in the public interest. This provision may raise 
questions of constitutional due process since no standards are 
provided to regulate the Secretary's discretion, and since there is 
no requirement that the applicant be notified of the specific 
information the Secretary relied on in rejecting the application. 
We believe this provision and provisions like it are subject to 
substantial abuse and should be' stricken from the regulations. 

Proposed Minish and HUD Bill s 

It is extremely difficult for us to understand the rationale 
for proposed legislation which would increase the jurisdictional 
and enforcement powers of an agency which has demonstrated a 
tendency to go beyond the bounds of its statutory jurisdiction 
and disregard Congressional intent and purpose. 

Accordingly, we oppose the provisions of the bills of both 
HUD and Congressman Minish. We find most objectionable the 
provisions in both bills which authorize the HUD Secretary to 
issue cease and desist orders and to levy civil penalties of 
up to $5,000 per violation. The HUD Secretary through O.I.L.S.R. has 
already imposed unreasonable burdens on home builders, requiring 



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appearances in Washington, detailed written explanations, letters 
o£ recission and even repurchases in some cases. In an area where 
the Secretary has repeatedly abused her discretion it seems 
inappropriate to grant her the power to force a builder to stop 
lot sales altogether or to impose, without judicial review, an 
extremely onerous £ine. We £ind these provisions most unacceptable. 

S. 3084 

NAHB strongly supports the provisions of S. 2716, now 
incorporated as Section 715 of S. 3084, the HUD Authorization 
bill. We believe this legislation represents a positive step toward 
correcting the hardships to home builders and consumers alike 
caused by O.I.L.S.R.'s overreaching jurisdiction. 

The exemption of the greater of 5% of a builder's sales or 
5 lots a year is especially beneficial to smaller home builders 
who may, without solicitation, inadvertantly sell a few lots to 
out-of-state purchasers. Such builders may have only a vague 
notion of the applicability or requirements of the Land Sales 
Act, and imposing a registration or exemption filing on them 
would create an unreasonable burden. 

The 100 mile exemption is most helpful to the builder 
operating near the borders of one or more other states. People 
living within the 100 mile radius should have easy access to 
the property and should be able to ascertain the facts necessary 
to make an informed decision on the purchase of a lot. The 
fact that a state border lies between the prospective purchaser 
and the property should not in any way impede the purchaser's 
examination. 



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10 

And we fully support the Sparkman-Tower amendoient to S.3084 
which would exempt from the filing and disclosure requirenents 
the sale of fully improved lots developed in conpliance irlth the 
subdivision regulations of the municipality or county in which 
the subdivision is located. In contrast to the Interstate Land 
Sales Act which is merely a disclosure statute, local ordinances 
and reviews protect the consumer by substantive regulation. The 
Sparkman-Tower amendment also ensures that the consumer irill obtain 
a fully improved lot which can be used as a homes ite. 

Support of S. 3084 

We ask that the members of this Subcommittee who serve as 
conferees on the HUD Authorization bills accept the provisions 
of Section 715 of S. 3084 without modification or amendment* 



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July 17, 1978 (3) 

Regulated Jurisdiction EScarption 

Sec. 715 of S.3084 is amended as follows: 

Itie follcx^ing language is added to subsection (b) of Section 715: 

(3) the sade or lease of real estate viiich is located within a 
municipality or county whose governing body specifies minlmm standards 
for the developnent of subdivision lots taking place within its boundaries, 
v4ien: 

A. The subdivision meets all local codes and standards and is 
either zoned for single family reside n ces or in the absence of 
a zoning ordinance, is liinited esccliisively to single faniily 
residences, 

B. Ihe real estate is situated en a paved, public street or highway 
which has been built to a standard acceptable to the municipality 
or county or a bond or other surety acceptable to the municipality 
or county in the full amount of the dost of the inprovements has 
been posted to assure ccnpletion to such standards, and that 
authority has accepted or has agreed to accept the responsibility 
of roedntaining the public street or highway. 

C. As of the time of closing, potable water, sanitary sewage disposal 
and electricity have been extended to the real estate or the 
municipality or county has agreed to install such facilities 
within 180 days. For subdivisions which do not have a central 
water or sewage disposal system, rather than installation of 
v^ter or semer facilities, there must be assurances that an 
adequate potable water si^aply is available year-round or that 

the land is approved for the installation of septic tanks. 

D. The contract of sale requires delivery of a warranty deed to 

the purchaser within 180 days of the signing of the sales contract. 

E. A policy of title insurance or title opinion is issued in 
connection with the transaction showing that at the time of 
closing, title to the read estate purchased or leased is vested 
in the seller or lessor, but nothing herein shall be construed 
as requiring the recordation of a lease. 

F. Each and every purchaser or his or her spouse has nade a person2d 
on the lot inspection of the real estate v^iich he purchased or 
leased, prior to the signing of a contract to purchase or lease. 

G. There are no direct mail or telephone solicitations or offers of 
gifts, trips, dinners, or other such pranotional techniques to 
induce perspective purchasers or lessees to visit the subdivision 
or to purchase or lease a lot. 



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452 

Mr. AuCoix. Mr. Smith, thank you for your testimony. I am serving 
as chairman of the 'homeownership task force of the Housing and 
Community Development Subcommittee, and we liave been looking 
into specific imbalance of government regulation and other factors on 
liomeownership costs, and you have indicated at least two very specific 
ways in which additional costs are passed along, and I appreciate that 
contribution, as well as the full body of your testimony. 

Do I understand you to say that with tTie adoption of the Sparkman 
amendment, you would be supportive of the Minish legislation ? 

Mr. Smith. I will say that we are fully in support of subchapter 
8 of the bill, which is the Sparkman amendment. I am not saying we 
are in favor of all of the Minish HUD proposal in tlieir bill. 

Mr. AuCoix. So even with the adoption of the Sparkman amend- 
ment, you would not be in a position to support the Minish bill ? 

Mr. Smith. Certain aspects of it we could, yes, others we couldn't. 
I would say tlie Sparkman amendment addresses many of his concerns. 

Mr. AuCoiN. What would be left in the Minish bill that would 
necessitate your continued opposition ? 

Mr. Smitii. Well, frankly, although it does not affect liomebuilders, 
we are concerned about the 40-acre limitation. We are concerned about 
the small farms being subdivided for the purposes of a lO-acre tract 
of ground or a 20-acre tract of ground. Altliough our builders are not 
there, a lot of us would like to own a little place out in the country, and 
we think this is overkill. We don't think that is necessary. 

Mr. AuCoiN. If the Sparkman amendment v.ere adopted, given the 
track record of the agency in the interpretation of the original statute, 
stretching it as it has to intrastate developers, do you have any reason 
to believe that the Sparkman language would be recognizable in its 
application if it was finally adopted ? 

Mr. Smith. Let me say this. 

We sure would be pleased if that came back to a committee in Con- 
gress to be looked at l^efore the regulation went into effect. 

I could not say tliat they would not take that 1 pace and end up with 
500 pages of regulations that would again overkill; no, sir, I could 
not say that. 

Mr. ArCoix. I wish we could offer a standard amendment to every 
bill we pass, and that is that this act shall be wisely and responsibly 
administered. Boilerplate language. That would be so great, if we 
could do that. 

I want to call the panels attention to a comment in Congressman 
Minish's statement before the subcommittee, I believe it was yesterday. 
He was referring to the Nelson bill and said that in its present form it 
is an unwise proposal because it will exempt some of the worst inter- 
state developers in the country from the requirements of the Inter- 
state Land Sales Full Disclosure Act. 

One of the specific loopholes that he described — and he described it 
as a loophole — was the j^rovision for the 100-mile radius exemption 
that, as you know, is the exemption that exempts sales to people who 
live within 100 miles of the developer. And I am quoting from Mr. 
Minish now : 

It is a lot-by -lof exenipticm which means no matter how big the developer is. 
he may sell to anyone within 100 miles of his development without being covered 
by the Federal law. 



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453 

And then he gave an example of some of the nightmares that would 
occur, and he cited the Pocono Mountains of Pennsylvania. Within 
100 miles of that area are the metropolitan areas of New York City, 
northern New Jersey, and Philadelphia, and I am quoting from his 
testimony : 

Taken together, these three areas represent a market of over 20 mUllon people. 
Under the Nelson bill, none of these people would be protected by the Federal 
law if they bought lots in that particular area. 

He cited a specific example in that area in which 365 lots were sold 
to people from New Jersey; 30 of the buyers were his constituents. 
And most of the other lots were bought by residents of Philadelphia 
and New York. And among other things, the particular development 
promised improvements such as sewage disposal and water and it was 
never completed, and the development concealed from prospective 
buyers a dispute with the local township authorities, which made the 
development unable to clear title to tlie lots sold, and it used high- 
pressure sales tactics and committed other consumer abuses. 

What do you have to say about that, any of you, in terms of the 
wisdom of keeping the 100-mile radius ? 

Mr. Roberts. With reference, Mr. Chairman, if I may specifically, 
since I did address myself to the Nelson bill perhaps more than either 
of the other two panelists. 

Under the Nelson bill's 100-mile exemption, the New Jersey people 
who are involved in the Pocono Mountains matter may have come 
under that exemption. However, whether it be 100 miles or a mile or 
1,000 miles, fraud is fraud, and fraudulent acts can be prosecuted, and 
they are punishable. 

In this case, had the Nelson exemption been in eflFect, OILSR's right 
to prosecute would not have been affected in any way. As a matter 
of tact, the enforcement aspect would be strengthened because under 
the Nelson exemption the developer would be required to subject him- 
self to the jurisdiction of the courts of the States from which the 
buyers came, in this case, the New Jersey courts. And whether or not 
Pennsylvania or the Justice Department wanted to prosecute on behalf 
of the defrauded buyers, the defrauded buyers would have had re- 
course in their own New Jersey courts, which they may not have under 
the present statute. 

So, in effect, the Nelson 100-mile radius exemption would have really 
strengthened the enforcement provisions of the act, had it been in effect 
at the time of the Pocono situation. 

One other thing T think that we might want to examine is the dif- 
ference between the product that is being offered. In supporting the 
Nelson provisions of S. 3084, the product that we are talking alx)ut 
principally is the primary residence homesite, and although resort 
properties and others may fall within that purview, it is the small 
developer or the individual primary homesite subdivision that we are 
trying to get relieved from the pressures of this act. 

But to repeat, the Nelson provisions would have strengthened the 
enforcement powers that would have been available to the people who 
were hurt in the Pocono Mountains case. 

Mr. AirCoiN. Let me ask one final question, and then turn the Chair 
back to Mr. Gonzalez. The Minish bill contains a provision permitting 
rescission at any time up to 3 years if certain conditions are not pres- 



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454 

ent : If the contract was signed on the same day the contract was of- 
fered, if the developer provides financing, and so forth. I understand 
that the industiy has stated that this would dry up financing. I am 
wondering if any of you gentlemen could amplify that for the record, 
l)ecause I think it is an extremely important i>oint to bring out for 
the record. 

ifr. Beltx. Yes, sir, that is correct. The problem with the 3-year 
rescission period is the fact that there would be no market for loans 
to the developer on the paper that would be generated, whether it be 
only contracts of sale or a deed or whatever type of instrument is used 
by the developer. 

Mr. ArCoTN. Why would there not be a market ? 

Mr. Helix. Well, the investor, in effect, would have a sale that was 
in liml)o for a H-year period. 

Mr. AuCoix. So you would have a cloud over the paper? 

Mr. Beltx. That is coiTect. 

Mr. ArCoTX. With that cloud over the paper, it is difficult to find 
an investor; is that what you are saying? 

ifr. Belix. It would be impossible. It really constitutes a 3-year 
option for the buyer. And in addition, according to the accounting 
principles regulations, neither the seller nor the lender could count 
it as a sale. 

Mr. AuCoix. I appreciate that. 

^^r. Smith, did you want to respond ? 

Afr. Smith. Mr. Chairman, if that went into effect, I wish you also 
would instruct the bank examiners that this was still a goiod loan, 
because we would have problems of ever getting the individual buyer 
to go to the bank for the first 3 years and being able to borrow any 
amount of money on that lot that could l>e clouded. 

Mr. ArCoix. Well, I think it is an important point, and it is one 
I wanted to make sure, showed in the record of this hearing. 

Mr. Abrahams, did you want to speak to that? 

yiv, Abrahams. Just to add one other thought to Mr. Roberts' com- 
ments on the Pocono matter. I sat there in hearings of Congressman 
Joseph G. Minish's own subcommittee on this subject, and he had the 
HUD people in, the OTLSR people in front of him, and flayed th«n 
alive, if that is not an unfair statement. Because they simply — ^because 
they had all the powers and the authorities imder existing law to 
prosecute the obvious — what a])peared to us to l)e obvious fraud intent 
of the developei*s in that particular resort. Property registration and 
property reports are not a protect icm in themselves. 

I think the main point here is that the criticism that the Congressman 
directed to both HFI) and the Justice Department for failure to 
prosecute really stiuids on its own. The issue drawn by the Nelson 
amendment really is not the issue at hand in this case'. The fact is 
that fraud can be prosecuted if the will is there on the part of the 
agencies to do so. And, as I think Mr. Roljcrts said, the attorney gen- 
eral — the attorney general of Xew Jersey — testified at those hearings 
that his State law was quite strong in its protection of consumers. 

Again, to reiterate what Mr. Kobei-ts said, the provision of the Nel- 
son amendment requires the selh^r of the lot to make himself available 
to the court jurisdiction of the State of the buyer. In this case, New 



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455 

Jersey law of considerable strength would have applied and resulted 
in substantial prosecution had the Nelson amendment been in eflfect. 

Mr. AuCoiN. Well, I appreciate that clarification, Mr. Abrahams. 

I have no further questions, and I want to thank the panel for their 
testimony. 

Mr. Kelly. 

Mr. Kelly. I thank you, Mr. Chairman. 

Mr. AuCoiN. We are under the 5-minute rule. 

Mr. Kelly. Which 5-minute period are we going to use ? [Laughter.] 

I think probably, if we are going to be able to revoke these land 
sales contracts, that we should have a law that would apply that to 
everything, to automobiles and politicians. In other words, just so 
that the public would really be protected, would you gentlemen think 
that that would at least have logical symmetry, that if we are going 
to do it in the land situation, we should do it for everything, and 
especially for politicians? Or would you rather not comment on that? 
[Laughter.] 

When there are provisions like for travel costs and attorney's fees 
and all of these things, isn't it a fact that you can wind up the developer 
actually paying claims and paying money and really being held hos- 
tage by the law in certain instances, and then the consumers just pick- 
ing up the bill for it, when you start trying to give this kind of protec- 
tion ? Is that a reasonable statement ? 

Mr. Beltn. I think so. 

Mr. Kelly. And that this business about there is not enough fee in- 
volved for a lawyer, so the attorney general can just bring suit on be- 
half of the public, this is just an invitation for litigation, because one 
of the reasons that people don't do a lot of suing that is not justified 
is because they don't want to waste their money. And so if it doesn't 
cost any money, well, why not? And isn't that another increment to be 
considered in this, and isn't that going to add to the overall burden 
and expense ? 

Do you all agree with that ? 

Mr. Smith. Yes, sir. 

Mr. Roberts. Absolutely. 

Mr. Belin. Yes, sir. 

Mr. Kelly. Do you, Mr. Belin, agree that probably the size of the 
company should not be a criteria for anything ? 

Mr. Beltx. I agree. It should not be. 

Mr. Kelly. And, Mr. Smith, would you agree with the proposition 
that when the elephant of Government starts stomping around doing 
all of this good stuff for everybody, that it is almost invariably the 
small businessman's concern that is damaged the most ? 

Mr. Smith. Yes, sir, I believe it is. 

Mr. Kelly. And it is a little ironical that, while the elephant is 
stomping around, he has a trumpet going about how he loves little 
business and how he hates big business. But it is the little people that 
really are damaged the most by improvident regulations of this type. 
Isn't that a fair statement ? 

Mr. Smith. Yes, sir. We have enjoyed all of that protection we can 
stand. 

Mr. Kelly. I think that is probably pretty nearly true. 



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456 

Is there an opinion afloat in the industry that if the Federal Land 
Sales Board were simply just abolished, that there is more than ade- 
quate law available to prosecute everybody in connection with fraud- 
ulent land sales through the FTC, the SEC, the FBI, the Attorney 
General, and whoever else might be able to get in on the act through 
interstate f raiul and so f oi-th, criminal regulatory agencies ? 

Mr. Roberts. I am not sure that I would answer that completely in 
the affirmative, Congressman Kelly, because there are areas within the 
land subdivision development market in the industry, that, as proven 
by some of the examples that have been cited here today, where reason- 
able regulation, but with perhaps local enforcement, would be in 
order. But certainly as you have pointed out there are many inter- 
state laws imdor which consumers can be protected. 

Mr. Kelly. What I am really asking is that between the ability of 
the State to protect against fraud and the ability of the Federal Gov- 
ernment, through the use of the mails for fraudulent purposes wid the 
telephone and the SEC, there is a whole array of protections just in 
the criminal code. And then the SEC and the FTC, and when you have 
got through all of that, isn't the whole subject of interstate fraud just 
covered like a blanket anyway ? 

Is there anyone contending that that is not so, between the States 
and the Federal Government, without any consideration? 

Mr. IxoERSOLL. Congressman, I think you make a very valid point, 
that there is blanketing of this industry by one agency ovefr other 
agencies. 
Mr. Kelly. Are you an attorney ? 
Mr. Inoersoll. Yes. 
Mr. Kelly. And what is your name ? 
Mr. Inoersoll. William P. Ingei-soll. 

Mr. Kelly. And do you know of any particular loopholes that the 
law wouldn't cover, even if the Federal Land Sales Board did not 
exist? 

Mr. Inoersoll. Well, in the areas of fraud, I think that you are 
correct. The Securities Act and the Federal Trade Commission Act 
would apply to any type of fraudulent transactions that I have seen 
in this industry. In the area of disclosure, I think that the Interstate 
Ijand Sales Act does provide some additional protections that maybe 
those acts do not provide. 

Mr. Kelly. What area was that? 

Mr. Inoersoll. In the area of disclosure, making certain representa- 
tions, by requiring that representations be made to people at the time 
of sale. I think that has been the primary benefit of the Interstate 
Land Sales Full Disclosure Act. 

Mr. Keixy. Well, there's no reason why the States could not do that, 
is there ? 

Mr. Ixr.KRsoLL. No, there is not. In fact, it is our determination that 
most of jthe States do that the present time. 

Mr. Kelly. And the States normally don't design the law in such a 
way that their State or their territory constitutes a sanctuary for 
interstate crooks ? 

Mr. Inoersoll. No, T don't know of anv State that would want to do 
^hat. 

r. Kelly. I would not want any of vou to cro on record about this, 
it is entirely possible that this whole land sales phenomena came 



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457 

about because some do-gooding politician, about election time, wanted 
to demonstrate that he was saving the world for his constituents, and 
that there would not be any other rationale for it to exist at all, based 
on what we have? discovered here. 

So I will just say that, Mr. Chairman, and not jeopardize the wit- 
nesses. But, Mr. Chairman, that is something that the committee ought 
to consider, is: Couldn't we do without this mess entirely? I mean, 
now that we are all trying to save the Nation from regulatory control 
and stagnation and strangulation and inflation and all of this other 
stuff. This would be a really great opportunity for this committee. 

Let me ask the witnesses just one more question : Would any of you 
feel as though that, if the Federal Land Sales Board was going to go 
out of business at sundown tomorrow, that you would feel that the 
consuming public would be in great danger from the standpoint that 
there isn't enough law and law enforcement agencies to protect them, 
if they would just start enforcing the laws we have? Do any of you 
feel that way ? [No response.] 

Thank you, Mr. Chairman. 

Mr. Gonzalez [presiding] . Well, Mr. Kelly, thank you. 

I think, in all fairness to the witnesses, the question was kind of 
loaded. [Laughter.] 

That is about as mild as I can put it. 

But thank you very much, gentlemen. 

I regret very much that we have these limitations as to the use of 
this room. We still have about 7 minutes. I understand that the limit 
is 1 :45. But I gathered from the statements that you submitted, the 
common fear that seems to pervade almost every witness pro or con, 
and from the beginning when the legislation was first being prepared 
and fears were expressed, that the Federal agencies involved would 
extend enforcement efforts beyond interstate transactions. 

And I think what I see reflected in your statements, particularly 
Mr. Smith's, is that, look, what's really uppermost now in our minds 
and is troubling us is this incursion more and more into these areas 
that are already pretty heavily regulated locally such as the single- 
home transaction. I think you were here when I referred to an example 
from my own experience. A builder or developer was selling to an 
officer of the armed services, and found himself confronted with this 
problem. 

And it seems to me that that is a proper area of concern, and I 
think it is brought out very well in your statements, particularly Mr. 
Smith's statement, where he states that — I was trying to refer to the 
exact page. In any event, Mr. Smith referred to this intrusion, really, 
because it appears to mean that the Federal agency has come into 
what otherwise would really be defined as an intrastate, wholly intra- 
state, operation. 

Am I wrong in that conclusion ? 

Mr. Smith. No, sir, Mr. Chairman. You are exactly right. For exam- 
ple, in San Antonio, where you have several subdivisions that exceed 
50 lots in size, not only does this developer have a problem, he cannot 
sell to the Army personnel without exemptions, according to our 
counsel. The fact that the military personnel cannot buy because that 
has not gone through the exemption process means that he would 
probably purchase later from a builder because that builder has not 



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458 

been exempt that purchased the lot from the subdivider. Consequently, 
your constituent would be paying more money for the lot. And we 
think he should have that right as an informed consumer to purchase 
the lot directly from the builder, provided that it met the requirements 
of your city oi San Antonio. 

That is the reason that we have supported — NAHB supports the 
Nelson bill, all of section 715, because in the event of fraud on out-of- 
State buyers, as the attorney general from New Mexico mentioned — 
the New 'York purchaser can be protected by the New York attorney 
general. And so, consequently, we have protection for the out-of-State 
buyer. We think that the individual buyer in San Antonio and Fort 
Woith is well protected now, because of the many codes and ordinances 
he has to go through, and we do not think that your constituents should 
have to go through an exempted filing of the amount of money you 
spoke of a while ago. 

And I mentioned while you were out that on top of that ^0,000 
is the carrying expense of the subdivision lying dormant while the 
subdivider is awaiting approval on the national level. 

Mr. GoxzALEz. So that actually, I think our biggest problem or 
dilemma is : How do you define in the law, in the statute, in the bill, 
this differentiation between the purely intrastate and what you ordi- 
narily would consider an interstate transaction? Because the thing 
that I noticed was that, in the particular cases that came to my atten- 
tion in tliGf area that I am familiar with, every one of these men were 
not interested at all in any kind of interstate kind of activities. They 
were wholly and completely local, and I doubt they would be reccff- 
nized, even by their fellow associates in the business, outside of the 
San Antonio area. 

And this is — I think this is the main problem, as I see it, that has 
developed, and would-be a continuing problem here. These problems 
clearly reveal other issues as to size limitation and so forth. The diffi- 
culty of national legislation, when you have the situation of the d^ise 
East and North and the sparsely settled areas of Nevada, such as the 
attorney general was describing, will always present difficulties. 

But this other problem, which I think reall.y imposes inequitable 
restraints and burdens, is what I see as our continuing dilemma here. 

Mr. Smith. As I testified to Congressman Minish, T would hope you 
could help us separate the wheat from the chaff. And it is defmed in 
the Nelson bill, m our opinion, and we don't think we should take an 
elephant gun after a jackrabbit. 

Mr. Abrahams. If it would not be inappropriate just to comment, 
Mr. Chairman, T Wieve that lx>th State «ttomevs general made our 
case for us repeatedly. Although they paid lipservice opposition to the 
Nelson amendment, when any kind of questions and answers developed, 
if T may say, in each case they said: It isn't going to be the New 
Mexico or Nevada folks who are going to be defrauded. It is not the 
people in our State and our areas who are going to be fooled by this 
worthless land. They ai*e worrying about the folks coming down from 
the frozen North to the beautiful Southwest and Southeast, and not 
having adequate ])rotection, because of distance and several oiher con- 
siderations. In my opinion they proved the case for the intrastate and 
local exemption, which was what I think Senator Nelson had in mind 



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459 

Mr. Gonzalez. Well, those dramatic cases, which generally did in- 
volve a sophisticated fraudulent practice, almost always were as- 
sociated ,/ith something that we considered or defined as large or 
extensive, tind not local ; local only in the sense that they were coming 
in to speculate on local land. 

But I tnink that that is our dilemma here, and there is no question 
in my mixid that you have very well and very competently reflected 
the experience of your individual members on some of the questions 
that we have to express ourselves to. 

And now, as I understand it, the Senate bill incorporated this 
amendment that I believe the Home Builders Association had. 

Mr. Kjxly. Mr. Chairman ? 

Mr. Gonzalez. Yes? 

Mr. Kelly. The second bells have rung. 

Mr. GrONZALEz. Well, Mr. Kelly, we had better get going. I think 
there is no alternative, in view of our time limitation here, but to thank 
you very much, gentlemen. And we hope we will have a continuing 
relationship during the course of these hearings. And the subcommit- 
tee will stand in recess until 10 o'clock tomorrow morning. 

[Whereupon, at 1 :45 p.m., the hearing was recessed, to reconvene 
at 10 a.m., on Thursday, August 3, 1978.] 



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THE INTERSTATE LAND SALES FULL DISCLOSURE ACT 

AMENDMENTS 



THURSDAY, ATTGITST 3, 1978 

House of Representatives, 
Committee on Banking, Finance and Urban Affairs, 
Subcommittee on Housing and Community Development, 

Washington^ D.O. 

The subcommittee met at 10 :30 a.m. in room 2128 of the Raybum 
House Office Building, Hon. Thomas L, Ashley (chairman of the 
subcommittee) presiding. 

Present: Representatives Ashley, Gronzalez, AuCoin, Hannaford, 
and Brown. 

Also present Representative S. William Green of the State of 
New York. 

Chairman Ashley. The subcommittee will come to order. 

This morning we resume the taking of testimony on the Interstate 
Land Sales Full Disclosure Act amendments. Our first witness will 
be Patricia M. Worthy, Administrator, Office of Interstate Land 
Sales Registration, Department of Housing and Urban Development. 

We are delighted to have you with us this morning. 

Also on the panel will be Edward D. Steinman, Acting Assistant 
Director, Division of Marketing Abuses, Federal Trade Commission, 
accompanied by John M. Tiflford, staff attorney in the land sales 
program. 

Ms. Worthy, would you proceed with your testimony, please. 

STATEMENT OF PATRICI4 WORTHY, ADMIHISTEATOR, OFFICE OF 
INTERSTATE LAND SALES REGISTRATION, DEPARTMENT OF 
HOUSING AND URBAN DEVELOPMENT; ACCOMPANIED BY 
PETER RACE, OFFICE OF GENERAL COUNSEL, AND ALAN KAP- 
PELER, DEPUTY ADMINISTRATOR 

Ms. Worthy. Mr. Chairman, it is with great pleasure that we can 
appear before you this morning. 

I have with me to my left Feter Race from the Office of General 
Counsel at the Department, and to my right, my deputy, Alan 
Kappeler. 

We are here this morning to discuss with you various legislative 
proposals to amend the Interstate Land Sales Full Disclosure Act. 
Bills have been introduced by Congressman Minish, the administra- 
tion and Senator Nelson, the latter being incorporated into S. 3084 
which passed the full Senate. 

The Interstate Land Sales Full Disclosure Act took effect a little 
over 9 years ago. The act was new; precedent was lacking; staff ^ 

(461) 



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462 

inexperienced in its new discipline ; aspirations as to breaking ground 
were high; enthusiasm in the relatively new concept of "consumer 
protection" was spirited, and the desire to execute tne congressional 
mandate was clearly evident. 

After 9 years of operating the program, we are able to see clearly 
what has been its strengths and its weaknesses. Experience has be«n 
profitable, and improvements have in some measure been due to trial 
and error. 

In administering the act, we have been effective in carrying out 
the congressional objectives of providing full disclosure to lot pur- 
chasers. There have been over 8,600 filings with the Department cover- 
ing over 5,250,000 lots in subdivisions. Purchasers and potential pur- 
chasers have had the benefit of a property report fully informing 
them about the subdivision in which they bought or considered buying 
a lot. 

The Department has also been active in serving as an intermediary 
between purchasers and developers in helping resolve thousands of 
consumer complaints. In the last year alone, EtUD has reached settle- 
ments with developers in which refunds have been offered to pur- 
chasers from contract obligations amounting to approximately 
$133,500,000. 

Further, HITD has successfully used its statutory authority to 
pursue a number of flagrant violators with civil and criminal action, 
initiating 26 injunction cases against 54 companies and 82 individuals. 

The Department has also instituted 1,100 administrative procseed- 
ings against developers who have omitted facts or made misleading 
statements in their nlings. These actions help to insure that purchasers 
get full and accurate disclosures. 

The Office of Interstate Land Sales Registration staff members 
have been keenly aware that in the enforcement of the act's provi- 
sions and requirements, competing interests of the regulated indus- 
try and the purchasing public have had to be considered. 

We believe tliat enactment of the administration program, together 
with the regulations recently proposed, will result m overall bal- 
anced improvement in the administration and in the furtherance of 
the goal of protecting the interests of purchasers. 

At the same time, we believe that the legitimate concerns and 
interests of land developers will be addressed and enhanced. 

Like many of the Membei-s of Congress, the Department recognizes 
the problems of small developers in complying with the registration 
requirements of the act. 

The 50-lot threshold in the act is very low, technically subjecting 
to jurisdiction many people whose entry into the land sales business 
is minor or only temporary and who have no conception that Federal 
law might apply to them. 

TVe have recommended that a simple means of reducing the cover- 
ago of the act would be to amend the definition of "subdivision" by 
increasing the numerical threshold to 100 lots from the present 50 
lots. For the reasons stated above, we do not favor the Minish proviso 
to lower the. threshold figure of 50 to 40 lots. 

The administration's bill proposes that the act should be amended 
to cover lots of up to 40 acres in size rather than the present 5 acres. 
Purchasers have complained to us about sales practices perpetuated 
in the sale of tracts over 5 acres in size, but we have been prevented 



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463 

from taking any action because of the exemption in the current 
statute. 

A significant number of developers are selling large acreage parcels 
located in remote areas of the desert or mountains which have little 
potential for residential use or investment. We have found no corre- 
lation between lot size and buyer sophistication when mass market- 
ing techniques are being used. We believe that purchasers should be 
given the facts about this land. 

The administration would exempt the sale of real estate pursuant 
to court order with certain added precautions. 

Many developers of large subdivisions have gone into bankruptcy 
and continue court-sanctioned sales, exempt from the registration 
requirements. Buyers in these situations also need protection. Bank- 
ruptcy courts are concerned primarily with the interests of creditors 
rather than the interests of lot purchasers. 

The administation would repeal the provision that exempts lots 
solely on the basis that the purcnasers have made an onsite inspection 
and the lot is free of liens. This exemption has been a problem area 
for both the Department and developers. Not only has the language 
been subject to misinterpretation, but our view is that the exemption 
does not provide sufficient protection for purchasers. This lack of 
protection is compounded by the fact that statutory exemptions apply 
across the board and exempt the particular land sales operation from 
the anti fraud provisions of the act as well as from the registration 
provisions. 

The administration would also allow a cooling-off period of 14 days 
instead of the present 3 business days. Based upon our experience, 
purchasers should have more time that the 3 days permitted under 
existing law to revoke a contract. 

Extending the cooling-off period should be one of the strongest de- 
terrents in tne act to the use of high pressure sales techniques and mis- 
representations by salespersons. 

A 14-day cooling-off period as proposed by the administration is 
realistic and should be adequate to give consumers sufficient oppor- 
tunity to evaluate their purchase decisions and would bring the Fed- 
eral requirements into line with cooling-off periods found under 
several State laws. 

The administration would amend the act to provide that unless the 
Secretary has accepted State property reports, the Federal property 
report will be used in lieu of any State disclosure document. Al- 
though approximately 20 States already accept the HUD property 
report as their own, purchasers in some cases now receive the HUD 
property report and the State report for the State in which the prop- 
erty is located and the State report from the purchaser's home State 
as well. 

By getting only one uniform property report, the purchaser would 
be spared the confusing duplication that now exists. This proposal 
would also assist developers selling in more than one State since they 
would not have to go to the time and expense of preparing and filing 
more than one report. 

The administration proposes fuller recovery provisions under the 
civil liabilities section. Restrictions on the amounts recoverable in 
civil actions have been a significant problem by makng it uneconomical 
for purchasers to bring suit for fraud or misrepresentation. Both the 



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administration and the Minish bills would include in the amount re- 
coverable attorney's fees and appraisal costs. 

Both bills also propose amending the civil suit section to provide 
purchasers with a remedy when a developer fails to fulfill promises 
made in the property report. One of the most common and fla^frant 
areas of abuse in land sales is a tendency for many developers re- 
peatedly to defer completion dates for utilities and recreational 
amenities or simply to fail to build them at all. 

The administration bill would lengthen the statute of limitations of 
the existing law for consumers from 2 years for voidability for non- 
delivery of a property report and from 1 to 3 years for fraud to a 
maximum of 4 years for voidability and 3 years after discovery for 
fraud. These periods generally would not be affected by delivery of a 
deed or by the sale or assignment of the sales contract or agreement to 
a third party. 

We believe changes such as these are essential in giving consumers 
the full protection of the act. These proposals recognize that many 
purchasers buy on long-term installment contracts and may not have 
any right to use their land for many years. The developer's obligatiixis 
may extend well beyond the current statute of limitations. 

More importantly, purchasers often do not know of a misrepresenta- 
tion until the dates have passed for completing promised amenities or 
facilities. 

Both the administration and the Minish bills would allow the Secre- 
tary to issue a cease-and-desist order for serious violations of the act. 
The Secretary's ability to issue cease-and-desist orders would enhance 
OILSR's ability to act quickly to curtail such practices. 

Both bills also contain civil penalties provisions. The proposal to 
allow civil penalties after an administrative hearing is parallel to 
remedies found in many other Federal laws and is specifically recom- 
mended by the Administrative Conference of the United States as a 
sanction for Federal administrative agencies. 

This sanction is expected to be a significant deterrent to developers 
who heretofore were willing to risk engaging in violations of the act. 

The Senate bill would, like the other bills, amend the limitations 
period. Although it i-ecognizes the problems of the purchaser whose 
rights presently may be cut off by the assignment of the sales agree- 
ment, the major problem of time would be compounded by an absolute 
remedy cutoff of 3 years after the purchaser signs the contract. 

The land sales industi-y makes extensive use of long-term land 
installments sales contracts which provide that title will not be vested 
in purchasei's until after the last contract payment is made. 

In many cases, subdivision improvements, amenities and utilities, are 
not scheduled for completion until 2, 3 or more years in the future. 
Therefore, largo time periods elapse l)efore a purchaser may realize 
damage from the developer's failure to complete. 

The Senate bill proposes to amend the "onsite" exemption to exclude 
from the meaning of "liens, encumbrances and adverse claims'* U.S. 
land patents or Federal grants and resen-ations similar to U.S. land 
patents. 

A land patent is a grant, in this context usually an instrument con- 
veying title to public land from the Federal Government to a private 
party. When the Government conveyed land in most of the Western 
States, it reserved the right to construct ditches and canals on that land. 



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HUD agrees that the actual effect of land patent reservations for 
ditches and canals upon individual lot purchasers is negligible. We 
support repeal of the onsite exemption entirely but if it is retained, 
the Department would prefer that the language be rewritten so that it 
would be more clear. 

The main purpose of the Senate bill, as we understand it, is to 
address the problems experienced by small developers with essentially 
local operations in meeting the requirements of the Interstate Land 
Sales Full Disclosure Act. This Department is sympathetic to that 
purpose. 

In addition to recommending legislation to double the minimum* size 
of a subdivision covered by the act from 50 to 100 lots, we are taking 
steps administratively to alleviate the problems. We do not, however, 
consider it desirable to do this in a manner which could sacrifice the 
larger consumer protection aspects of the existing law. 

It is our opinion that the proposed amendments do not in fact accom- 
plish what they seek to accomplish. The bill is aimed at exempting 
small intrastate developers, yet would exempt subdivisions where afl 
of the sales are made out of State. 

Further, the bill provides no numerical lot ceiling and would, there- 
fore, allow exemptions for subdivisions of thousands of lots. 

The Department is presently engaged in litigation right now in 
Texas in an injunction case involving severe consumer abuses includ- 
ing fraud and failure to build roads and to give good title to the land, 
in the sale of over 3,500 lots near Dallas. 

In our reading that subdivision would be exempt under the proposal 
of the Senate. 

Features common to both exemptions are their self-determining 
nature and their provisions — limited in one case — for onsite inspec- 
tions and lien-free sales. 

The act already contains an exemption based in part upon a pur- 
chaser's onsite inspection of a lot similar to the Senate proposal. 
While HUD recognizes that an onsite inspection has value to pro- 
spective lot purchasers, many complaints received by OTLSR cause us 
to doubt seriously that inspections afford consumers the disclosure pro- 
tection intended by the act. At least one-third of all purchasers who 
complain to HUD made onsite inspections prior to signing a contract. 

Few lot purchasers are familiar with local land-use laws, nor are 
thev so knowledgeable as to be able to see that the ground wont allow 
sufficient percolation to be suitable for septic systems, or that the water 
supply is inadequate or perhaps unfit for consumption, or that roads 
are improperly constructed or have no provision for maintenance; 
that the utility companies cannot supply service at reasonable cost, or 
that the land is prone to flooding. 

Further, an onsite inspection reveals nothing of a developer's abil- 
ity or intentions to carry through on performance of his promises and 
representations. 

As far back as 1964, this point was addressed by an official of the 
then Florida Installment Land Sales Board before a Senate subcmn- 
mittee hearing to determine the need for a land sales law. I quote: 

It has been our experience that people who see the property are the ones that 
are defrauded the greatest. They are subjected to the hard sen. They are sub- 
jected to a salesman in a closed room where there is no regulation of what the 
salesman has to say other than by complaint against him later. 



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Just as importantly, the free and clear requirement of the expmp- 
tions in the Senate bill pertains to a self-determining exemption. 
HUD*s experience with the existing free and clear exemption pro- 
vision in section 1403(a) (10) of the act which requires a HUD deter- 
mination is that many developers do not qualify for the exemption 
upon their initial submission because the land is not free and clear 
of liens, encumbrances or adverse claims as specified in the statute. 

Fui*thennore, of those subdivisions which do qualify for the exemp- 
tion, a disturbing percentage do not operate subsequently as required 
by the statute for continuing qualifications for the exemption. An 
exemption based upon voluntary compliance with a free and clear 
requirement is fraught with peril for both developers and consumers. 

The proposed exemptions, even though self -determining, would 
require the developer to file a form with HUD for every sale affirming 
that the developer had complied with the requirements for the exemp- 
tion in the case of noni'esidents and giving the developer's name and 
address, a legal description of the subdivision and the developer's 
signature. 

One proposed exemption is for transactions with purcliasers who 
live within 100 miles of the subdivision where the purchaser resides 
in a State other than wliere the subdivision is located. The other ex- 
emption is for intrastate subdivisions, defined as a subdivision where 
during the year no more than 5 percent of the total lots sold, or a 
maximum of five lots, whichever is greater, were sold to nonresidents 
of the State whei-e the subdivision is located. 

Any number of sales could he made to nonresidents who lived within 
100 miles of the subdivision, and these would not be counted toward 
the 5 percent or five lots. 

Although nonresidents would receive some information through a 
written statement of reservations, taxes and assessments, residents will 
have no such safeguards. 

Sales can l>e made to resident purchaser who do not make on-site 
inspections, and the land can be heavily encumbered by liens, encum- 
brances, and adverse claims, even to tlie extent that the resident pur- 
chasers have no chance of ever obtaining clear title. 

A fundamental problem with the 100-mile provision is its lack of a 
realistic rationale. It has nothing to do witli the size of the subdivision, 
the abuses tliat may have occurred, the character of the subdivision or 
the manner in wliich it was promoted. 

This provision could exempt many large subdivisions fraught with 
chicanery such as those encountered by tlie Department in the Poco- 
nos which are marketed in New Jeisey, New York, Pennsylvania, and 
Virginia subdivisions marketed in the Washington, D.C., metropolitan 
area. 

For example. Captain's Cove, a »5,000 lot subdivision was marketed 
using direct mail, telephone solicitation, fi-ee gifts, and dinners gen- 
erally within a 100-mile area in Virginia, Afaryland, and the District 
of Columbia. The developer was convicted for mail fraud, and we 
received hundi*eds of complaints from purcliasers about the develop- 
ers failure to build promised facilities and to disclose lack of dredging 
permits necessary to make the land buildable. 

Under the Senate proposals, these sales could be exempt and pur- 
chasers would receive no disclosui*es. We would be happy to supply 



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467 

the subcommittee with other examples of potentially exempt sub- 
divisions that have histories of consumer abuses. 

The exemptions proposed contain several pitfalls for the developer 
as well as for the potential purchasers. 

HUD's experience in administering the act indicates that the more 
complicated an exemption provision, the more subject it is to mism- 
terpretation. It is not fair to developers to make an exemption avail- 
able when it contains potential pitfalls which could result in that 
developer's unintentional violation of Federal law. It follows that a 
primary goal for exemptions should be simplicity, particularly in the 
case of self-determining exemptions. 

We do not oppose the concept of an exemption for fully improved 
lots where all local codes and standards are met prior to initiating 
sales. We have proposed an exemption in our regulations similar to 
that in the Senate bill. However, we would recommend that the lan- 
guage be reviewed for clarification. 

On June 1, 1978, we republished for comment comprehensive amend- 
ments to the land registration and exemption regulations. For the 
reasons stated a moment ago, though some of the regulatory exemp- 
tions are self-determining, the complex ones require submission to 
HUD. 

In developing these regulations, we have kept the small developer 
and the specialized developed in mind. The results are, in tandem with 
the administration's proposals, eminently workable. 

We have proposed seven new regulatory exemptions related to the 
character of the subdivision, as opposed to an arbitrary mileage or lo- 
cation or percentage-of-sales factor. As such, the regulations are 
easier for a developer to use in determining if he is exempt and are 
much more meaningful in protecting the prospective purcnaser. 

Specifically, the regulations would exempt scattered sites. A devel- 
oper selling lots in various locations may be entitled to an exemption 
if there are less than 50 lots per site, even though the total number of 
lots in all sites exceed 50. This exemption would also cover brokers. 

Our primary homesite exemption would be available when not more 
than 300 lots were offered in the subdivision or scattered site and if 
there were assurances of completion of various improvements. A third 
exemption would apply to small subdivisions offered to a local market, 
where there was limited promotion. 

This exemption would allow small developers located near State 
borders to sell without the cumbersome 5 percent out-of -State restric- 
tion found in our present regulations. 

Another proposed exemption that was originally issued to ease the 
problem for builders selling left-over lots has been liberalized to in- 
crease from 5 to 10 percent the number of lots in the subdivision that 
mav be sold as raw lots without registration. 

We have also recognized the burdens that registration can place upon 
very small operations. An exemption has been proposed that would 
allow a developer to make up to 12 lot sales per 12-month period with- 
out registration. 

In all of these regulatory exemptions, the privilege of exemption 
would be from the registration requirements only. Fraud and misrep- 
resentation occurring in the sale of lots in these exempted subdivisions 
could still be enjoined, and developers could still be subject to proee- 



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468 

cution and purchasers would still have legal remedies for unlawful 
conduct. 

In conclusion, I would like to express a^in my concern to the sub- 
committee that the administration's land sales proposals have been 
deleted from the HUD bill. We feel that our recommendation to raise 
the threshold of the act from 50 to 100 lots in conjunction with our 
proposal of new regulatory exemptions will meet the concerns of both 
the industry and the Congress with respect to the small developer. 

In our regulatory proposals, the Department places utmost impor- 
tance on the character of the subdivision and identifying those circum- 
stances where consumers are adequately protected or where registration 
would be an unneeded burden on the developer. 

We extend our availability and willingness to work with the commit- 
tee to assist in preparing legislation that meets both the needs of the 
consumers and developers and the concerns of the Congress^ 

At this time, we would be pleased to answer any of your questions. 

[Ms. Worthy's prepared statement, on behalf of the OflSce of Inter- 
state Land Sales Registration, appears along with the following table 
submitted by the Office entitled "Statement of Record Filings^:] 



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STATEMENT OF 

PATRICIA M. WORTHY 

ADMINISTRATOR 

OFFICE OF INTERSTATE LAND SALES REGISTRATION 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

BEFORE THE 

SUBCOMMITTEE ON HOUSING 

HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS 



AUGUST 3, 1978 



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Mr. Chairman 

It l8 with great pleasure that we appear before this 
comnlttee to dlecuaa with you various legislative proposals to 
amend the Interstate Land Sales Full Disclosure Act. Bills hav* 
been introduced by Congressman Minish, the Administratioo and 
Senator Nelson, the latter being incorporated into S. 3084 
which passed the full Sex^ate. 

The Interstate Land Sales Pull Disclosure Act took effoct 
a little over nine years ago. The Act was new; precedent was 
lacking; staff was inexperienced in its new discipline! 
aspirations as to breaking ground were high} enthusiasm In tlie 
relatively new concept of "consumer protection" was spirited* and 
the desire to execute the Congressional mandate was clearly 
evident. 

After nine years of operating the program, we are able 
to see clearly what has been its strengths and its weaknesses. 
Experience has been profitable, and i m p rov ements have in soae 
measure been due to trial and error. 

In administering the Act, we have been effective in 
carrying out the Congressional objectives of providing full 
disclosure to lot purchasers. There have been over 8,600 filings 



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2 

with thm DtpartawBt covering ov^r 5,250,000 lots in subdivisions. 
Purehassrs and potential purchasars have had tha banaf it of a 
proporty raport fully informing tham about tha subdivision in 
which thay bought or oonsidarad buying a lot. 

Tha DapartsMnt has also baan active in serving as an 
intermediary between purchasers and developers in helping resolve 
thousands of consximar complaints. In the last year alone, 
HUD has reached settlements with developers in which refunds 
have been offered to purchasers from contract obligations 
amounting to approximately $133,500,000. Purther, HUD hes 
Bucceav fully used its statutory authority to pursue a number of 
flagrant violators with civil and criminal action, obtaining 
91 indictments against individuals and oompanias and initiating 
26 injunction cases against 54 oompanias and 82 individuals. 
The Department also has instituted several hundred administrative 
proceedings against developers who have omitted facts or made 
misleading statements in their filings. These actions help to 
ensure that purchasers get full and accusate disclosures. 

The Office of Interstate Land Sales legistration (OZLSR) 
staff members have been keenly aware that in the enfo rc eme n t of 
the Act's provisions and requirements* competing interests of 
the regulated industry and the purdiasing public have had to be 
considered. 



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In considering additional legislative changea we will 
give our views and state our preferences concerning proposals 
in the Senate and the Minish bills and we trill offer our reasons 
why we fully support the legislative changes proposed by the 
Administration . 

Ito believe that enactment of the Adainistration program 
together with the Regulations recently proposed, will result in 
overall balanced improvement in the admin tat rat ion and in the 
furtherance of the goal of protecting the interests of purchasers. 
At the same time, we believe that the legitimate interests of 
land developers will be enhanced. 

DISCUSSION OF ADMINISTRATION A?^ MIWISH PROPOSALS 

Like many of the members of Congress, the Department 
recognizes the problems of small developers in oomplying with 
the registration requirements of the Act. 

50-LOT THRESHOLD 

The 50-lot threshold in the Act is very low, technically 
subjecting to jurisdiction many' people whose entry into the 
land sales business is minor or only temporary and who have no 
conception that Federal law might apply to them. 

Prom a survey of non-registered, non-exempt subdivisions, 
we learned that over half contain fewer than 100 lots. Moreowr, 



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our exp«ri«Bce shoirs that in the smaller •ubdlvislons, thara ar« 
usually laaa agreaaive aalaa prograna, aost of than ara local 
in nature and tha probability of oonaonar abuse ia Miniaal. 
Staff tine would be better apent on the larger aubdivisions for 
which high vol\ima aalea requirenents often invite Misleading 
sales practices. 

He have thua recosHttnded that a siaple means of redueiiig 
the coverage of the Act would be to amend the definition of 
"aubdivision" by increasing the n\imerical threshold to 100 lots 
from the present 50 lots. For the reasons stated above # we do 
not favor the Miniah proviso to lower the threshold figure of 
50 to 40. 

40-ACRE LOTS 

The Administration* a Bill proposes that the Act should be 
amended to cover lota of up to 40 acrea in sise rather than the 
present five acrea. Purchaaers have complained to us about 
aalea practicea perpetrated in the aale of tracts over five acres 
in size, but we have been prevented from taking any action 
because of the exemption in the current atatute. A significant 
number of developers are selling large acreage parcels located 
in remote areaa of the desert or mountains which have little 
potential for reaidential uae or investment. He have found no • 
correlation between lot aise and buyer aophiatication when 



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5 

mass marketing techniques are used. We believe that purchasers 
should be given the facts about this land. 

COURT ORDER EXEMPTION 

The Administration %rould exempt the sale of real estata 
pursuant to court order, as the present law allows » provided 
the Secretary has determined such sale to be in ths public 
interest. 

Many developers of large subdivisions have gone into 
bankruptcy and continue court- sanctioned sales, exempt from 
the registration requirements. Buyers in these situations 
also need protection. Bankruptcy courts are concerned primarily 
with the interests of creditors rather than the interests of 
lot purchasers. 

ON-SITE EXEMPTION REPEAL 

The Administration would repeal the provision that svpts 
lots solely on the basis that the purchasers have made an on-sits 
inspection and the lot is free of liens. This exemption has be sn 
a problem area for both the Department and developers. Mot only 
has the language been subject to misinterpretation, but our view 
is that the exemption does not provide sufficient protection 
for purchasers. This lack of protection is ctepounded by the 
fact that statutory exemptions apply across the board and s¥isti'i 
the particular land sales operation from the anti-fraud provisions 
of the Act as well as from the registration provisions. 



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At present, if a lot buyer has personally inspected the 
lot which is free and clear of liens, encumbrances and adverse 
claims and has signed an acknowledgment of receipt of a copy of 
a statement showing restrictions, reservations, taxes and 
assessments, the sale is exempt— but certain information must 
still be filed by developers. 

Since the criteria of this exemption are relevant to 
proposals in the Senate bill, I will comnent further when 
discussing that bill. At this point, it is sufficient to say 
that our primary purpose in seeking repeal of this exemption 
is that even when all the qualifications for exemption are 
met, purchasers will have little knowlege about the subdivision 
and, therefore, need adequate disclosure information. 

FRAOD AMENDMENTS 

The Administration %rould improve the anti-fraud provisions 
of 11404 of the Act by specifically prohibiting omissions of 
material facts as %fell as misrepresentations of material facts. 
Also, the proposal deletes language requiring actual reliance 
by the purchaser on the mlBrepre^entationt Among other things, 
this change should help in utilizing securities case law in 
land sales enforcement cases. The Minish bill contains the 
same provision. 



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COOLING-OPP PERIOD 

The Administration would also allow a oooling-off period 
of 14 days instead of the present three business days. Based 
upon our experience, purchasers should have lore tine than the 
three days permitted under existing law to revoke a contract. 
Extending the *cooling-off" period should be one of the strongest 
deterrents in the Act to the use of high pressure sales techniques 
and misrepresentations by salespersons. A 14-day cooling-off 
period as proposed by the Administration is realistic and should 
be adequate to give consixmers sufficient opportunity to evaluate 
their purchase decisions and trould bring the Federal requireownts 
into line with cooling-off periods found under several State laws. 
We believe that the 30 day voidability provision found in the 
Kinish bill is too lengthy and may upset the proper l>alance 
between the seller and the buyer. 

The Minish bill also proposes a three-year right for 
purchasers to void sales made on developer-financed long ten 
installment contracts or where sales are made in the same day 
as the contract is presented. Iffe favor the thrust of this -^ 
proposal which would minimize problems for installment purchasers, 
but believe it unworkable because of difficulties developers 
would encounter in seeking financing* but will be pleased to 
work with the Committee to develop %rorkable language in this 
area . 



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SB6IST8&TIQM FSB 

Tbm AdBinistrfttioo ifottld rmmovm tbm liait for tmm9 
chaxgiMibltt for rogistration — at prsaont $1,000. Tha Socrtttary 
should haw tbm autbority to sat faos to aora oloaaly ralata 
to tha workload oraatad by larga davalo p aa nta and to aora 
aquitably diatributa tha faa burdan. 

EXCZfOSIVB FBDBRAL PROPBRTT KEPOMT 

Tha Adninistration would anaiid tha Act to provida that 
unlaaa tha Sacratary haa accaptad atata proparty raporta, tha 
Fadaral Proparty Raport ifill ba uaad In liau of any atata dia- 
cloaura docuaant. Although approxinataly 20 statas alraady 
aecapt tha HUD Proparty Raport aa thair own, purohaaara In aoaa 
caaas now raoalva tha BUD Propar ty Raport and tha atata raport for 
tha Stata in which tha propar ty ia locatad and tha atata raport 
froM tha porohaaar'a hamm atata. 

Racaipt of voluninoua docuaantatlon discouragas purohaaara 
from raading tha myriad of facta oontainad in aach and aay oonfnaa 
the conaunar so onich that ha ralias solaly on tha aalasman'a 
statamants. By gatting only ona uniform Proparty Raport, tha 
purchaaar %rould ba sparad tha confusing duplication that now 
axists. This proposal would alao assist davalopars sailing 
in mora than ona atata sinca thay would not hava to go to tha 
tima and expanaa of preparing and filing mora than ona report. 



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CIVIL LIABILITIES 

Th« Administration proposes fullsr rscovery provisions 
under the civil liabilities section. Restrictions on the SBOonts 
recoverable in civil actions have been a significant problea 
by making it uneconomical for purchasers to bring suit for 
fraud or misrepresentation. Both the Administration and the 
Minish bills would include in the amount recoverable attorney's 
fees and appraisal costs. Additionally, the Administration bill 
specifies certain criteria to be considered by courts in determining 
damages . 

Both bills also propose amending the civil suit section to 
provide purchasers with a remedy when a developer fails to fulfill 
promises made in the property report. One of the most cr— on 
and flagrant areas of abuse in land sales is a tendency for aaay 
developers repeatedly to defer completion dates for utilities 
and recreational amenities or simply to f4il to build them at 
all. The Administration's Bill %rould allow suits for failure 
to carry out obligations in the property report, and the Ninish 
bill %rould permit purchasers to bring suit for the purpose of 
securing specific performance of the contract and any other 
promises made in connection with the sale or lease. 



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10 

STATUTE OF LIMITATIONS 

The Administration bill would lengthen the statute of 
limitations of the existing law for consximers from two years 
for voidability for nondelivery of a property report and from 
one to three years for fraud to a maximum of four years for 
voidability and three years after discovery for fraud. These 
periods generally would not be affected by delivery of a deed 
or by the sale or assignment of the sales contract or agreement 
to a third party. 

The Minish bill %rould extend the limitations period across 
the board to three years after discovery » subject to a cap of 
seven years after the sale or lease. 

We believe changes such as these are essential in giving 
consumers the full protection of the Act. These proposals recognize 
that many purchasers buy on long-term installment contracts and 
may not have any right to use their land for many years. The 
developer's obligations may extend well beyond the current statute 
of limitations. Purchasers often do not know of a misrepresenta- 
tion until the dates have passed for completing promised amenities 
or facilities, or until they finally get title to the land. 
For these reasons, purchasers are often precluded from obtaining 
relief under the current Act. Either proposal would be an 
Improvement, though we prefer the Administration's recoomendation 
primarily because It provides for rights that survive passage of 
title and transfer of the sales docximents. 



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CEASE AND DESIST 

Both the Adbninistration and the Mlnish bills would 
allow the Secretary to issue a cease and desist order for 
serious violations of the Act. The Secretary's ability to 
issue cease and desist orders would enhance OILSR's ability 
to act quickly to curtail such practices. 

CIVIL PENALTIES 

Both bills also contain civil penalties provisions. The 
proposal to allow civil penalties after an administrative 
hearing is parallel to remedies found in many other Federal lews 
and is specifically recommended by the Administrative Confexenoe 
of the the United States as a sanction for Federal Administrative 
Agencies. This sanction is expected to be a significant 
deterrent to developers who heretofore were willing to risk 
engaging in violations of the Act. 

The Minish bill contains several proposals beyond those 
recommended by the Administration. For. example # we believe 
purchasers can benefit by the' parenes patriae right to sue 
contained in the bill and generally support that concept. 

DISCUSSION OF SENATE PROPOSALS 



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12 

STATUTE OF LINZTATZOIIS 

Tha SmntLtm Bill would, lik« tlw othmr bills, aiMiid tha 
linitations period. Although it recognises the problesi of the 
purchaser whose rights presently Msy be out off by the assigmMnt 
of the sales agreesmut, as the AdminiDtratlon bill does, the aajor 
problesi of tine would be 'oosipounded by an absolute reswdy cut- 
off of three years after the purchaser signs the contract. 

The land sales industry nakes extensive use of long-tem 
land installment sales contracts which provide that title will 
not be vested in purchasers until after the last contract payswnt 
is Bade. In nany cases, sid^ivision iaprevenents (aaenities and 
utilities) are not scheduled for cosipletion until two, three or 
■ore years in the future. Therefore, large tiae periods elapse 
before a purchaser may realise dasuige frosi the developer's failure 
to conplete. That is why the Administration's bill, except for 
the overall cap for non-fraud, proposes in its smsnAment to the 
statute of linitations section to neasure the linitations period 
fron discovery of the violation. A purchaser could pay thousands 
of dollars for a piece of proper t y under a contract with a tern 
of 5, 7, or coBBonly, even 10 years but would be foreclosed fron 
legal redress if inprovenents scheduled for oonpletion five 
years— or even three— fron the tine the contract is signed were 
never oonpleted. Moreover, even if a clearcut case of fraud 



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ifere established, the finality of the Senate proposal would 
preclude the application of equitable doctrines to allow the 
action if the suit were filed 37 sonths after the oontract. 

ADHmiSmATIVE PROCXOCJBBS 

The Senate bill proposes to esMnd the Act by adding 
two clauses dealing with itaiitlni«tratlv« procedures, the first of 
which states present agency practice. Although the Act does not 
so require, rulenaking does in fact conform with the AdBinistrative 
Procedure Act. 24 CFR 1720.15, 1720.20 and 1720.25 of the corrwit 
Regulations do in fact follow the language of the AdministrAtive 
Procedure Act. All a^ljudicatlve bearings required by the Act aze 
conducted in accordance with all the reqnlrsswnf of the APA« 
including hearings on deficiency letters as a result of the 
examination of reglatrationB. 

The second clause apparently requires the Secretary to 
promulgate rules of procedure for all adjudicative prooeedings 
not required by law to be determined on the record after notioe 
and opportunity for hearing. The rules provide that pr omp t 
notice must be given of any adverse action or final dlspoeltioa, 
such notice or the entry of any order to be accompanied by a 
statement of legal authority "and other written reasons.* 
This appears to apply to exemption decisions, which might fall - 
within the APA definition of adjudication, but are not required 
by statute to be determined on the record. 



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In •xemption request cases OILSR does give proapt 
notice of adverse actions or other final dispositions to the 
affected party, along with a written statement of legal authority 
or other reasons for the disposition. Codification of these 
procedures would not be difficult and we do not oppose such a 
proposal. If the proposal is meant to extend beyond exemption 
determinations, clarification is needed because — frankly — 
%fe cannot discern its objective. 

PATENT RESERVATIONS 

The Senate Bill proposes to amend the "on-site" 
exemption to exclude from the meaning of " liens » encumbrances 
and adverse clains" United States land patents or Federal grants 
and reservations similar to United States land patents. 

Because of the controversy that has arisen over this matter, 
it is important to focus on the obstacle sought to be overcome. 
First, a land patent is a grant, in this context usually an 
instrument conveying title to public land from the Federal 
Government to a private party. When the government conveyed 
land in most of the western states, it reserved the right to 
construct ditches and canals on that land. This patent reserva- 
tion prevented a number of iiestem subdivisions from qualifying 
for this exemption. 



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We, therefore, recoamend that any new legislation in 
this area be limited to correcting the problem at hand. For 
example, land that is subject to a flooding reservation in 
the Army Corps of Engineers, may not be suitable for building. 
That kind of reservation is not the type of interest that 
should be permitted in the offering of an exempt subdivision. 
It might well not be, but the question is whether that kind of 
encumbrance would qualify as a Federal grant or reservation 
"similar to United States land patents." There can be no 
definitive answer irnder the proposed language. HUD agrees 
that the actual effect of land patent reservations for ditches 
and canals upon individual lot purchasers is negligible. We 
support repeal of this exemption entirely, but if it is 
retained, the Department would prefer a well-defined 
amendment . 

INTRASTATE AND 100 MILE EXEMPTIONS 

The main purpose of the Senate bill, as we understand it# 
is to address the problems experienced by small developers with 
essentially local operations in meeting the requirements of thm 
Interstate Land Sales Full Disclosure Act. This Departaent is 



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sympathetic to that purpose. In addition to recomnending 
legislation to double the minimum size of a subdivision covered 
by the Act from 50 to 100 lots, we are taking steps administratively 
to alleviate the problems. We do not, however, consider it 
desirable to do this in a manner which could sacrifice the larger 
consumer protection aspects of the existing law. 

It is our opinion that the proposed amendments do not in 
fact accomplish what they seek to accomplish. The bill is aimed 
at exempting small intrastate developers, yet %rould exempt 
subdivisions where all of the sales are made out of state. 
Further, the bill provides no numerical lot ceiling and would, 
therefore, allow exemptions for subdivisions of thousands of 
lots. The Department is engaged in litigation right now in 
Texas in an injunction case involving severe consumer abuses 
including fraud and failure to build roads and to give good 
title to the land, in the sale of over 3,500 lots near Dallas. 
In our reading, that subdivision %rould be exempt under this 
proposal . 

There is, incidentally, a technical problem in that the 
proposed exemptions do not reflect the recent floor amendments 
Introduced by Senator Sparkman changing the definition of liens, 
encixmbrances and adverse claims in the on-site exemption 
(■715(a)(2) of the Senate Bill). 



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Features coanon to both exwnptions mxm their self- 
determining nature and their provisions— 'liai ted la oae oeee— for 
on-site inspections and lien-free sales. 

on-site 

inspections The Act already contains an exemption. based in part npon 

a purchaser's on-site inspection of a lot similar to the Senate 

proposal. While HUD recognizes that an on-site inspection has 

value to prospective lot purchasers, many complaints reoeived hf 

OILSR cause us to doubt seriously that inspections afford 

consumers the disclosure protection intended by the Aet. At least 

one-third of all purchasers who complain to HDD made on-site 

inspections prior to signing a contract. 

Few lot purchasers are familiar with local land use lews, 
nor are they so knew I eag cable as to be able to see that the 
ground won't allow sufficient percolation to be suitable for 
septic systems, or that the water supply is inadequate or 
perhaps irnfit for consumption, or that roads are i m p r operly 
constructed or have no provision for maintenance i that the 
utility companies cannot supply service at a reasonable cost, 
or that the land is prone to flooding. Lend subject to 
flooding, for example, might be dry at the time of 
inspection. These inspections, by the way, usually arm 



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It 

uadar th% slOllad qaidmnam of Htm mmXmmmma, runiMr^ «i en-sit* 
inspootlon xwvsals nothing of a davolopor's ability or int—tiow 
to cany tlixoo^ on porfonanoa of Ilia proaiaaa and gapcaa ant ati o n a . 

Noraovar, it ia not olaar whattoar ttoa on-aita inapactiona 
•at oat aa a aafaguard fox tha pcoftoaad awaaminw ara intandad 
to taka plaoa bafora tha tiaa of aala or at aoaa othar 
unapaoifiad tiaw. HDD aXaaya adviaaa that paopla ahould not taqr 
land aigbt noaaan undar any ciroM— t ane a a » but «a do not baliawa 
that, a aita impaction banafita porchaaara to tha astant that 
tiiay no longar naad diaeloanxa. 

Aa far back aa 1964, thia point waa addraaaad fcy an 
official of tiia tiian Florida Znatallaant Land Salaa Board bafora 
a Sanata aubcoamittaa haaring to datamina tha naad for a land 
aalaa law. Z quotas 

*It haa baan onr aacparianea that p aep l a liio aaa 
tha property ara tha ooaa that axa dafrandad tha 
graataat. Ihay ara aubjactad to tha hard aall. Siiy 
ara aubjactad to a aalaaaan in a cloaad rooai whara 
tiiara ia no regulation of ill at the aalaaean haa to 
say, other than fcy oooplaint aada againat hia later.* 



Hearings on Interstate Nail Order Land Salaa Before the Siilinri— Ittae 
on Frauds and Mis raprea ante tiona affecting the Elderly of the 
Senate Special Conadttee on Aging, 88th Cong., 2nd Seaaion., 
pt. at 165 (1964). 



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Obviously, the sane types of misrepresentation can be 
acoooplished in a telephone sales operation. Ilie point is, 
however, that an on-site inspection is not a panaoea for the 
problems created by certain elements in the industry. 

Self de- *^*^ ■■ ^■^^'^tantly, the free and clear requi r sms n t of 
termining^^ exemptions in the Senate bill pertains to a self-detendalag 
exemption. HUD's experience with the existing free and dear 
exemption provision in Section 1403 (a) (10). of the Aet whioh jreqoiv 
a HUD determination is that many developers do not qualify for 
the exemption upon their initial subadssion because the land 
is not free and clear of liens, encumbrances or adverse claias 
as specified in the statute. Furthermore, of those subdivisions 
which do qualify for the exemption, a disturbing percentage 
do not operate subsequently as required by the statute for 
continuing qualification for the exemption. An exemption basod 
upon voluntary compliance with a free and clear reqoi r ems n t 
is fraught with peril for both developers and ooosuBsrs. 

The proposed exemptions, even though self-detarminiag* 
would require the developer to file a form with BOD affizaing that 
the developer had complied with the requirements for the awesy 1 1 nn 
in the case of nonresidents and giving the developer's naae and 
address, a legal description of the subdivision and the dovaloper'a 
signature. It appears that the exemptions are oonditiooad 



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20 

this written form. BoMrnvrnx, HDD is given no authority to grant 

or withhold oxafliption approval so the paporwoidc roquirasMnt 

%rould ba froitlass. Practically spaaking* thara aay ba 

nothing BUD can do avan if problaa^ surfaca later on, since the 

purchasers' cooiplaints often do not surface until two or Bore 

years after their purchase, when their rights under the Act 

probably will have expired « and the developer aay be in default 

of his obligations or possibly in bankruptcy. Neither injunctive 

action nor criminal prosecution could serve as a raoMdy for the 

aggrieved purchaser. 

substantive 

provisions One proposed exemption is for transactions with purehasers 

who live within 100 miles of the subdivision where the pur^iaser 

resides in a state other than where the subdivision is located. 

The other exemption is for intrastate subdivisions » defined as 

a subdivision where during the year no more than five percent 

of the total lots sold, or a maximum of five lots, whichever 

is greater, were sold to non-residents of the State where the 

subdivision is located. Any number of sales could 

be made to non-residents who lived withn 100 miles of the 

subdivision, and these %rould not be counted toward the five 

percent or five lots. Although non-residents would receive 

some information through a written statement of reservations, 

taxes and assessments, residents will have no such safeguards. 



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Sal«s can be made to resident purchasers wlio do xiot sake 
on-site inspections, and the land can be heavily enctiHbkred by 
liens, encumbrances and adverse claims, even to the extent that 
the resident purchasers have no chance of ever rt>taining clear 
title. 

A fundamental problem with the 100-mile provision is its 
lack of a realistic rationale. It has nothing to do with the 
size of the subdivision, the abuses that may have occurred, the 
character of the subdivision or the manner in which it was 
promoted. This provision could exempt many large sobdi visions 
fraught with chicanery such as those encountered by the Department 
in the Poconos which are marketed in New Jersey, New Tork and 
Pennsylvania, and Virginia subdivisions marketed in 
the Washington, D.C. metropolitan area. Por exemple. 
Captain's Cove, a 3,000 lot subdivision was marketed using 
direct mail, telephone solicitation, free gifts and dinners 
generally within a 100-mile area in Virginia, Maryland and the 
District of Columbia. The developer was convicted for mall 
fraud, and we received hundreds 



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of cooplaints fron purchasers about tha davalopar's failure to 
build promised facilities and to disclose lack of dredging permits 
necessary to make the land buildable. Under the proposals, 
these sales could be exempt and purchasers would receive no 
disclosures. We would be happy to supply the Coonittee with 
other exan^les. 

The exemptions proposed contain several pitfalls for 
the developer as %rell as for the potential purchasers. For 
example, a purchaser may say that he lives in a town which is 
his mailing address when he in fact lives outside the town and 
105 miles away from the subdivision. Moreover, the Department's 
present regulations contain a five percent provision, and we have 
foirnd that developers often fail to stay within that limitation 
during the year. Even if the developer inadvertently fails to 
comply with these criteria, he might expose himself to civil 
liability to past and future purchasers. 

HXJD's experience in adninlAtvrlng the Act 
indicates that the more complicated an exemption provision, the 
more subject it is to ml ft Interpretation, it is not fair to 
developers to make an exemption available when it contains 
potential pitfalls %rhich could result in that developer's 
unintentional violation of Federal law. It follows that a 
primary goal for exemptions should be simplicity, particularly 
in the case of self -determining exemptions. 



33-716 O - 78 - 32 

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HOMESITE EXEMPTION 

We do not oppose the concept of an exeiiq>tlon for fully 
improved lots where all local codes and standards are aet 
prior to initiating sales. We have proposed an exemption in 
in our regulations. similar to that In the Senate bill. However, 
we recommend there be some firming-up of the language. 

This exemption %rould be somewhat novel to the Act, and we 
%#ould expect fairly broad usage. Consequently, we prefer that 
it be initiated on a regulatory instead of a statutory basis so 
that we may exercise some oversight on its progress. 

PROPOSED REGULATIONS 

On Jiine 1, 1978, we republished for conanent conprehenslve 
amendments to the land registration and exemption regulations. For 
the reasons stated a moment ago, though some of the regulatory 
exemptions are self -determining, the complex ones require sufaBission 
to HUD. In developing these regulations we have kept the siaall 
developer and the specialized developer in mind. The results 
are, in t«uidem with the Administration's proposals, eminently 
workable . 

We have structured the regulatory exemptions towards the 
character of the subdivision rather than some arbitrary mileage 
or location or percentage of sales factor. As such, the regulations 



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24 

are easier for a developer to use in determining if he is 

exempt and are such more meaningful in protecting the prospective 

purchaser. 

Specifically, the regulations would exempt scattered sites. 
A developer selling lots in various locations may be entitled to 
an exemption if there are less than 50 lots per site* even though 
the total number of lots in all sites exceed 50. This exemption 
would cover brokers and sales of parts of subdivisions. 

Our primary homes ite exemption would be available when 
not more than 300 lots were offered in the subdivision or scattered 
site and if there were assurances of completion of various 
improvements. A third exemption %rould apply to small subdivisions 
offered to a local market » where there was limited p romo t ion. 
This exemption would allow small developers lodated near state 
borders to sell without the cumbersome five percent out-of-state 
restriction found in our present regulations. 

Another proposed exemption that was originally issued 
to ease the problem for builders 



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selling left-over lots has been liberalised to inorease froa 
five to ten percent the number of lots in the subdivision thet mmf 
be sold as raw lots without registration. We have also 
recognised the burdens that registration can plaoe upon very 
SBMll operations. An exeaption has been proposed that would 
allow a developer to nake up to 12 lot sales per 12-«oath p ri od 
without registration. 

In all of these regulatory exenptions, the privilege 
of exemption would be from the registration requiresMats only. 
Fraud and misrepresentation occurring in the sale of lota in 
these exempted subdivisions could still be enjoined, and developers 
could still be subject to prosecution and purchasers would still 
have legal remedies for siadlar unlawful oonduot. 

CONCLUSION 

In conclusion, I would like to express again ay onncMn to 
the Comnittee that the Administration's land sales proposals hevo 
been delated from the ROD Bill, We feel that our reeomsMadatlon to 
raise the threshold of the Act from 50 to 100 lots in oonjimotioB 
with our proposal of new regulatory exemptions will meet the 
concerns of both the industry and the Congress with respect to 
the small developer. In our regulatory proposals, the 



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26 

placas utaiost iaportance on the character of the subdivision 
and identifying thove circumstances where oonsumers are 
adequately protected or where registration would be an unneeded 
burden on the developer. 

We extend our availability and willingness to work with 
the Coimittee to assist in preparing legislation that meets 
both the needs of the consumers and developers and the concerns 
of the Congress. 

At this time we would be pleased to ans%»er any of your 
questions • 



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Neighborhoods, Voluntary Associations and Consumer ProCection 

Office of Interstate Land Sales. Registration 

Number of Subdivisions by Lot Size As of June 30, 1978 

STATEMENT OF RECORD FIlTlNGS 



Subdivisions 

Number X of TotaT 

0-50 455 8.99Z 

51-100 648 12.79Z 

101-200 1,004 19.83Z 

201-300 485 9.58Z 

301-400 455 8.982 

401-500 272 5.37Z 

501-1000 782 15.442 

1001-2000 485 9.572 

2001-3000 203 4.012 

3001-4000 134 2.652 

4001-5000 41 .802 

5001-25,000 90 1.772 

25,001-50,000 6 .112 

50,000 + 6 .112 

TOTALS 5,066 100.002 



Number 
16,112 
58,006 
174,554 
142,329 
193,352 
146,626 
653,639 
790,059 
596,707 
556,425 
241,153 
814,229 
262,100 
725,609 



Lots 

Z of Tof I 

.302 

1.082 

3.252 

2.652 

3.602 

2.732 

12.172 

14.712 

11.112 

10.362 

4.492 

15.162 

4.882 

13.512 



5,370,900 



100.002 



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408 

Chairman Ashley. Thank you, Ms. Worthy. Since the passage of 
the act in 1968, you referred several cases to the Justice I>epartment 
for prosecution. Could you give the number referrals and prosecution ( 

Ms. Worthy. This comes in two areas. We have 21 cases referred to 
the Justice Department; 19 of those cases were initiated by OILSB; 
2 were initiated by the U.S. attorney. Of those 21 cases, there were 
16 indictments; 5 of those cases were declined prosecution by the 
U.S. attorney. 

Chairman Ashley. There were 16 indictments? 

Ms. Worthy. That is correct. 

Chairman Ashley. And what was the disposition on trial? 

Ms. Worthy. There were 16 indictments. And I am sorry I did not 
hear the second part of your question. 

Chairman Ashley. What was the outcome of the indictments? 

Ms. Worthy. We have two pending. Two were acquittals. And the 
rest were convictions. 

Of those 16 indictments, in terms of principles, there were 95 in- 
dividuals that were indicted. 

Chairman Ashley. How many companies? 

Ms. Worthy. We can give you that information and submit it for 
the record. We do not have that at this time. 

Chairman Ashijiy. Yes, that would be good, because I do not think 
it makes a whole lot of difference how many individuals there were^ I 
am not overwhelmed by the record here in terms of enforcement. If 
this situation is as worthy of congressional attention as witnesses 
insist it is, then I am at somewhat of a loss to understand why practi- 
cally two cases per year on the average have been referred to the Justice 
Department for prosecution. 

[In response to the above question of Chairman Ashley, Ms. Worthy 
submitted the following answer for inclusion in the record :] 

Response Fbom Ms. Wcatht 

Since 1971 when the Office's first criminal indictment was returned 25 com- 
panies have been indicted under the Interstate Land Sales Full Disclosure Act 

Ms. Worthy. Mr. Chairman, in addition to those cases that we 
directly referred to the U.S. attorney's office, there were an additional 
27 cases that we have referred to the Inspector (jeneraPs office over in 
the Department of Housing and Urban Development. 

Of those 27 cases, 12 were declined by the U.S. attorney, and 15 of 
those cases are presently active. 

Now, in addition to those 15, we have another 14 cai^s active pres- 
ently that our Office is specificallj^ working on. There was a period of 
time, which I was going to explain, where we handled our investiga- 
tions directly and then refered them to the U.S. attorney. That was the 
first number we gave you. 

In 1975, we entered into an interagency agreement with our In- 
spector General's office, so now we refer all our cases to them, and they, 
in fact, do the investigating and refer them to the U.S. attorney's 
office, so that, in addition to those 16 indictments that we mentioned to 
you, we have presently 29 active cases under investigation. 

Cliairman Ashley. So that the 16 indictments represented cases that 
were referred by OII^SR without going through your Inspector Gten- 
eral's office? 



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Ms. Worthy. That is correct. 

Chairman Ashley. And so that the 21 cases were referred between 
1969 and 1976? 

Ms. Worthy. Between 1971 and 1975 OILSR referred 21 cases for 
possible prosecution. 

Chairman Ashley. And how many cases have been referred by the 
Inspector Greneral since 1975 ? 

Ms. Worthy. We have referred 12 of the 27 cases that were referred 
by the Inspector General that went over to the U.S. attomev, have 
been declined; and, therefore, we have presently 15 cases that are 
active. 

Chairman Ashley. Why were the 12 declined? 

Ms. Worthy. Well, there are various reasons, Mr. Chairman. We 
could give the specific rationale that we have received on all of those 
declinations. But they were declined. Either the U.S. attorney was 
overburdened or did not find 

Chairman Ashley. I think the subcommittee would like to know 
why they were declined. 

Ms. Worthy. Then we will get that information and submit it. 

[In response to the above question of Chairman Ashley, the follow- 
ing answer was furnished for the record by Ms. Worthy :] 

Response Fbom Ms. Worthy 

I have prepared a brief summary of the respective U.S. Attorney's conclusions 
in each of these twelve cases. They are as follows : 

i. Sherwood Forest (Pennsylvania) . — The United States Attorney in Newark 
declined to prosecute because the case lacked Jury appeal since, according to 
the United States Attorney, principals did not personally profit by fund« im- 
properly diverted from improvement escrow accounts. 

2, Trailwood Lakes (Kentucky).— The United States Attorney in Louisville 
decUned to prosecute because sales were made four years previously and con- 
sumers were seeking civil remedies under State statutes. 

S. Stony Point (Oklahoma) .—The United States Attorney in Tulsa decUned 
to prosecute because the principal in the matter was shot to death and civil 
remedies were being pursued imder State laws. 

4. Lake of the Pines (Pennsylvania) .—^The United States Attorney in Newark 
declined to prosecute because the matter lacked jury appeal. 

5. SpHng Valley (Oklahoma) .—The United States Attorney in Oklahoma City 
decUned to prosecute because sales were four years old and the principal mis- 
representation concerning improvements lacked appeaL 

6. Lake Chaparral (Kansas). — The United States Attorney in Topeka de- 
cUned to prosecute because he felt a forged document submitted to OILSR re- 
sulted in no harm to the Government or to purchasers. 

7. Hickory Hills (Ohio).— The United States Attorney in Cincinnati declined 
to prosecute because the matter lacked Jury appeal. 

8. Heritage Shores (South Carolina). — ^The United States Attorney in Columbia 
declined to prosecute because in his opinion there was not sufficient evidence of 
fraud. 

9. Ally son Acres (Oklahoma^) .—The United States Attorney in Tulsa declined 
to prosecute since in his opinion the testimony of purchasers who bought lots two 
years previously would be somewhat stale and because in his opinion misrepre- 
sentation concerning the investment potential of the land and promised improve- 
ments lacked Jury appeal. 

10. Aspen Hills ( Utah).— The United States Attorney in Salt Lake City dropped 
the prosecution when the developer took steps to fulfill promised representations 
concerning improvements. 

11. Consolidated Mortgage Corporation (Arizona), — ^The Inspector General 
dropped the criminal investigation when that Office learned that the subject com- 
pany was under investigation by the Department of Justice Arlaona Strike Force, 
and was indicted under securities fraud but was later acquitted. 



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12. Renegade Resort (Tenneaaee). — ^The United States Attorney in NashTille 
investigated under the Land Sales Act, but the principals were indicted under 
Small Business Loan fraud. 

Ms. Worthy. In addition to those cases, Mr. Chairman, as indicated 
in our testimony, we have also had some 90 noncriminal actions, 20 of 
which were injunctions and the remaining being in subpena enforce- 
ment cases, and we also initiated 11,000 administrative proceedings 
within the Department, all of which fall under the category of enforce- 
ment activity. 

Chairman Ashley. What is the allocation of personnel within 
OILSB with respect to the primary functions on the administratis? 
That is to say, you have registration, field investigations, and enforce- 
ment ; is that right ? 

Ms. Worthy. That is correct. We have four divisions, we have pres- 
ently. Our ceiling is 106. We have in the examination division 24; in 
the policy division 20 ; in our enforcement division 28 ; and in our field 
review division 31. 

As I am sure you know, Mr. Chairman, there is a proposed 

Chairman Ashley. Give me those numbers again, please. 

Ms. Worthy. In the examination division 24; in our policy division, 
which handles our filings, that is 20; in the enforcement division that 
is 28 ; and in the field review division, we have 31. 

Chairman Ashley. Has there been a shift in this allocation, or has 
that been fairly steady ? Has there been any shift, for example, since 
1973 or 1974? 

Mr. EIaffeler. Mr. Chairman, there have been small shifts between 
enforcement and the examination division. In 1973 the examination 
staff probably approximated 28 people, and we switched a few people 
because we had some reduction in new filings coming into the Office 
since 1973. 

Chairman. Ashl>:y. What do the field review offices do? 

Ms. Worthy. Those are individuals, Mr. Chairman, who, in fact* go 
out on the road and do the on-site inspections and check the local fiiles. 
They do approximately 1,000 on-site inspections a year. 

In addition to that, they do approximately about 3,000 visits or 
trips to subdivision?. And that comprises about what thejr do, but they 
are ^nerally responsible for pulling together information from the 
subdivisions themselves and reporting that information back to the 
respective divisions in Wasliington. 

Chairman Ashley. Well, T can understand your concern. I have been 
discussing with counsel the action by the Appropriations Committee 
tliat would result in a diminution of personnel by some 20 or there- 
abouts. 

Ms. Worthy. That is coiTect, Mr. Chairman. 

Chairman Ashley. And that, of course, I suspect, would be felt in 
each of your primary functions. 

Ms. Worthy. Yos. As you know, Mr. Chairman, we are required by 
the law to review registrations within a 30-day time period, which 
means that we have to at least maintain that division who handles 
registrations intact, so we would have to substantially take a cut frrai 
the enf oivx»mcnt and the field review divisions. 

Chairman Asih^ey. If the exemption wore lifted from 51 to 100, how 
would that affect your personnel requirements? 



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Ms. Worthy. You are saying the number of filings ? 

Chairman Ashley. Yes. 

Ms. Worthy. It would be difficult to determine right now how it 
would affect the number of filings. 

Chairman Ashley. Well, the need for personnel presumably be 
somewhat less, at least in the registration operations. 

Ms. Worthy. That is correct. 

Chairman Ashley. But not 20. 

Ms. Worthy. No. 

Chairman Ashley. Is there any reason why any land developer 
should be exempt from the fraud provisions oi the statute ? 

Ms. Worthy. Mr. Chairman, I would not want to see anyone exempt 
from fraud provisions. That is one of the concerns we have with one 
of the Senate proposals, is that because of the various exemptions and 
the numbers of people affected by tlie exemptions, more specifically 
the 100-mile radius, that large numbers of individuals who are buying 
land would, if at a later date it was determined that fraud had been 
perpetrated against them, would not have any remedies available under 
the act. 

Chairman Ashley. Under the Senate proposal, it is my understand- 
ing, that they are exempt only from the registration and not from the 
fraud. 

Ms. Worthy. Yes, there has been a change apparently in the lan- 
guage. That is correct. 

Chairman Ashley. Under the HUD proposal, you would exempt 
them, even from the fraud provisions, subdivisions of less than 100 
lots. Is that correct ? 

Ms. Worthy. Yes, Mr. Chairman. 

Chairman Ashley. What about those poor souls that mi^ht get 
bilked ? Why should that developer escape from the fraud provisions ? 

I can see why, for a variety of reasons, it might not be necessary for 
registration, but why do we say that they have carte blanche to do 
anything they want ? 

Ms. Worthy. Mr. Chairman, in our decision to request an increase 
of the threshold to 100 lots, we did make — we went through a very soul- 
searching experience because we understand very much the needs of 
those individuals who buy land, even if they buy in a small subdivision. 

The decision to come forward with that recommendation was based 
purely on the fact that we have limited resources and that we felt 
that in order to better utilize what we do have available, which is the 
28 people in enforcement 

Chairman Ashley. That is a terrible rationale, it seems to me. 

Why don't you leave the developers guessing as to where your re- 
sources are going to be directed ? In other words, include all developers 
of subdivisions of any size and let the developer wonder where your in- 
vestigatory and your prosecution resources are going to be directed. 

Doesn't that make better sense? To play a sort of shell game out 
there ? You see my point ? 

Ms. Worthy. Yes, I do, Mr. Chairman. 

Chairman Ashley. What is your response? 

Ms. Worthy. The only response we have to that is that — ^two 
things: We have attempted to eliminate some of the problems and 
potential fraud problems by requesting or proposing the elimination 



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of the exemption of the onsite inspection, because in those particular 
sales situations, those purchasers who buy and inspect onsite do not 
have the benefit of the fraud provisions, so that where we have taken 
it awav from some we have ^ven at least that protection to others. 

With respect to the increasing of the threshold to 100, the answer 
to that is that we again have made that policy determination that we 
want to direct our attention to the larger subdivisions, and, I must 
admit 

Chairman Ashley. But can't vou do that without this proposed 
change, as far as the application of the fraud provisions are ooncemed ? 

Ms. Worthy. Well, Mr. Chairman, if that is possible, we would be 
more than willing to work with the committee to develop language 
that would assure us of that, as well as afford the protections of the 
fraud provisions to all purchasers. We would be more than willing 
to sit down and discuss it. 

Chairman Ashley. Many complaints, I understand, have been re- 
ceived about the way OILSR has applied the principle of comnion 
promotional plan in the past. 

I wonder if you would be good enough to explain your interpreta- 
tion of that statutory language and ju^ what ^'common promotional 
Slan" means and how this principle has been applied in tne past and 
ow the proposed regulatory change dealing with the scattered-site 
test subdivisions would conform with the statutorjr intent. 

Ms. Worthy. The wav the statute reads, Mr. Chairman, is that if, 
in fact, you are selling lots in more than one site or subdivision and 
you have been using a common facility — for example, the same per- 
sonnel, the same realtor handles it, it is advertised together — ^that we 
are assuming it all falls into one common promotion. 

Then, we require that you register all of those lots, and we add up 
all of those lots to determine whether or not you come within the juris- 
diction of the act. 

One of our proposed regulations is the ''scattered-site regulation" « 
exemption that says that if you have these sites and the lots on these 
sites are less than 50, then we will not add all of these lots up, these 
sites, if these sites are named differently, even though you might per- 
haps have the same salesperson handling the selling of tneae 
properties. 

Cnairman Ashley. If they are named differently ? 

Ms. Worthy. Yes. For example, if you have a subdivision A and a 
subdivision B, and, of course, they are not contiguous, and each of 
these subdivisions have less than 50 lots, then we will not now put 
them all together and add them up, and we will not require you to 
register. 

Chairman Ashley. They could have, though, a common sales staff 
and common advertising? 

Ms. Worthy. Yes, they could have a common sales staff; that is 
correct, Mr. Chairman. 

Chairman Ashley. The only thing is they would be named 
differently? 

Ms. Worthy. That is correct. And may not be contiguous. 

Chairman Ashley. I do not understand this. Why do you say that! 
If they go to the trouble of naming — which they are bound to do— 
these scattered sites witli different names, why should that make all 
the difference? 



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Ms. Worthy. Mr. Chairman, again, the purpose of the act and the 
Congress setting a threshold of 60 lots, it is our understanding from 
the mandate of Congress, that you wanted us to look at those situa- 
tions where we felt that if it was a small offering, something of less 
than 50 lots, and we determined it was not in the public interest, that 
we had the responsibility and the authority under the law to promul- 
gate regulations that would eliminate or exempt these particular 
developers from ccnning imder the requirements of the act in our 
r^ulations. 

And it was our determination that if, on each of these particular 
sites, they were selling less than the 60 lots that you had, CongPMS 
had, imposed in the act, that they, in fact, were a small offering in 
the intent of the legislation, and that, therefore, it was our opinion 
that these individual developers should be exempt. 

Chairman Ashlet. Mr. Brown? 

Mr. Brown. Thank you, Mr. Chairman. 

Ms. Worthy, what is the purpose of the Interstate Land Sales 
Registration Act ? Is it intends that an out-of -State purchaser should, 
in effect, be put in a better position than an in-State purchaser? 

Ms. Worthy. It is our understanding that the purpose of the act is 
to make sure that individuals who buy undeveloped land, when that 
land is being sold in a subdivision of more than 60 lots, that we niust 
provide that information, that purchaser with enough information to 
allow him to make an intelligent decision about that land. 

Mr. Brown. But, now, it does not cover all purchasers. It only 
involves purchasers that in some way have become aware of the proj- 
ect or the development through use of the vehicle of interstate com* 
merce ; is that not correct ? 

Ms. Worthy. The act says that if the developer is selling more than 
60 lots and he is using the mail 

Mr. Brown. Well, that is the point rij^ht there. I am saying that it 
does not apply if you do not use a vehicle of interstate commerce — 
the mail, the phones, et cetera. 

Now, if those things are n<^ used for an in-State purchaser and 
the developer does not engage in interstate commerce, that purchaser 
does not have the benefit of the act ; does he ? 

Ms. Worthy. I am sorry ? 

Mr. Brown. If the vehicles of interstate commerce are not used, the 
purchaser does not have the protection of the act. 

Ms. Worthy. Use of the vehicles of interstate commerce is not an 
exclusive variable in determining jurisdiction. The lan^age of the act 
also states that any use of the mails whether directly or indirectly, may 
bring about Federal coverage under the act. 

Mr. Brown. And the act is primarily a disclosure statute; is that 
not correct ? 

Ms. Worthy. That is correct, sir. 

Mr. Brown. Why do we, then, go into many things such as the per- 
formance of the developer with respect to promises made, and estab- 
lish different recourses for a purchaser covered by the act ? 

Why does that person have additional remedies that an instate pur- 
chaser or a purchaser of an intrastate development does not have? 

Throughout your testimony, you talk about promises not kept, about 
facilities to be installed, and all of those kindbs of things. Now, if the 



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504 

proiect was not in interstate commerce, this statute would not apply 
to those promises ; would it ? 

Ms. Worthy. What I talked about in my testimony was one of the 
proposed legislative changes that the administration has put forward 
because of the fact that we get a great many complaints — it seems to 
be one of the worst problems — is the fact that developers fail to 
complete. 

Now, if you are asking me the question as to whether or not or is it 
fair that one group of individuals receive that benefit and another 
group not, I can only say it was the wisdom of this Congress to enact 
that act, and if they, in fact, want that benefit for all purchasers, then 
we would be more than willing to attempt to carry out that mandate 
of Congress. 

Mr. Brown. Have you received any complaints that really are not 
covered by the act or that where basically interstate commerce is not 
used? 

Ms. Worthy. Yes, we do. And we can supply the subcommittee with 
examples of that. 

Mr. Brown. Percentagewise, how many? 

Ms. Worthy. For clarification, are you talking about individuals 
who are within the State involved in a development that is intrastate, 
or are you talking about purchasers who do not even fall within the 
act at all ? 

Mr. Brown. Well, ^ou have to make a determination as to whether 
or not you fall within the act. I mean, are those occasions where 
basically the nexus for coverage bjr the act is not there t Where there 
is no utilization of interstate vehicles that bring that develofMnent 
under the act. 

Ms. Worthy. There would be no way that we would have any 
record of purchasers who have bought tHat were not under the act 

Mr. Brown. Well, Ms. Worthy, what I am saying is I think that 
anyone that feels that he has been had in connection with the purchase 
of real estate would probably look for Federal solutions, oo, I am 
sure that probably everyone would contact your Office and see if they 
were not covered by the protections of this act, even though they were 
not protected because it was purely an intrastate transaction. 

Ms. Worthy. We liave many cases where purchasers have written 
and complained, and we have had to advise them that that particular 
subdivision in which he has bought did not have to register with our 
Office. Yes, we have instances of those. 

I do not have the exact numbers of those. I could not even give you 
a guesstimation on that. 

Mr. Brown. You see, the only point I am making is that we started 
this out primarily as a disclosure act, and it just seems to me we are 
getting into, in effect, a Federal law covering real estate transactions. 

Ms. Worthy. I must agree that, because the threshold of the act is 
50 lots and because you said any use of the mail, directly or indirectly, 
yes, we do cover a large number of subdivisions and sales transactions. 

And that is why we have proposed that the threshold be increased to 
100 lots, and we have promulgated new regulations that provide sub- 
stantial exemptions. 

But I can only say that we are attempting to carry out what we per- 
ceive to be the clear mandate of Congress. 



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605 

[In response to the above question of Congressman Brown, Ms. 
Worthy furnished the following answer for inclusion in the record :] 

Response From Mb. Worthy 

From time to time, OILSR receives complaints from consumers where their 
particular purchase of land is not covered by the act. In virtually each of these 
instances, the subdivision or the transaction has been specifically exempted by 
Sections 1403 (a) (I)-(IO) of the Act. Earlier in OILSR's history, we received 
many complaints from consumers who purchased land prior to the statute's 
enactment. Now, 9 years later these prior purchaser complaints are much less 
frequent However in aU cases, even though the particular transaction is not 
covered, OILSR wiU make inquiry to the developer in case more recent buyers 
are affected by the alleged problem. 

Our experience has shown that nearly 100 percent of the developers offering 
50 or more lots who seU land primarily to residents of that same State are covered 
by the provisions of the act This interpretation of the act's Jurisdiction and Its 
legislative history has been consistently supported by Federal Court opinions. In 
Wiggins v. Lynn (406 Sui^. 338), it was held that with respect to subdivisions 
in each of which there were more than 299 lots located entirely within Texas and 
as to which less than 5 percent of sales in any 1 year were made to nonresidents 
of the State of Texas, the developer would be enjoined . . . from selling or leasing 
lots without satisfying the requirements of the Interstate Land Sales Full Dis- 
closure Act In Qaudet v. Woodlake (399 F. Supp. 1005), the court ruled that 
"the statute contains no exemption for sales to resident of the State where the 
land is located. It does not turn on the residence of the buyer or the seller, but 
makes it unlawful for any developer, or agent, directly or indirectly, to make 
use of any means or instruments of transportation or communicaticm in interstate 
commerce, or of the mails to sell or lease any lot in any subdivision unless a State- 
ment of Record with respect to such lot is in effect . . ." Further, the opinion 
reads that "The Act itself provides 10 exemptions in 15 USC 1702, and these are 
amplified in the regulations 24 CFR 1700 et seq., but nowhere is there a statutory 
exemption because the land is sold solely to residents of the State in which it is 
located." In McCoum v. Heidler (527F. 2nd 204), a court ruled that "The general 
purpose of the Land Act was, of course, to prohibit and punish fraud in such land 
development enterprises as we here consider and the Act should be interpreted 
to attain that end. Such an act should be construed not technically and restric- 
tively, but fiexibly to effectuate its remedial purposes." 

In this regard for the record, I am enclosing samples of these cases involving 
this issue. As a result, there have been very few. if any, "in-State" complaints 
that have not been covered by the protections of the act 

As to the number of the complaints that OILSR receives where the buyer and 
the property are located in the same State, I can provide the Committee with the 
following information. Approximately 00 percent of OILSR's Indictments have 
involved land sales where the vast majority of buyers were local or in-State resi- 
dents. In approximately 55 percent of the cases currently under investigation by 
OILSR because of complaints from purchasers, nearly aU lot buyers are in-State 
or local residents. Further, just recently, OILSR initiated a computer profile sys- 
tem of consumer complaints. Findings from the first 100 complaints collected 
have shown that approximately 05 percent of them were from purchasers who 
bought property in the State in which they reside. The average size of the sub- 
division involved in these "in-State" transactions is approximately 1844 lots. 



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506 



Bonnie Maud WIGGINS, Individiially, 
and as Administratrix and Substitute 
T^stee of the EsUte of Barney Wig- 
fin% Deceased 



James T. LYNN, Individuallj, and in his 
capadty as Seeretary of the Depart- 
ment of Housins: and Urban Develop- 
ment, and Georgre K. Bernstein, Indi- 
Tidually, and in his capacity as Inter- 
state Land Sales Administrator of the 
Department of Housing and Urban 
Dcirelopment 

No. B-74-M-CA. 

United States District Court, 

E. D. Texas, 

Beaumont Division. 

April 25, 1975. 

Order July 81, 1975. * 
Suit was brought against Secretary 
of Department of Housing and Urban 
Development and against interstate land 
sales administrator of the Department 
for injunctive relief restraining the en- 
forcement of regulation governing re- 
quests for exemption order. The Dis- 
trict Court, Joe J. Fisher, Chief Judge, 
held that with respect to subdivisions in 
each of which there were more than 299 
lots located entirely within Texas and in 
which less than five percent of the sales 
in the subdivisions in any one year were 
made to nonresidents, developer would 
be enjoined from selling or leasing lots 
and from using any means or instru- 
ments of transportation or communica- 
tion in interstate commerce to sell or 
lease lots without satisfying require- 
ments of Interstate Laml Sales Full Dis- 
elosure Act, and that as to subdivisions 
each of which had less than 299 lots and 
in which sales were limited to less than 
five percent in any one year to nonresi- 
dents, developer would be required to 
eomply with re^nstration nM|uirements of 
the Act and rule and rcKulations issued 
pursuant thereto where the lots were 
sold collectively ;i& |)art of a C(»mmon 
promotional plan cuntainint; rhore than 
900 lots ami develo|ier did not xeek ex- 
emption onler. 

(inkT Hcronlingly. 



L TVade Regulatioa c»864 

With respect to subdivision in eadi 
of which there were more than 299 lota 
located entirely within Texas and as to 
which less than five percent of tha sale* 
in any one year were made to nonrett- 
dents of the state of Texas, developer 
would be enjoined from selling or leasii^ 
lots, from using any means or inttm- 
ments of transportation or communica- 
tion in interstate comroeroe, and from 
selling or leasing lots without satisfying 
requirements of Interstate Land &ilei 
Full Disclosure Act IntenUte Land 
Sales Full Disclosure Act, f 1402 et scq^ 
15 U^OA. f 1701 et seq.; 28 UJ3.GJL 
f 188L 
2. Ttade flegulation <»861 

With respect to subdivisions each bt 
which had less then 299 lots and with 
respect to which sales were limited to 
less than five percent in any one year to 
nonresidents of the state of Texas, davel* 
oper would be required to comply with 
registration requirements of Intmvtate 
Land Sales Full Disclosure Act whtn the 
lots were sold collectively as part of a 
common promotional plan containing more 
than 800 lots and developer did not seek 
exemption order. Interstate Land Sales 
Full Disclosure Act, f 1402 et seq.. 15 
U.S.CA. f 1701 et eeq.; 28 UAOA. f 
188L 



Richard R. Morrison, III, Daniel, Mor^ 
risen & Strahan, Liberty, Tex^ for plain* 
tiff. 

Roby Hadden, U. S. Atty., Dennis R. 
Lewis, Asst. U. S. Atty^ Beaumont, Tex., 
for defendants.' 

FINDINGS OF FACT AND 
CONCLUSIONS OF LAW 

JOE J. FISHER, Chief Judge. 

FINDINGS OP FACT 
L 
Plaintiff. Bonnie Maud Wiggins, Indi- 
vidually, and as Administratrix ami Suli- 
stitutc Trustee of the Estate of Barney 
Wiggins, Deceaited, is a ciUicn of the 
Sute of Texas and originatuil this action 
on March 27, 1974, against James T. 
Lynn. Indivi<lually, and in his «i|inrily as 



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Secretary of tho l)i*|iarifiicnl of IlouMinff 
ami UHiun l)c!vd(>|>nM:nt, un<l u^ruiast 
Gcorf^* K. lk:raHU:in, IrwiivHlually, and in 
hb capacity as Interstate I«itn<l Sitlcx Ad- 
minbtrator of the De|Kirtnu*nt of Houh- 
ing and Urimn IX^velofiment, lK>ih of 
whom arc citizens of Washin^^n, D. C. 
This action is ha.HC<l ufion diversity of 
dtizcnship and involves a fe<lcral ques- 
tion, and the Plaintiff sucks injunctive 
relief a|i:ainst Defendants, restraining 
the enforcement of Section 1710.14, (24 
C.F.R 1710.1, et scq.). issued by the De- 
fendants effective March 81, 1972. 
2. 

On April 26, 1974, Defendants answer- 
ed Plaintiffs complaint and by way of 
eounterclaim filed on May 13, 1974. seek 
a permanent injunction restraining 
Plaintiff from continuing to operate in 
violation of the Act 

On August 29, 1974, Plaintiff answer- 
ed Defendants' counterclaim and by way 
of a supplemental petition, seeks a decla- 
ration that Plaintiffs subdivisions made 
the subject of thb lawsuit are exempt 
from regbtration requirements under 
the Act 

& 

plaintiff b the widow of Barney F. 
Wiggins of Polk County, Texas, who 
died on November 19, 1970, leaving 
Plaintiff and four minor children surviv- 
ing. During the lifetime of the said 
Barney F. Wiggins and about 1960, he 
began purchasing and developing tracts 
of undeveloped real estate in several 
Southeast Texas Counties, namely, Polk, 
Liberty, San Jacinto, Tyler and Hardin, 
that were within easy driving distance of 
the heavily populated metropolitan area 
of the Texas Gulf Coast, namely, Hous- 
ton, Beaumont, Baytown and Pasadena. 
Plaintiffs subdivisions vary in size from 
25 lots in Corrigan Heights to over 3,000 
lots in Lake Run-A-Muck. The lots av- 
erage in size about 50 feet by 125 feet, 
and the average price range is Three 
Hundred Ninety-Nine and No/100 
(1399.00) Dollars to Five Hundred Nine- 



ty-Nine and No/100 ($599.00) Dollars per 
lot 

4. 

The Defendant, James T. I^ynn, is the 
Secretary, of Housing ami Uriian Devel- 
opment; the Defemlant, George K. 
Bernstein, b the Administrator of the 
Office of Interstate I^and Sales Registra- 
tion, Department of Housing and Uriian 
Development 

5. 

The following described tracts of land 
are situated in the State of Texas, are 
owned by the Plaintiff, and are "subdivi- 
sions," as that term b defined by 15 
U.S.C. § 1701(3): 

(1) Putman's Landing 

(2) Wild 0>untry Lake Estates 
(8) Thunder Mountain 

(4) Nugent's Cove 

(5) Crystal Lakes 

(6) Eagles Nest 

(7) Town Bluff 

(8) Wayward Wind Oasb 

(9) (Kerrigan Heights 

(10) Hoot OWl Hollow 

(11) Hardin's Hideout 

(12) Old Stag Ridge 
(18) Weaver's Cove 

(14) Horseshoe Lakes Estates 

(15) Sam Houston L^es Estates 

(16) Old Snake River Lakes Estates 

(17) Lake Run-a-Muck 

(18) Natasha Heights* 



All of the lota in all of Plaintiffs sub- 
divisions are offered for sale as a part of 
a common promotional plan under the 
name of Wiggins Land (Company, an as- 
sumed name under which Plaintiff does 
business. Plaintiff employs approxi- 
mately seven (7) clerical personnel and 
currently uses the services of approxi- 
mately five (5) or six (6) salesmen who 
work on a commission basis. 
7. 

All lots in all subdivbions are sold only 
after an on-site personal inspection by 
the prospective purchaser. The salesmen 



• A CorporaUoii in which 100% of the stock is owned by the PkOntifr. 



33-718 O - 78 - 33 



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508 



have been instructed not to sell lots to 
anyone having an address outside the 
State of Texas. 

8. 

The advertising brochures of Plaintiff 
were directed entirely to the surrounding 
local market and were distributed either 
at the Livingston office of Plaintiff or 
by mailing in response to telephone re- 
quest From the records of Plaintiff 
only one telephone call was received 
from outside the State of Texas requests 
ing an advertising brochure of Plaintiff 
for the period of 1969 to the middle part 
of 1978. 

9. 

Plaintiff has never engaged in any di- 
rect mail advertising schemos to sell lots, 
never engaged in any scheme or plan 
using -the telephone for lot sales and nev- 
er transported prospective purchasers to 
subdivisions by any means for the pur- 
pose of selling lots. 
10. 

All of Plaintiffs subdivisions are 
wooded, have dirt and some oil streets, 
and small lakes suitable only for fishing. 
There are no marinas on any of the 
lakes, there are no concrete swimming 
pools, no golf courses or tennis courts, or 
other such attractions normally associat- 
ed with large subdivision offerings de- 
signed to attract prospective purchasers 
from great distances and across state 
lines. 

11. 

Plaintiffs advertising, consisting of an 
occasional use of radio ads over Houston 
station KIKK and small classified ads in 
the Houston Post and Houston Chronicle, 
was concentrated in the northeastern 
section of Houston. As a result "90% or 
better** of all lot sales in all subdivisions 
were to Houston residents. Plaintiff has 
also advertised in the East Texas Eye, a 
ncw8|Ki|)cr ownL'il by Plaintiff with some 
interstate circulation. 

12. 

Since 19C0 thoro have l)ecn 5451 lots 
sold in riaintiffs KulNlivi.si<ms, of which 
only three lot8 have Inien Mold to two 



individual purchasers who were rending 
out of the State of Texaa. 

la 

The IntersUte Land Sales Pull DItdo* 
sure Act was passed by Congress on Au- 
gust 1, 1968, and its effective date was 
April 28, 1969. On April 28, 1969, all of 
Plaintiffs subdivisions listed in the stip> 
ulations filed herein, with the exception 
of Natasha Heights, were developed and 
sales were well under way. 
14. 
On March 29, 1969, the first set of 
Federal Rules and Regulations was is-> 
sued by DefendanU and Section 1710J0 
thereof stated as follows: 
1710.10 Exemption. Unless a method 
of sale, lease or other disposition of 
land or an interest in land is adopted 
for the purpose of evasion of the Act, 
the rules and regulations of this pert 
shall not apply to the following tnai> 
actions. 
(1) The sale or lease of lots whtn 
the offering is entirely or almost en- 
tirely .intrastate. 
16. 
Plaintiff received a letter dated Ifareh 
23, 1971, from Defendants signed by Mr. 
Herbert H. George, Director, Admini^ 
trative Proceedings Division, Office of 
IntersUte Land Sales Registration, 
wherein Plaintiff was asked to dct8r> 
mine whether or not their lot sales pr^ 
gram was within the purview of the Ad. 

Plaintiff replied to the tetter dated 
March 23, 1971, by letter dated April 29. 
1971, signed by Price Daniel, Jr., Attor- 
ney, wherein he stated that the Inter* 
state Land Sales Full Disclosure Act was 
not applicable to Plaintiffs sale of lots 
in its various subdivisions because the 
offering of lots for sale is intrastate and, 
therefore, exempt under the Act and. 
more s|)ecifk:ally, under Sectfon 17W.* 
10(1) of the Rules and Regulations. Fur- 
ther, in the reply letter datoil A|iril .29. 
1971, from Price Daniel. Jr., he inquin-d 
of Defendants if they miedeil any fur- 
ther information regnnling Plaintiff' 
exemption to let plaintiff know. 



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17. 
Defendants did not contact the Plain- 
tiff in any further manner after March 
28. 1971, until February 28, 1973, a peri- 
od of almost two (2) years. Further, 
during the period between March 23, 
1971, and February 28, 1973, the Defend- 
ants did not dispute or contest the intra- 
state exemption claimed by Plaintiff in 
Plaintiffs letter of April 29, 1971. 



18. 
During the period of Ume from March 
23, 1971, to February 28, 1973, Plaintiff 
eofiducted its subdivisions operations 
based upon a reasonably gopd faith be- 
lief that the Government's failure to 
eontest or question Plaintiffs claim of 
an intrastate exemption in its letter of 
April 29, 1971, amounted to the granting 
of or acquiescence in the claim to such 
intrastate exemption. 



19. 

On March 81, 1972, the Federal Rules 
and Regulations were amended by De- 
fendants, and Section 1710.14 was added 
as follows: - 

Section 1710.14 Regulatory exemp- 
tions—exemption order required — lim- 
ited offering 

(a) The Secretary may exempt from 
the provisions of this part any subdivi- 
sion or any lots in a subdivision which 
otherwise would be covered by the 
provisions of this part, by issuing an 
exemption order in writing to the ef- 
fect that the enforcement of this part 
with respect to such subdivision or lots 
Is not necessary in the public interest 
and for the protection of purchasers 
by reason of the small amount in- 
volved or the limited character of the 
public offering, if he determines that: 

(1) The request for the exemption 
order is limited to a single transaction; 
or 

(2) All of the following criteria are 
met: 



(i) There are less than 300 lots in 
the subdivision.* 

(ii) The subdivision is located entire- 
ly within one State. 

(iii) The offering of lots in the sub- 
division is entirely or almost entirely 
limited to the State in which the sub- 
division is located. 

(iv) The use of all advertising and 
other promotional means, the distribu- 
tion of which is within control of the 
developer or his agents, is confined to 
the State in which the subdivision is 
located. All use of billboards and sim- 
ilar signs, telephonic methods of com-' 
munication and direct mail shall be 
presumed to be within the control of 
the developer or his agents. 

(v) No more than 5 per cent of the 
sales in the subdivision in any one year 
will be made to nonresidents of the 
State in which the subdivision is locat- 
ed. 

The March 81, 1972, Federal Rules and 
Regulations amounted to a substantial 
change in the method and procedure 
whereby regulatory exemptions were 
obtained. 

^ 20. 
The Plaintiff received a letter dated 
February 28, 1973, from Defendants 
signed by John R. McDowell, Deputy Ad- 
ministrator of the Office of Intersute 
Land Sales Registration, which stat^. in 
part, as follows: 

"Until the subdivisions are effectively 
filed as required by Section 1404(aXl) 
of the Act, it would be advisable that 
you cease all lot sales in the noted 
subdivisions." 

This was the first official notice of 
any type that Plaintiff was not in com- 
pliance with the Act since its effective 
date on April 28, 1969. 
21. 
In March of 1973 and until about No- 
vember of 1973, Plaintiff, separately and 
in conjunction with others, made filinirs 
pursuant to the Act on the following 



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subdivisions, which filings beeanae effec- 
tive: 



SUBDIVISION 
CD Wi99ins Villagt ^l 
C2) Wi99hn VUlagt #2 
O) RcliyiVliteg* 

14) RcUyi Landing 
Partnership 

(5) BaHowUites 
EiUtes 

(M WMtff Tali Ridgt 

a) Nataiha Htights 

Corporation 
(S) Ukt Run-A-Muci( 
19) Indian Spring 



fl2flUl£ESliie 

Partntrship— Tht Plaintiff 

and D. RtiUr 
Partnership— Tht Plaintiff 

and D. RtiUr 
Partntrship— Tht Plaintiff 

and M. 6. Roily 
Tht Plainttff and D. Roily 

Partnorship— Tht Plaintiff 

and M. 6. Rtlly 
No longor owntd by tho 

Plaintiff 
lOOV. of tht stock owntd 

by tht Plaintiff 
Tht Plaintiff 
Corporation— siV; of tht 

stKk owntd by tht 

Plaintiff and 50% by 

D. Rtlly 



During said period from March of 1973 
until November of 1973 the Plaintiff has, 
in conjunction with others, filed with the 
Office of Interstate Land Sales Registra- 
tion the following subdivisions, which 
registrations have not become effective: 
I 





OVyNERSHlP 


(1) Horsfshot Lakts EsUtes 


Tht Plaintiff 


(2) Sam Houston Lakts Estatts 


Tht Plaintiff 


») Old Snakt River Lakt 
EsUtts 


ThtPlainUff 


M) Mont Ntchts 


Partntrship— Tht 
Plaintiff and 
M.6.Rti|y 



23. 

Hardin's Hideout, a subdivision located 
in Polk County, Texas, was effectively 
registered with the Secretary when 
owned by Jobc Wifrfrins, and it is now 
owned by the Plaintiff. 
24. 

Plaintiff received a Idler daUnl Sep- 
icmlK:r 7, 1973, fmm DefcmlanLs sijrninl 
by John It Mcl><>wcll, Dt-puly A<lminis- 
trator of the Off lire of Inlerslalo I-;in<l 
Salt's lUrpstnition, rt'^^inlin)? Haniin's 
Hi<k*<>ul which sUites in |Kirt :i.s follows: 

•This offiw acYirpLs your sUilcmi'iit 

that tlic salt's o|K«nili<»n.s of the ca|H 



tioned subdivisimis wss probmUy intra- 
state during that period." 

25. 
The Plaintiff received a letter dated 
November 7, 1978, from Defendants 
signed by John R. McDowell, Deputy Ad- 
ministrator of the Office of Interstate 
Land Sales Registration, which states In 
part as follows: 
"We request that you send a letter to 
all those persons who purchased lots at 
the subject subdivision prior to the. ef- 
fective date of its Aling and subs^ 
quent to Biarch 81, 1972, the date the 
Act became applicable to the subjaet 
subdivision." 

28. 
Plaintiff was selling or offering to sdl 
lots in Lake Run-A-Muck, Old Snake 
River, Wayward Wind and Natasha 
Heights Subdivisions on March 81, 197% 
without an effective registration with 
Defendant Lynn, Secretary of Housing 
and Urban Development Said Subdivi- 
sions of Lake Run-A-Muck, Old Sr.akt 
River, Wayward Wind and Natneha 
Heights, each with more than 299 lots 
were k>cated entirely within Texas and 
less than five (5%) per cent of the sales 
in said subdivisions in any one year were 
made to nonreskients of the SUte of 
Texas. 

27. 
The Plaintiff, her attorneys, agints, 
officers, emfUoyees, succe s sors, assigns 
and any and all persons acting din.'dly 
or indirectly in concert with her sh«iuld 
be restrained and enjoined from selling 
or leasinfT lots in Lake Run-A-Muck, Okl 
Snake River, Wayv^'ard Wind and Nata^ 
sha Heights Subdivisions and from using 
any means or instnimento of transpmla- 
tk>n or communication in intursUte rom- 
mercc, or the mails, to sc*ll or lease hiU 
in Lake Run-A-Muck, Old Smdie River, 
WaywanI Wimi ami Nataicha HvtghU 
SuUlivisions without satisfying the re* 
(|uiremenls of the Interstate Lund Sak*s 
Full DiscUisure Act 
2B. 
I^aintiff was selling or offvring to m-ll 
lots in Corrigsin llfightx, (Vyiital Ijnkrs, 



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Es|rk9« NcHi, limit Owl Hollow, Hwnus- 
bImic Uikc tliitaloss Nuf^int's Cove, Old 
Siai; RkIkc, Putmim's I^iimlinic, ^m 
HcNJStun, Thun«l(!r Mounljun, Town 
Bluff, Wcavur's Covu, Wild 0>untry and 
Hanlin's llidof>ul SulNlivisions on March 
SI, 1972, without an effective rei^ittra- 
lion with Defendant Lynn, Secretary of 
Housing Urban Development Said subr 
divisions were <ftcempt under all statuto- 
ry and regulatory exemptions prior to 
ICsroh 81, 1972. 

29. 
On March 81, 1972, said Subdivisions 
of Corrigan Heights, Crystal Lakes, Ea- 
gles Nest, Hoot Owl Hollow, Horseshoe 
Lake Estates, Nugent's Cove, Old Stag 
Ridge, Putnam's Landing, Sam Houston, 
Thunder Mountain, Town Bluff, Weav- 
er's Cove, Wild Country and Hardin's 
Hideout each had less than 299 lots, and 
tales were limited to less than five (5%) 
per cent in any one year to nonresidents 
of the State of Texas. 

80. 
Plaintiff, her attorneys, agents, offi- 
cers, employees, successors and assigns 
should be required to comply with the 
registration requirements of the Act and 
the Rules and Regulations issued pur- 
suant thereto with regard to Corrigan 
Heights, Crystal Lakes, Eagles Nest, 
Hoot Owl Hollow, Horseshoe Lake E#s- 
Utes, Nugent's Cove, Old SUg Ridge, 
Putnam's Landing, Sam Houston, Thun- 
der Mountain, Town Bluff, Weaver's 
Cove, Wild Country and Hardin's Hide- 
out Subdivisions. 

CONCLUSIONS OF LAW 



This CouK has jurisdiction over the 
subject matter and the parties because 
of diversity of citizenship between the 
parties and a federal question has been 
raised pursuant to 28 U.S.C. Section 
1331. 

2. 

At all times pertinent to this action 
there was in full force and effect an act 
of the Congress of the United States 
referred to as the Interstate Land Sales 



Full DiHcloGiurc Act. 15 U.S.C., SecCion 
1701 e( acq,, which Act lioeamc uffocUve 
on April 28, 1969. 

8. 

The Act provides that it shall lio un- 
lawful for any devclo|ier or agent, di- 
rectly or indirectly, to nuiko use of any 
means or inHtn\mcnts of transportation 
or eommunication in intcmtato com* 
merce, or of the mails, to sell or lease 
any lot in any subdivision unless a state- 
ment of reeorti with respect to such k>t it 
in effect in accordance with provbions of 
the Act, and a printed property report, 
meeting requirements set forth in the 
Act, it furnished to the purchaser in ad- 
vance of the signing of any contract or 
agreement for sale or lease by the pur- 
chaser. 

4. 

The Act permits the Secretary of 
Housing and Urban Development Cthe 
Secretary") from time to time, pursuant 
to rules and regulations made by him, to 
exempt from any of the provisions of the 
Act any subdivision or any lots in a tub- 
division, if the Secretary finds that the 
enforcement of the Act with respect to 
such subdivision or lots is not necessary 
in the public interest and for the protec- 
tion of purchasers by reason of the small 
amount involved or the limited character 
of the public offering. 
5. 

The Act permits the Secretary, from 
time to time, to make, issue, amend, and 
rescind such rules and regulations and 
such orders aa are necessary or appropri- 
ate to 'the exercise of the functions and 
powers conferred upon him by the Act 

e. 

In 1969, pursuant to the authority of 
Section 1702(b), the Secretary issued cer- 
tain regulations referred to as Section 
1710.10(1), TiUe 24, Code of Federal Reg- 
ulations which exempted from the opera- 
tion of the Act the sale or lease of lota 
where the offering was entirely or al- 
most entirely intrastate. 
7. 

On January 27, 1972, the Secretary is- 
sued new regulatk>ns deleting the old 



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Section 1710.10(1) and creating a new 
Section 1710.14 exemption pursuant to 
his discretionary authority under Section 
1702(b), which Section 1710.14 became 
effective March 31, 1972. 
8. 

Prior to March 31. 1972, Lake Run-A- 
Muck, Old Snake River, Wayward Wind, 
Natasha Heights, Corrigan Heights, 
CrysUl Lakes, Eagles Nest, Hoot Owl 
Hollow, Horseshoe Lake Estates, Nu- 
gent's Cove, Old SUg Ridge, Putnam's 
Landing, Sam Houston, Thunder Moun- 
tain, Town Bluff, Weaver's Cove, Wild 
Country and Hardin's Hideout Subdivi- 
sions were exempt from the provisions of 
the Act because the enforcement of the 
Act with respect to such Subdivisionsr 
was not necessary in the public interest 
and for the protection of purchasers by 
reason of the small amount involved or 
the limited character of the public offer- 
ing. 

9. 

Subsequent to March 31, 1972, 0>rri