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 OILSR'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. 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 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 downpayment (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 guaranted 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 to post a total of almost $62 million in corporate performance bonds for only two of its subdivisions. 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 I noted earlier, under this form of sales agreement the purchaser does not have the use of the land while he or she is paying for it and is assured 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 a definite benefit. Whether providing a three-year cancellation 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, we 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 |