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at least partial refunds to any purchaser who defaults on
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
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 certain 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
But from the description of the sales operation, the
location of the subdivision--in one of the most over-sub
divided sections of the state--and what I knew of similar
projects, I feared the worst for the future of the lot as
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 thcy now get.
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 rcal
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
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
We strongly urge you to oppose the Nelson amendments in
Conference--amendments which would take away the property
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.
He 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.
Chairman ASHLEY. Well, we are very grateful to you for excellent testimony which will be extremely helpful to us in the days ahead.
Let me ask you a little bit about INFORM, which you describe as a nonprofit, public interest research organization that studies the impact of business 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, ranging from $25 for individuals up to $500 for large corporations.
Chairman ASHLEY. IS ITT on your list?
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 methodologyto focus on 18 or 20 different-sized sand 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 otherwise would not have. It is enormously valuable to the Minish subcommittee 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 substantiation of that, I suspect, in that it is extremely difficult for 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 could 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
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. Allan. I think, in addition to trying to quantify actual examples 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 purchaser and the salesman.
Chairman ASHLEY. 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 STATEMENT OF PATRICIA M. HYNES, ASSISTANT U.S. ATTORNEY,
SOUTHERN DISTRICT OF NEW YORK
Ms. Hyxes. I would be happy to. Just in response to your last question about whether we could quantify the fraud, in the case that I 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. AMREP is the parent company and has other subdivisions.
Our criminal prosecution focused on the Rio Rancho subdivision in New Mesico, which was the largest 91,000 acres. The basic selling device and technique used there was to take these 91,000 acres, subdivide 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 operation is inherently fraudulent because when you are selling a subdivided lot, one of several hundred thousand lots, as a safe and financial 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
They began to subdivide it and sell it off throughout the country. The sales effort was very successful. They sold through the mail in the 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 1975, it was being sold for up to $12,000 an acre—raw, unimproved