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of its own citizens, I think the two combined would go a great ways toward protecting consumers in other States and in New Mexico.
Vr. KELLY. Then, really, the extension that you are seeking is to gire local enforcement an opportunity to enforce basically, Federal law in the area of land sales fraud. Mr. ANAYA. 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. Angya. 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. Gonzalez. 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
circumstances and limitations. Although the pitch was that sewage, $ drainage, and other facilities would be 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 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 I 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 recomf" 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 rulio 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 havenot that they should have all the amenities that we would want them to hare, just that thev insure that thev 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
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.
So I think the comhination of more disclosure and the escrow fund, I think would definitely solve that kind of a problem, Mr. Chairman.
Mr. GONZALEZ. Very good.
I want to thank you very much, on behalf of the subcommittee, for the time and trouble you have taken, and your sacrifice in coming all the way over here.
Your testimony is very valuable. You made a very good presentation 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.
[Brief recess. 1
Mr. GONZALEZ. The subcommittee will come to order. We will proceed with the hearings and recognize Deputy Attorney General 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 attorney general. You may proceed as you see best. You may wish to present a summary of your written presentation, which 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. BARNES III, DEPUTY ATTORNEY
GENERAL OF THE STATE OF NEVADA
Mr. BARNEs. Thank you, Mr. Chairman and distinguished Congressmen.
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 do 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.
Let 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 the 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 subdivider who comes in and subdivides 50,000 acres, primarly sells 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
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. Anava also made mention of one of the proposed portions of the legislation that I would strongly favor, and that is the establishment 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 embarrassed and unable to fulfill his promises; and, on the other hand, if the individual developer actually never intended to make the improvements, 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 advertisements, 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 representations 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 any of these materials into the statement of record. He can put one thing into the statement of record 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 contracts 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.
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 against the developer. At the present time, as you know, this is not permitted. And often, lawsuits are made prohibitive by the fact that the attorneys' fees and the cost of traveling from New York and Nevada to prosecute the lawsuit eat up any judgment which might be eventually realized.
The single most important part, in my 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 throughout 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 compensate 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 antitrust 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 market 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 version of the legislation.
We don't favor S. 3084 because, as far as I can tell, all that essentially 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 legislation, which is very important, and that is: Doing away with the 5-acre exemption. Currently, under the Interstate Land 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 land, it is very easy for the developer to put together large parcels that would be in excess of the 5 acres, and then he is exempt from the act.
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 direction, but I would urge you to do away with size exemptions altogether, because I do not think that it is really relevant to the legislation whether it is an 80-acre 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 Congress 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 delegates 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. [Text resumes on p. 188.]
[Mr. Barnes' prepared statement follows along with the referred to exhibits. Exhibit A: Supreme Court of Nevada decision entitled Lander, Inc., et al. v. State of Nevada, et al.; and exhibit B:"The Regulation of Land Sales in Virginia," a paper by Thomas L. Stringfield.]