MEMORANDUM

TO:

FROM:

RE:

All Members of the Subcommittee on Housing and Community
Development of the United States House of Representatives

James I. Barnes, III, Deputy Attorney General, State of
Nevada

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 subdivision (Lake Havasu Estates of Arizona) that purportedly met the requirements 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."

considerably.

Effective July 1, 1973, the Act was strengthened

million tourists annually.

Currently, Nevada is visited by approximately thirty (30) Given the re-emergence of the right conditions, Nevada could again become an excellent market for Nevada has experienced living with no state land sales regulatory program, and it has experienced living with a weak land sales regulatory program. Although the present Act is

land sales.

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 weaken 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 Interstate Land Sales Act 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

the Interstate Land Sales Act be very strong.

III. Some Problem Areas In Nevada's Land Sales Act

state.

(1) It provides for no subpoena power outside the

(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 approval 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.,
et al. vs. State of 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

at the trial and proffered evidence that he had relied on

the misrepresentations made by the developer and no purchaser

had presented testimony that he had been damaged by the

misrepresentations of the developer.

An informative discussion of Nevada's Land Sales Act is found in an article written 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 Administration's

bill propose changing the definition of subdivision 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. Incidently, 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.

The

Nevada would support this amendment. In Nevada desert areas, large parcels can sell for prices comparable to, or less than, the price of a small lot in an Eastern state. current five (5) acres exemption provides developers with an 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 promised 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 down payment and monthly installment Davments, with the developer being orohibited from removing

funds from the escrow account until the improvements are

completed.

(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 would 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