Mr. GONZALEZ. Thank you very much, Mr. Barnes. 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 right 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 record 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 reserving the right 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 I say and repeat, this has been my understanding 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 limitations 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. KELLY. 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,

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 questions 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 objectI 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. GONZALEZ. I can assure the gentleman that that fear is groundless, 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. GONZALEZ. 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 degree. We have had rumors that the financing for one of the developers was related to the company 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 presence or visible substantial presence of such a thing as organized crime?

Mr. BARNES. Not really. The closest thing 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 biggest subdivisions we have going right now. And he is, I understand, being investigated by the Federal Government for these offshore tax shelters and I have heard rumors, 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 adequate financial arrangements for all of the promised improvements. Mr. BARNES. The adequate financial arrangements have been interpreted and implemented in basically four different things.

One would be 100 percent escrowing of funds for all promised improvements at the outset of the licensing of the development. The second would be a third-party bond of some sort for the full amount of the improvements, so that we would not let the developer himself issue a bond, but if a bonding 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 account that is made up of percentage 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 are almost nonexistent. Most bonding companies won't undertake something like that.

Mr. GONZALEZ. Does this requirement apply to all developers, regardless of size?

Mr. BARNES. Yes. My understanding is that the real estate division applies that to all developers, regardless of what size they are.

Mr. GONZALEZ. Does the record show that this practice has limited or impaired activity in the sale of land?

Mr. BARNES. That is very hard 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 didn't. I know the land sales industry, basically, has been impaired substantially since 1973, when we first got our strong Land Sales Act. Whether that is due to the requirements that are now placed upon developers prior to being licensed, or whether it is something due to the economy. 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, hopefully, it has been ones who would have caused problems if they had been 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 you think that that could be done as easily or as expeditiously or satisfactorily on the Federal level as it can on the State level?

Mr. BARNES. I would doubt that that would be true for purely intrastate developments. Probably the people in the State itself would be more able to adequately determine that. However, for the large developments 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 attorneys 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 endorse 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 statements on that by then Attorney General Miller 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 lawsuit.

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 any basis for that.

a

It is my experience that it always hurts you more politically to file 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.

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 intrastate 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 things 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 personal 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, I 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. BARNES. 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 application 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, nevertheless, because of my position on the committee, he appealed to me, and I'm still trying to argue this. Because I agree with your judgment, but this is not the judgment thus far by the administrators in HUD. I am hoping to convince somebody, but that is where we are.

Thank you 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 misunderstood. 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