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Mr. Gonzalez. We have Herman J. Smith, vice president of the National Association of Home Builders; David D. Roberts, the vice chairman of the legislative committee of the National Association of Realtors
, who is accompanied by our good friend Albert Abrahams, who is a vice president for governmental affairs; and we have J. B. Belin, Jr.
, president of the American Land Development Association.
Gentlemen, we are confronted with a factor here on the continued use of this hearing room. We will have access to it for about an hour, and then we will have to vacate it.
We are very grateful, because each of you has perfected a very fine written statement. We are going to suggest that, for the time that we conduct this as a panel, and if you would be kind enough to summarize your statements to help keep us within the period allotted to use this room, and of course to have a chance to ask questions, I would be very grateful. Perhaps we could start with Mr. Belin.
STATEMENT OF J. B. BELIN, JR., PRESIDENT, CHAIRMAN OF THE BOARD, AMERICAN LAND DEVELOPMENT ASSOCIATION; ACCOMPANIED BY GARY A. TERRY, EXECUTIVE VICE PRESIDENT, WILLIAM B. INGERSOLL, GENERAL COUNSEL, AND GEORGE G. POTTS, DIRECTOR OF PUBLIC AFFAIRS
Mr. BELIN. Thank you, Mr. Chairman.
Mr. Chairman and members of the subcommittee, my name is Bruce Belin. I am president and owner of Belin & Associates of Houston, Tex., a real estate development company currently developing five recreational, resort, and residential projects in Texas, including the award-winning April Sound near Houston. I am presently serving as president and chairman of the board of the American Land Development Association.
Accompanying me today are Gary A. Terry, our association's executive vice president; William B. Ingersoll, general counsel; and George G. Potts, director of public affairs. Our association represents leading national and international companies which develop recreational, resort, and residential real estate.
In the interest of time, Mr. Chairman, I will not read our printed statement in its entirety, but I do request that the complete text and exhibits be included in the hearing record.
It is not our intention to hamper OILSR's efforts to help buyers inform themselves and to protect themselves from the irresponsible element which exists in real estate as, unfortunately, in every other business. But we do not believe such protection has to be at the expense of the honest, responsible developers who predominate in our industry. We therefore are compelled to speak out against what we consider are perhaps well intended, but nevertheless overly restrictive attempts to legislate even more regulation of our ir:dustry.
H.R. 12574, introduced originally as H.R. 10999, would amend the act substantially, adding more regulation. In our opinion, this bill would do considerable harm to developers—indeed, perhaps forcing many of them out of business altogether—while not producing the desired result of greater buyer protection.
One of the major provisions of the bill would give all purchasers and lessees an "unconditional 30-day rescission period” from the date of the consummation of the sales transaction.
Apparently, the purpose of this provision is to allow a buyer a period to reflect objectively on the correctness of his purchase. However, we strongly feel that the present 72-hour, 3-business-day requirement provides adequate and reasonable protection to any purchasers who might have acted on impulse.
While a number of States have rescission periods exceeding the present 3-day Federal requirement-for example, New Jersey is 7 days, New York is 10 days, California is 14 days—many of our member companies operating in those States maintain that such lengthy rescission periods do little more than encourage purchaser irresponsibility and permit overzealous sales persons to close sales by reminding the customer that he has "nothing to lose, since you can easily cancel this transaction if you change your mind.”
We must reflect that, in no other type of “arm's length” real estate transaction is there such a rescission period; and it seems grossly unfair to single out one particular industry for such treatment, particularly when it goes beyond what would be necessary for adequate buyer protection.
However, the automatic 30-day rescission period pales when one considers the proposal for a 3-year period of revocation for the buyer given under certain specified conditions. The effect would be that the buyer has a 3-year “option," but the developer would be contractually bound. And if at any time during that period the buyer changes his mind for any reason-for example, he later decides he would rather have a new boat or a car—the developer must cancel the contract and give a full refund. It seems obvious, Mr. Chairman, that no business could operate under these conditions.
In short, ALDA believes such provisions allowing for 30-day and 3-year rescission periods are unreasonable, unnecessary, and would place an unconscionable burden upon the developer.
Another provision of the proposed bill would mandate that the "statement of record" contain copies of all advertising used by the developer, giving HUD specific statutory authority to regulate advertising
Any such regulation of advertising which requires prior submission or approval from OILSR would be a bureaucratic nightmare, and would cripple the developer's ability to make timely changes to take advantage of market nuances.
OILSR already has advertising guidelines as part of its land sales regulations which serve to put the developer on notice as to what is expected in advertising.
The final provision of H.R. 12574 upon which I would like to comment is that dealing with the escrowing of moneys for so-called "basic services” promised but not completed, and the option granted the purchaser to void his contract and receive full refund if these services are not delivered.
The problem these proposals are designed to correct seems obvious. Their objective is the right one-to require the developer to perform his part of the contract. However, while on the surface this might seem to provide significant protection to the purchaser, in reality it can be harmful to him.
The cost to the developer of placing in escrow moneys of such large amounts will have to be borne by the purchaser in the cost of the property because, unless the developer is permitted to use such moners to keep the project viable and economically feasible, the project could fail.
Such an economic burden will interfere with the developer's ability to perform his contract and complete these very same services. In fact, many present developers who already are providing such basic services, and
would be forced out of business. There are only a few in our industry who could afford to escrow at the beginning of a project the full cost of promised improvements. In effect, the developer's entire line of credit with his lenders could be tied up just meeting this single requirement.
Instead, Mr. Chairman, the common law remedy for damages applicable to failure to complete performance on a timely basis would seem to be a more just and reasonable remedy. The administration's proposals-section 121, title IV of H.R. 11265–also would amend the act substantially, with the apparent intent of alleviating some of the problems we have addressed.
Section 421(e) of the HUD bill would have the effect of eliminating completely the so-called “free and clear of liens“ exemption in the act. This exemption--which we view as founded in logic and equitywas intended by Congress to provide an exemption from regulation for developers who have title to the land and sell lots which are free and clear of all liens, encumbrances, and adverse claims to buyers who inspect personally the offering before purchasing.
Its repeal would not be in keeping with the purposes of the act and the Congress intentions in enacting it. This proposal would serve to permit OILSR to expand further its jurisdiction over developers never intended to be covered in the first place.
One of the major provisions of the administration's proposed amendments would give all purchasers and lessees an unconditional 14-day rescission period. Our previously stated objections to lengthened rescission periods would apply also to HUD's proposed 14-day period. In summary, we feel that both Congressman Minish's bill and the HCD proposals amount to added substantive regulation of our industry. If adopted, they would pile unnecessary burden upon developers already struggling to comply with myriad Federal and State laws.
Mr. Chairman, OILSR has regulated segments of the real estate development industry which were never intended by Congress to be regulated. We would point out also that there have been many changes in our industry-especially the recreational part of it. This is simply not the same industry that it was in the late sixties and early seventies. Reports by public interest groups and the press have tended to focus on practices by high volume lot sales companies. Many of these companies and most of the objectionable practices are rapidly disappearing. Mr. C'hairman, the act does need to be amended. As you know, the Senate has acted to do so in section 71 of S. 3084. Permit me now to comment briefly on the major provisions of the Senate-passed amendments.
The sale or lease of condominiums would be exempted specifically from the act. We do not believe Congress intended that condomini
ums or land on which a condominium is contracted to be built within 2 years—should be regulated under this statute, just as land on which is located a residential, commercial, or industrial building is exempted. Because they are not exempted from the act, OILSR can and has threatened to assert jurisdiction over condominium developers.
Mr. AuCoin (presiding]. Mr. Berlin, I notice you are reading word for word from your prepared testimony, and you have four pages of your prepared
statement left. I am concerned only because the other gentlemen—I want to insure that they have an equal opportunity to make statements and to still allow time for questions.
So that I would encourage you, if you could, to summarize as best you can the highlights of the remaining part of your testimony. The full part of it will be in the record, as you know, and then we can get into questions and answers.
Mr. BELIN. All right, sir.
S. 3084 would provide for an intrastate exemption for the developer who sells less than five lots, or 5 percent of his total lots, whichever is greater, in one calendar year, to out-of-state purchasers, provided the developer gives clear title to the property and the buyer makes an onsite inspection.
Sales to purchasers residing within a 100-unile radius—an easy 1-day, roundtrip drive-of the property site, again subject to clear title and onsite inspection, would be exempted. This solves the problem faced by the developer operating on the boundary between several States, such as here in the Washington, D.C., area. While he may otherwise be exempt from the act's purview, OILSR can and does hold that such a developer is selling on an "interstate” basis, and is therefore subject in Federal regulation.
Under the Senate measure, a new provision would be added to define the term "sale or lease" to mean occurring at the time a contractual relationship is created between the developer and the purchaser. In its latest proposed revision of the regulations, OILSR served notice that it considered the "sale" to continue from the date of the signing of the contract by the buyer until the contract is paid in full or a deed has been delivered to the buyer, whichever comes later.
We feel this is a very important provision. As I stated earlier, the practical effect of such a definition by OILSR would be to extend the statute of limitations by allowing it to run the entire length of the contract period, with the concept of a "continuing sale” and for up to 3 years beyond the contract.
Such a definition would impose the “continuing sale" upon the entire act, thereby extending the statute of limitations. Our case search reveals that the definition in S. 3084 follows the prevailing opinion of the courts: 9 out of 11 of the cases we uncovered disagree with the agency's concept of a "continuing sale."
The Senate bill would add new language to the act to clarify the terms "liens," "encumbrances" and "adverse claims" so that it is clear that they do not refer to U.S. land patents and similar Federal grants or reservations common to most land in the Western United Statesan omission which OILSR has used to defeat claims by developers for the "free and clear" exemption under the act. Requests for exemption under this section are rarely granted by OILSR.
Finally, because of contentions that the amendments would not only dan exempt developers under certain circumstances from the registra
tion requirements of the act but would also exempt these same devel20 Kopers from the antifraud provisions of the act, language was added to
the bill to assure that the antifraud provisions would in fact apply to those developers exempted under S. 3084.
Yesterday, Mr. Chairman, you heard a detailed description of how a purely interstate developer, specializing in off-site sales, operated several years ago to defraud thousands of consumers, many in New York. That case, as well as several others which have been prosecuted, were sad and despicable. Clearly, those actions fall under the intent of the act and should be regulated and prosecuted accordingly.
Today, however, we are before you asking that small, intrastate developers be exempted from the act because it was never the intent of Congress to regulate them under this statute. The Senate amendments simply clarify
the act on that point, and do not call for substantive des regulatory changes.
The large, interstate land companies such as the one described yesterday by Ms. Hynes and those which have been the subject of action by the Federal Trade Commission-would in no way qualify for the exemptions provided for under $. 3084. The present act, with the clarifying Senate amendments, properly administered and with vigorous enforcement and prosecution when necessary, would adequately protect consumers if such fraudulent acts should reoccur.
Ms. Halloran of INFORM mentioned our association's most recent industry survey in claiming that our industry "seems to be riding on the shirt-tails of the current real estate boom," as she put it. She cites our survey, which among other things, concluded that sales are on the upswing because 78 percent of the survey respondents had better sales in 1976 than in 1975. Since most of our industry continued in a deep recession in 1975, when sales were often nonexistent or certainly at the lowest ebb imaginable, the fact that 78 percent indicated increased sales the following year–1976—is not surprising in the least. Nor, in our view, does it signify anything more than the fact that the recession had finally come to an end in 1976. To imply that this means a return by our industry to the days of the 1960's and early 1970's is totally without merit.
Congressman Minish, in his testimony yesterday as well as several months ago before the Senate Banking Committee, charged that "literally millions of consumers continue to be defrauded by land developers each year." We testified before the Senate Committee, and we do so here today, that we are unaware of any such valid figures, and do not know where they come from. We seriously question the figures and the assertion. In conclusion, I want to reiterate the American Land Development Association's conviction that consumers should and must be protected from fraudulent, irresponsible real estate developers—the primary goal of the Interstate Land Sales Full Disclosure Act of 1968.
By endorsing the interstate land sales provisions of S. 3084, this subcommittee could take an important step toward assuring responsible regulation of our industry by clarifying Congress' intentions as to whom and how the law is to be applied, without sacrificing any consumer protections. We commend section 715 of S. 3084 to you.
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