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Mr. Chairman and members of the Subcommittee, my name is Bruce Belin.

I am president and owner of Belin and Associates in Houston, Texas, a real

estate development company currently developing five recreational, resort and

residential projects in Texas, including the Award-winning April Sound project

near Houston.

I am presently serving as president and chairman of the board of

the American Land Development Association (ALDA).

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.

The American Land Development Association represents leading national and

international companies which develop recreational, resort and residential real

estate.

Our members build and sell vacation homes, condominiums, planned unit

developments, destination resorts, new and retirement communities, mobile home

parks and recreational vehicle parks and campgrounds.

While our membership in

cludes the real estate development subsidiaries of some of the nation's largest

corporations operating in interstate commerce, many of our member companies are family-owned or are limited partnerships and can be classified as small, intrastate

[blocks in formation]

Some of our member firms, large and small, are considered builders

of primary residential homes, and a few operate as real estate agencies.

Nevertheless, the Interstate Land Sales Full Disclosure Act (ILSFD/Act) of

1968 affects directly most, if not all, of our members.

I hasten to point out,

however, that in our opinion the ILSFD/Act was not intended to regulate some of

these companies

namely those operating primarily on an intrastate basis or as

home builders or real estate brokers.

Background and Explanation of the Act

It would be appropriate at this point, Mr. Chairman, to provide the Subcommittee

with a brief background and explanation of the Act, its intended scope and how it

has been administered - from our point of view

for nearly ten years now by

the Department of Housing and Urban Development (HUD). However, in the interest

of time, we have attached this information as Exhibit A, and I respectfully request that it, as well as several other exhibits related to that information, be

included in the hearing record.

Since the enactment ten years ago of the Interstate Land Sales Full Disclosure

Act, we have seen HUD's Office of Interstate Land Sales Registration (OILSR) expand its regulatory authority over segments of our industry which we feel were not intended by Congress to be covered under the Act. In our opinion, the ILSFD/Act was intended, and should continue to be a disclosure rather than regulatory

Yet, through its ability to withhold effective registration and through various informal requirements, we believe OILSR has generated regulatory powers in aciministering the Act.

statute.

Moreover, the companies which the law was intended to cover are suffering

unduly today from what often seems to be uneven formal and informal rules and

procedures employed by OILSR. The agency's registration policies -- which we feel are too stringent and lack flexibility and predictability -- as well as the

sheer complexity of the rules themselves have resulted in a substantial regulatory

burden for all who have had to cope with the Act, especially for small developers.

We are aware that much of OILSR's expansion of its regulatory role, and

many of the attendant problems, were those inherent in administering a new program

with new people.

In fairness, we feel that the agency and the Act have in fact

stopped many abuses by a few unscrupulous developers and have likely prevented

others from occuring.

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 industry.

I would like now to comment on the three major proposals which have been

put forth to amend the ILSFD/Act.

H.R. 12574, "Interstate Land Sales Reform Act of 1978"

This proposed legislation, introduced originally as H.R. 10999, would amend

the Act in several ways, with the apparent intent of strengthening the law to

provide greater protection for real estate buyers by increasing the regulation of land sales. Unfortunately, under many of its provisions, the measure would

not produce the desired results and would do considerable harm to developers

indeed perhaps forcing many of them out of business altogether.

The bill would extend the Act's coverage to include subdivisions of 40 or

more lots, replacing the threshold of 50 or more lots in the present Act. Adhnittedly.

smaller developers, often the very ones who least deserve regulation and can least

afford the additional burden, would be brought in under federal regulation.

In

short, this seems to be just another example of expanding the Act's jurisdiction

with little or no corresponding benefit to the consumer.

would it be 30 lots next

year? And 20 by 1980?

The Act's jurisdiction would also be expanded, under this proposal, to cover lots which are less than 40 acres in size, i.e. eliminate the present exemption

for lots five acres or larger. Proponents of this provision point out, perhaps

correctly, that the so-called "five acre exemption" often tempts irresponsible

developers to subdivide property into larger unusable lots in order to escape

regulation; attracts "fly-by-night" subdividers; and results in the subdividing

of marginally usable land.

Conversely, consumers purchasing lots in excess of

-- or the

five acres in size generally have the financial means and knowledge ability to hire an attorney with such expertise to buy such property without the need for the disclosure protection afforded under the Act. Also, as one

AIDA member points out, such extension of jurisdiction could hamper certain

developers' abilities to dispose of surplus property not a part of its common promotional plan. Moreover, since it is often a practical necessity that such large lots be offered with fewer improvements than is offered with smaller lots, the sale of such uncomplicated property (raw land in many cases) hardly requires the extensive disclosures required under the Act.

Under H.R. 12574, court-ordered sales of lots in connection with bankruptcy

proceedings would no longer be exempted, although presumably all other types of court-ordered sales would continue to be exempt. While ALDA agrees with the

apparent intent of this provision, to impose automatically a regulatory burden upon such a distressed situation may be unfair to the creditors. Moreover, such a provision may well be unconstitutional since the rights of bankruptcy are estab

lished in the Constitution.

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 consumation of the sales transaction. Apparently the purpose of this provision is to allow a buyer

a period to objectively reflect on the correctness of his purchase, especially

where he might have been subjected to a "high pressure" sales presentation.

How

Ever, we strongly feel that the present 72-hour (three business days) 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 three-day federal requirement, e.g. New Jersey seven days, New York ten days, Califomia 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 over-zealous salespersons 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."

Here are some additional undesirable results of lengthy rescission periods

based on the experiences of some of our members:

--it is very difficult for individual property owners

to obtain financing for home construction and other
improvements to their properties, since lending in-
stitutions will shy away from such comitments with a
rescission period of this duration due to "prolonged
exposure" ;

--developers would find it very difficult to obtain

financing of the "paper" generated by the on-going
sale of properties;

--the developer cannot recognize a "sale" for account

ing purposes until the rescission period is over,
creating severe problems for his financial state-
ments; and

--it requires the developer to invest in and carry

a substantially higher number of lots in inventory.
Because of the seasonability of our business, it
is not uncommon for 50 percent of a developer's
sales to occur in a two or three month period (par-
ticularly in the mid-west and northeast). If the
buyer has a 30-day period to cancel the sale, that
buyer's lot must remain in limbo for the full period
and all monies received held in escrow. This in
turn necessitates having perhaps double the normal
supply of lots in inventory, and at a development
cost which often amounts to several thousand dollars
per lot, an excessive amount of the developer's
capital would be tied up in inventory.

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 three-year period of revocation for the buyer given under certain

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