-- 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 ALDA 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

were 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 commitments 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 unconmon 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

specified conditions! It appears likely that nearly all developers would fall
within one of the three conditional areas triggering a three-year rescission

period – a penalty that at best must be considered extraordinary when applied

to the practices of any business. For example, many developers require a minimm

10
percent down payment and most buyers do not and cannot pay full cash for the

property. The effect would be that the buyer has a three-year "option", but the
developer would be contractually bound, and if at any time during that period the

buyer changes his mind for any reasons (e.g. he later decides he would rather have

a new boat or car), the developer must cancel the contract and give a full refund.

It seems abvious, Mr. Chairman, that no business could operate under these conditions.

A developer's sales contracts are an important asset of his company and are the

basis for his financial agreements with his lenders.

More specifically, the predictable results of this provision would be to pro

hibit any purchases on the same day a contract is presented to the buyer

despite

the fact that many buyers may live within a day's drive of the project, personally

inspect the property and are given ample opportunity to study the Property Report.

well accepted means of purchasing today and maybe the only means available to the

buyer to finance his purchase.

Under this legislation, there is proposed a requirement that title be trans

ferred within 30 days. This is unreasonable and impractical since the paper work

alone normally takes at least that long. The present HUD exemption (24 CFR 1710.11)

TI

allows for 120 days, a reasonable time for title transfer.

Another provision would

seemingly deny the developer the right to charge interest on any loans he makes

to the buyer. This is a common and acceptable pratice in business today, well

the buryer does not get full use of his property until the installment loan is paid

in full, the developer should not be permitted to charge interest on the loan.

We disagree with this proposition, however, because the buyer still has "owner

ship" rights on the property while the loan is being paid off, and more often

than not he gets full use of the project's facilities and recreational amenities. Also, the use for which the land is intended in many projects is for outdoor

camping and recreational vehicle parking. There would be no faimess in allowing

the installment purchaser full use of his purchase, while denying the seller the

right to reasonable charges for extending credit.

We would generally support the provision regarding forfeitures. Most developers

will do everything possible to prevent a forfeiture, and will work with the buyer

who may have encountered unexpected difficulties in paying for the property.

Once

a lot is sold, commissions paid and recordings made, a forfeited lot presents

numerous problems for the developer and a forfeiture is the last thing he wants

to happen. The common belief among casual critics of this industry that developers

make a "killing" on forfeited lots is simply false.

In short, ALDA believes such provisions allowing for 30-day and three-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, would cripple the developer's ability to institute an effective advertising

program, and would greatly hamper his ability to make timely changes to take advan

tage of market nuances. Advertising is a flexible product which must be changed often on short notice, depending upon changing market conditions, seasonal variations,

The advertising industry works on strict deadlines and with the time it

etc.

probably will require to get it approved, effective and useful advertising by

22

developers would no longer exist.

Bear in mind that OILSR already has adver

tising guidelines as part of its land sales regulations which serve to put

the registrant on notice as to what is expected in advertising. Used properly

by OILSA, the present guidelines would accomplish the apparent purpose of

this proposed provision

to insure that developers' advertising is not

false or deceptive. One final word on advertising:

the provision that changes

in advertising would not be considered "material" unless it reflects "substan

tial changes in the representation made by the developer..." would not be
effective since OILSR's past record indicates a preconceived notion by the

agency that every change is material.

ALDA supports the general principle of recovery by injured buyers of

reasonable court costs, attorneys' fees, appraisal costs and travel costs, as

well as the right of specific performance in lieu of damages, as the bill pro

poses. However, practical experience says that such provisions tend to en

courage unwarranted lawsuits and add further to the work of the already over

burdened court system. If there is any deterrent now to spurious lawsuits,

it is that deterrent which arises from the prospect of having to pay court

costs, attorneys' fees and other such expenses. To establish the prospect

of such expenses being recoverable by the purchaser could lead to abuses by

purchasers and their attorneys in launching legal action of a scale not war

ranted by actual damages. Instead, what might be considered is a provision

for additional recoveries if it is proven that the developer intentionally

disregarded his obligations to the purchaser.