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-- 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
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.
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
--developers would find it very difficult to obtain
financing of the "paper" generated by the on-going
--the developer cannot recognize a "sale" for account
ing purposes until the rescission period is over,
--it requires the developer to invest in and carry
a substantially higher number of lots 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
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
property. The effect would be that the buyer has a three-year "option", but 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
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)
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.
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
probably will require to get it approved, effective and useful advertising by
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
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.