H.R. 12574 would set the statute of limitations for all causes of action at three years after discovery of a violation -- but no more than seven years after the sale or lease. In our opinion, lengthening the term of the statue of limitations would only encourage procrastination on the part of the buyer, when he should be responsive and attentive to his obligations as a buyer. Allowing the statute of limitations to run for as long as seven years after the "sale" or "lease" may be almost the same as having no statute of limitations at all. Why? Because OILSR is presently proposing a new definition for sale or lease, maintaining that the sale does not occur until the contract is completed, all payments made in full and title is passed to the buyer. Since many developers regularly finance installment contracts for 10 years or more, the statute of limitations could remain in effect for at least 17 years. This would be disastrous to business and surely contary to public policy that there be finality to business transactions. I will comment in more detail on the definition of "sale" later in my testimony. Government Under the bill, the Secretary of HUD would be authorized to issue cease and desist orders against developers, and new civil penalties would be established in the form of fines up to $5,000 for each violation and fines for criminal charges of up to $10,000 and/or imprisonment for one to seven years. regulation of our industry is already so prolific and the risks so great even for accidental violation of some rule or requirement that it is hard to believe that stiffer penalties would even be an effective deterrent. Civil and criminal penalties, it seems, should be viewed in light of the confusing proliferation of regulation. It is nearly impossible for a developer today to be in strict compliance with all regulations at all times. Yet, under this provision, the developer is faced with penalties comparable to an individual who willfully commits a seri ous felony, e.g., armed robbery. The penalty, we submit, should be in keeping with the damage to society and the intent of the violator. Thus, ALDA feels such additional powers and fines are unnecessary since the present penalties seem severe enough to act as a deterrent. OILSR's present power of suspension should afford purchasers adequare protection. Finally, a cease and desist order issued without justification can hamper seriously a legitimate developer while the issues are being litigated. If this authority is to be given to the Secretary, the developer should also be given the right of recovery for damages when such orders are improperly issued, or when premature public announcement of intention to issue a cease and desist order is made before a hearing on the issue is first held. A new section of the Act, authorizing state attomeys general to bring civil actions on behalf of their residents, has been proposed in this bill. Although it is difficult to perceive this as a legitimate function of a state attorney general's office, we find it equally difficult to oppose such a provision in principle. However, we wonder if it is truly a proper use of taxpayers' funds. It would seem to give the attorney general a great amount of new political "clout" with consumers, but it could also create a problem in trying to decide which civil actions should be brought of the several complaints filed with them. As the many government bureaucracies which are unencumbered with the concerns of time, effort and expense in such actions, they could cater to almost any complaint filed with them, harrassing business and clogging the courts even further. The final provision of H.R. 12574 upon which I would like to comment is that dealing with the escrowing of monies 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 pro posals are designed to correct seems obvious, and 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 monies 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 monies 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 more, would be forced out of business. There are only a few in our industry who could afford to escrow the full cost of promised improvements, bearing in mind that many developers have several developments underway at the same time. In effect, the developer's entire line of credit with his lenders could be tied up just meeting this single requirement. And, bonding is generally unavailable to cover such situations. As to giving the buyer the option to void his contract and receive full refund, please consider these points: --providing the purchaser with such a quick, convenient means of getting out of his contract is fraught with the same inequities as a developer who cancels the buyer's interest if the buyer falls a month behind in his monthly payments on lot purchase (an action no legitimate, responsible developer would take); --certain construction delays are unavoidable and certainly beyond the control of the developer, e.g., strikes, material shortages, unusually inclement weather, temporary restraining orders and, as in the case of one of our members in the west, the bankruptcy of a road contractor due to the national fuel crisis several years ago; --if "any other amenities" which the Secretary may specify -again, developers could find it difficult to obtain project development loans with such a provision available to prospective buyers. 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. Our Association readily accepts and supports the need for reasonable regulation where it is shown to be required. However, we feel that this bill amounts to a "shotgun" approach to regulation and is not the desired solution. The problem developer can be regulated and eliminated without the total industry ultimately the consumer and bearing the costs. The federal law can be made to do what it was intended to do, equip the buyer with the facts needed to enable him to make a rational purchase. The Administration's Proposed "Amendments to the Interstate The Administration's proposals - Section 421, Title IV of H.R. 11265 would amend the ILSFD/Act in a number of ways, with the apparent intent of alleviating some of the problems we have addressed, while at the same time strengthening the Act to provide greater protection for real estate buyers by increasing the regulation of land sales practices. However, under some of its provisions, these proposals would likely not produce the desired results and would do considerable harm to developers - indeed perhaps forcing many of them out of business altogether. I would like to comment on several of the HUD endorsed proposals. HUD's proposals would raise the threshold of jurisdiction under the Act from 50 lots to "100 or more lots." While ALDA would support this proposal, we are not at all certain it would in fact lessen OILSR's regulatory hold on small, mostly "intrastate" developers. So long as OILSR continues to interpret the term "common promotional plan" as they have in the past (described in Exhibit A), lots will be aggregated by the agency as a means of bringing smaller developers under the purview of the Act. Thus, this amendment at best would only serve to delay the time when certain developers were brought under OILSR's regulation. If this amendment were coupled with the requirement that "common promotional plan" be defined as follows, perhaps it could prove workable: "the offering for sale or lease of subdivided land, incorporating the use of the following common elements at the same time: (a) common sales staff; (b) and common ownership; (c) and common advertising or subdivision identity or contiguity." Under the Administration proposals, court-ordered sales of lots would no longer be given a blanket exemption. While ALDA might be inclined to support this change, it may well create a "conflicts of laws" problem so far as bankruptcy proceedings are concerned. On the other hand, under the existing exemption, a developer who files for bankruptcy could, through a trustee, sell property without a HUD registration. If so, financially successful developers are then put in a disadvantageous position. We are aware that there have been abuses of this exemption, and we view the proposed change as constructive. However, we would urge language to require OILSR to accept registration of such a subdivision, or otherwise authorize court-ordered sales where it can be shown that not only creditor but buyer interests are protected. |