been exempt that purchased the lot from the subdivider. Consequently, your constituent would be paying more money for the lot. And we think he should have that right as an informed consumer to purchase the lot directly from the builder, provided that it met the requirements of your city of San Antonio.

That is the reason that we have supported-NAHB supports the Nelson bill, all of section 715, because in the event of fraud on out-ofState buyers, as the attorney general from New Mexico mentionedthe New York purchaser can be protected by the New York attorney general. And so, consequently, we have protection for the out-of-State buyer. We think that the individual buyer in San Antonio and Fort Worth is well protected now, because of the many codes and ordinances he has to go through, and we do not think that your constituents should have to go through an exempted filing of the amount of money you spoke of a while ago.

And I mentioned while you were out that on top of that $20,000 is the carrying expense of the subdivision lying dormant while the subdivider is awaiting approval on the national level.

Mr. GONZALEZ. So that actually, I think our biggest problem or dilemma is: How do you define in the law, in the statute, in the bill, this differentiation between the purely intrastate and what you ordinarily would consider an interstate transaction? Because the thing that I noticed was that, in the particular cases that came to my attention in the area that I am familiar with, every one of these men were not interested at all in any kind of interstate kind of activities. They were wholly and completely local, and I doubt they would be recognized, even by their fellow associates in the business, outside of the San Antonio area.

And this is-I think this is the main problem, as I see it, that has developed, and would be a continuing problem here. These problems clearly reveal other issues as to size limitation and so forth. The difficulty of national legislation, when you have the situation of the dense East and North and the sparsely settled areas of Nevada, such as the attorney general was describing, will always present difficulties.

But this other problem, which I think really imposes inequitable restraints and burdens, is what I see as our continuing dilemma here. Mr. SMITH. As I testified to Congressman Minish, I would hope you could help us separate the wheat from the chaff. And it is defined in the Nelson bill, in our opinion, and we don't think we should take an elephant gun after a jackrabbit.

Mr. ABRAHAMS. If it would not be inappropriate just to comment, Mr. Chairman, I believe that both State attorneys general made our case for us repeatedly. Although they paid lipservice opposition to the Nelson amendment, when any kind of questions and answers developed, if I may say, in each case they said: It isn't going to be the New Mexico or Nevada folks who are going to be defrauded. It is not the people in our State and our areas who are going to be fooled by this worthless land. They are worrying about the folks coming down from the frozen North to the beautiful Southwest and Southeast, and not. having adequate protection, because of distance and several other considerations. In my opinion they proved the case for the intrastate and local exemption, which was what I think Senator Nelson had in mind.

Mr. GONZALEZ. Well, those dramatic cases, which generally did involve a sophisticated fraudulent practice, almost always were associated with something that we considered or defined as large or extensive und not local; local only in the sense that they were coming in to speculate on local land.

But I think that that is our dilemma here, and there is no question in my mind that you have very well and very competently reflected the experience of your individual members on some of the questions that we have to express ourselves to.

And now, as I understand it, the Senate bill incorporated this amendment that I believe the Home Builders Association had. Mr. KELLY. Mr. Chairman?

Mr. GONZALEZ. Yes?

Mr. KELLY. The second bells have rung.

Mr. GONZALEZ. Well, Mr. Kelly, we had better get going. I think there is no alternative, in view of our time limitation here, but to thank you very much, gentlemen. And we hope we will have a continuing relationship during the course of these hearings. And the subcommittee will stand in recess until 10 o'clock tomorrow morning.

[Whereupon, at 1:45 p.m., the hearing was recessed, to reconvene at 10 a.m., on Thursday, August 3, 1978.]

33-716 - 78 - 30

THE INTERSTATE LAND SALES FULL DISCLOSURE ACT

AMENDMENTS

THURSDAY, AUGUST 3, 1978

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS, SUBCOMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT, Washington, D.C.

The subcommittee met at 10:30 a.m. in room 2128 of the Rayburn House Office Building, Hon. Thomas L. Ashley (chairman of the subcommittee) presiding.

Present: Representatives Ashley, Gonzalez, AuCoin, Hannaford, and Brown.

Also present Representative S. William Green of the State of New York.

Chairman ASHLEY. The subcommittee will come to order.

This morning we resume the taking of testimony on the Interstate Land Sales Full Disclosure Act amendments. Our first witness will be Patricia M. Worthy, Administrator, Office of Interstate Land Sales Registration, Department of Housing and Urban Development. We are delighted to have you with us this morning.

Also on the panel will be Edward D. Steinman, Acting Assistant Director, Division of Marketing Abuses, Federal Trade Commission, accompanied by John M. Tifford, staff attorney in the land sales program.

Ms. Worthy, would you proceed with your testimony, please. STATEMENT OF PATRICIA WORTHY, ADMINISTRATOR, OFFICE OF INTERSTATE LAND SALES REGISTRATION, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; ACCOMPANIED BY PETER RACE, OFFICE OF GENERAL COUNSEL, AND ALAN KAPPELER, DEPUTY ADMINISTRATOR

Ms. WORTHY. Mr. Chairman, it is with great pleasure that we can appear before you this morning.

I have with me to my left Peter Race from the Office of General Counsel at the Department, and to my right, my deputy, Alan Kappeler.

We are here this morning to discuss with you various legislative proposals to amend the Interstate Land Sales Full Disclosure Act. Bills have been introduced by Congressman Minish, the administration and Senator Nelson, the latter being incorporated into S. 3084 which passed the full Senate.

The Interstate Land Sales Full Disclosure Act took effect a little over 9 years ago. The act was new; precedent was lacking; staff was

inexperienced in its new discipline; aspirations as to breaking ground were high; enthusiasm in the relatively new concept of "consumer protection" was spirited, and the desire to execute the congressional mandate was clearly evident.

After 9 years of operating the program, we are able to see clearly what has been its strengths and its weaknesses. Experience has been profitable, and improvements have in some measure been due to trial and error.

In administering the act, we have been effective in carrying out the congressional objectives of providing full disclosure to lot purchasers. There have been over 8,600 filings with the Department covering over 5,250,000 lots in subdivisions. Purchasers and potential purchasers have had the benefit of a property report fully informing them about the subdivision in which they bought or considered buying a lot.

The Department has also been active in serving as an intermediary between purchasers and developers in helping resolve thousands of consumer complaints. In the last year alone, HUD has reached settlements with developers in which refunds have been offered to purchasers from contract obligations amounting to approximately $133,500,000.

Further, HUD has successfully used its statutory authority to pursue a number of flagrant violators with civil and criminal action, initiating 26 injunction cases against 54 companies and 82 individuals.

The Department has also instituted 1,100 administrative proceedings against developers who have omitted facts or made misleading statements in their filings. These actions help to insure that purchasers get full and accurate disclosures.

The Office of Interstate Land Sales Registration staff members have been keenly aware that in the enforcement of the act's provisions and requirements, competing interests of the regulated industry and the purchasing public have had to be considered.

We believe that enactment of the administration program, together with the regulations recently proposed, will result in overall balanced improvement in the administration and in the furtherance of the goal of protecting the interests of purchasers.

At the same time, we believe that the legitimate concerns and interests of land developers will be addressed and enhanced.

Like many of the Members of Congress, the Department recognizes the problems of small developers in complying with the registration requirements of the act.

The 50-lot threshold in the act is very low, technically subjecting to jurisdiction many people whose entry into the land sales business is minor or only temporary and who have no conception that Federal law might apply to them.

We have recommended that a simple means of reducing the coverage of the act would be to amend the definition of "subdivision" by increasing the numerical threshold to 100 lots from the present 50 lots. For the reasons stated above, we do not favor the Minish proviso to lower the threshold figure of 50 to 40 lots.

The administration's bill proposes that the act should be amended to cover lots of up to 40 acres in size rather than the present 5 acres. Purchasers have complained to us about sales practices perpetuated in the sale of tracts over 5 acres in size, but we have been prevented