from taking any action because of the exemption in the current statute.

A significant number of developers are selling large acreage parcels located in remote areas of the desert or mountains which have little potential for residential use or investment. We have found no correlation between lot size and buyer sophistication when mass marketing techniques are being used. We believe that purchasers should be given the facts about this land.

The administration would exempt the sale of real estate pursuant to court order with certain added precautions.

Many developers of large subdivisions have gone into bankruptcy and continue court-sanctioned sales, exempt from the registration requirements. Buyers in these situations also need protection. Bankruptcy courts are concerned primarily with the interests of creditors rather than the interests of lot purchasers.

The administation would repeal the provision that exempts lots solely on the basis that the purchasers have made an onsite inspection and the lot is free of liens. This exemption has been a problem area for both the Department and developers. Not only has the language been subject to misinterpretation, but our view is that the exemption does not provide sufficient protection for purchasers. This lack of protection is compounded by the fact that statutory exemptions apply across the board and exempt the particular land sales operation from the antifraud provisions of the act as well as from the registration provisions.

The administration would also allow a cooling-off period of 14 days instead of the present 3 business days. Based upon our experience, purchasers should have more time that the 3 days permitted under existing law to revoke a contract.

Extending the cooling-off period should be one of the strongest deterrents in the act to the use of high pressure sales techniques and misrepresentations by salespersons.

A 14-day cooling-off period as proposed by the administration is realistic and should be adequate to give consumers sufficient opportunity to evaluate their purchase decisions and would bring the Federal requirements into line with cooling-off periods found under several State laws.

The administration would amend the act to provide that unless the Secretary has accepted State property reports, the Federal property report will be used in lieu of any State disclosure document. Although approximately 20 States already accept the HUD property report as their own, purchasers in some cases now receive the HUD property report and the State report for the State in which the property is located and the State report from the purchaser's home State as well.

By getting only one uniform property report, the purchaser would be spared the confusing duplication that now exists. This proposal would also assist developers selling in more than one State since they would not have to go to the time and expense of preparing and filing more than one report.

The administration proposes fuller recovery provisions under the civil liabilities section. Restrictions on the amounts recoverable in civil actions have been a significant problem by makng it uneconomical for purchasers to bring suit for fraud or misrepresentation. Both the

administration and the Minish bills would include in the amount recoverable attorney's fees and appraisal costs.

Both bills also propose amending the civil suit section to provide purchasers with a remedy when a developer fails to fulfill promises made in the property report. One of the most common and flagrant areas of abuse in land sales is a tendency for many developers repeatedly to defer completion dates for utilities and recreational amenities or simply to fail to build them at all.

The administration bill would lengthen the statute of limitations of the existing law for consumers from 2 years for voidability for nondelivery of a property report and from 1 to 3 years for fraud to a maximum of 4 years for voidability and 3 years after discovery for fraud. These periods generally would not be affected by delivery of a deed or by the sale or assignment of the sales contract or agreement to a third party.

We believe changes such as these are essential in giving consumers the full protection of the act. These proposals recognize that many purchasers buy on long-term installment contracts and may not have any right to use their land for many years. The developer's obligations may extend well beyond the current statute of limitations.

More importantly, purchasers often do not know of a misrepresentation until the dates have passed for completing promised amenities or facilities.

Both the administration and the Minish bills would allow the Secretary to issue a cease-and-desist order for serious violations of the act. The Secretary's ability to issue cease-and-desist orders would enhance OILSR's ability to act quickly to curtail such practices.

Both bills also contain civil penalties provisions. The proposal to allow civil penalties after an administrative hearing is parallel to remedies found in many other Federal laws and is specifically recommended by the Administrative Conference of the United States as a sanction for Federal administrative agencies.

This sanction is expected to be a significant deterrent to developers who heretofore were willing to risk engaging in violations of the act. The Senate bill would, like the other bills, amend the limitations period. Although it recognizes the problems of the purchaser whose rights presently may be cut off by the assignment of the sales agreement, the major problem of time would be compounded by an absolute remedy cutoff of 3 years after the purchaser signs the contract.

The land sales industry makes extensive use of long-term land installments sales contracts which provide that title will not be vested in purchasers until after the last contract payment is made.

In many cases, subdivision improvements, amenities and utilities, are not scheduled for completion until 2, 3 or more years in the future. Therefore, large time periods elapse before a purchaser may realize damage from the developer's failure to complete.

The Senate bill proposes to amend the "onsite" exemption to exclude from the meaning of "liens, encumbrances and adverse claims" U.S. land patents or Federal grants and reservations similar to U.S. land patents.

A land patent is a grant, in this context usually an instrument conveying title to public land from the Federal Government to a private party. When the Government conveyed land in most of the Western States, it reserved the right to construct ditches and canals on that land.

HUD agrees that the actual effect of land patent reservations for ditches and canals upon individual lot purchasers is negligible. We support repeal of the onsite exemption entirely but if it is retained, the Department would prefer that the language be rewritten so that it would be more clear.

The main purpose of the Senate bill, as we understand it, is to address the problems experienced by small developers with essentially local operations in meeting the requirements of the Interstate Land Sales Full Disclosure Act. This Department is sympathetic to that purpose.

In addition to recommending legislation to double the minimum size of a subdivision covered by the act from 50 to 100 lots, we are taking steps administratively to alleviate the problems. We do not, however, consider it desirable to do this in a manner which could sacrifice the larger consumer protection aspects of the existing law.

It is our opinion that the proposed amendments do not in fact accomplish what they seek to accomplish. The bill is aimed at exempting small intrastate developers, yet would exempt subdivisions where all of the sales are made out of State.

Further, the bill provides no numerical lot ceiling and would, therefore, allow exemptions for subdivisions of thousands of lots.

The Department is presently engaged in litigation right now in Texas in an injunction case involving severe consumer abuses including fraud and failure to build roads and to give good title to the land, in the sale of over 3,500 lots near Dallas.

In our reading that subdivision would be exempt under the proposal of the Senate.

Features common to both exemptions are their self-determining nature and their provisions-limited in one case for onsite inspections and lien-free sales.

The act already contains an exemption based in part upon a purchaser's onsite inspection of a lot similar to the Senate proposal. While HUD recognizes that an onsite inspection has value to prospective lot purchasers, many complaints received by OILSR cause us to doubt seriously that inspections afford consumers the disclosure protection intended by the act. At least one-third of all purchasers who complain to HUD made onsite inspections prior to signing a contract. Few lot purchasers are familiar with local land-use laws, nor are they so knowledgeable as to be able to see that the ground won't allow sufficient percolation to be suitable for septic systems, or that the water supply is inadequate or perhaps unfit for consumption, or that roads are improperly constructed or have no provision for maintenance; that the utility companies cannot supply service at reasonable cost, or that the land is prone to flooding.

Further, an onsite inspection reveals nothing of a developer's ability or intentions to carry through on performance of his promises and representations.

As far back as 1964, this point was addressed by an official of the then Florida Installment Land Sales Board before a Senate subcommittee hearing to determine the need for a land sales law. I quote:

It has been our experience that people who see the property are the ones that are defrauded the greatest. They are subjected to the hard sell. They are subjected to a salesman in a closed room where there is no regulation of what the salesman has to say other than by complaint against him later.

Just as importantly, the free and clear requirement of the exemptions in the Senate bill pertains to a self-determining exemption. HUD's experience with the existing free and clear exemption provision in section 1403 (a) (10) of the act which requires a HUD determination is that many developers do not qualify for the exemption upon their initial submission because the land is not free and clear of liens, encumbrances or adverse claims as specified in the statute.

Furthermore, of those subdivisions which do qualify for the exemption, a disturbing percentage do not operate subsequently as required by the statute for continuing qualifications for the exemption. An exemption based upon voluntary compliance with a free and clear requirement is fraught with peril for both developers and consumers. The proposed exemptions, even though self-determining, would require the developer to file a form with HUD for every sale affirming that the developer had complied with the requirements for the exemption in the case of nonresidents and giving the developer's name and address, a legal description of the subdivision and the developer's signature.

One proposed exemption is for transactions with purchasers who live within 100 miles of the subdivision where the purchaser resides in a State other than where the subdivision is located. The other exemption is for intrastate subdivisions, defined as a subdivision where during the year no more than 5 percent of the total lots sold, or a maximum of five lots, whichever is greater, were sold to nonresidents of the State where the subdivision is located.

Any number of sales could be made to nonresidents who lived within 100 miles of the subdivision, and these would not be counted toward the 5 percent or five lots.

Although nonresidents would receive some information through a written statement of reservations, taxes and assessments, residents will have no such safeguards.

Sales can be made to resident purchasers who do not make on-site inspections, and the land can be heavily encumbered by liens, encumbrances, and adverse claims, even to the extent that the resident purchasers have no chance of ever obtaining clear title.

A fundamental problem with the 100-mile provision is its lack of a realistic rationale. It has nothing to do with the size of the subdivision, the abuses that may have occurred, the character of the subdivision or the manner in which it was promoted.

This provision could exempt many large subdivisions fraught with chicanery such as those encountered by the Department in the Poconos which are marketed in New Jersey, New York, Pennsylvania, and Virginia subdivisions marketed in the Washington, D.C., metropolitan

area.

For example, Captain's Cove, a 3,000 lot subdivision was marketed using direct mail, telephone solicitation, free gifts, and dinners generally within a 100-mile area in Virginia, Maryland, and the District of Columbia. The developer was convicted for mail fraud, and we received hundreds of complaints from purchasers about the developers failure to build promised facilities and to disclose lack of dredging permits necessary to make the land buildable.

Under the Senate proposals, these sales could be exempt and purchasers would receive no disclosures. We would be happy to supply

the subcommittee with other examples of potentially exempt subdivisions that have histories of consumer abuses.

The exemptions proposed contain several pitfalls for the developer as well as for the potential purchasers.

HUD's experience in administering the act indicates that the more. complicated an exemption provision, the more subject it is to misinterpretation. It is not fair to developers to make an exemption available when it contains potential pitfalls which could result in that developer's unintentional violation of Federal law. It follows that a primary goal for exemptions should be simplicity, particularly in the case of self-determining exemptions.

We do not oppose the concept of an exemption for fully improved lots where all local codes and standards are met prior to initiating sales. We have proposed an exemption in our regulations similar to that in the Senate bill. However, we would recommend that the language be reviewed for clarification.

On June 1, 1978, we republished for comment comprehensive amendments to the land registration and exemption regulations. For the reasons stated a moment ago, though some of the regulatory exemptions are self-determining, the complex ones require submission to HUD.

In developing these regulations, we have kept the small developer and the specialized developed in mind. The results are, in tandem with the administration's proposals, eminently workable.

We have proposed seven new regulatory exemptions related to the character of the subdivision, as opposed to an arbitrary mileage or location or percentage-of-sales factor. As such, the regulations are easier for a developer to use in determining if he is exempt and are much more meaningful in protecting the prospective purchaser.

Specifically, the regulations would exempt scattered sites. A developer selling lots in various locations may be entitled to an exemption if there are less than 50 lots per site, even though the total number of lots in all sites exceed 50. This exemption would also cover brokers.

Our primary homesite exemption would be available when not more than 300 lots were offered in the subdivision or scattered site and if there were assurances of completion of various improvements. A third exemption would apply to small subdivisions offered to a local market, where there was limited promotion.

This exemption would allow small developers located near State borders to sell without the cumbersome 5 percent out-of-State restriction found in our present regulations.

Another proposed exemption that was originally issued to ease the problem for builders selling left-over lots has been liberalized to increase from 5 to 10 percent the number of lots in the subdivision that may be sold as raw lots without registration.

We have also recognized the burdens that registration can place upon very small operations. An exemption has been proposed that would allow a developer to make up to 12 lot sales per 12-month period without registration.

In all of these regulatory exemptions, the privilege of exemption would be from the registration requirements only. Fraud and misrepresentation occurring in the sale of lots in these exempted subdivisions could still be enjoined, and developers could still be subject to prose