2 not fulfill any obligation set forth in the statement of record or Sec. 421 (g): -The statute of limitations for any right where no property -the statute of limitations for actions based on fraudulent schemes, un- Sec. 421(k): Secretary may issue cease and desist orders. Sec. 421(1): Developer may be subject to a civil penalty of no more than $5,000 per violation. Summary of Senate Amendments to Interstate Land Senate Bill does the following: Sec. 715(a)(3): An exemption from all provisions of the Act is added for real estate restricted to commercial or industrial use by recorded covenants. The commercial exemption is now limited to property restricted by zoning. Sec. 715(b)(2)(b): Exemption from Registration and Property Report requirements for three new categories: (A) developments where not more than 5% or five lots (whichever of all liens and an onsite inspection has been made; (B) sales made to out-of-state purchasers living within 100 miles (C) real estate located in a municipality with subdivision development standards if (1) the subdivision meets all local Sec. 715(c): Maintains present 3-year maximum statute of limitations. Chairman ASHLEY. I look forward to the advice of the witnesses who will testify during the next 3 days and hope that they will not limit their comments solely to the proposals before us. These proposals are only a starting point for reviewing the present state of the industry, the effectiveness of HUD's administration of the existing act, and the need for statutory changes. We will be pleased to hear first from our colleague, Congressman Joseph G. Minish. At my suggestion, his Subcommittee on General Oversight and Renegotiation, as most of you know, has conducted extensive hearings which have provided the basis for the reforms included in H.R. 12574. I do commend Congressman Minish and his subcommittee for their efforts and their recommendations now before us. After Mr. Minish, we will hear from Jean Halloran, accompanied by Leslie Allan, and then from Patricia M. Hynes, who will be properly introduced in a few minutes. So our first witness, with the cleanest teeth in the room, I am sure, is our colleague from New Jersey, Congressman Minish. I want to say that there isn't a more worthy and respected member of the full committee than the chairman of the Subcommittee on General Oversight and Renegotiation. He has done outstanding work in a number of areas, not the least of which is the area that is of interest at this time; namely the status of the Interstate Land Sales Full Disclosure Act. So if you will proceed, Mr. Minish, we will be grateful to you. STATEMENT OF HON. JOSEPH G. MINISH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY Mr. MINISH. Thank you, Mr. Chairman. Members of the subcommittee, thank you for inviting me to testify on the subject of interstate land sales. At the request of Chairman Ashley, the Oversight Subcommittee of the Banking Committee, of which I am chairman, conducted an extensive investigation of the land development industry. This included the first comprehensive review of the Interstate Land Sales Full Disclosure Act since its inception in 1968. We held hearings in April, at which we heard testimony from more than 30 witnesses, representing Federal and State governments, industry, public interest groups, and consumers. Various other interested parties submitted written testimony to our subcommittee. I would like to share the findings of our investigation with you. Our primary finding was that consumers are not adequately protected by present laws. Although several Federal and State agencies have taken steps toward cleaning up the land sales industry, severe problems remain. Literally millions of consumers continue to be defrauded or disappointed by land developers every year. Unfortunately, the shady developers tend to prey on those who are least able to protect themselves; consumers who are elderly, poorly educated, or unsophisticated, constitute prime markets for land schemes. I believe that the problems in the land sales industry result in large part from three basic facts: Fact No. 1: Land Sales regulation is an "orphan," especially within the Federal Government. Although a number of Federal agencies at tempt to police land sales, none of them has been able to devote the time and resources necessary to insure regulation with teeth. The primary regulator, the Office of Interstate Land Sales within HUD has a total of 107 employees and a yearly budget of less than $3.5 million with which it attempts to oversee a multibillion dollar industry. The Federal Trade Commission and the Securities and Exchange Commission have done some regulating but only on a very limited basis. Many States do not even have statutes dealing with land development and only a handful have laws which even approach being adequate. Local laws vary widely and the least sophisticated ordinances are often in the same rural areas which are the primary target of developers. Fact No. 2: Disclosure by itself cannot prevent abuses in the land sales industry. The selling practices of the land sales industry work against effective disclosure. Any land salesman will tell you that a sale which is not closed on the same day the sales pitch is made is almost always lost. The high pressure push toward same-day closings run directly contrary to the theory of disclosure. In real life, land buyers, who usually purchase at sales dinners or on their first visit to developments, rarely have a chance to read, much less understand, the information in the property report. Fact No. 3: There are a number of commonplace practices within the land sales industry which are extremely unfair to consumers. Among them are: the financing of lot purchases through installment contracts which give buyers almost no protection for their money; the promising of improvements such as water, sewage disposal and recreational facilities which the developer cannot complete; high pressure sales tactics designed toward insuring same-day closings; and false or misleading advertising. None of these practices can be controlled by a simple disclosure statute and all of them should be discouraged. Most of the consumer abuses in the land sales industry can be eliminated without putting developers out of business. The bill which I and 26 of my colleagues have introduced, H.R. 12574, would eliminate many of the worst consumer abuses in the land sales industry without seriously affecting honest developers. I am happy to report that five of the members of this subcommittee, Representatives St Germain, Gonzalez, Mitchell, Hanley, and Spellman, have decided to cosponsor this bill. I would like to discuss a few of its major provisions, but before I do so, I want to speak briefly on another measure being considered by this subcommittee, the "Nelson bill," which has been incorporated into the Senate version of the Housing Act of 1978. During the investigation and the subsequent hearings which my subcommittee held, we received testimony from various industry sources which suggested that OILSR has overstepped its jurisdiction by regulating some small, primarily intrastate developers. This may, in fact, be the case and there may be some need for legislation which clarifies the jurisdiction of OILSR. However, I question whether the Nelson bill is the way to accomplish this. I think that the Nelson bill, in its present form, is an unwise proposal. It will exempt some of the worst interstate developers in the country from the requirements of the Interstate Land Sales Full Disclosure Act. It contains complicated and probably unworkable exemp tions which will leave developers, consumers, and HUD uncertain as to who is covered by the Federal law. Although it may be possible to draft amendments to the Interstate Land Sales Act, which exempt only some intrastate developers, this proposal does not accomplish that. It is far too broad and contains loopholes which would allow many large interstate developers to escape Federal regulation. I know that HUD intends to testify as to the problems of the Nelson bill. In general, I concur with its analysis. There are, however, several difficulties which I think deserve special mention. First, the two main exemptions in this bill, the five lot or 5-percent exemption and the 100-mile exemption, are very complicated yet they are self-executing. This means that many developers may think they qualify for exemptions and then be forced to cancel sales contracts when they find out later that they are covered by the Interstate Land Sales Act. Second, the Nelson proposal makes the fraud provisions of the act applicable to all developers covered by that law, even if they qualify for the Nelson exemptions. However, as was pointed out by several witnesses in the Senate Banking Committee's hearings on land sales, criminal prosecutions or civil suits are almost impossible to bring without the benefit of the information provided in the statement of record. Without the information provided under the disclosure sections of the Interstate Land Sales Act, attorneys for buyers will be operating in the dark. The fraud provisions, by themselves, will be almost meaningless. Third, one section of this proposal requires OILSR to comply with the Administrative Procedures Act. OILSR already does this by regulation. No one seems to know which this section is in the bill. Fourth, the provision of the Nelson bill that concerns me most is the 100-mile radius exemption. This exempts sales to people who live within 100 miles of the developer. It is a lot-by-lot exemption which means that no matter how big or how bad the developer is, he may sell to anyone within 100 miles of his development, without being covered by the Federal law. I would like to give one example of the nightmares which would occur if this provision is adopted. One of the primary areas for land subdivision in the East is the Pocono Mountains of Pennsylvania. Within 100 miles of most Pocono developments are the metropolitan areas of New York City, northern New Jersey, and Philadelphia. Taken together, these three areas represent a market of over 20 million people. Under the Nelson bill, none of these people would be protected by the Federal disclosure requirements if they bought lots in the Poconos. During our hearings, our subcommittee heard testimony concerning a number of very poor subdivisions in the Poconos. One will serve as a good example. Sherwood Forest, near Newfoundland, Pa., sold over 800 lots during 1972 and 1973. Three hundred and sixty-five of the lots were sold to people from New Jersey. At least 30 of the buyers are my constituents. Most of the other lots were bought by residents of the Philadelphia or New York metropolitan areas. Among other things, Sherwood Forest promised improvements such as sewage disposal and water, which it never completed. It concealed from prospective buyers a dispute with local township authorities which made Sherwood Forest |