unable to deliver clear title to the lots it sold. It used high-pressure sales tactics and committed other consumer abuses.

Today, 6 years after most sales took place at Sherwood Forest, the buyers are unable to build on their lots, they can't sell their lots because of the clouded titles and the inability to build, and they have been unable to get any money back from Sherwood Forest, which is now insolvent.

HUD suspended Sherwood Forest from selling lots and recommended that several of the principals be prosecuted for violations of the Interstate Land Sales Act and the Federal mail fraud statutes. If the Nelson bill had been in effect in 1972 and 1973, the great majority of the sales made by Sherwood Forest would have been exempt from most of the major provisions of the Interstate Land Sales Act. The situation at Sherwood Forest would be even more of a travesty than it is today.

If the Nelson bill, as presently in the Senate Housing Act, is passed, there will be new Sherwood Forests all over the Poconos and other areas of the country and the Federal Government will be unable to intervene in any meaningful way. Although there may be some need for a clarification of OILSR'S jurisdiction, it would be very wrong to make that the major thrust of land sales legislation. The people who suffer most under the present law are not the developers; they are

consumers.

As you may know, a number of the provisions of my bill closely parallel provisions in the administration's proposal. These include restrictions on the statutory bankruptcy exemptions, an absolute right of recision for lot purchasers, the prohibition of omissions of material facts by developers, a provision which allows purchasers to sue for specific performance of promises made by the developer, extension of the statutes of limitations on civil suits under the Land Sales Act, and provisions which allow OILSR to issue cease-and-desist orders and to impose civil penalties. My bill does go beyond the administration's proposal in several key areas. I would like to mention three of them.

Our bill attempts to eliminate the use, in its present form, of the installment-contract method of financing lot purchases. Under the traditional installment contract, the purchaser agrees to pay for his lot over a period of years, usually 7 to 10, through monthly installments. There is no transfer of title to the purchaser until he has completed payments and, in many cases, purchasers who finish paying discover that the developer is unable to deliver clear title. Most installment contracts contain a "liquidated damages" clause which provides that in the case of default by the purchaser, all money paid by the purchaser is retained by the developer. Thus, the purchaser builds no equity proportional to his payments as he would under a traditional mortgage method of financing. In some cases, purchasers have paid over 90 percent of what they owe and then have been left with nothing when they cannot continue to pay.

Another problem which results from the installment contract method of financing is that developers often sell the installment contracts to third parties. The purchaser then owes his payment to the third party, but, because of the holder in due course laws, the purchaser cannot force the third party to fulfill any of the obligations of the developer. In addition to all these problems, because the purchaser

does not get title until he has completed payments, he may not be able to use the property for 7 to 10 years after he signs the contract of sale.

In short, consumers who buy under installment contracts are allaround losers.

Our bill would prevent this abuse by insuring that developers who extend credit for the purchase of their own lots, do so by means of the more traditional mortgage or deed-deed of trust arrangements. They would have to use contracts which provide for formal foreclosure proceedings in case of default and which do not contain liquidated damages clauses. This would insure far more protection to the

consumer.

A second provision of our bill requires that developers who promise to provide basic services such as water, sewage disposal, and electricity must establish escrow accounts which insure completion of these services. During our investigation, we found that developers often promise all kinds of improvements as part of their sales pitch. In many cases, those developers are financially unable to keep their promises and thus force lot buyers to spend money which they never anticipated having to spend. A number of States already have escrow requirements which have provided increased consumer protection without imposing excessive economic burdens on developers.

The third major reform which our bill provides is our "parens patriae" section. We found that many people who have civil causes of action under the present Interstate Land Sales Act are unable to bring suit because individual suits are too expensive and it is too difficult to bring class actions in Federal court.

Our parens patriae section allows the attorney general of a State to bring civil actions against deevlopers on behalf of citizens of his State who have purchased land. This provision does not create any new rights but simply makes it easier for consumers to enforce rights which they already have.

There are a number of other reforms in our bill which I shall not go into at this time. I would like to submit a summary of the major provisions of our bill.

[Mr. Minish subsequently furnished the following summary for inclusion in the record:]

33-716-78-5

BRIEF SUMMARY OF INTERSTATE LAND SALES REFORM ACT OF 1978

Section 2 deals with the coverage of and exemptions to the Interstate Land Sales Full Disclosure Act (ILSFDA). The floor of the ILSFDA is lowered from 50 to 40 lots, thus exempting subdivisions of less than 40 lots. The ILSFDA is also amended to cover lots up to 40 acres. The present Act is limited to lots of 5 acres or less. The exemption in the present Act for sales pursuant to bankruptcy proceedings is eliminated.

Section 3 provides an absolute 30-day right of rescission for lot purchasers. It also discourages sales on the same day that the buyer receives the contract of sale from the developer and, with certain exceptions, prevents developers from extending credit on their own lot sales. Preventing the extension of credit by developers will do away with a number of the major abuses in the land sales industry, including installment contracts, the inability of same developers to deliver good title and the sale of bad commercial paper by developers. This section also requires a legally sufficient and recordable description of lots sold by developers. Under the present Act a "material misrepresentation" is a violation if the buyer relies on it. This section includes amissions to state material facts as violations and eliminates the requirement of proof of reliance.

Section 4 requires that copies or transcripts of all advertising and summaries of verbal presentations made by a developer or his agent be made a part of the Statement of Record filed with the Office of Interstate Land Sales Registration.

Section 5 provides that nothing in the Act shall affect state laws except to the extent that the state laws are inconsistent with the Act.

Section 6 expands the damages which consumers may recover in civil suits under the ILSFDA to include attorneys' fees, travel expenses and appraisal costs. It allows consumers to sue for specific performances of promises made by developers and gives purchasers the right to sue to enforce their rights of revocation.

Section 7 extends the statute of limitations of the ILSFDA to a maximum of seven years and also lengthens the specific statutes of limitations on various sections of the Act.

Section 8 provides new administrative remedies for OILSR. It gives OILSR the authority to issue cease and desist orders against developers and also allows OILSR to impose civil penalties upon developers after an administrative hearing.

Section 9 changes slightly the administrative structure of the Department of Housing and Urban Development by providing for an administrator of interstate land sales within HUD.

Section 10 raises the criminal penalties for violators of the Act.

Section 11 makes it clear that OILSR has the authority to regulate advertising by developers.

Section 12 authorizes HUD to expend money for public education concerning the problems of buying land.

Section 13 the "Parens Patriae" section allows the attorney general of a state to bring civil actions against developers on behalf of citizens of his state who have purchased land. This provision will make it easier for consumers who have been defrauded by land developers to get their money back.

Section 14 requires that developers who promise to provide basic services such as water, sewage disposal and electricity establish escrow accounts which insure the completion of these services. It also provides that lot purchasers may revoke their contracts of sale if developers fail to keep specific promises with regard to the installation of basic services.

Mr. MINISH. I Could also cite additional examples of abuse by developers, but I'm sure you will hear plenty in the testimony to be presented by INFORM, Patrcia Hynes, and Attorney General Anaya.

In closing, I would like to give you a word of warning. You are going to hear a lot of industry testimony which paints a picture of small, overburdened businessmen, tormented by a giant government bureaucracy at HUD. Don't believe it. The real victims here are unsophisticated, lower and middle class people who are led into buying land they often don't want through financial arrangements they don't understand. The main issue before this subcommittee is not protecting business from big government-OILSR has 107 employees. The main issue here is protecting little people from big business. If you follow the testimony closely for the next 3 days, I think this will become very clear. I think you will conclude that the main thrust of land sales legislation has to be increased consumer protection.

Mr. Chairman, I want to thank you very much, and considering that I have a numb jaw, I don't think I was too bad.

Chairman ASHLEY. If you will let us know when the anesthetic starts to wear off, we will be happy to let you go at that juncture. [Laughter.] That is a very good and forceful statement. I suppose that this question could be directed at other witnesses, those from HUD and elsewhere. But in your statement you say that literally millions of consumers continue to be defrauded or disappointed by land developers every year, and I am wondering about the effectiveness of the original act and the extent to which it has provided adequate protection. And obviously, this comment reflects on those interests that I have expressed.

What kind of testimony did you get as to the incidence of continued fraud, of deception within or without the law, the disappointment, the whole range of activities that you are concerned with addressing?

Mr. MINISH. Mr. Chairman, let me just take one. Sherwood Forest, which I am familiar with, is in the Poconos, not very far from where I was born and only about 75 miles from where I live now. Just the other day a lady stopped by my office and said: "Mr. Minish, what do I do with my land?" She said: "I just got a bill to pay school taxes, and I can't build." The reason lot owners can't build up there is because the developer was supposed to put sewers in there, and never did and somehow the money disappeared. The lot owners cannot put septic tanks in because of the high water table. So all of these people up there and there are literally hundreds-are hung up with all of this land that they can't do a darned thing with. They don't know what to do.

I had another case. A gentleman from New Jersey bought 40 acres in Colorado. And when he bought the land, he didn't have a chance to go out there and see it. The developer told him that there was no question that he could earn money on the land, and probably what he earned by leasing it out to cattle owners would more than pay whatever the cost was per month.

Well, he found out that not a single cattleman was interested in it, because when he finally went out there, he found that the lot was on the side of a mountain, all stone, and not even billy goats could climb up there. And so he has been paying for 7 or 8 years, and he has 2 years to go on the contract. And he says: "What do I do?" It is rather diffi