Imágenes de páginas

This provision would make it even more difficult for disappointed purchasers to assert the rights they have under the present law. In our investigation of the land sales industry, one of the most common complaints we heard was that people often don't discover that they have been swindled until after the statute of limitations has run out. This is because people commonly buy lots on long-term installment contracts which require transfer of title only after the purchaser has completed payment, often seven to ten years after the signing of the contract. In addition, many purchasers act in reliance upon the promises of developers to install utilities and other amenities many years in the future. Because of this, many purchasers just don't know whether they have a cause of action until long after the three year limit has passed. In recognition of this, several courts have tried to extend the statute of limitations by tying it to the discovery of the defect or to the period of the installment contract. The Nelson bill would preclude such equitable solutions. Once again consumers lose.

(a) The Administrative Procedures Act. The Nelson bill would amend section 1416 of the Act to require OILSR to comply with the Administrative Procedures Act. OILSR already does this by regulation. No one has been able to explain why this section is in the Nelson proposal.

Mr. GRASSLEY. Specifically, where the point where we were talking about the exemption, I was thinking, as Chairman Ashley was asking you his last question on the possibility of the States administering parts of this law, it seemed to be in our testimony, though, we run into reluctance on the part of OILSR to do that now. And I don't know whether were indicating that they really didn't want to do it or whether the law did not permit it. I assume that the law permitted some of that, but they really don't want to go in that direction.

Mr. MINISH. The law does permit it.

Mr. GRASSLEY. There is some reluctance from the Department. But also, there was some reluctance expressed by consumer groups to having State enforcement, as well as some developers wanting to deal with the Federal Government rather than dealing with individual States.

So I don't know how widespread the support would be for having the States do it. Frankly, I would prefer to have the States more involved, and I think it could be done. Because I know in my own State of Iowa we have an aggressive attorney general and assistant attorney general who have been working in this area. And I think it can be done, and I think we ought to be working toward that direction. Because I think if the job is going to be done right, it would just take too many people at the Federal level and then still not do it as well as if we had the States more intimately involved.

Mr. MIXISH. Well, my only comment, Mr. Grassley, would be that, unless we set the guidelines from up here, it is not going to be done, because some of those States don't have the legislation to do what I know you believe in and I believe in also.

Mr. GRASSLEY. Mr. Chairman, I don't have anything else.
Chairman ASHLEY. Mr. Gonzalez ?

Mr. GONZALEZ. Thank you, Mr. Chairman. I don't have any questions. I would just compliment Chairman Minish for his leadership in this area. And I am privileged to serve on the Subcommittee on General Oversight and Renegotiation with the gentleman.

Chairman ASHLEY. Mr. Green?

Mr. Greex. I have a couple of questions on one point. I know that HUD had cooperative relationships with not only California but two or three other States, one of which was New York, which has a quite aggressive program in its department of law, under its attorney general, for dealing with the problem of fraudulent land sales.

Do you have any reason to know why these arrangements with the other States are no longer operative?

Mr. Mixish. No, I do not, unless it is because of the aggressiveness of the department, or lack of it, I should say.

Mr. GREEN. The other question I have was what sort of escrow arrangements you had in mind. Who would be the escrow holders, and what sort of expense would that involve ? Also, would bonding be another way of reaching the problem of nonperformance of promises on the part of developers ?

Mr. MINISH. They have an escrow requirement similar to the one we are proposing. It requires the developer to set aside a fixed percentage of the money he takes in to pay for improvements. As the payment of the lot is completed, more money will be in the account to assure the people who purchased the lot that they would not be left hanging, as they were in other areas.



Mr. GREEN. Did you look into whether a performance bond was a possible alternative?

Mr. Minish. I am advised that our staff looked into corporate performance bond financing, but that it doesn't work, because so many developers go bankrupt.

Mr. GREEN. I was thinking in terms of a bonding company.

Mr. MINISH. I have been told that if you asked them to provide a surety bond, most of the developers say they can't afford it.

Chairman ASHLEY. Absolutely. I was interested-excuse me. Do you want to question, Mr. Brown?

Mr. Brown. I might have a couple of questions Mr. Chairman.

Chairman ASHLEY. I just have one with respect to the provision in your legislation to eliminate the installment contract as a means of financing lot purchases. That is a pretty extreme remedy. I mean, this kind of contract is really a land contract, isn't it?

Mr. MINISH. The one they are using now?

Chairman ASHLEY. Yes. It is a form of land contract, I would suppose; isn't that right!

Mr. MINISH. Yes, it is.

Chairman ASHLEY. A lot of States, Ohio included, have taken a very good look at land contracts and have passed legislation that is very protective of a buyer under a land contract. Now, it certainly used to be the situation that land contracts were scandalous. They gave every conceivable advantage and opportunity for mischief to the seller.

But it is my impression that a number of States over the years have recognized that problem and have passed corrective legislation, as has Ohio.

Mr. Minish. Well, Mr. Chairman, I am not so sure that some of the States where we have the major problems have done anything about that, because I know of a personal incident where an individual entered into a 7-year contract-I think it was $25 a month and then un fortunately, lost his job after paying for 6 years. He could not pay the $25

a month, and the land reverted, or the land stayed with the developer.
And this individual is out 48 times $25, or whatever he paid in.

Chairman ASHLEY. You mean the entire amount?
Mr. MINISH. Yes, the entire amount.

Chairman ASHLEY. Well, isn't there the principle of equity of reuemption. But under Ohio law, it is presumed that the property can be sold again and the purchaser can receive what he paid in. Mr. Minish. Well, in this case it was sold again by the developer.

Chairman Ashley. But the point is the pernicious provision in the land contract or the installment contract is a stipulation of damages of one kind or another, because it means that if a person is unable to make the payments he loses everything that he put down. That is what caused the massive difficulties we've had at the time of the 1929 closing of the banks. People weren't able to make their payments and they lost their property-and I mean all of their property.

Mr. MINISH. The other problem, Mr. Chairman, is that many of these purchases are made on the spur of the moment. You attend a meeting in some fancy motel or hotel and they feed you and you buy, and then later on you get to see the land, and then you decide that it was a bad purchase. Then it is almost impossible to sell it.

[ocr errors]


Chairman ASHLEY. There is a different problem when you are talking about developed real estate and the redemption that a buyer is entitled to there and the situation where it is totally undeveloped land that in many cases has never been seen. Let me call on Mr. Brown.

Mr. Brown. I realize that caveat emptor is dead, but do we have to go the complete other route? Who is the beneficiary, would you say, of the interstate land sales legislation?

Mr. MInish. Who is? The developers, the ones that sell it.

Mr. Brown. No, no, the developers are not the beneficiaries. I assume that it is aimed primarily at the purchasers.

Mr. MINISH. Our legislation? Positively. It is to protect the consumers.

Mr. Browx. Now, who are these purchasers? Who are these consumers? How do they get into the market in the first place!

Mr. MINISH. Well, many ways: Advertisements on TV; they are invited to dinners. You know, a lot of these developers contract the work out to salesmen.

Mr. Browx. Now, even to invite someone to one of these things, you have to have some kind of advertising, right?

Mr. MINISH. Right.

Mr. Brown. Doesn't the FTC have jurisdiction over all advertising that would be applicable to interstate land sales ?

Mr. Minish. The FTC has done some work in this area, but not enough to satisfy me or the people who got burned.

Mr. Brown. But then, because the FTC has not done the kind of job it should do, should we therefore change this law?

Mr. MInish. Yes. Mr. Browx. The substantive law with respect to interstate land sales?

Mr. MInish. Yes. Jr. Brown. Well then, supposing you change the substantive law, but they still go on and advertise fraudulently. You are going to say that they would benefit by the ex post facto right to rescind the transaction, right?

Mr. Vinish. In the legislation that is before your subcommittee now, that is, the legislation that came out of our subcommittee, we have proposals which deal with the advertising problem. The FTC hasn't been able to do the job by itself and it doesn't want to. If I called Mr. Brown and the members of this subcommittee over to my home next month and said, “Come on over, we're having some fellow come up from the Poconos or the Catskills who has some land, he's got a nice block of land and he's going to divide it up, and here's a chance for us to get into the act.” And while I know your fellows are all sophisticated and sharp, the average guy may be snowed under by that.

Mr. Brown. But is the average guy going out to the Poconos and buying a lot ?

Mr. Mixish. Many times he doesn't go out there at all. Other people read advertisements in the mail or advertisements in the paper. Any paper you pick up in New Jersey, and I assume New York has ads that say: "Come on up. We'll give you 3 days free lodging and a radio and this and that."

Mr. Brown. But you have criticized the Nelson bill, and doesn't that require actual onsite inspections in order to qualify for the exemption?


Mr. MInish. Well, first of all, it excludes everybody within the 100mile limit, and how much can you learn about the development from an onsite inspection! You look at the foliage and the nice green trees.

Mr. Brown. Well, it exempts from the term “interstate commerce," as I recall, those who reside within 100 miles if they have visited onsite. Isn't that true?

Mr. MINISH. Right.

Mr. Brown. So therefore, the Nelson bill isn't saying that you can do it by a letter or meeting at somebody's house. You've got to actually visit the site and live within a 100 miles in order to come within the exemption of the Nelson bill.

Mr. Mīnish. How much can you learn by an onsite inspection? The average person doesn't know anything about sewers and septic tanks. For example in Sherwood Forest, they were told that, fine, this is a beautiful area and we are going to have sewers installed. And there were no sewers put in and the lot owners can't build because of the water table. The municipality in which this development is situated will not give people permission to put septic tanks there now.

You tell me, how can an onsite inspection tell an individual whether the water table is involved or not, or whether they can put septic tanks in or not.

Mr. Brown. Apparently, there are six States that account for about 75 percent of the developments that would be really involved.

Those States are Florida, Texas, Arizona, New Mexico, Colorado, and California. You, in effect, feel that even though these few States constitute 75 percent of the problem, nevertheless you would impose the requirements on all the States. Right?

Mr. MINISH. Well, we don't know when one of the States that is left out might have new problems.

Mr. Brown. I noticed, in your proposal, you require escrow accounts for all kinds of improvements in the property.

Mr. MINISH. Well, not all kinds; just the improvements the developer agrees to put in, like the roads, or the sewers.

Mr. Brown. Water, sewage disposal, electricity. You have escrow accounts to insure these improvement are made.

If that State did not require it, that developer might very likely opt not to get into interstate land sales. Right?

And then, for all intents and purposes, since there would be no holding out access to that development, it would in short be precluded to that purchaser you're talking about. Right?

Mr. MINISH. Correct.
Mr. Brown. Because there would be no obligation to do these things.

Mr. MInish. If some of these developers that came before the committee did not get involved in interstate land sales, a lot of people would be a lot happier today and have a little bit more money in the bank.

Mr. Brown. Why did you, in your proposal, even though HUD recommended that there should be an exemption of developments of fewer than 100 lots, and the present law says 50, drop yours down to 40?

Mr. MInish. Well, Mr. Brown, we think that everyone ought to be protected.

« AnteriorContinuar »