315 projects registered for Colorado, while the Colorado Real Estate

Commission had 1,000 projects registered. Similarly, OILSR shows half

a million acres subdivided in California, while California's Department shows

of Real Estate shes 2-1/2 million acres subdivided. Frankly, we have been unable to come up with an adequate explanation for this discrepancy: whether it reflects the existence of many federally unregistered subdivisions or whether it reflects simply poor or inadequate recordkeeping.

Considering both state and federal information, one industry expert estimates that the total standing stock of lots subdivided in this country covers 35 to 40 million acres of land. This amounts to 62,000 square miles, which is about 2 percent of the continental United States. Assuming three residents per subdivision lot, this land could accommodate 45 to 60 million people. That is more than the populations of Los Angeles, San Francisco, Chicago, Detroit, Boston, New York, Philadelphia, and Washington, and the entire State of New Jersey, combined.

These figures on the scope of the industry are sometimes challenged on the grounds that land sales are declining, and the problems are now moot. The recession of the mid 1970's did cause a precipitous slide in industry volume. However, a survey conducted by the American Land Development Association indicates that sales are on the upswing. The industry seems to be riding on the shirt-tails of the current real estate boom. Of 163 companies surveyed, 78% had better sales in 1976 than 1975, and most were planning new projects.

Most observers agree that since 1969 OILSR and the FTC have had a chilling effect on some of the most flagrant abuses conducted by the

very largest companies. Yet OILSR continues to receive about 3000 consumer complaints a year, as it has for each of the past six years. The land sales industry has historically gone through boom-and-bust cycles and will undoubtedly continue to do so, particularly if it remains relatively free from substantive government regulation.

INFORM has studied in detail a sample of companies and sites mass market portion of which represents the various aspects of the industry in the states with the most widespread land sales activity. They are old and new, large and small, and in varied terrains. They are marketed by the largest companies, who should be the most responsible.

Our primary finding was that the industry is in radical need of reform. Problems begin with the representations made in advertising, which is generally the purchaser's first contact with the subdivision project. As an example, promotional materials for Colorado City, a Great Western United project, promised "plenty of water," and prominently featured a photograph of a lushly flowing Greenhorn Creek; yet, the subdivision has the legal rights to only enough water for, at best, a tenth of its projected population.

Similarly,

Palm Coast, ITT's huge, 100,000-acre project in northeast Floraida, was promoted as "not an ordinary development." Full page ads stated, "Only the immense resources of a giant organization like ITT could build a community of this scope." Yet, at Palm Coast, development is being financed not by the multibillion dollar ITT Corporation, but by a subdivision subsidiary so small that its assets are not listed separately in ITT's annual report. The water supply for

the project has been in question since its inception, and it was only

the combined efforts of the Federal Trade Commission and several Florida agencies that managed to rein in this massive problem.

Again, Horizon Corporation is selling a project called Rio Communities in New Mexico, which it advertises as a "carefully planned

cluster of communities growing so rapidly that they seem like a mirage."

A mirage it may in fact be: There are only 800 homes in these 7 communities, despite the fact that 170,000 lots have been sold. If construction at Rio Communities continues at its past rate, Rio Communities will not be fully occupied in less than 3600 years.

The second major problem we uncovered is the installment contract. All the companies we studied were selling lots via installment contracts generally extending over 10 years, and installment contract sales are characteristic of the industry. Many purchasers think they are buying a lot when they sign a contract, but, in fact, the installment contract is not a deed. Nor is it similar to a conventional mortgage, whereby a purchaser may live in a house while he is paying for it. An installment contract purchase agreement doesn't transfer ownership of the land, and it doesn't transfer the right to use the land. It simply gives the purchaser the right to make monthly payments for five or ten years, at the end of which the company promises to turn over the land and whatever improvements it has agreed to furnish. Under this sort of contract, the purchaser has virtually no rights or protections. Should a purchaser ever fail to make the monthly payments for the lot, he in most cases will forfeit everything, both lot and all prior payments. Should the company go bankrupt in the course of the ten years and be unable to provide

promised improvements, there is usually little the purchaser can do. Finally, the contract is often used by the developer as a source of revenue, either as commercial paper discounted to a bank, or as collateral for loans. The holder of the paper is not necessarily liable for the developer's obligations.

We also found abuses in terms of the product that the land sales companies are selling. All of the companies we looked at sell lots either implicitly or explicitly as homesites or as investments; yet, all too often they do not provide the basic services that make the lots usable and saleable.

INFORM found that only 5 of the 19 projects we looked at had most necessary basic services such as water supply, sewage system, electricity, and telephones, adequate drainage available. The others lacked these services, do not guarantee installation by the time the purchaser has paid for his land, have not set aside any funds for installation, and do not offer a refund if land is not usable.

This can prove very costly to purchasers of lots in these communities. At Rio Communities, for example, if a purchaser wants to use his plot of sparsely vegetated desert grassland, he has to pay up to $11,000 for a well, a septic tank, a radio-telephone, and a generator; or he can pay local utilities up to $12,000 a mile to extend electricity and telephone service to whatever part of this vast 400-square-mile site he is located in; or he may be able to trade the land for a lot in the core development area. However, there are no guarantees that any land will be available for trade, and to get it he will have to pay considerably more money and he will have to build immediately. His original lot, which he has paid

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for over 10 years with 30 percent interest, is virtually useless, except as an option to buy a conventional home on a conventional-mortgage basis.

The problems do not end with lack of basic services. The condition of the land itself is often a problem. INFORM found that subdivisions are frequently located on land prone to natural hazards such as flooding, landslides, earthquakes and hurricanes. Marco Beach and Cape Coral, to take two Florida subdivisions as an example, are in the coastal hurricane flood zone, a fact which is not necessarily apparent to the naked eye even during an on-site inspection. Lake Havasu City, located in the dry and barren Arizona desert, has experienced flash floods in which three people died. Many California subdivisions are in earthquake

zones.

Is such land a good investment? Companies claim it is, or at least that they are providing land cheaply to people who otherwise could not afford it. However, INFORM found that lot prices are actually the opposite: inflated and fraught with hidden and/or unanticipated costs, disguised by the elaborate wording and long duration of the payment arrangements. Lots sold on the installment plan at the projects we

looked at ranged from $1000 to $60,000. On top of this, purchasers must pay a finance charge of 4 to 9 percent annually, which adds $200 to $28,000 to the price. They must also pay property taxes, although they do not own the land; special service district assessments; bond reduction charges, recreation fees, property owners' association dues; and often, improvement fees or betterment fees. At the sites we studied these additional charges added up to $26,000 to the lot price over ten years.

In the end, the purchaser usually receives a bad bargain. We polled local realtors to see if any of the lots were an adequate