investment. We found that at virtually all of the projects, lots can be resold only at hardship prices, that is, at less than what the purchaser initially paid. At several of the projects local realtors reported that it was virtually impossible to unload a lot at any price. The problems I have described do not respect state boundaries. are They endemic to land sales transactions conducted in the absence of substantive regulation. They are as likely to occur if the subdivider is on the eastern shore of Maryland selling to Baltimore residents, in the Poconos selling to Philadelphians, in the Nassanutton Mountains selling to Washington Suburbanites, or in northern Wisconsin selling to Milwaukee residents, as they are if he is in New Mexico or Florida selling to New Yorkers. If the problems of consumer abuse are so endemic to the industry, the question arises then as to what the existing laws do. To answer this question, INFORM analyzed the laws of five states which are the sites of intense subdivision activity and a sixth state, New York, where many of the lots are marketed. We also analyzed the laws of the Federal Government. We found out that regulation of this industry is not adequate. What little protection now exists is embodied in the Interstate Land Sales Full Disclosure Act. This Act requires subdividers to register with OILSR, and to prepare a property report disclosing important information to consumers. It also gives purchasers and the government the right to sue for damages on the basis of misstatements of fact in the statement of record or property report. Beyond OILSR's registration and disclosure requirements, only 20 states have their own laws requiring subdividers to issue property reports to lot purchasers. And only a very few states actually have substantive regulations to require a central water system, for example. or escrowing of funds for refund purposes. Both INFORM and the President's Council on Environmental Quality, which has also studied this industry, found disclosure to be inadequate protection for consumers. But, weak as it is, it is a vital and necessary minimum. I would now like to turn to the various legislative alternatives pending before this Committee. I would like to start with the Nelson amendments, which are now part of the Senate version of the Housing and Community Development Amendments of 1978. This would exempt certain types of land sales operations from having to register with OILSR and give consumers a Property Report, although the companies could still be sued for fraud under the Interstate Land Sales Full Disclosure Act (ILSFDA). Companies marketing to residents of the same state would be exempt. Companies marketing to people who live within a 100-mile radius of the subdivision would also be exempt, provided the lot purchaser has inspected the lot before buying. Finally, companies selling lots having certain kinds of basic services, who deliver a deed, who do not use elaborate sales techniques, and who require an on-thelot inspection would also be exempt. In our view, these amendments would be devastating to the effectiveness of the Office of Interstate Land Sales Registration, and for vast numbers of consumers remove one of the few protections against deception and fraud in land sales which they now have. The 100-mile exemption, which would allow a land sales company to operate virtually unregulated in a 31,400-square-mile area, is particularly dangerous. Its impact in the Northeast would perhaps be the most serious. There, an unscrupulous land sales operation in the Poconos would have the entire metropolitan area to market to, since a 100-mile line drawn around the Poconos includes New York City, all of New Jersey and Philadelphia. With this huge market to approach, it is very likely that an exempt land sales operation could sell thousands of lots and do millions of dollars of business a year in interstate commerce, using high-pressure sales tactics--the very type of abuse which the ILSFDA sought to address ten years ago. Without a Property Report, with only a site visit and a salesman's pitch to go on, purchasers will have no way of knowing whether the project has a water supply, who will build and pay for the sewage system, whether the land is in a flood zone, or any of the other myriad facts a purchaser should consider before making a $5,000 or $10,000 investment in land. The developers will argue that the purchaser still has the right to sue for fraud if there is an misrepresentation. But without a Property Report, a purchaser has very little in the way of documentation on which to base a suit. The An exemption for land sales companies operating intrastate, thought perhaps not quite so blatantly contrary to the intent of the original ILSFDA as the 100-mile exemption, is still, we feel, not in the public interest. Again, companies operating solely within one state include both large and small developers, honest and irresponsible operators. larger companies will use elaborate phone and mail solicitation techniques. Smaller ones may have problems with raising the capital to extend services. Consumers approached by these companies need the protection of property reports. State governments are simply not equipped to take on the job of regulating these companies. Fully 27 states have no land sales laws of their own or mechanisms for supervising preparation of property reports. In many cases this is a least partly because state legislatures felt the federal government was handling the problem. Thus, if the Nelson amendments become law, the intrastate sale of subdivision lots would be totally unregulated in over half of the states in the country. Those states would have to establish their own own state agencies to take over the registration and disclosure tasks now handled INFORM has examined the property reports and consumer protection laws of five of the states which do already attempt to regulate this industry. Without exception, the state property reports are less complete than those prepared under current federal requirements. The federal OILSR now provides an extremely useful, helpful and important service to the states which should not be taken away. Even the third Nelson exemption, designed to exempt subdividers who have installed all basic services and are delivering a deed to the buyer--thus presumably obviating the need for a property report--is, in our opinion, somewhat loosely worded. For example, a drainage system, without which a lot could be underwater half the year, is omitted from the list of services which must be completed in order to obtain the exemption. The Nelson amendments were proposed in the guise of helping the small businessman. We feel that the three types of exemptions in these amendments open the door for vast consumer abuse by deregulating not just small businesses but large businesses as well. Were there a cap on the size of all these exemptions--limiting them to projects of perhaps less than 250 lots, thus truly designing this bill for the small businessmanour concern would not run so deep. The amendments as drawn, however, contain no such limitation. Most important, the need for statutory exemptions for small developers may now be moot. About a month ago, OILSR issued a set of proposed regulations pursuant to ILSFDA which outline exactly what has been proposed by Senator Nelson-exemptions for small developers. However, these exemptions, |