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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 fram 50 to 40 lots, thus exempting subdivisions of less than 40 lots. The ILSFDA is also anended 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 anissions 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 numbjaw, 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 difficult to tell a man what to do in that case. Do you tell him to stop paying and forget everything! I said: "I really don't know what to tell you. Chances are if you

. have only 2 years to pay, maybe you ought to pay it. Who knows, you

, may find uranium or gold up there. I don't know.

But anyhow, OILSR has not done the job. I don't think that they have enough employees. And I am not in favor of building the bureaucracy, but I am for requiring government to protect consumers. If you want to know how well consumers are protected, ask Patricia Hynes, the assistant U.S. attorney from New York, because I think she will tell you a story that will be more convincing than anything that I can tell you about some developer who got about $170 million for land that he paid about $20 million for, and that is a pretty good profit.

And I am inclined to remember something Bob Strauss said. When asked about our oil problem he said, “I am from Texas and I don't know any poor oilmen.” I am getting to the point where, I am from New Jersey and I haven't heard of

a poor land developer in the United States.

Chairman Ashley. In your hearings, apparently you established to the satisfaction of just about everybody that there are only a handful of States that have adequate laws protecting their consumers.

Mr. Mixish. That is right, Mr. Chairman.

Chairman ASHLEY. And that for that reason this has escalated into a national problem, requiring a national solution.

Of course, that was decided 10 years ago when we legislated in the first instance. Is it your impression that States are looking to the Federal Government to provide this protection? Is that the reason that only a handful of States are in this business of trying to protect their own people from the kinds of fraud and deception that is found both in intrastate and interstate land sales?

Mr. MINISH. Mr. Chairman, that is an accurate statement. Some of the States are looking for Federal assistance. I think that the attorney general from Colorado, Mr. MacFarlane, and also the one from New Mexico, will testify to that, that they are looking to the Federal Government for help with this problem.

Chairman Ashley. One of the things that has interested me is that OILSR doesn't seem to be interested in establishing any kind of cooperative arrangements with those States that do pursue aggressively the kind of legislation that affords protection to citizens purchasing property either within that State or outside that State. Generally within the State, that would be the province of State governments.

And I am curious as to what your notions are about the situation where a State, whether it be New York or Florida or any other State, directs itself aggressively to this problem. In that situation wouldn't it be appropriate for there to be some kind of cooperative arrangement bet ween OILSR and that State which would obviate the necessity for the honest developer—and we are concerned with him, as well as the dishonest developer—to fill out the reams of disclosure material, and go through the registration and so forth, twice rather than once. What is your thought on that?

Mr. Mixish. Well, I think that is a good suggestion, Mr. Chairman. I think that OILSR should work with the States to eliminate a lot of duplication. It is my information that the only State whose property report is accepted by OILSR is California.

Chairman ASHLEY. Well, it certainly suggests itself to me that this might be an area that together we might look at closely. It would seem to me to be one way of encouraging the States to direct their attention to this matter in the first instance; and it would help to eliminate costly duplication, which obviously is paid for in large measure by the taxpayers, be they Federal or State.

Mr. MINISH. Well, Mr. Chairman, I agree with you that there should be cooperation. But I get a little concerned, whether many States have

a the interest or ability to do the job. I am reminded, and I am sure you are well aware of, the meat inspection issue, where some of the people who were against Federal legislation said that the States could do it. Then the people who were managing the bill showed pictures in the Speakers lobby of what the States were doing. And I think that if anyone here saw some of those pictures, he would probably be a vegetarian from that day on. [Laughter.]

So I question whether the States have the will or the means to regulate land sales by themselves.

Chairman ASHLEY. Well, it strikes me that we might consider establishing some kind of Federal standards to be met by the States, at least where there is the duplication and the States don't do everything that OILSR does, because the problem from the Federal standpoint is broader than that of the States, I suspect. I seems to me that through the establishment of standards, where appropriate and where those standards are met, duplication could be eliminated. It would be a good idea.

Mr. Grassley, any questions?
Mr. GRASSLEY. Thank you.

Before I ask our colleague a question, I would like to say that I worked very closely with Mr. Minish on this legislation and I think he needs to be complimented for his hard work. I am the ranking Republican member and, even though we don't agree on everything, I find that he has a fine reputation around here, and it has been supported by my work with him. He probably doesn't need any flowers thrown in his path, but in all the investigations I have shared the podium with him, I found him to be very thorough and very extensive, and a person that can ask fair and penetrating questions to get to the bottom of things.

So I feel your calling him as a witness is a good place to start the meeting, Mr. Chairman.

Mr. Minish, I was interested in your discussion concerning Sherwood Forest. Starting on page 3 of your statement about the Nelson bill, where you state that it will exempt some of the worst interstate developers, your testimony deals almost exclusively with that 100-mile exemption. I was wondering if there was any other problems with that bill, and specifically, do you have any specific examples related to the Nelson exemption of where there are other problems.

Mr. MInish. Well, Mr. Grassley, first of all, thank you for your kind remarks. The think that upsets me most about the hill is that 100mile exemption. Mr. Green, who is from New York City, has a lot of constituents who could be burned and who would not be protected under the Nelson bill. And while there are many other problems—I

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