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don't have the bill before me and I don't know all of the specifics of it, I would say that that alone is enough information to make you be against it.
There is the self-executing problem, also. Mr. GRASSLEY. What you could do is, if you think of any of the others, you could submit them to us in writing. I would appreciate that.
Mr. Minish. I will have my staff provide a summary of all the problems in the Nelson bill.
[The following summary of problems in the Nelson bill was provided for the record by Congressman Minish:]
As you know, s. 3084, the Housing and Conmunity Development Amendments of 1978, was passed by the Senate on July 20, 1978 and is now in conference. Section 715 of this bill contains the so-called Nelson proposal which provides a number of new exemptions for developers from the present law. Since the House version of the Housing bill, H.R. 12433, contains no land sales amendments (Chairman Ashley chose to defer consideration of land sales until you reported to him on our Subcommittee's investigation), one of the main issues at the conference will be whether to acept any or all of the Nelson amendments. It would be best for us if the conference accepts none of the Nelson land sales proposals. Our objections to the Nelson amendments are as follows:
1. Policy Objections. The investigation which our Subcommittee has pursued has shown that large numbers of consumers continue to be defrauded or disappointed by land developers every year. It is widely agreed that the federal law is inadequate to protect lot buyers. Two bills (our proposal, H.R. 12574 and the Carter Administration's proposal) would make the Interstate Land Sales Full Disclosure Act significantly tougher, but neither of those reform proposals is included in either of the Housing bills.
Therefore, under the rules of the conference, the only question for the conferees is whether to provide more exemptions to an already inadequate law. There is no possibility of getting any consumer-oriented amendments into the final Housing bill. In light of the results of our investigation and the testimony which has been given at the various hearings held on land sales, it would be irresponsible for the Congress to make exemptions for developers the only concern of its legislation. Any land sales amendments should be primarily concerned with protecting the public, not with taking care of developers.
It should be pointed out that since lot purchasers have little or no organized voice in Washington, the only way to get any increased protection for them may be to tie it to changes in the law that the land sales industry wants. If the Congress accepts the Nelson amendments by themselves, even the possibility of a tradeoff will be non-existent.
2. Procedural objections. If the conference committee accepts the Nelson proposals, it will be short circuiting the legislative process.
As you know, although tho House subcommittees (ours and the Housing Subcommittee) have held hearings on land sales, there have been no markups of arty of the various proposals for change. No member of the House has voted on arty land sales anendments.
The Senate's procedure in adopting the Nelson proposal was disjointed, to say the least. The impetus for the Nelson bill came out of hearings, chaired by Senator Nelson, which the Senate Small Business Carmittee held in January of this year. Besides the Office of Interstate Land Sales Registration of H.U.D., which adninisters the federal law, the only other witnesses were developers or other representatives of the land sales industry. No representatives of the lot-buying public testified. Shortly thereafter, Senator Nelson introduced a bill, s. 2716, which provided a number of new exemptions from the Interstate Land Sales Act. The bill made no attempt to deal with consumer problems.
The Nelson bill was introduced as an amendment to the Housing bill which was marked up by the Senate Banking Committee in May, 1978. The Senate Carittee deleted the consumer-oriented reforms which were in the original Carter Administration proposal and substituted the Nelson bill. The Committee had held no hearings on the Nelson bill prior to accepting it. In the face of strenuous objections by Senator Williams, the Committee scheduled hearings on land sales to be held before consideration of the Housing bill by the full Senate. At those hearings, a number of witnesses, including yourself, H.U.D., public interest groups and plaintiffs' attorneys testified about the large loopholes which would be created by the Nelson proposals. Despite extensive criticism, only minor changes were made to the Nelson amendments before their passage by the full Senate. Hopefully, the conference committee will decide to reject these ill-considered and one-sided amendments.
3. Substantive Objections. Although there may be some need for clarification of the jurisdiction of OILSR, the Nelson bill goes far beyond its stated purpose and adds new exemptions which would apply to some of the biggest and worst developments in the country. The following is our analysis of several of the Nelson proposals.
(a) The 5%-5-lot Exemption. The Nelson bill would amend section 1403 of the Interstate land Sales Act to exempt from its disclosure requirements any developer who sells no more than five lots or five percent of his total lots sold during a calendar year (whichever is greater) to out-of
state purchasers if the developer meets the following requirements:
i) The land is free and clear of liens and encumbrances.
ii) The purchaser makes an on-site inspection of the lot.
iii) The seller agrees to submit himself to the jurisdiction of
the home state of the purchaser.
This exemption is undesirable for several reasons.
It is quite complicated, yet it is also self-determining. This means that the developer himself decides whether he has complied with all the requirements for the exemption and then merely notifies OILSR that he is claiming exemptions. If the developer misinterprets some part of the requirements, for example, what constitutes a "lien" or "encumbrance" or if he makes a mistake in computing his out-of-state sales, OILSR may subsequently question his exempt status. If this happens, all the developer's sales under the challenged exemption may be subject to rescision.
There is no cap on the 5% requirement. Same subdivisions have well over 10,000 lots, and thus would be able to sell a substantial number of lots to out-of-state residents without being subject to federal disclosure requirements.
Reliance on on-site inspections. As an alternative to the information which is presented in the federal property report (the disclosure statement required under the present Interstate Land Sales Act), this exemption relies heavily on an on-site inspection by the purchaser. However, most of the truly crucial information about a development cannot be discerned by merely looking at it. An on-site inspection tells the buyer nothing about the financial stability of the developer, about whether there is sufficient water, about whether the land is suitable for proper sewage disposal, about whether the land is subject to flooding, about the provisions the developer has made for installing promised amenities, about the cost of necessary utilities, about local land use laws, etc. Purchasers who are deprived of property reports and who make their on-site inspections in the company of high-powered salesmen will be at a decided disadvantage.
(b) The 100-Mile Radius Exemption. The Nelson bill would amend section 1403 of the Act to provide a lot-by-lot exemption of any sales made to buyers who reside within 100 miles of the developer, if the following requirements are met.
The land is free and clear of all liens and encumbrances.
The seller agrees to submit himself to the jurisdiction of the
The developer certifies to OILSR that he has complied with
This is probably the most harmful of the Nelson proposals for numer
Since this is a lot-by-lot exemption, no matter how big or how bad a development is, it can benefit from this exemption. H.U.D. officials have stated that many of the worst developments in the country would qualify for at least partial exemption under this section.
Crossing state boundaries. The Nelson bill purports to assist small intrastate developers, yet many of the prime beneficiaries of the 100 sile exemption are neither small nor intrastate. A good example of the problers with this exemption is the case of the Pocono Mountains of Pennsylvania, a primary area for land subdivision in the East. Within 100 miles of the Poocnos are the metropolitan areas of New York City, Northern New Jersey and Philadelphia. A circle with a 100-mile radius drawn around a development in the Poconos thus encompasses an area of over 31,000 square miles with a population well in excess of 20 million people. Under the Nelson bill, any Pocono developer could sell to any of those people without being required to disclose a thing by the federal law. To cite another example, Washington, D. C. is within 100 miles of many of the developments in rural Maryland and Virginia. This problem repeats itself throughout the country.
This exemption is self-executing. Therefore, serious problems of interpretation arise. For example, who knows exactly how many miles he lives from any given point? Once again, misinterpretation or mistake by the developer may make him liable to recisions and other penalties.
This exemption, like the 5% 5-lot exemption, says that developers who are exempt from disclosure requirements are still covered by the fraud prohibitions in the Interstate Land Sales Act. However, several prosecutors and plaintiffs' attorneys have testi
prosecution or civil suit for fraud would be practically impossible without the information contained in the staterent of record and property report.
If the information required by the disclosure sections of the Act is not available, attorneys representing purchasers who believe they have been defrauded will be working in the dark. The fraud provisions will become an empty remedy, providing a false sense of security and little else.
Like the 5% - 5-lot exemption, the 100 mile exemption relies heavily on on-site inspections which do not provide a great deal of useful information to the prospective purchaser.
(c) Statute of Limitations. The Nelson proposal would amend section 1412 of the Act to insure that no action can be brought within more than three years after the signing of a contract for the sale or lease of the lot.