done in the filing of a registration statement for an issue of securities. That is not a valid analogy because in the offering of securities the registrant is asking the public to share in the ownership and this is not the case in selling land. There is no appeal to the public for a public ownership of a particular enterprise, and I think that that underscores the burden that is implicit in the filing of a registration statement for the sale of land.

That concludes my statement, Mr. Chairman.

Senator WILLIAMS. On that last point, there is a difference, there is no doubt about it. When you buy a security you are buying into a company. However when you are buying land on an installment purchase $39 down and $36 a month- you are also buying into a company. Because their reliability and financial stability are material until you make the final payment which transfers ownership of the lot to you, you have to rely on the sellers financial standing when you buy on time.

Mr. WILLIAMSON. That is the case if you buy any commodity. If you buy an automobile or anything you are dealing with an individual and you hope the individual has enough financial backing to make good on his warranty. But I think land is just different than securities and I think in trying to impose the 1933 act on the sale of land is, in our opinion, burdensome and results in a very serious handicap on the overwhelming majority of people who sell land and they are selling land to people who see the lot.

Take the case of people in Delaware and New Jersey. They drive down on Sundays and they see a subdivision and they stop and under this bill they couldn't execute a binding contract.

Commissioner Cohen said the offering of the prospectus would be a simple prospectus-that is compared with securities. Well if it is going to be that simple, why not let the prospect sit down and read it and then execute a binding contract.

Senator WILLIAMS. That is exactly what I thought we were doing with our 48-hour layover-giving the purchaser an opportunity to read the prospectus.

Mr. WILLIAMSON. But he is driving on Sunday and saw this lot. That is how I bought a lot in Delaware. Under this bill I could not execute a binding contract. I would have to take the offering circular or prospectus home and then send in a deposit because there couldn't be a binding contract for 48 hours. I could wiggle out of it.

Senator WILLIAMS. This section has been interpreted to read that you can sign a contract on the spot to purchase the land. You then have 48 hours to think about it, discuss it with your lawyer, maybe your banker, maybe your own local real estate representative and then have 48 hours to rescind.

Mr. WILLIAMSON. I know that is what the bill does.

Senator WILLIAMS. Do you see anything wrong with that?

Mr. WILLIAMSON. I certainly do. I think it would put a serious crimp in the sale of real estate.

Senator WILLIAMS. I don't know, I must be stupid. I have purchased five or six parcels of land and I will tell you, it took me more than 48 hours to find out who had title and whether he had good title. Do you mean to tell me that

Mr. WILLIAMSON. But, sir, you are executing a binding contract. In the contract the seller has to deliver merchantable title. There are conditions for the seller as well as the buyer, but at least it is a binding contract if all those conditions are met. But in this case, regardless of the conditions in the contract, the buyer is not bound by the contract for 48 hours. He must receive this prospectus and have it for 48 hours before he is bound by the contract.

Senator WILLIAMS. I don't see anything unreasonable about that. Senator Spong?

Senator SPONG. I had to leave during your statement. I am sorry I did. Did you at all touch upon the on-site inspection aspect of this?

Mr. WILLIAMSON. You mean of the seller requiring—

Senator SPONG. Yes.

Mr. WILLIAMSON. Well I think that is a very good requirement for people in the business who are when somebody is there to certify that they saw it. I think that is a very good provision.

Senator SPONG. I was particularly referring to Mr. Jeffreys' suggestion that there is a possibility that there would be a clause in the contract in which the purchaser stated that he had seen the property and inspected it.

Mr. WILLIAMSON. I think that is exercising good business judgment, to require the purchaser to sign something like that.

Senator SPONG. And did I understand from looking at your statement rather rapidly that you favor Senator Bennett's approach to this?

Mr. WILLIAMSON. Senator Bennett's bill, yes; along with the bill that passed the House last year involving the stopping of the mails through evidence of misrepresentation without having to prove intent to defraud.

Senator WILLIAMS. Now you have suggested several amendments to the bill before us.

Mr. WILLIAMSON. Yes. Of course we hope the subcommittee will reject the bill but

Senator WILLIAMS. If we passed all of your amendments, would you be for the bill?

Mr. WILLIAMSON. No, I would not.

Senator, it has been my unfortunate lot to lobby against several proposals that you have made in the last 10 years and my record is about

zero.

So in connection with this bill

Senator WILLIAMS. From my standpoint and from where I sit I am batting a thousand.

Mr. WILLIAMSON. So in connection with this bill we would fall back on a secondary objective. We are opposed to the bill even if our amendments are made. I think our amendments would make it a better bill.

Senator WILLIAMS. I think I see your point. Well, let's hope your record is kept intact and my record is kept intact.

Thank you very much.

(The prepared statement of Mr. Williamson follows:)

STATEMENT OF JOHN C. WILLIAMSON, DIRECTOR OF GOVERNMENTAL RELATIONS, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS

Mr. Chairman and members of the subcommittee; my name is John C. Williamson and I am the Director of the Department of Governmental Relations of the National Association of Real Estate Boards. I am here to testify in opposition to S. 275, a bill which would require the sellers of lots in subdivisions to file a registration statement and prospectus with the Securities and Exchange Commission and prohibit the sale of such lots until the SEC had approved the registration statement. The bill would further prohibit the sale of such parcels of real estate until after the purchaser has had an opportunity to study the SECapproved prospectus for a period not less than forty-eight hours. These requirements follow the pattern established by law and regulation for the issuance of securities, although in some material respects, which will be discussed subsequently in this statement, they impose more burdensome restrictions on the sellers of land.

Our Association did not arrive at this policy position without considerable study and deliberation, because we share with the sponsors of S. 275 a deep concern over the sale of unimproved lots through the misrepresentation of material facts concerning the land. Such fraudulent sales invariably reflect on the real estate business. They represent violations of our Code of Ethics which is administered by our local boards and is binding on all Realtors. However, promoters and sellers of parcels of unimproved land are generally not required to be licensed real estate brokers, and therefore operate outside the state real estate licensing laws as well as our Code of Ethics.

Realtors have actively participated in statewide efforts to enact legislation to remedy the problem of land sales at the state level. Our License Law Committee several years ago drafted a model state law which was submitted to our state associations for further reference to state legislatures.

We have cooperated with the National Association of License Law Officials and have worked closely with the National Conference of Commissioners on Uniform State Laws. In 1965 we drafted a proposed Uniform State Land Control Act for submission to that body. I am sure that the Subcommittee is aware that the National Conference last August approved a Uniform Land Sales Practices Act. Our National Association and state associations are urging its adoption by all state legislatures which have not already adopted a similar statute. However, we appreciate the inadequacy of these state statutes in protecting those who are victimized by land promoters who use the mails and other media of interstate commerce, and we agree with the sponsors of the bill that this is an area which justifies federal intervention. We disagree only with the particular method federal intervention chosen by the sponsors of this bill.

The method represented by S. 275 is too drastic and should be employed only if other and less onerous methods prove ineffective.

S. 275, while it seeks to minimize the victimizing of "sight-unseen" purchasers of land, would impose the burden of SEC regulation on every developer who intends to market 25 or more undeveloped parcels of land. In our opinion the "sight-unseen” promotions represent a minute fraction of homesite sales. The method of federal intervention should bear a more reasonable relationship to the problem which the Congress seeks to remedy.

Last year when we testified in opposition to a similar bill, we suggested as an alternative an amendment to the civil postal fraud statute (39 USC 4005) to eliminate the requirement that the Post Office Department prove actual intent to defraud as a prerequisite to the issuance of a fraud order denying use of the mails. Such a bill, H.R. 16706, was approved by the House in August, and we regret that the Senate failed to act before the 89th Congress adjourned. However, we hope that an identical measure will be enacted by the 90th Congress. Our study of last year's testimony before this Subcommittee revealed another alternative which has been incorporated in a bill, S. 911, introduced by Senator Bennett, a member of this Subcommittee. S. 911 would make it a violation of federal law to use any means of transportation or communication in interstate commerce, or the mails, to sell or offer to sell lots or land parcels in violation of state laws in effect in the state of residence of the prospective purchaser. An identical bill introduced by Senator Bennett on September 28, 1966, was considered by our last Annual Convention and endorsed unanimously by the delegate body as an appropriate method of deterring the sale of land through fraudulent mis

representation of material facts concerning the property. I am attaching for the record the policy statement as adopted by our convention.

The arguments generally advanced against these two alternatives are that they represent "after the fact" remedies and that putting a promoter in jail is no consolation to purchasers who have lost money because of the fraud perpetrated by the sellers.

However, even SEC registration is subject to the same charge. The Commission, under S. 275, would examine the facts as they are presented by the promoter and make sure that every material fact bearing on the land is included in the registration statement. Generally, it takes "after the fact" hearings by the SEC to ascertain the truth or falsity of the facts set forth in the registration statement.

I say this not in derogation of the SEC which has done a magnificent job in its primary mission of policing the securities business. However, the Securities Act of 1933-the disclosure statute which serves as the model for S. 275—did not spring full grown from the brow of the New Deal. It followed a generation of state regulation, several centuries of legislation in England, and an exhaustive Congressional investigation of the securities business. The evidence was overwhelming that a federal full disclosure statute was necessary.

We respectfully submit that the evidence with respect to interstate land sales does not justify imposing the expensive SEC registration process on every subdivider who has 25 or more lots to sell to the public. For a small subdivider of 25 to 50 lots the expense of legal and accounting fees and printing could result in an increase of $500 in the price of a homesite designed for the middle income market.

I hope that this testimony, together with the arguments advanced by other opponents of the bill, will result in its rejection by the Subcommittee. However. I do not want to end this testimony without some comment on specific provisions in S. 275 which should be corrected in the event the Subcommittee insists on recommending some form of SEC registration for sellers of subdivision lots. Section 4(a) requires that the prospectus be in the hands of the purchaser for at least 48 hours before a binding contract may be executed for the sale of the lot. No such requirement is imposed in administering the Securities Act of 1933 involving the sale of securities by registrants whose enterprises are generally far more complex and more speculative than the sale of a lot in a subdivision. Under the Securities Act of 1933 the registrant on the day he files the registration statement may distribute a preliminary prospectus or “red herring" as it is called in the trade, and thereby start conditioning a prospect for the purchase of securities on the day the registration statement becomes effective. I wonder how many would-be purchasers of securities, whose minds have been made receptive to the issue by reading the "red herring," will examine the amended prospectus before they buy the securities; and the amended prospectus might be the result of one or two ten-page letters of comment from the examining branch office of the SEC. The 48-hour condition is discriminatory against the real estate industry. If it is a reasonable requirement it would have been imposed on the securities industry many years ago.

Section 6 (a) (1) requires that the registrant include in the prospectus the price which he paid for the land. There is no qualification to this requirement. Thus if the land were acquired thirty years ago in a distressed market, this price must be revealed to the prospective purchaser. The Securities Act of 1933 imposes no comparable burden on a registrant who is seeking capital to purchase a plant or an apartment house where the real estate was acquired more than two years (in some cases five years) preceding the date of filing. The price requirement is unreasonable and has no bearing on the legislative objective. To state the purchase price means that the promoter must include in the prospectus every justification for the difference between his acquisition cost and the price per lot to the public.

Section 7(c) requires that if there is any change affecting a material fact occurring after the effective date of the registration statement, the subdivision seller "promptly file an amendment to the registration statement" which, of course, includes the prospectus. I must assume that all the items listed under section 6, "Information Required in the Registration Statement", represent areas of material fact subject to section 7(c). This could prove expensive as well as unduly burdensome to a subdivider. Securities are often fully subscribed on

the effective date. Land-particularly parcels of unimproved land where construction is not contemplated in the immediate future-may take several years for complete disposition. Often the developer must change the price and the terms. He might decide to dispose of some of the lots to a builder at a lower price. To require the seller to file an amendment every time there is a change in some material fact is unreasonable. This must have been recognized in the 1933 Securities Act because section 10(a)(3) of that Act provides that when a prospectus is used more than nine months the information contained therein shall be as of a date not more than 16 months prior to such use. A similar cutoff period should be provided in S. 275.

Section 8(b) prohibits the distribution of a "red herring" by a registrant who is selling land. However, the promoter who is selling ownership in some enterprise, whether it be bowling alleys, mining, manufacturing, or an apartment house and regardless of how speculative, can use the channels of interstate commerce to condition the minds of the purchaser weeks if not months before the effective date of the registration statement.

If the distribution of a "red herring" results in deceptive practices it should be barred in the administration of the 1933 Securities Act. If it does not, it should be permitted the sellers of lots in subdivisions.

Section 8(b) requires that the prospectus must be used in its entirety in any promotional activity. Unless the Subcommittee wants to deny the use of newspaper, radio, or television for subdivision sales, it should approve some provision comparable to section 10 (f) which permits a prospectus to be in the form of a radio or television broadcast.

While we submit these comments regarding certain provisions of the bill for your consideration, we nevertheless recommend against the enactment of the measure. We believe that the two approaches we have outlined provide for effective methods of deterring the fraudulent sale of land in interstate commerce. They should be given a chance before we divert the SEC from its primary mission of policing the securities business.

STATEMENT OF POLICY ADOPTED BY THE DELEGATE BODY IN CONVENTION, NATIONAL ASSOCIATION OF REAL ESTATE Boards, MIAMI BEACH, FLA., NOVEMBER 17, 1966

INTERSTATE SALE OF LAND

We oppose Federal legislation requiring sellers of unimproved lots in interstate commerce to register with and be regulated by the Securities and Exchange Commission. Instead, and in order to deter the sale of such land through fraudulent misrepresentation of material facts concerning the property, we recommend the enactment of legislation providing federal criminal penalties for persons in one state selling land to individuals in another state in violation of the laws of the latter state.

Senator WILLIAMS. Mr. Leon Weiner, president of the National Association of Home Builders.

We are not talking about homebuilders in this bill, are we? We are talking about what we call raw land. Maybe not so raw. Maybe

swampland. Maybe mesa plateaus.

Mr. WEINER. Such as we know in New Jersey.

Senator WILLIAMS. Now New Jersey has made rapid strides. We don't even have any mosquitos left, you know.

It is good to have you back. I see Joe McGrath with you.

Mr. WEINER. Thank you, Mr. Chairman. I have on my left Mr. Herbert S. Colton, who is general counsel of the National Association of Home Builders, and Mr. Joseph B. McGrath, whom you just mentioned, who is our legislative counsel.

Senator WILLIAMS. Why didn't you bring Alex Fineberg with you? Mr. WEINER. I am saving him for later.

Senator WILLIAMS. You mean for the full committee?

Mr. WEINER. Yes.

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