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STATEMENT OF LEON N. WEINER, PRESIDENT OF NATIONAL ASSOCIATION OF HOME BUILDERS; ACCOMPANIED BY HERBERT COLTON, GENERAL COUNSEL, AND JOSEPH MCGRATH, LEGISLATIVE COUNSEL

Mr. WEINER. Mr. Chairman, as you know, my name is Leon N. Weiner. I am from Wilmington, and I also would ask permission, in the interests of time in in stressing some of the highlights of this question, that I do not go through our entire prepared statement, but rather pick up several points that have been made in connection with this bill which we would like to elaborate on. We would like to file our statement for the record.

Senator WILLIAMS. Very good. We will receive it and include it in toto. And if you could summarize your statement it would be wise because we have been advised we may have to leave in order to vote.

Mr. WEINER. We would like to associate ourselves generally with the remarks of the last two speakers, with the single exception of Mr. Williamson's record with regard to his testimony in front of this committee, and with regard to his relationship to the proposals that the Senator from New Jersey has advanced.

We think that some of the pertinent points have already been made. Incidentally, our industry is composed mostly of a large number of small homebuilders and subdividers of land throughout the entire country.

While the question of homebuilding seems to be divergent from the question of the land subdivision, nevertheless the overwhelming majority of the subdivision of land in this Nation is done by homebuilders. The problems that are inherent in this proposed legislation are the things that we would like to bring before you.

We are and have been opposed to the kinds of abuses of the subdivision of land that have taken place. We are interested in the prevention of questionable practices and in the punishment of fraud in any real estate property transactions, whether it is interstate or intrastate. We feel that some measures that can control those abuses are obviously necessary, but feel that the present proposed legislation has a number of objections to it-which we think are very valid and very important.

In the first place, we feel that the intrusion of the SEC into an industry which is already surrounded by the amout of regulation and requirements for conformance with agencies is such as to work a tremendous hardship. We think that the cost, of SEC processing, as indicated by others and substantiated by our examination of the question, is going to bring up the cost of land, which has already risen very rapidly, in a frankly unconscionable fashion.

Several times in the statement which we are filing with you, we have mentioned the fact that the imposition of the SEC regulation and processing upon the legitimate homebuilding and land developing organizations would be a heavy and expensive burden on our industry, and ultimately on the prospective home buyers.

While we understand that perhaps this is not designed to affect the regular homebuilder and subdivider in his operation locally in his business, nevertheless we are living in a highly mobile society. We

have the development of major metropolitan areas, for example, as the Senator knows, the Philadelphia area and Camden area between Pennsylvania and New Jersey, the New York and northern New Jersey area in which there is a constant interflow between people living in both of those areas and many others throughout the entire country. Now, let us give you an illustration, for example, of where we think this is going to pose a real hardship. A builder and land developer must often count upon the sales of developed lots to other builders as well as to home buyers. Frequently in the metropolitan area the builders and buyers come across State lines because of the proximity I just referred to.

Under the bill, S. 275, a builder and land developer in Virginia, for example, could not sell a group of 50 lots to a builder from Montgomery County, Md. unless (a) the Virginia builder first processed his subdivision through SEC; or (b) the builder organized a corporation in the State of Virginia which for many business reasons he might not wish to do.

Senator WILLIAMS. In that hypothetical situation, the seller in Virginia to the developer in Maryland-would he make more than 25 single transactions of sale to the would-be developer in Maryland? Mr. WEINER. It would depend on a number of things. It is conceivable he could make 25 transactions. It is more likely he would make one or a series of two or three or four in the course of reaching

25.

Senator WILLIAMS. You see, we have an exemption.

Mr. WEINER. It says "25 or more parcels." It doesn't say that it is one transaction or 25 transactions.

If you were to change this to read "25 individual transactions," I think it would change the complete complexion of what we are talking about.

Senator WILLIAMS. We will have to think about that. We were thinking in terms of individual transactions in the sale of parcels of subdivided land. But where a tract of land is being sold and it is going to be developed, I would think of that in terms of one transaction. Mr. WEINER. Well, supposing it is already developed, or in the midstage of developing.

Senator WILLIAMS. Then that is exempt under section 2.

Mr. WEINER. Well, not if it is in the process of partial

Senator WILLIAMS. Where there is a residential, commercial, or industrial building, or where there is a contract to erect a dwelling, that is exempt.

Mr. WEINER. Except that it says: "To erect a dwelling thereupon within a period of 2 years."

Senator WILLIAMS. I direct your attention to the first part of section 3 (a) (2).

Mr. WEINER. Suppose there is no commercial or residential building going on the land?

Senator WILLIAMS. I thought you were hypothesizing a case of partial development.

Mr. WEINER. Well, he may sell that part which is not developed, which has not yet been developed. Frequently, particularly in the recent tight money period we have gone through, like last year, we

have found that a number of builders have sold to others sections of land upon which there had been no construction, but which they had been holding in hopes of developing but couldn't get to.

Now, let's go from that case to a slightly more complex situation. Suppose the Virginia builder sells all but 20 of his developed lots to other Virginia homebuilders, which is intrastate. Now he wants to sell the remaining lots to individuals so they may build their own homes upon the lots with their own architect and own builders.

Again, for many reasons, the Virginia builder may not wish, or be able to build a house for the buyer of the last 20 lots in his subdivision. Yet under this bill he could not sell a lot to any buyer from either the District of Columbia or from Maryland or from any other State unless (a) he had obtained the SEC clearance for the subdivision; or (b) he agrees to build that house within 2 years on that lot.

So once again, Senate bill 275 limits his operations considerably into that one straitjacketed category.

Now, futhermore, any builder who is not willing to risk a cutting down of his total market for developed lots and houses would have to consider seriously the possibility of clearing a fully legitimate land development operation through the SEC. This without a question will add substantially to the cost, as I have indicated, and very frankly, we object strongly to the introduction of the SEC authority as an additional authority in the homebuilding business. The use of the SEC route in trying to control the fraud and abuse is one we would prefer to avoid.

However, we think that the proposal for the on-site inspectionincidentally, I would say that in the operation of our business as it affects our people, about 95 percent-and I have no statistics available, I am guessing at it-95 to 99 percent, we insist on taking the buyers out and showing them the lots so they select their own lots, and particularly since we have been in a buyer's market in the last number of years. It is very, very rare indeed that anybody would purchase a piece of land out of State or in State without looking at it and selecting the site.

We think that if we exempt, as indicated by one of the previous speakers, the purchaser who has visited and sees that site, that we might alleviate the situation very materially. We would like to second that proposal very seriously.

Now, last year we proposed that if the bill is to be passed, section 3 of the bill should include the following exemption: Under section 3, paragraph (a) (2): "The sale or lease of real estate to any person (1) engaged in the business of constructing residential, commercial, or industrial buildings; or (2) who acquires such real estate for the purpose of engaging in such business or for the purpose of resale or lease to a person engaged in, or who acquires such real estate to engage in such a business."

This exemption would, we feel, in part alleviate some of the problems that we were referring to. We think, however, that the development of some techniques that would keep the SEC out of our business would be highly desirable. We prefer the purchaser visiting, and the site exemption, but in the event that one isn't suitable, we have an alternate which we have included in the testimony that we have filed. It is at the

bottom of page 4, in which we have tried to define some standards, development standards or practices prevailing in the locality as a guide for the status of the real estate which is being purchased.

In brief, then, and in short, we are concerned with the fact that since our industry is basically and primarily composed of small businessmen dealing on a local community basis from community to community, and not blessed or otherwise endowed with the batteries of attorneys, accountants, and professionals, and with the costs involved in the preparation of registration statements and the redtape, we feel that some of these corrections and amendments are necessary. We have not had an opportunity to look at Senator Bennett's bill, although we have seen his statement when he introduced it. We think if it were possible, as an association we would like to press for the passage by every single State of the kind of legislation indicated by Senator Bennett. We think that that kind of protection is necessary for us as an industry as well as for the home buyer, the purchaser, the aging and retired individuals who are looking for this kind of thing.

We would therefore like to close this by saying that if it is possible to develop this bill and to isolate those who are abusing the subdivision of land with some of the protections that we have outlined, then fine. But we prefer the other routes of doing it.

Senator SPONG. Mr. Chairman, might I suggest that we invite Mr. Weiner and his associates to comment on the Bennett bill further in the time that remains while these hearings are open? Not at this time

Senator WILLIAMS. We have done that. We have opened the door to comments before this committee on S. 911, even though it has not been reported to this committee, but to the Judiciary Committee. We may be stepping on a few toes somewhere along the line but we have already opened the door so we might as well keep it open.

Senator SPONG. I think we invited that from a previous witness Senator WILLIAMS. I know that but there is a matter of committee jurisdiction. Will we get in trouble by doing this?

All right. You haven't reviewed the bill.

Mr. WEINER. We have reviewed it very briefly. My comments, Senator, would be that it is what we think we are looking for. And yet we certainly, as I said, heartily endorse the purpose of this bill 275, which is to get at the fraudulent offerings and the fraudulent practices. We think that Senator Bennett's bill has the advantage of calling for Federal action with regard to the use of the mail and interstate transportation and so forth. It gives the tools to do this, and would call for, as we understand it, the passage of the model legislation prepared by the Commissioners.

Now, our general counsel, Mr. Colton, went to Montreal and met with the Commissioners this past June or July-or August of this past year. If you would, he could comment briefly on a couple of the pertinent things that were developed in order to enable the model ordinances to deal with the problems of fraud. If it's agreeable, Mr. Chairman.

Senator WILLIAMS. Yes, it is.

Mr. COLTON. My purpose in going there, of course, was to urge the same point of view that Mr. Weiner has just expressed and to recite

to the Commissioners the difficulties that this kind of thing would pose for transactions that we were sure they didn't intend to bring within the scope of the bill.

As a result of that, there are two exemptions in the bill. They are numbers-section 3 (a) (4), which deals with the question of persons engaged in the business of building for resale, or acquire land for that purpose, which is very parallel to the wording that Mr. Weiner suggested here.

Another one which I don't believe has been covered in any of these suggestions, and that is 3(b) (3), which exempts any subdivision in which the plan of disposition relates to 10 or fewer persons.

I felt at the time that that very largely disposed of our specific objections except with respect to the general idea of whether an SEC type of thing was in order. We could certainly live with this bill without the impact on the specific cases that Mr. Weiner mentioned. Senator WILLIAMS. One of Mr. Weiner's suggestions, dealing with section 3(a)(2), which appears on page 4 of your testimony, I think may appeal to me. It is very similar to a suggestion made by Chairman Cohen yesterday. It is certainly our legislative intent to exempt the situation that you envisaged in your proposed amendment to section 2, and it is similar to what Chairman Cohen suggested yesterday. His language went like this:

The exemption would run to transactions incident to the assembly or finan. Icing of a subdivision or the organization of a developer, and which do not involve the sale of any interest in any individual lot or parcel in such subdivision.

I think they both have about the same meaning.

Mr. WEINER. Well, Senator, we looked at Mr. Cohen's comments in his testimony yesterday, and we feel that when you talk about the sale of any interest in any individual lot, that you are then beginning to raise some of the things that we objected to in our testimony. We think there is a difference between what we have proposed and what he has proposed. I am not sure that he understood quite the kind of thing we have been getting at, which is to get to the people who are dealing in the question of buying a lot for the purposes of engaging in the business so that an individual could buy a lot and then get a contract with another builder or an architect, you know, hire the architect and have them build a house for them on that given lot. This is why our language is broader, because its intent is to have it for the purpose of erecting a house. His language, as a matter of fact, says it is incident to the assembly or financing of a subdivision rather than sales between people who are engaged in this.

Senator WILLIAMS. You have given us a lot to think about.

Mr. WEINER. I would make one other comment before I leave you, unless you have any other questions.

We have read Mr. Cohen's testimony with great interest. We were particularly interested because he was so interested in the fact that he felt this business ought to go into the SEC. We would like to respectfully suggest, with all due respect to Mr. Cohen, who we think is a very brilliant, capable man, that I emphasize a point that Mr. Williamson made in his testimony a few moments ago. Mr. Cohen said in his testimony that, generally speaking, the interests

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