to for a land offering, and particularly to make each director personally liable. These provisions were taken verbatim from the Securities Act, where they originated under entirely different circumstances. Directors may be expected to be knowledgeable about the affairs of their corporation at any given point in time, and a securities registration statement usually is limited to a particular offering at a particular time. It is contemplated that under this legislation, land offerings will involve continuous registrations, not limited to a particular point in time, and because of this continuing situation it would be wholly unrealstic to expect directors to keep up with details of land projects or to require the signature of a majority every time an additional tract is filed, which may be dozens of times during any one year. This is one of the drafting problems resulting from the attempt to adapt the language of the Securities Act to land sales regulation. A director would, in effect, assume personal liability of vouching for such details (covered in 31⁄2 pages of the bill) as the easements, encumbrances, appraisals, condition of the title on all parcels, legal descriptions, etc., none of which he could have personal knowledge.

(a) In Section 5(a), delete the words in lines 18 through 23 beginning with the word ", and" and concluding with the word "developer").

(b) In line 18, insert "and" between "developer" and "its".

(c) In Section 10(a), delete subsections (2) and (3) and insert the word "and" in line 13 following the ";"

LIMITATION OF ACTIONS

Section 14 in some instances permits a suit under Section 10 of the Act if the suit is brought within five years after the sale of all the interests, lots or parcels which are the subject of a particular offering. If sale of all the lots in a subdivision is not completed for several years, a person could be suing eight or ten year after the registration statement was filed. This seems extremely long. It would seem appropriate to make the period within which a suit can be brought by the owner of a particular interest, lot or parcel, three years from the time that interest, lot or parcel was sold by the developer.

The parallel provision of the Securities Act provides for a flat one-year statute of limitations for violation of the registration statements requirements and for a flat three-year limitation for violation of the anti-fraud provisions, signficantly shorter than those contained in S. 275.

The proposed modifications of S 14 are based upon and follow Section 13 of the Securities Act of 1933.

(a) In Section 14, in lines 6 and 10, substitute the words "one year" for the words "three years".

(b) In line 12, substitute the words "by an investor" for the words "to enforce a liability created under section 10".

(c) In line 13, substitute the word "three" for the word "five".

(d) Delete the words in lines 13 through 16 beginning with "of all" and concluding with "sale." and substitute therefor the words "to such investor."

SALES PRIOR TO EFFECTIVE REGISTRATION

Section 4 (a) makes it unlawful for any developer or agent to sell or lease, or offer to sell or lease any interest, lot or parcel in any subdivision unless a registration statement is in effect in accordance with Section 7 of the Act. Section 7 provides a procedure for registration statements to become effective similar to that provided in the Securities Act of 1933 for registration of securities. Typically, approximately two months elapse between the filing of a registration statement under the Securities Act and the time that registration statement becomes effective. It will be impracticable for a developer to file a registration statement until it has acquired the subdivision to which that registration statement will apply (and in many cases developers will not even begin serious work on a registration statement until the subdivision has been purchased). It appears that under the proposed Act a developer will not be able to begin even preliminary advertising until the registration statement becomes effective. Generally a developer will not be able to sell any significant number of lots for at least several weeks after it begins advertising the lots. Thus, a developer will probaby be paying interest, taxes, and similar charges on his subdivision for a substantial period before he can begin advertising lots. In order to reduce as much as possible the time during which a developer will have to hold land with

out being able to sell it, a developer should be allowed to distribute advertising materials during the period between the filing of a registration statement and the time the registration statement becomes effective, provided no sales are completed until the registration statement is in effect. This provision would have much the same effect on sales of subdivided lands as Section 5 (b) of the Securities Act of 1933 has on sales of securities.

(a) In Section 4 (a), lines 22-23, delete the words beginning with "or offer and concluding with "lease".

"ON-SITE" EXEMPTION

The reasons for this amendment are apparent, and are best stated in testimony last year and this by Mr. Herndon Jeffreys, Jr., and elsewhere throughout the hearings.

(a) In Section 3 (a), insert on page 5, following line 4, a new subparagraph as follows:

"(9) The sale of lease of real estate if the purchaser or his representative has inspected the real estate and executes a written affirmation to that effect and thereafter executes or reaffirms the contract of sale for such real estate."

CONTINENTAL MORTGAGE INVESTORS,

April 7, 1967.

Senator JOHN SPARKMAN,
U.S. Senate,

Senate Office Building,

Washington, D.C.

DEAR SENATOR SPARKMAN: The above bills, which are virtually identical, are intended to protect the consumer against land sales promotions by requiring certain land developers to register lot sales programs with the S.E.C. The kind of land sales programs which the sponsors of these bills are concerned about are those involving sales of lots of questionable value as potential home sitesgenerally through the mail and often on the basis of nominal down payments with the balance of the purchase price payable over a period of years. These sales, generally of land located, perhaps in Florida, Arizona, New Mexico, California or Hawaii, are made to people living at substantial distances from the location of the land and are often made through high-powered promotional programs.

The result of some of these land sales promotions has been the unfortunate exploitation of the consumer. We agree that legislation intended to protect the consumer in such situations is well directed and desirable.

It is most important, however, that such legislation limit itself to correcting the abuses described above and that it not, through inadvertance, affect the legitimate housing industry in this country. We feel that the above bills are not properly limited and would have horrendous effects upon the legitimate housing industry in this country; an industry on which the President and his economic advisors are currently counting to be counter-cyclical or anti-recessionary. It would be ironic if this legislation were enacted at just the time that the administration is taking various steps to stimulate the housing industry. It would also come at a time when most demographic and economic factors point to a substantially higher demand for housing than we have ever experienced in the past. For example, over the next ten years the major home buying segment of the population, those in the 25 to 34 year age group, will increase by approximately nine million persons. The problems of supplying their demands for adequate housing is one requiring steps to stimulate the development of land and the construction of houses rather than the passage of legislation, which while well directed in purpose, would hamstring the housing industry.

There are a number of reasons for concluding that the above bills, as presently drafted, will severely hurt the legitimate housing industry. The first is that the every-day developer of housing subdivisions-who, after all, is not of the financial strength of public corporations is going to be highly reluctant to incur the expenses and administrative burden which the registration requirements of these bills would impose. Not only will these expenses pertain to initial registration, but to myriad amendments which would be required with

respect to the changes which normally are part of any housing development. More important perhaps than this cost effect upon the developer, would be the effect upon the institutions which must be looked to, to finance the developer by providing mortgage funds. It is our strong belief, and we speak from considerable experience, having financed approximately one quarter billion dollars worth of typical housing developments in more than forty states over the past five years, that providers of mortgage funds will in general not become involved in projects which fall within the registration requirements of these bills. The mortgages will not accept as security real estate, the development and sale of which can be obstructed by the S.E.C. under these provisions because of something the developer did or did not do. Nor will he become involved in any situation which might result in possible civil or criminal implications. There are sufficient economic risks as things now stand for a mortgagee willing to finance the development of land into single family lots and the construction of houses thereon. We doubt that mortgagees will accept these additional problems. Since the "inter-state" commerce concept on which the subject bills are based is so broad, one would have to assume that any lot sale programs which did not fall within the specific exemptions set forth in these bills would come under the registration requirements of the bills. It is, therefore, of crucial importance that the exemption provisions be broad enough to exclude legitimate housing developments in this country.

As a practical matter, we feel certain that most mortgagees will require certification to the effect that a subdivision is exempt from the registration requirements of these bills before they agree to finance the development of the subdivision. Stated another way, you will find that very few subdivisions will be registered because mortgagees will refuse to finance them. For these reasons we cannot overemphasize the importance of exempting legitimate housing subdivisions from the registration requirements of these bills.

With respect to the exemption provisions themselves, the following are our observations.

The provisions which exempts subdivisions of 25 lots or fewer is not adequate. Many of the typical housing subdivisions which we are asked to finance almost every day, in every state of the union, involve more than 25 lots.

The most critical exemption would seem to be the intra-state exemption Sec. 3(a) (8), of both bills:

"(8) any interest, lot, or parcel which is a part of a subdivision within, and offered and sold only to persons resident within, a single State or territory, where the developer of such subdivision is a person resident and doing business within, or, if a corporation, incorporated by and doing business within, such State or territory."

We believe that in this exemption, the sponsors of these bills recognized the necessity of not adversely affecting the legitimate housing industry. This exemption, however, is completely inadequate. It would, to present an example with which you may be familiar, prevent a Congressman from buying a housing lot in a subdivision of more than 25 lots in Virginia or Maryland since he would most likely not be a resident of those states. While he could buy such a lot under the exemption provisions if the seller of the lot were obligated to build a house for him within two years, many residential lot developers are not home builders and many others do not build out all of their own subdivisions. Furthermore, many buyers do not wish to have the seller of the lot build their houses, preferring to hire their own architects and builders. For similar reasons, residents of New York City could have difficulty buying many lots in Connecticut or New Jersey. A Massachusetts resident vacationing in Myrtle Beach, N.C., Sea Island, Georgia, or Palm Beach, Florida, could not purchase a lot he had seen in an unregistered subdivision on which he wanted to build a second home. A resident of a suburb south of Chicago could not buy a lot in Indiana, which could be as little as five miles from his present residence. A resident of Kansas City, Missouri, could not buy a lot in Kansas City, Kansas. A man whose company plans to transfer him to another state, could not go into that state three or four months in advance of transfer and buy a lot in a subdivision on which he wished to have a builder of his choosing build his home.

The implications, therefore, of these bills upon the legitimate housing industry in this country are vast and extremely dangerous. Consequently, it is necessary to include an exemption which will prevent these bills from having an adverse effect on the legitimate housing industry. We feel the following will do this:

An exemption for all subdivisions, no matter what their size, which will limit sales (not offerings) only to those persons who have in fact seen the subdivision and the lot being purchased.

The above exemption will save the legitimate housing industry while at the same time substantially accomplishing the purpose of this legislation, since if it is required that a purchaser in fact see what he is buying, the chances of his being exploited are minimized.

Additional exemptions which should be included are these:

(1) Any sales to builders, real estate brokers, developers etc, as opposed to individual consumers.

(2) Any sales of subdivisions lots which are served by access roads and water and sewer facilities meeting local standards prevailing in the area.

(3) Any sales by mortgagees who have acquired land involuntarily. This last exemption is necessary because mortgagees as a precondition to providing mortgage funds will require that they be free to deal with any security which they may acquire involuntarily. Such an exemption will not reduce the thrust of these bills because mortgagees are normally large, responsible, institutions.

To summarize what has been said, it is our belief that unless these bills are redrafted to clearly exempt legitimate housing subdivisions, they can have a devastating effect upon the housing industry of this country, its ability to serve the increasing needs of our people and the needs of our economy.

We ask that this legislation not be enacted hastily or without complete analysis by (1), persons providing mortgage money to the housing industry, including savings banks, saving and loan institutions, insurance companies, real estate investment trusts and pension funds and (2), other interested industries such as the title insurance industry and (3), interested trade associations such as the National Association of Real Estate Boards (NAREB), the National Association of Home Builders (NAHB), the Mortgage Bankers Association (MBA), the American Bankers Association (ABA), the National Association of Mutual Savings Banks (NAMSB), and others.

In writing this letter we come to you as a large mortgage lending institution which is as disturbed as are the sponsors of these bills with unsavory lot sales practices; which understands and approves of the purposes of this legislation but which as a nationwide provider of approximately one quarter of a billion dolls of mortgage money over the past five years is extremely and knowledgeably concerned about the serious adverse effects which these bills, as presently drafted, will have upon this most important industry. With kindest personal regards, I am, Sincerely yours,

M. J. WALLACE, Chairman and Managing Trustee.

STATEMENT OF MORTON C. PAULSON, BUSINESS EDITOR OF THE NEWS-JOURNAL NEWSPAPERS, DAYTONA BEACH, FLA.

Once again I am grateful for the opportunity to express my strong belief in the need for federal regulation of interstate land sales. I had the privilege of testifying on this subject twice in the past-before the Senate subcommittee on frauds and misrepresentations affecting the elderly in 1964 and before the securities subcommittee of the Committee on Banking and Currency in 1966. Today I am more firmly convinced than ever that only the federal government can stop the growing menace of unscrupulous and predatory land sharks. This bill (S. 275) has my warm support.

I would like to reaffirm my previous testimony and add the following observations:

First, the latest financial statements of leading Florida land companies show a steady increase in sales of installment-plan land sold in interstate commerce. This year's sales volume may reach an all-time high.

At the same time, there is little evidence that new Florida regulations adopted in 1963 have seriously deterred the con men and gyp artists who account for a sizable percentage of the sales. On the contrary, there are compelling reasons to believe that some of these swamp merchants are doing better than ever.

One of the opponents of this legislation has objected to the requirement that a seller be required to tell the price he paid for his land, since it may have

been purchased many years before. This may or may not be a valid objection, but I would urge the committee to make every effort to provide some indication to buyers of the true value of property. Perhaps the prospectus could include the value placed on the land for tax purposes. Florida tax assessors are now required to assess all real estate except farmland at full current market value. Another possibility might be to require sellers to furnish an appraisal report. Or possibly the Securities and Exchange Commission could adopt the "fair, just and equitable" price test which, according to testimony by California officials, has helped discourage questionable promotions in that state.

The reason that so much bamboozling is taking place is that relatively few people are familiar with real estate values, particularly in Florida. I believe that an indication of true value on the prospectus would do more than any other single thing to halt unscrupulous operators.

I would hope that, if this legislation is passed, the SEC will take a long, close look at all so-called "investment acreage" promotions-the types that have been branded as "inherently fraudulent" by real estate experts-and prohibit claims of "profit potential" in cases where profit possibilities appear unlikely. This is the area in which most of the flim-flams are operating in Florida. There is no telling how many thousands of out-of-state people are paying-or have paid in the past-fantastically high prices for swamps, muck pockets, lake bottoms and impenetrable jungles that have been sold in this way.

Make no mistake about it: the fleecing of the unwary is a huge, well-organized, deeply entrenched and sophisticated industry that rakes in tens of millions of dollars every year. The unsavory land companies may be in the minority in Florida, but they are big enough and numerous enough to reach into virtually every state and several foreign countries with their sales pitches and telephone boiler rooms.

But the problems these outfits create are not confined to the losses of savings of unsuspecting land buyers. There are strong reasons to believe they have helped elect governors (one company turned over its extensive addressograph equipment to a gubernatorial candidate last year, but he lost), have corrupted public officials, have influenced the spending millions of dollars for an unneeded and potentially dangerous highway in South Florida called Alligator Alley, have attempted to intimidate the press, have forced uncooperative public offiicals out of office with threats and intimidation, have helped shape tax policies that are favorable to themselves, and have successfully fended off almost every attempt to restrict their activities. Some companies have powerful friends in the state government.

I was fascinated by the statement of Morton Rothenberg, secretary and general counsel of the Installment Land Sales & Development Association of Florida (ILSDAF), who told the subcommittee: "We in Florida feel that we have more than adequate laws" to control land sellers. The laws may be adequate for ILSDAF, but quite a few Floridians seem to think they miss by several light years of being adequate enough for the public.

Not long ago a New Jersey promoter was indicted on mail fraud charges in connection with the sale of land in Dade County that is subject to permanent inundation by flood control authorities. The state regulatory agency, the Florida Installment Land Sales Board, had no power to restrain this operator because he was not selling on installment contracts.

By taking mortgages and giving deeds to property, a number of companies have slipped through a gaping loophole in the law and have escaped almost all state regulation.

But the land board's performance in regulating those companies over which it does have authority has provoked almost constant criticism. In January of this year the Collier County Grand Jury recommended that the board's five members be replaced for failing to do an effective job. Gov. Claude Kirk asked for their resignations, but four of the five members refused. Two newspapers, the Daytona Beach News-Journal and the Miami Herald, have declared that the whole program should be scrapped and a new one begun.

The land board continues to allow small tracts of vastly overpriced swampland to be represented as a potentially profitable investment for people of modest means despite overwhelming evidence that much of the property may not appreciate in value for generations, if ever.

In Collier County, promoters are getting $2,000 an acre for a soggy wilderness that is valued on the tax rolls at $50 to $150 an acre. The property is described