Not that the Caribbean and South American tracts, with few notable exceptions (among them: lots in Brazil, which the Better Business Bureau warned could be attacked by headhunters), do not offer what they advertise. A Dun's Review reporter touring the scene of the bigger boom areas found no lots under water, such as happened in the Florida of the 1920s, or tracts carefully staked out in the middle of a barren desert, in the style of Arizona in the early 1960s.

By and large, these tracts were exactly what the advertisement described. Stretches of sand, many of them reasonably close to the ocean, with the inevitable palms in the background and every so often the waft of a trade wind across them. But the Dun's reporter also found what can only be described by the phrase, "Things are different in the Caribbean."

Like so many land booms, ranging all the way from John Law's Mississippi speculations in the early 1700s to this one, the Caribbean sales volume has been heavy with "site unseen" orders. It has been conducted mainly by advertising and mail order, with large numbers of executive buyers who have never visited their parcels of land. As "Fagon," possibly the best-known taxi driver on the island of Montserrat, told a recent passenger: "They come down every now and then, but there haven't been many so far."

Indeed, it is likely that the lure of the unknown may even be part of the attraction for executives. At least this seems to describe the reaction of Robert T. Duffy, a New York insurance executive, who has never seen the half-acre sites he is buying on Great Exuma in the Bahamas. "Sure it's like buying a pig in a poke," he cheerfully admits, "but I figure that even if we never build a home there, we can sell the tract sometime at a profit."

But the Caribbean-like any other part of the world-is no place for buying land without seeing it. As the Dun's Review reporter found, an investment in Caribbean land is not necessarily the same as buying American stocks or even American land. There are very, very strong dissimilarities between the two. Among them:

Fairly stiff import taxes on most of the islands, running as high as 45% on U.S. cars and tires; even used furniture faces a 27% levy.

High building costs. The cost of $15-$16 a square foot on Great Exuma, for example, is roughly double the rate of Cape Coral, Florida.

Differences in power systems. On the idyllic island of Montserrat, as one example, the 220-voltage electric system is used, a fact of life that renders most American-made appliances useless without bulky transformers. For all the drawbacks, it must be reported that plots in the Caribbean appear to be selling at a fast clip. The most indicative sign of the boom probably is the inflation in land values that has taken place. An acre on Eleuthera Island in the Bahamas, sold for $1,000 as recently as 1955, now sells for $10,000; similarly, land on St. Thomas, priced at $2,000 in the late 1940s, now sells for nearly $18,000. Says Russell Burke of the big international real-estate firm of Previews, Inc.: "The islands definitely are 'in.' Everybody wants to buy on them."

If further proof of that statement were needed, it can be found in the fact that even the developers seem almost hard-pressed to keep up with the demand. One of the most active of the development companies, Montserrat Beachettes, reported recently that of 1,350 home sites developed and on sale at $2,995 and up, only eight were still unsold.

A company known as Eleuthera Island Shores, Ltd., has been equally successful. Early this year, for example, Eleuthera finished selling 1,000 lots at $1,295 and up, and even now it is preparing an additional 1,000 sites it fully expects to sell in a short time. A third developer, Bahama Acres, Ltd., which has some 5,600 acres subdivided on Great Exuma in the Bahamas (available on the installment plan for $995 per quarter-acre), reported recently that over 40% of the lots were sold.

For the developer, such fast-paced sales have added up to a kind of twentieth century Caribbean gold rush. Aided by the same low taxes that attract land buyers, Eleuthera Island Shores, Ltd., for one, reported earnings of $103,895 from sales revenues of $261,072 for the nine-month period through April 30 of this year.

But if the developers are moving ahead at a rapid pace, the same is not quite true of their developments. While the ads all promise a full range of utilities and roads, most of the Caribbean developments are too new or have too

few homes constructed to reveal just how far developers will go with promises of paved roads, readily available water, electricity and similar amenities. Even at Montserrat Beachettes on tiny (32 square miles) Montserrat, some 300 miles southeast of Puerto Rico (whose developer claims to have sold 1,300-odd sites), only about thirty homes actually had been built by late spring.

So far, the Montserrat site has signs of some paving, though most of its roads are of crushed rock or dirt. There was also a rudimentary water system, in the form of a thin pipeline that runs alongside the narrow main road. Overhead power lines were also evident in some parts of the development. Here, though, a company aide admitted that a conflict with the island government over the electric power system leaves its immediate future in considerable doubt.

It is possible. however, that some landowners in time will wish that their tracts were as far along as Montserrat. Says the National Better Business Bureau's Hoffman: "These promises, like the guarantees, are really only as good as the developer's word."

And what about one reassuring point in the ads: The fact that they offer a one-year guarantee under which the buyer can visit his tract and get his money back? While it can hardly be blamed on the developers, the weakness here is that few buyers actually make the trip. Consequently they forfeit the escape clause.

Possible reason for this, aside from the press of business: the trip cost can run as high as one-fourth of the purchase price. The cost of a recent four-day, round-trip inspection on Montserrat (including air fare from New York, hotel charges, meals and taxi fare, all at off-season rates) ran over $400. That figure would run considerably higher, of course, if a wife accompanied the head of the house.

One executive who did make the trip to one of the islands is Otto Jensen, engineering research manager of a major Philadelphia electronics company. Nearing retirement and wanting a home, Jensen bought a one-acre, $10,000 site earlier this year after seeing an ad in a Philadelphia newspaper, and did go down to see it.

He returned to Philadelphia a sadder but wiser man. As one example, Jensen found that shopping was very difficult on the small island. It is not only the inability to do all one's shopping in one day as at home (Groans Jensen: "They have onions one day, potatoes the next, tomatoes another."), there's a premium price of 25% to 40% on American canned goods.

Even the washing machine was a problem. When he mentioned to some islanders that he planned to bring in a washer, says Jensen, they immediately berated him. He would, they said, spoil the native help who were accustomed to washing clothes by beating them on a rock at a nearby stream.

Further, says the Philadelphian, there is a movement afoot within the government to levy a stiff tax against landowners who do not build a home within a certain time period. The impact of such a penalty on land values could be severe, especially for owners who regard their property purely as an investment to be sold later, hopefully for a profit.

Still other factors must be considered. As surprising as it may seem, island living can be very expensive. A family of four that could live on $6,400 on the mainland, according to one estimate, would require $8,400 to live comfortably on the island of Grand Bahama. So, far from being more suited than the U.S. for low-cost retirement, living on the typical island will cost the transplanted mainlander about 20% to 25% more than he spent at home.

When he wants to build on his land, moreover, the new owner may find a scarcity of mortgage money in the islands. This is true on the smaller islands especially, where few banking facilities exist. It is also generally the policy of most lending institutions to limit their loans to people who intend to occupy the new dwelling permanently. Further, the prevailing interest rate is about 8%, well above the 5%-6% average charged by U.S. banks. Also differing from liberal U.S. practice, only about 50% of the combined value of land and house will by advanced by a bank.

A certain risk also faces the buyer who assumes that his title to the land is free and clear of all encumbrances, such as liens, judgments and prior claims. Only recently, for example, the Bahamas government passed a quieting-of-title law in order to end a mass of confusion over titles that often had been handed down by word of mouth alone. Further, to help assure land owned in the Bahamas of clear titles, Inter-County Title, Guaranty & Mortgage Co., a major

New York-based title insurance firm, recently instituted a title research and insurance program for home owners in the Bahamas. Elsewhere, however, such insurance is not readily available and leaves the owner open to legal claims and suits.

It may also be of some concern to the new owner that in signing his sales agreement he cedes to the local government all mineral rights on his property. Of course it is not likely that oil or gas will be discovered there tomorrow (although there was a wild Cuban oil hunt that spilled over to the other islands a few years ago), but even the idea of an oil derrick rearing up between picture window and sea can prove disconcerting.

Medical service can be still another difficulty. Says Mrs. Alfred Hart, the wife of an executive who happily moved back to the U.S. after three years on Bermuda: "Nothing seems as important as medical attention when you're living on an island. For people with enough money, it's usually a matter of hopping on a plane and getting to the mainland as quickly as possible for treatment. But people of ordinary means cannot do this every time something comes up.

Perhaps less exasperating are the many smaller inconveniences that await the new arrival. Public transportation, for example, is relatively scarce or nonexistent on the islands. Minor though this problem may seem, it can be easily compounded on days when the newcomer's car is in disrepair and he discovers that it won't be ready for two weeks because many island garages do not stock parts for his make of automobile.

Inconveniences notwithstanding, there are, of course, many Americans who find the islands to their liking. Whether retired, interested in a place for winter vacations or out for sheer capital gains, they are entirely happy with their purchases.

Again, the buyer may be dealing with an entirely reputable firm, and it should be stressed that the Better Business Bureau has found nothing shady in the pasts of most of the Caribbean land firms. The buyer may have just the right plot of land picked out for himself. He may be willing to overlook the inconveniences, and he may have sufficient funds to keep him in reasonable comfort. But in the final analysis, the old precept of coveat emptor must hold sway. In the Caribbean as anywhere else the buyer should see his property before he buys it.

(Mr. Hoffman subsequently supplied the following information :) NATIONAL BETTER BUSINESS BUREAU, INC., New York, N.Y., June 29, 1966.

Senator HARRISON A. WILLIAMS, Jr.,

Old Senate Office Building, Washington, D.C.

DEAR SENATOR: You will recall that you submitted a list of further questions supplementing my testimony of June 22, 1966 before the Senate Committee on Banking and Currency.

I attach a photo copy of the questions and will not bother repeating the questions but simply give the answers.

Questions

1. Tell us a little more about Caribbean sites? Would you say that most buyers have a real understanding of water supply and other problems?

2. Would you say that state regulators really have enough staff to screen all the claims made for land in their states?

3. Doesn't one large Florida developer give something called a certificate for a deed? How much protection, would you say, does this give a buyer?

4. Is on-site inspection really foolproof?

5. A national Better Business bulletin of January 1966 tells about the problems of an Assistant Attorney General in Washington who wants to enjoin a corporation from practicing a lot allotment scheme in that state. He apparently is powerless to act. Would you comment?

6. Have any new self-regulatory efforts been made within the interstate land sales industry?

7. What information do you have on the National Association of Community and Land Developers?

Answers

With respect to Caribbean sites, many are rather expensive lots and are directed to U.S. residents with adequate funds, obviously. No doubt a number of

business executives have visited one or more Caribbean islands, and might have some understanding of the way of life of a particular island or islands.

However, it seems doubtful that very many tourists would have looked into the questions of water or the availability of electricity. At least, many persons with whom we have been in touch did not seem to know what "roof catchment" of water meant, where rainfall is caught on the roof of a dwelling and then stored in a cistern below the house. Obviously, such water might be limited in supply, and lack freshness.

There are areas where water can be used only during certain hours, and the same for electricity.

In some locales persons are to furnish their own power supply via gasolinepowered electricity generator. Also, gasoline can be quite expensive in the islands.

It would be my belief that a person should be intimately familiar with the life in the particular region of an island where one plans to dwell-familiar with the markets and food supply there, availability and feasibility of appliances, entertainment, recreation, costs, etc.

The average reader of advertising would not seem to be that familiar with the area under discussion unless he had at least resided there or visited there several times.

We have had cause to admire the heruculean task undertaken by a number of states where are either bombarded by subdivision offers or else contain hundreds of subdivisions being advertised and sold. The State regulators, particularly in the beginning, have been swamped trying to keep up with the filings and scrutiny of all the materials accompanying a filing. In most instances they have done a good job to the best of their ability. There have been some instances, of course, where advertising and literature has contained some language which might have the capacity to mislead readers regarding the true nature of the project.

One state indicated to me that there was quite a lengthy waiting list for acceptance of projects and they were so short-handed that they had to bring people from all corners of the state to conduct inspections, study the filings, etc.

The primary complaint from the states we have been in touch with has seemed to be lack of staff and need for assistance in administering the state's laws regulating real estate offers.

I hesitate to attempt to gauge the effect of a "Certificate for Deed" given purchasers by a large Florida developer, versus an actual warranty deed. Questions have been raised with us by purchasers, and we have recommended that such be discussed with their own attorney, inasmuch as we do not know what the status of a "Certificate for Deed" might be in the event of death of the lot owner, how the deceased's estate might be able to handle the plot, how easy it would be to buy and sell, etc.

The general advice given by the National Better Business Bureau is that "property should be examined personally before commitment. Read all agreements before you sign and make sure that all points are covered in writing to your satisfaction. If a contract is drawn, that document should contain all the agreements between the purchaser and the seller. The counsel and advice of a competent attorney is recommended in the purchase of real estate."

Our general bulletin "Real Estate Promotions", enclosed, notes that "Personal examination essential-generally speaking, purchasers should examine personally any property they plan to buy even if this involves travel, inconvenience and expense. Buying property sight unseen opens the door for exaggerated descriptions, misrepresentations, and deceptive concealment of essential facts on the part of promoters, and is a major cause of dissatisfaction."

From the above, it would seem evident that personal inspection is but one phase of investigation when buying real estate, other phases being noted in the attached bulletin to service and guide those who elect to investigate before they invest, as all Better Business Bureaus recommend.

Even the attached does not include every point, such as investigation of the financial resources of the developer and whether he is likely to put in all of the improvements promised.

Residents of the State of Washington were solicited largely by mail and by telephone to buy lots in a lake project in an adjoining estate.

The Attorney General of the State of Washington, while branding the letter of solicitation from the developing firm as constituting "false misleading or deceptive advertising," and seeking an injunction to restrain them from utilizing the advertising, had no persons on whom he could serve a summons in the state. Promoters of this "free allotment" scheme reside in and operate from the State of Florida. The particular project was not located in the State of Washington, and the Attorney General was thus unable to halt the physical activities of persons involved in this operation since they were not in his state. This would appear to be a case where a national authority, rather than a state authority, could halt misleading and deceptive tactics.

As to the present status of self-regulation within the industry, statewide trade associations do not appear to be as active now as several years ago. To the best of my knowledge there is no industry-wide group which has embraced self-regulation as a program or goal, operating throughout the 50 states. We know of no specific prgram which has been adopted by a national group with the objective of full self-regulation. Of course, there are a number of large reputable national companies which have observed self-regulation for many years. Contrarywise there are some firms active today which do not utilize the recommended standards for land advertising promulgated several years ago by the Better Business Bureaus, and a few which do not respond to letters seeking review of advertising. In general, responsible established firms who have an actual development to show seem to be observing self-regulation, but irresponsible firms are not.

We have no index on the "National Association of Community and Land Developers," although we do have a record of Mr. John A. Cooper as head of a large project in the midwest known as "Cherokee Village."

Cordially yours,

BOB HOFFMAN,
Vice President.

Senator WILLIAMS. Mr. Carl Bertoch, executive director, State of Florida, Installment Land Sales Board.

Mr. Bertoch, you get around, the last time you were here from Arizona and you also served on the Ohio Securities Regulatory Agency.

STATEMENT OF CARL A. BERTOCH, EXECUTIVE DIRECTOR, FLORIDA INSTALLMENT LAND SALES BOARD; ACCOMPANIED BY MR. JON MOYLE, COUNSEL TO THE BOARD

Mr. BERTOCH. Yes, sir. With me today is Mr. Jon Moyle who is counsel for the board and since the earlier testimony was largely concerned with Florida and a few of the operations there, I thought his insight into some of our legal problems would be helpful to this committee.

Senator WILLIAMS. Well, my intelligence from my staff tells me you agree in principle with the legislation before us and might have some ideas as to suggested amendments.

Mr. BERTOCH. We have been working closely with your staff, as I believe you have been very much aware, and attached to our remarks today, is a summary of a meeting that we had with members of your staff in January of this year. It reviews some of the language in this bill.

Senator MONDALE. The chairman indicated that we should start and he will be here shortly.