As 1962 neared its end, however, some purchasers, many enforcement officials, and a number of journalists began to find flaws in the boom. They tried to alert would-be purchasers to be on the watch for overly optimistic promoters and for outright fraud. Complaints and confusion increased; Federal agencies stepped up their surveillance. Concerned about the potential impact of mail order land sales on the elderly, the U.S. Senate Special Committee on Aging devoted some attention to the industry in January 1963 during 3 days of general hearings on frauds and the elderly. Even in this preliminary study, the committee received considerable evidence of widespread sharp practices and misleading sales techniques. It was agreed at the hearings that the study of mail order land sales should continue. When a Subcommittee on Frauds and Misrepresentations Affecting the Elderly was established later in 1963, it was expressly instructed to investigate and report in more detail than possible at the earlier hearings. Since that time, subcommittee staff field trips have been made to seven States. Witnesses representing nine States testified at hearings on May 18, 19, and 20, 1964. MAJOR FINDINGS FINDING No. 1 Even at an early stage of growth, the mail-order land sales industry has already attracted many hundreds of millions of dollars from investors; it has great potential for increased service to the public as the demand for new homesites continues to mount One of the major goals of the subcommittee was to arrive at some estimate of the magnitude of the industry. Difficulties in arriving at that estimate were summed up at the hearing by Gerald J. McBride, president of the National Association of License Law Officials: A total estimate, for the entire United States, will take some time to compile, for there is no accurate source at the 1 1 "Interstate Mail Order Land Sales," hearings before Subcommittee on Frauds and Misrepresentations Affecting the Elderly, May 18, 19, 20, 1964, p. 3. present time. This is a difficult project, since the great bulk of these transactions are as yet unrecorded except in the records of the subdividers. The cumulative total of contracts on which purchasers are still paying must be enormous. In spite of the difficulties in arriving at a total, there is good reason to believe that many hundreds of millions of dollars have already been invested.2 Testimony revealed the following: 3 (a) Mr. McBride, basing his estimates on statements of other officials and claims of subdividers, said that the sales mark reached at least $500 million last year in Florida alone. According to one recent newspaper estimate, about 800,000 acres are selling on the installment plan. (b) California public reports for the past 5 fiscal years have listed 677,590 acres in 861,778 lots." (c) Occasional clues are provided when enforcement action reveals the extent of operations for individual subdividers. H. B. Montague, Chief Inspector of the Post Office, told the subcommittee: " Our records show that in the seven cases where we have had convictions, the take was about $800,000; that in the cases we have under indictment, those cases that have not yet been to trial, the take was in the neighborhood of probably $4 million. Therefore, in these 20 cases, from actual figures that the inspectors compiled as a result of their investigations, there was a take of about $5 million. (This estimate covers only 20 cases of 358 Post Office land fraud investigations that had been authorized by May 20, 1964.) (d) There can be no doubt that the industry has already bought up large holdings in many parts of the Nation. One Florida witness said that 38 square miles of land has been bought up in Volusia County alone. He added: "They are usually able to get 512 acre-and-a-quarter tracts to 1 square mile, so 38 square miles adds up to 19,456 lots or investment parcels. That is just in 1 county, and there are 67 counties in Florida."" Another witness, Reporter Robert A. Caro of Newsday, described another major land sale area: 8 I don't think any verbal description can prepare anyone for the sight of a vast desert valley in Mohave County, Ariz., perhaps 60 miles long and 20 miles wide. "When you top a mountain rise and come into the valley, you can see the entire valley. There is not a sign of human habitation, except every few miles there are signs saying, "This is Shangri La Rancheros" or "Heavenly Acres." Then you go into the county courthouse and ask the county clerk, * Many studies of mail-order land sales have given $700 million as the annual approximate volume of sales. Mr. McBride, at the 1964 hearing, described this as a pretty good estimate, but emphasized that, for the reasons given above, more precise estimates cannot be offered at this time. P. 3, op. cit. Miami Herald, Apr. 19, 1964, article by Haines Colbort, cited on p. 213, op. cit. P. 3, op. cit. P. 238, op. cit 7 P. 151, op. cit. P. 89, op. cit. "Are people out there really buying that land?" And he A few figures might give a better picture than I can of the (e) Some idea of profits-when the subdivider is unscrupulous-was given by W. Dan Bell, president and general manager, Denver Area Better Business Bureau: 9 The promoter may have realized between $750,000 and $1 million in scrubland in 18 months of operation. We estimate that the total of wildcat promotions in Colorado during this period (1954-62) would approximate $5 million in sales." MANY REPUTABLE FIRMS AT WORK Although the subcommittee was primarily concerned with promoters who deliberately cheat their victims, it recognizes that the mail-order land sales industry already has performed major service for many individual buyers. One developer, for example, told the subcommittee that his corporation devoted 5 years of research and approximately $16 million in the planning and construction of its first retirement community. Substantial, reputable developers are making comprehensive efforts to provide livable retirement environment for the elderly and others who buy through the mail. The subcommittee also recognizes that increasing population pressures, and the ever-growing mobility of all citizens, will increase the demand for the opening of new, and sometimes marginal, land for development. Well-managed mail sales can make a considerable contribution to such development. Recognition of the present and potential usefulness was given by the subcommittee chairman on March 19: 10 Senator WILLIAMS. It should be made clear here that the industry has already accomplished fine results in many parts of the Nation. Thousands of retired persons are now living in well-planned communities built on once-marginal land, or on lots deep in the desert, and even on land that was once jungle or swamp. We will hear from witnesses who will tell us just how much has been accomplished. In summary, the high standards of the many should not be endangered or clouded by the actions of the minority. With the objective of presenting a balanced picture of the accomplishments and the dangers, this subcommittee now begins this inquiry. P. 13, op. cit. 10 P. 2, op. cit. FINDING NO. 2 Enforcement action and publicity have hit hard at blatant schemes to defraud or mislead the buyer, but more subtle sales techniques are now at work; in some cases, where outright fraud may be difficult or impossible to prove, sales literature may nevertheless give the buyer a grossly distorted impression of the land he buys Until public attention was drawn to them, many early promoters committed blatant excesses in ignorance or defiance of the Federal postal fraud statute. They sold land they did not own. They offered "free lots" at State fairs or in lotteries and required the "winners" to pay so-called closing costs that were not actually required by local law. Some relied upon totally inaccurate advertising to sell their products. Two men who sold land in Idaho, for example, were convicted for making fraudulent representations as to streets and water and sewerage systems. Indictments were handed down against other developers charged with advertising that water and other amenities existed on their desert acreage when in fact there were none." Transgressions of these early promoters received careful attention from the Postal Inspector's Office. 12 Some idea of the extent of the land investigative program can be gathered from this summary of action between July 1, 1962, and the subcommittee hearing in May: Land fraud investigations authorized.. Cases closed_ Cases currently under investigation.. Cases wherein indictments are outstanding 13. 358 165 193 35 22 60 7 13 15 Each mail fraud case took months of painstaking investigation and preparation. And each (as explained in sec. V) was made more difficult by the "intent to defraud” provision of the mail fraud statute. The threat of 5-year sentences and fines up to $1,000 under that statute, however, undoubtedly inhibited those who had hoped to continue questionable mail order land promotions. Notwithstanding the salutary effect of the mail fraud statute and new State laws, the subcommittee has become concerned about other practices that do not fall within the strictly defined jurisdiction of mail fraud investigators. Slippery language and omission of important facts can, in the opinion of the subcommittee, cause almost total misunderstanding and confusion. Tricks of the trade. A concise summary of present techniques was given by Alton W. Van Horn, then commissioner and now president of the New Jersey Real Estate Commission. Mr. Van Horn, who has conducted on-site investigations for the commission in many States to compare advertising copy with on-the-spot realities, told the subcommittee: 14 An analysis of Federal mail fraud actions on p. 242 of the transcript shows that the "free lot" frauds had resulted in the majority of convictions and indictments. 12 State legislatures also contributed to the retrenchment of shady promoters. (See next section.) 1 P. 234, op. cit. 14 P. 248, op. cit. The difference between the impression created by the promotional material and the true fact is of the greatest concern. Artists' conceptions not labeled as such and alleged or suggestedly nearby-but actually quite distant-scenes are routinely used, instead of on-site or accurately labeled photos. What pass to the uninformed as maps are too frequently prepared with shocking disregard to scale and proportion. Recreational areas, water bodies, and places where shopping, schools, and other facilities might be available, are pictured much closer than they are. Distances tend to be indicated as "minutes away" instead of hours (at legal speeds) or in miles over travelable roads. One illustration was where you would have had to drive 68 miles in 45 minutes which is a little beyond the driving capability of most people. The fact that flash floods, windstorms, sandstorms, temperature extremes and other weather phenomena affect some areas is not usually revealed; nor are such things as water depth (and cost to reach it), and the absence of vital services. Another factor is the contract often used. The small down payment makes it easy to take. The long term postpones the day of discovery (of just what one has purchased). This is like a long-delayed fuse on a potentially explosive situation. Quite general is the nonacceleration clause which prevents taking of title and delivery of deed before it meshes with the developer's convenience or his ability to release his mortgage or get subdivision approval. Some would take the money and give a certificate of ownership because they can't deliver a recordable deed. The matter of a firm declaration of exactly what improvements will be installed-and when-is omitted more often than not and seems a very painful area even for discussion. The usual money refund and transfer guarantee are far more useful to the promoter than to the investor or the retiree. They lull one into thinking it must be safe but, on close scrutiny, the money is returnable only on inspection and often only at the property, rather than at the point of sale. The exercise of the switch privilege-in order to reduce by many miles the distance between your lot and the nearest human abode, a water source or powerline-may add to or multiply your cost. The guarantees are sometimes amusing. One even makes the generous guarantee that the "full 1-acre rancho" embraces 43,560 square feet, a little like guaranteeing the foot to be 12 inches. Speaking of the fine print-a new twist is the back-ofcontract pale gray, fine print. The things the developer wants read are in bold black, before you sign. Other things are on the reverse in pale gray. It often takes strong light, real diligence, and optimum visual acuity to penetrate that verbiage. |