Mr. Van Horn also gave the subcommittee a step-by-step account of a field trip he made to a subdivision in a Southwestern State late in 1963. He described the sales promotion as "middle of the road" and by no means "exaggerated, extreme, or bad."

Nevertheless, the New Jersey Real Estate Commission denied permission to sell the land inspected by Mr. Van Horn because, in his words, the advertising "leaves significant facts unrevealed and would tend to create in the mind of a typical and reasonable reader an impression substantially at variance with the facts observed at and in the vicinity of the premises."

Some of the reasons for the commission's action given by Mr. Van Horn at the hearing:

1. Little or no indication was given of the true nature of the land that is being sold the arroyos, the washes, the gullies. Photographs show the developed area which includes a clubhouse, swimming pool, and model houses-and give absolutely no idea of the nature of the undeveloped area now being marketed.

2. The fact that the elevation reaches 6,100 feet was nowhere made plain. "That is a little like living at the summit of Mount Washington, give or take 280 feet," commented Mr. Van Horn.

3. Mr. Van Horn found much reason to question the glowing predictions of dramatic increases in land value in the area.

4. Buyers are offered an "exchange privilege," but Mr. Van Horn questioned whether they clearly understood the terms. He explained that some of land sold is 10 or more miles away from the small area that already has piped water, piped gas, power, and telephone lines. "A prospective buyer," said Mr. Van Horn, "would have no way of knowing whether he was buying 9 or 10 miles removed from such an area or whether he was buying adjacent to such an area.

"Neither is there any indication given that the price is some $900 higher in the area where the utilities are available. This is according to the manager, who quoted figures of $995 and $1,895, respectively."

" 18

5. Mr. Van Horn also concluded that the average buyer almost certainly would be overwhelmed by the sheer bulk of promotional material provided by the seller in the course of trying to conclude the sale, including brochures and contradicting facts given in other material. "We should have something which strips the problem to its essentials rather than a flowery prospectus type of thing where the true facts may be buried in it," said Mr. Van Horn.

Mr. Van Horn was careful to say that some of the conditions he observed may have changed after his trip. The subcommittee is also careful to note other States have approved the subdivision in question. But the subcommittee also believes that Mr. Van Horn's testimony raises significant doubts about the ability of a layman to evaluate, with any degree of accuracy, much of the advertising literature given to him by mail order land companies. The subcommittee also finds much to applaud in this statement by Mr. Van Horn: 16

New Jersey's regulatory philosophy is that a New Jersey resident should be able to buy anything, regardless of its

Owners of the land in question, invited to testify, did not send a representative. In a statement later admitted into the record, an official of the corporation took sharp issue, among other things, with Mr.Van Horn's interpretation of the exchange privilege. The corporation statement begins on p. 338 of the transcript. Additional commentary by Mr. Van Horn on the exchange privilege and other matters begins on p. 350.

10 P. 249, op. cit.

nature or value, provided he isn't being substantially mis-
informed or left materially uninformed.

INVESTMENT ACREAGE

A fairly new trend in mail order land sales was described at the hearing by Mr. McBride: "7

Now we find that stress is being placed either on holding the land as an investment for resale later at a profit or buying it now, so that when retirement age is reached the land will be paid for and ready for occupation.

Unlike those who claim that their subdivisions are idyllic and well endowed with modern conveniences, the investment acreage merchandiser usually specifically says that the land is undeveloped without any public facilities at all. He may also suggest, however, that the value of the land is almost certain to go up, perhaps to two or three times the original investment. He will also probably point out that Miami Beach and Los Angeles once were regarded as poor investment risks, but that fortunes have been made from wise real estate purchases on land once regarded as absolutely unpromising.

The subcommittee agrees that astute, or even lucky, buyers can make substantial profits by speculating in real estate. The subcommittee believes that nothing should interfere with the right of a buyer to make a purchase, no matter how risky it may seem at the time of purchase. But the subcommittee also believes that omission or distortion of facts, even under these circumstances, can lead a purchaser to make a transaction far more unfavorable than he may realize.

This attitude was expressed emphatically by Mr. John R. Hoffman, vice president of the National Better Business Bureau. He said: 18

We tell the public inquiring on "investment offers" that the purchase of undeveloped acreage is a highly speculative proposition depending for success on many factors that are difficult to estimate even when one is completely familiar with a given area. We urge a thorough personal investigation and a decision on facts developed, after personal inspection.

Many convincing reasons for such caution were expressed at the hearing. Mr. James Greenwood, a realtor and appraiser in Daytona Beach, gave this description of the typical operator: 19

How does an investment acreage promotion work? Well, a promoter buys a large tract of cheap land, often swampy. Usually he transfers the title to a related corporation to gain a tax advantage. Then he carves up the property into acre-and-a-quarter parcels, the smallest permitted under most plat laws.

Then they have beautiful, enticing brochures printed and start running advertisements in various newspapers, magazines, company organs, et cetera. U.S. servicemen, especially those overseas, have been a favorite target of the

17 P. 4, op. cit.

18 P. 285, op. cit.

19 Pp. 151-152, op. cit.

swamp merchants. The acre-and-a-quarter tracts are sold
in installment contracts. No deed is recorded until the
contract is paid off. Most contracts stipulate that the
property reverts to the seller if the buyer misses one or two
payments, and the seller is not required to notify the buyer
that he is delinquent.

Many, but not all, contracts carry interest on the unpaid
balance, usually 5 or 6 percent. Many of these lots are sold
over and over again, year after year, as buyers stop their
monthly payments for any number of reasons-they die,
come upon hard times, come down and see the land, et cetera.
Few of the promoters make any improvements in the
land although some will dig a small drainage ditch, give it a
high sounding name such as the "Grand Canal," put in a
road or two, bulldoze the swamps that can be seen from the
main road, if indeed there is a main road. This is called
window dressing and it enables the unscrupulous operator
to tell his prospects that he is "improving" the property.
Actually, if no real improvements are planned, he is required
by the installment land sales board to say so in all of his
advertising material, but it usually appears in the small print.

Usually, easements, not roads, are provided to each lot to give the owners legal access. Most lots are sold in metes and bounds, although some tracts are platted. It would cost most owners more to have their lot surveyed than they paid for it.

No surveys are furnished buyers other than a rough draft of approximately where their property may be located in a given area.

Several years ago I spent almost 2 days, using a slow plane and a four-wheel-drive, radio-equipped jeep, to try to locate a certain parcel in a development called University Highlands, being sold by a corporation named Firstamerica Corp., located approximately 10 miles west of Daytona Beach in a dismal swamp.

After 2 days of some of the roughest riding, we had to give up, as it was impossible to penetrate deep enough into the swamp to a point which we had spotted from the air.

Incidentally, this parcel was sold to a woman from Syracuse, N.Y., who had intended to use it as a homesite for a trailer house. Needless to say, it could never have been used for this purpose.

As a real estate broker and appraiser conversant with land sales as they affect Florida, I strongly urge that at least some form of Federal regulation be brought to bear upon the unscrupulous operators now enjoying Federal immunity.

The business editor of a Florida newspaper, gave the subcommittee other examples: 20

A firm, forbidden by law to sell its tracts as homesites because of the lack of improvements had-at the time of the hearings-erected a model home on a highway about a half mile north of the property they were selling. A letter sent out by the owners of the property

30 P. 134 ff.

mentioned that the model home had been built on the property. The implication was that other homes could be built, even though the subdivision law clearly forbade it.

Photographs showed tracts under water deep in cypress. The witness, Mr. Morton Paulson, said that U.S. soil conservation district records show that one-third of the land in the subdivision is solid cypress swamp.

At another "investment acreage" subdivision, owners are selling land even though they've been told that the property may be condemned as a water resource. If this takes place, buyers will be paid its appraised value at that time, and will have no opportunity at all for "doubling" or "tripling" profits. Highway builders working in another part of the property ran into a muck pocket that was more than a mile long and 20 to 25 feet deep.

Sales literature for still another development says:

A system of graded roads makes every section readily accessible.

Mr. Paulson commented:

The average real estate buyer probably doesn't realize it, but a section takes in 1 square mile of land; so any given tract *** could be as much as a full mile away from the road.

An article by Mr. Haines Colbert in the Miami Herald of April 22, 1963, told the story about a woman who once asked how much it would cost to survey her small land purchase in eastern Collier County. She was told that it would cost $20,000, because the greater part of the area around it had never been surveyed--the nearest point previously surveyed was 20 miles away. The land in question was described by Collier County Engineer W. Harmon Turner as "flat, mostly covered by water in the wet season, and the water drains off very slowly. There are large marshes which are wet most of the time." 21

"The upshot of this incident was described in a story by Mr. Paulson in the June 7, 1964, issue of the Daytona News-Journal:

"How's BUSINESS?

"CHEERING NEWS FOR LOT BUYER: SURVEY WON'T COST $20,000

"(By Mort Paulson, Business News Editor)

"The Florida Installment Land Sales Board had good news (of sorts) last week for the Miami Beach woman who dropped the telephone in shock when told how much it would cost to survey her small tract of land in eastern Collier County.

"The survey won't cost $20,000 after all. The price will be no more than $125, and possibly as little as $50.

"It was the Miami Herald which first revealed in April how the unidentified woman called engineer W. R. Wilson in Naples for an estimate. He quoted the $20,000 figure to stake out her lot because, he said, he would have to go 21 miles from the nearest previously surveyed point, lay out a township of 36 square miles, reduce that to sections of 1 square mile and then find the boundaries of the woman's property. None of the land in the area has ever been surveyed.

"The story, which might be amusing if it weren't rather pathetic, was retold in testimony last month before a U.S. Senate subcommittee investigating land frauds. When John W. McWhirter, executive director of the Installment Land Sales Board, heard it, he got in touch with a Miami land surveying firm and sold it on the idea of doing a mass survey of property in Collier County.

"Within about 30 days, E. R. Brownell & Associates will start charting the thousands of small tracts in ranges 33 and 34 which were sold by mail for $10 down, $10 a month. Owners who want their lots marked off with flagging pipes and drawn up in certified sketches will be charged $50 for 22 acres, $90 for 5 acres, and $125 for 10 acres.

"The program is expected to take 18 months to complete.

"So the lady in Miami Beach can rest easier. Now all she has to worry about is draining her property, clearing it, putting in streets, and being able to sell it to somebody who wants to live in the wilds of Collier County."

Perhaps the most pointed criticism of investment acreage sales techniques was made in a statement submitted to the subcommittee by Herbert E. Wenig, assistant attorney general, State of California: 22

I wish to emphasize at this point; even if there is full disclosure, the sale of undeveloped lots in a premature and remote subdivision for use as homesites or for investment is inherently fraudulent. Once the promoter sells the lots, the scattered ownership and diverse wishes of lot owners make concerted self-help most difficult. All the risks of creating a livable homesite by the development of an adequate water supply and the installation of streets, sewers, and other utilities rest upon the individual buyers. The problem is accentuated by the remoteness of the subdivision.

Telephone "boiler rooms".-As regulatory surveillance of claims made in printed advertisements increases, some subdividers are apparently resorting to intensive telephone sales operations. The most direct evidence on this point came from Mr. Paulson: 23

Now if you'll bear with me for just 5 more minutes, I would like to discuss one other sales approach that certain land dealers are making more and more use of. That's the long-distance telephone.

Since the State of Florida began cracking down, and censoring out many of the wild claims made in printed brochures, many of the investment acreage companies have set up long-distance boiler rooms; that is, rooms full of telephone pitchmen.

The companies subscribe to wide area telephone service, or WATS service, and can make unlimited numbers of longdistance calls at flat monthly rates.

This is a very expensive way to sell, but it obviously pays off. It costs $2,475 a month for one WATS telephone on which calls can be made to any place in the continental United States.

For proportionally less money, the companies can get phones covering limited sections of the country.

I can't tell you how many companies are using this service, but I was told by a telephone company official that there are at least six in the Miami area alone. Some of them have several phones.

This same official said their monthly phone bills would "knock your hat off."

We know that one company, Firstamerica, has used as many as six WATS phones at one time, four nationwide and two limited. That means they spent somewhere around $14,000 a month for telephones alone.

22 P. 25, op. cit.

P. 145, op. cit.