Department of Business Regulation; letter statement to committee, List of land developments issued cease-and-desist orders. Van Horn, Alton W., president, New Jersey Real Estate Commission, answers to questions of the committee. Warren, William D., University of California, letter to committee, dated Dickson, T. C., administrator, Indiana Real Estate Commission.. Elders, J. L., director, division of real estate, State of Utah....... 430 361 Jensen, Robert J., real estate commissioner, State of Oregon. MacArthur, Douglas, Assistant Secretary of State, Department 429 207 Parker, E. L., president, Lakeshore Corp., Miami Beach, Fla Rosen, Leonard, chairman of the board, Gulf American Land Witt, Boston, attorney general of the State of New Mexico. McCulloch Properties, Inc., Los Angeles, Calif. National Association of Community & Land Developers. National Association of Real Estate Boards_ National Better Business Bureau, Inc. National FHA Apartment Owners Association_ 205 72 388 INTERSTATE LAND SALES FULL DISCLOSURE ACT TUESDAY, JUNE 21, 1966 U.S. SENATE, COMMITTEE ON BANKING AND CURRENCY, Washington, D.C. The subcommittee met at 10:07 a.m., in room 5302, New Senate Office Building, Senator Harrison A. Williams, Jr., presiding. Present: Senators Harrison A. Williams, Jr., Maurine B. Neuberger, and Walter F. Mondale. Senator WILLIAMS. We will get underway. You know this is the Securities Subcommittee of the Banking and Currency Committee, and we are going to have hearings today on the bill S. 2672, which deals with interstate land sales. Some years ago, Andrew Carnegie said: "More money has been made in real estate than in all industrial developments combined. The wise young man or wage earner of today invests his money in real estate." That quotation has become quite familiar to me within the past 2 years because I've seen it again and again on bright brochures telling about opportunities to buy land, site usually unseen, at $10 or $20 down and the same amount per month until payments are complete. Are such buyers justified in being as optimistic as Carnegie was? We will hear testimony for the next 2 days-and possibly later on, too-intended to explore some of the pitfalls and the promises of the interstate land sales industry today. My own view is that a sufficient number of pitfalls exist to warrant Federal legislation intended to: 1. Give additional protection to investors. 2. Help those States that have enacted legislation only to find that lack of similar legislation elsewhere causes serious problems to them. 3. Help to give a solid foundation to the industry. On that last point, I'd like to compare the interstate land sales industry today with the securities industry of more than three decades ago. In the early thirties, public confidence in the securities industry had been thoroughly shaken. It took enactment of Federal regulation to help restore investor confidence. Not that investors thought all sharp practices had been wiped out, but they had good reason to believe that reasonable ground rules had finally been established. 1 Just as in 1933, when it became necessary for the Federal Government to aid small investors in securities who had little or no knowledge of corporate finance, the time has now come to extend similar protection to small investors in real estate, many of whom have been subject. to high-pressure sales techniques which the securities acts did so much to halt elsewhere. Today's interstate land sales industry has inspired both confidence and forebodings. Confidence exists among the many thousands of individuals who have invested in good, solid companies with adequate capital to build entire new communities on land that, only a few years ago, may have been regarded as unpromising or even marginal. Forebodings arise when we consider those who have bought land in swamps, deserts, high arid plateaus, mountains, remote valleys, andin some cases-actual jungles or lava beds outside the continental United States. What have such buyers actually bought? Too few actually know. Many have not yet seen to this day the land they are paying for or have already purchased. In today's buy-by-mail or buy-by-telephone market, many hundreds of millions of dollars have been pledged by men and women on land they are buying for retirement, for investment returns, or perhaps for sheer speculation. Difficult as it is to obtain satisfactory estimates on the size of the interstate land sales industry, there is impressive evidence of its magnitude. Recently, for example a State official in Florida estimated that land for sale in that State alone is worth $1 billion. Oregon, according to a recent statement, has about 400,000 acres up for sale. California, with a law generally regarded as more stringent than any other State's, had to issue 33 desist-and-refrain orders last year relating to out-of-State developments illegally offered for sale in that State. The subdivisions were offered in such widely scattered sites as Arizona, Arakanas, Florida, Hawaii, Idaho, Maine, Nevada, Oregon, Tennessee, Utah, Washington, Australia, Bahamas, and Brazil. Finally at a hearing of the Subcommittee on Frauds and Misrepresentations Affecting the Elderly to the Special Committee on Aging in 1964, it was estimated that the annual sales volume for such sales had been about $700 million. That hearing, incidentally, yielded much information directly pertinent to the subject of this hearing. I move now to admit pages 27 through 46 of the subcommittee report on these hearings to the record of this hearing. These pages summarize lengthy testimony taken by the subcommittee and give reasons for the subcommittee request for Federal legislation (text on p. 281). I might also add here that the subcommittee, a unit of the Special Committee on Aging, was primarily concerned with exploitation of the elderly. This subcommittee has a broader interest. We are concerned not only with retirement havens, but also with other kinds of promotion. Installment buyers, for example, are now purchasing vacation lots, undeveloped "investment acreage," homesites in developing communities, and even farmland-and on the basis of what they're told in advertising, telephone conversations, sales "parties," and by salesmen who take them near to their site, but sometimes not quite to it. I again emphasize that most developers or subdividers are honest businessmen who have a right to earn a profit for well-financed and farsighted business enterprise. But the very variety of offerings, and the very great need for such sales to a highly mobile and growing population, suggest to me that the interstate land sales industry, now in its infancy, could become far more important to our economy and to our investors than it now is-if generally it can deliver on its promises. Federal legislation can help to make the promises come true, and Federal legislation can help some of the States that have passed legislation, only to find that protection is still inadequate. California, for example, has probably the most far-reaching State law on remote subdivision control, but its real estate commissioner has written the following to this subcommittee (see p. 119 for full text): While theoretically California may have the means to bring these developers to justice if they flaunt the order, as a practical matter, by remaining out of the State, the developers can avoid the imposition of effective sanctions. What is required in one State may not be required in another. A firm in one Southwestern State is now selling land on top of a mesa about 1,037 feet higher than the valley around it. This, by the way, is the same company mentioned at the hearing in 1964. The firm went briefly out of business and is now back after making a few changes in its advertising. But under the State law, the seller is not required to inform buyers that the land is on top of the mesa. He would violate the law only if he claimed that it was at a lower altitude. The land, by the way, is sold primarily to overseas servicemen, who stand little chance of visiting the mesa. I'll close this statement by reading the introduction of a valuable research paper prepared by a professor of law at the University of California. I believe he summarizes the basic issues very well indeed (see p. 362 for full text): Never in the history of real estate transactions has a buyer of land stood so naked of legal protection as does the purchaser of remote promotional subdivision land. He has no lawyer to advise him, for the amount of money involved does not justify such an expenditure. No title search is made in his behalf, no title insurance policy is procured, and no escrow procedure is entered into. He has no assurance that the money he pays in each month is applied against the existing encumbrances on the land. Usually the land is sold to the buyer on contract whereby the buyer receives no title until he makes the final installment payment. Often his contract is not recorded, leaving record title in the seller, thus raising the possibility that subsequent purchasers from and creditors of the seller may take free of the buyer's interest. Moreover, the buyer may find that when he has made all of his payments he will have difficulty in obtaining a deed from his seller who may then be dead, or in bankruptcy, or out of state. If the buyer goes into default on his payments, he will find that under terms of the contract he loses all his interest in the land and forfeits all the money he has paid in. (The complete research report appears at p. 362.) Senator WILLIAMS. Responsible subdividers and some States have already begun to protect investors against some of the dangers listed above, but less scrupulous promoters can, if they wish, find much op |