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the real estate association itself had any ideas on it, and I was unsuccessful.
I know that Mr. Jenson has told me that he had encountered considerable resistance by real estate people to the Oregon law, but that they apparently are not objecting now.
Senator NEUBERGER. Mr. Paulson said that most real estate people are honest. I believe that is true, and I think I would say that about Oregonians. Wouldn't you therefore think that the real estate people would band together and urge passage of such a law because it would seem to me it would then protect the honest realtors.
Mr. FREAR. I would have thought their approach might have been something on the line that they would have formed a pooling such as that they now have within cities of-I have forgotten the term they use, that they put various real estate brokers
Senator WILLIAMS. Multiple listing.
Mr. FREAR. I would think they would create a multiple listing on a national scale and have multiple listing services for interstate sales and if this is done it apparently isn't done to any extent.
Senator NEUBERGER. I noticed particularly Mr. Paulson said that the State laws were often not effective because there was so much pressure locally and this happens and that is why we have some Federal laws. In billboard endorsements and air pollution, water pollution, everything. But in this case, when there are only a few offenders, maybe one or two, let's say, why wouldn't the real estate people say let's get rid of this cancer in our midst and urge State laws and National laws? That is the thing I don't understand.
Mr. Paulson. I have often wondered about that, too, Senator.
Senator NEUBERGER. I think we would be helping them if we pass this law. That is all.
Senator WILLIAMS. In other areas of activity, those who are participants try to dignify their activity by raising their professional standards, and this certainly would contribute to raising the professional standards of people who sell land.
Senator MONDALE. Mr. Chairman, Minnesota, I think, like most other States, has been confronted with the problem of interstate sales of the so-called junk lands both ways: sales, attempted sales of Minnesota land to others, and sales to Minnesotans of lands located elsewhere. And when I was attorney general I established a citizens committee which went into this problem, recommended a prospectus law, which was then adopted. And, also, I became involved with efforts to prohibit efforts by promoters who came into Minnesota, trying to buy junk lands in order to sell to citizens elsewhere.
The basic device seems to be that these lands are sold, sight unseen, to people who are looking for a bargain and sold on the basis of presumed strong points with only the good points being stated, and none of the negative points being explained to the consumer.
It was my impression before the adoption of our law that there were thousands and thousands of dollars being taken, particularly from persons approaching retirement, looking for a retirement home, and that in most instances their money was wasted. They found out after they spent some money and went to these remote points that the land was worthless or was encumbered to the point where they could never get title or it was so remote as to be uninhabitable.
I have a few problems that occur to me with respect to the proposed legislation. Let's assume that it is passed, that the included sales promotions are required to provide prospecti to the prospective purchasers. Let's assume that you have a wholly worthless promotion but, nevertheless, the truth is told in the prospectus. Do you feel that sufficient protection is found in this proposed law for such an enterprise or do
think that we might consider going further, to invest the Securities and Exchange Commission to prohibit sales of land, even where the truth is told by it, where they find it to be wholly worthless and indefensible?
Let's take an example of a promoter that wants to sell land that is 5 feet under water or land that, for some other parallel reason, couldn't possibly have any value. I know, being a lawyer myself, that these complicated prospecti may tell the whole truth, but maybe only the informed or alert attorney can read it in such a way as to fully protect himself or his client. Do
you feel that legislation should go further to prohibit this kind of outrageous promotion ?
Mr. FREAR. Well, the difficulty I have with that is that the land that is being sold in Oregon always has some value. I think there is a point of truth that value of the land depends to a great extent to the purchaser, that land that I may consider worthless, to a person who lives in California megalopolis, looks pretty good to him.
I met people who were standing on 40 acres of pure sa gebrush, and they could see the horizon in all four directions and they think it is worth something. I don't think it is worth anything, so I think that
Senator MONDALE. What about my example of land under water?
Mr. FREAR. I think in these cases, this might be an area that they could step in and say you can't sell land that is under water.
Senator MONDALE. It has been done, you know.
Senator MONDALE. I think basically the idea behind this measure is sound. In other words, provide all of the truth and let the consumer pass judgment on whether there is adequate value. As long as we have provided them with information they need for rational choice, free enterprise system, it is up to them to determine whether it is a good bargain or not, but there are, I think there are some practical problems with the prospectus. It can be a long and dreary document. People may not read it as carefully as they should, and I suppose it can be said that is their fault. But I think in most cases, disclosure of the full truth ought to be perhaps as far as we ought to go.
It seems to me occasionally we have some totally offensive and outrageous operations which shonldn't be permitted even if they tell the truth.
Senator WILLIAMS. Here is an are we ran into, a vast area in Florida that happened to be mostly swampland. Now there was one very
serious missing ingredient. The individual lots had never been surveyed and a purchaser went to the expense of trying to find, in this case it was a woman, as I recall, her lot, and then she found it wasn't surveyed. For her to find her lot, the whole area would have to be surveyed.
Senator MONDALE. And how is a prospective purchaser without advice of legal counsel familiar with the law in such a State going to pass judgment. It may say “unsurveyed" on the prospectus. They have told the truth, but the prospective purchaser has no idea of what the consequences of the lack of a survey-for example, that is one example or another example where some States require that before you can file a plat, certain things have to be done. Streets in place, utilities in place, and that sort of thing,
It may mean that they can't plat it until other substantial steps have been taken and prospective purchasers may be told the truth, but doesn't know the consequences of the truth that is disclosed.
Senator WILLIAMS. I agree with that, but I am a little hesitant to suggest that there should be authority to prevent the sale even with a fair disclosure. There are a lot of people that really are anxious indeed to buy a little piece of mountain top, even though they know it hasn't been surveyed. In fact, one of my closest friends bought an acre in New Hampshire. We went up to find that acre in New Hampshire and it took us days and we never did find it, but he is happy with his acre in New Hampshire. He knows he has it.
Senator MONDALE. I am inclined to think that in most cases, full disclosure is enough. What we are talking about is a minor aspect of the problem. I think there are cases where the land probably has no value at all for residential purposes, no potential value, or possibilities where it is encumbered so much that there is no hope that the person will ever get title, or where there are other serious legal probIems which may be disclosed adequately to comply with this law, but yet which in fact would make the purchase virtually worthless.
I don't know whether we should have further protection along this line, but I worry about that. I think that the factor of telling the truth is fundamental, it is the basis of this law and should be, but I think we have to understand the practical fact that there are some things that you can disclose in the prospectus that just are not going to be easily understood by anybody except a skilled attorney or someone with peculiar knowledge about the laws or peculiarities of the State involved.
Senator WILLIAMS. That is a fundamental and philosophical inquiry that this committee will have to deal with.
Senator MONDALE. How about a fair comment section in the prospectus, where the SEC can put in information in laymen's language, about the consequences of some of this, where they feel a special caveat should be made available to the public, and say this hasn't been surveyed and this means several thousands of dollars has to be expended by you and the other purchasers before you can take effective possession of the land.
That is an example following out of your suggestion, or just a special opportunity to say this land is just tremendous. It is only 5 feet under water, that is one problem you have.
Senator WILLIAMS. I think tomorrow we have the Chairman of the Commission, Mr. Cohen, and I hope we can deal with some of these things a little more.
June 29, 1966. MR. SAMUEL T. FREAR, Eugene, Oreg.
DEAR MR. FREAR: * * *
We did not have suffcient time for full questioning. I wonder if we may ask for still more of your time for answers to the following:
1. Your series of articles, which have been admitted to the hearing record, describe the establishment of a “model farm" in Harney County to show that crops can be grown there. Do you have late word on the success of this farm or other agricultural efforts in the county?
2. May we have, for our Committee files, copies of any promotional material you may have? We'd also appreciate any comments you may wish to make on claims made in the advertising.
3. Do you have any late word on the extent of airplane inspection tours by prospective customers ?
4. Your articles make it clear that some very substantial efforts have been made to establish attractive communities through installment selling. Do you see opportunities for the interstate land sales industry to be of great service to the public if the public is adequately protected? Sincerely,
HARRISON A. WILLIAMS, Jr.
EUGENE, OREG., August 15, 1966. Hon. HARRISON A. WILLIAMS, Jr., Senator from New Jersey, Senate Committee on Banking and Currency, Washington, D.C.
DEAR SENATOR WILLIAMS: As requested in your letter of July 27, I am making additional testimony for the record of the Senate Subcommittee on Banking relative to the subdivision of land in the rural areas of Oregon.
It is important to recognize that the wide areas of eastern Oregon have a climate with sparse rainfall, frequent frosts and soil conditions that discourage agricultural efforts. Evidence of this has been graphically demonstrated this summer with water supplies in eastern Oregon at extremely low levels. Vast sections of the state covering eight major counties are battling severe drought conditions and have requested emergency assistance from the Governor of Oregon to help them face problems caused by their water shortage. Assistance is being requested for Wallowa, Union, Grant, Malheur, Harney and Baker Counties; and it is possible that portions of Lake and Wheeler Counties will be added to the list.
Hay and grass production in eastern Oregon is far below normal because of lack of spring and summer rain. Summer pastures are rated from below normal to very poor, and fall pastures are virtually nonexistent. This shortage has resulted in the sale of many cattle normally held until later in the market. So it is easy to see that any claims made by subdivision men for these areas as being suitable to crop type of agriculture, or even for recreational use, are exceedingly tenuous at best.
You have asked me for copies of any promotional material I may have on the subdivision of eastern Oregon rural lands. I regret to report that when I left my position with the Eugene Register-Guard I must have discarded all my files concerning the rural subdivision, and so I cannot supply the materials you have asked.
Although I do not have any late direct word on the extent of airplane inspection tours by prospective customers, I have learned that these tours are still being conducted and apparently in no different manner than outlined in my articles. I think the safest generalization that can be made is that these tours are conducted in such a manner that the prospective customer has no opportunity and, in fact, no inclination to think “negatively" about the land he is touring. Local residents continually comment that whenever tours are brought in it appears that there are stringent efforts made to prevent any contact between the prospective customers and themselves. Therefore, they argue, it is virtually impossible for the prospective customers to learn any facts about the subdivision other than those given to him by the promoters. The entire airplane tour operation is conducted at a fast pace with the tourists being brought in, given a view of the property and brought out sometimes in a matter of hours. If an overnight stay is required, this is often done in secluded places and arranged in such a manner that the group will not have contact with anyone else except the promoters and each other. The return trip home on the airplane is used for a concentrated selling effort in which group psychology methods are employed. Reports from veterans of these flights indicate that the group response is such that very often everyone on the plane is signed up before it touches the ground. And, in fact, one tour member told me how a plane was deliberately delayed in landing at Oakland, California for approximately 20 to 30 minutes while the promoters worked on the last holdout to convince him that he, too, should buy a subdivision plot.
In regard to the fourth question in your letter of July 27, I agree that there are great opportunities existing for the interstate land sales industry to provide a public service and that this can be done and should be done with adequate protection provided by local, state and federal governments. The problem, of course, is that promoters most often are merely interested in selling land. And they do this without consideration of proper zoning methods or to the economic base of any new community they are attempting to form. These developments cannot be compared, for example, to the “New Towns” in England because the rural communities in Oregon are not planned in the total context necessary for stable existence.
There is another realistic condition that precludes the development of eastern Oregon subdivisions as orderly, stable communities. And this relates directly to the location of these areas to the nearest major population centers. There is a direct relationship between the use of recreational land and the proximity of major population areas. Thus, a distance of 500 or 1,000 miles from these eastern Oregon subdivisions to the nearest major urban areas seems to make a complete and orderly public development impossible.
Nevertheless, there are some subdivisions in Oregon that are organizing themselves to be year-round recreation sites, and they are doing this by aiming their sales directly at people who would be inclined to use the land the most ; that is, the residents of the cities and major towns of Oregon. In fact, all major developments in the state with substantial building activity are confined to those that cater directly to Oregonians. Thus, it seems safe to say that most of the other developments are designed primarily for speculative reasons.
This being the case, it thus seems imperative that adequate governmental protection exists for out of state buyers so that their purchases of rural subdivision land are, as stated by appraisers, at an "arm's length" distance. This protection, then, could see that the rural subdivisions are in the public interest. However, I think that the proposed Senate Bill 2672 will have to be greatly strengthened, as I indicated in my testimony before your committee last June, before this public service can be achieved. Sincerely,
SAMUEL T. FREAR. Now, Mr. Fogarty. Mr. Fred Fogarty, real estate editor of the Miami Herald.
Many of your articles have come to my attention and to the attention of your two Senators from Florida.
STATEMENT OF FRED FOGARTY, REAL ESTATE EDITOR, THE
MIAMI (FLA.) HERALD Mr. FOGARTY. Mr. Chairman and Senators, before I start, would you like to look over some pictures of Florida swamp?
Senator WILLIAMS. I have flown over Florida swamp in a single engine plane during the war and that scared me; those alligators, they are just waiting for that engine to conk. We were flying away from a hurricane.