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If the proposed legislation does become law, it is imperative that safeguards be included to permit compliance by private industry prior to the actual recordation of subdivision tracts.
It is respectfully suggested that Senate Bill 2672, by inhibiting capital investment in large, well-planned new communities, for the reasons above stated, may, as a matter of fact, tend to encourage smaller and piecemeal types of land offerings by fly-by-night operators. The requirement of a registration for each and every subdivision within a planned large-scale city development, would tend to discourage the formation of capital groups prepared to assemble large holdings and invest substantial sums in water, sewer, recreational and other community amenities with the idea of carrying on a long drawn out program of merchandising their properties over a period of many years. Therefore, the effective result of the proposed legislation would be precisely to work against the successful development and promotion of the desirable new town developments and encourage, instead, the land-selling merchandisers who are not committed to costly improvements. The exemption for offerings less than $300,000 directly encourages the least desirable type of subdivision.
I would also like to comment briefly on a few other aspects of the bill under study.
1. The bill appears to be modeled after the Securities Act of 1933 and, in effect, deals with land parcels as if they were securities. This is justifiable only if such parcels are in fact investment contracts. This is not the basis on which such parcels are sold.
2. If, in fact, the primary purpose of the bill is to correct abuses in the "Mail Order" land sales industry, all that is needed is to strengthen the present mail fraud statutes. Land offerings which have been cleared by the state of origin or the state of sale should automatically be exempted from any proposed legislation; otherwise, a dual system of disclosure requirements, state and federal, would be created.
3. In the alternative, federal regulation should be deemed to preempt the whole field of disclosure in land sales to the exclusion of state disclosure requirements.
In conclusion, we urge further study of the subject legislation as proposed, with a view toward increasing the consumer protection sought, but without inhibiting progressive, large-scale 'new town' development. We pledge our full cooperation in these efforts and thank your Committee for this opportunity to appear before you.
STATE OF COLORADO,
Denver, Colo., July 5, 1966.
DEAR SENATOR WILLIAMS: Thank you very much for your letter of July 1 con. cerning the hearings on Senate Bill S. 2672 regulating interstate land sales. 1 have read the bill, together with the explanation enclosed, and in my opinion it is excellent. Interstate land frauds certainly need to be regulated, and your bill would be of great assistance in supplementing existing state laws controlling subdivisions.
I have served as Chairman of the Colorado Real Estate Commission for 14 years, resigning two years ago upon my election to the House of Representatives in Colorado. Therefore, I am keenly aware of the need for Federal regulation as well as state regulation of land fraud schemes.
Colorado has had a real estate statute since 1925. With legislative revisions over the years, our state now has good legislation regulating and educating real estate salesman and brokers. We have tried unsuccessfully since 1955 to incorporate in our Real Estate Act a subdivision control section. Finally, four years ago we did pass a weak subdivision bill which merely requires the subdivider to register; there is no control over the site, advertising methods, etc. About the only thing our present statute does is to prohibit the sale by an operator in Colorado if he has had a prison record. For all intents and purposes, it is useless.
However, as Chairman of the legislative interim study committee on Consumer Problems, we have approved and will recommend to the 1967 Legislature a strong subdivision control act which I hope will be approved. It is patterned after the uniform act that has been under consideration by the National Association of License Law Officials.
Colorado, being a tourist state, is a victim of numerous land fraud schemes. Millions and millions of dollars are lost to the consumer, particularly the elderly who are sold on the idea of a second home or a place for future retirement. Your Senate Bill 2672 is needed very badly and would be very helpful in alerting the consumer to check and investigate before investing his money. Your bill would be extremely beneficial in the interstate sale of land. It would complement our proposed state regulation governing interstate subdivisions. I am sending you a copy of our proposed legislation on this matter.
I sincerely hope you will be successful in passing Senate Bill 2672. The newspaper publicity you have received in this matter recently should be very bene ficial. If I can be of any further assistance, please advise. Sincerely,
JOHN R. P. WHEELER.
HOUSE OF REPRESENTATIVES,
Denver, Colo., June 20, 1966. Hon. HARRISON A. WILLIAMS, Jr., Senate Office Building, Washington, D.C.
DEAR SENATOR WILLIAMB: May I congratulate you and your co-sponsors on your bill attempting to control mail order land promotions. Although I have not read the bill, an editorial in The Denver Post gave the thrust of the legislation with which I heartily concur.
Four years ago as a minority party freshman in our legislature, I attempted to pass an intra-state, and indirectly inter-state, subdivision fraud bill but was unsuccessful. To date we have only passed lip service legislation dealing with licensing the developer rather than the land. It is worthless legislation to bother witth the principals or developers exclusively since it is the ground itself that must approved if we are to protect the consumer. I congratulate you on your approach.
I trust you will not be overcome by the old saw of "states' or local communities' business” since at best we can control only within our boundaries. I hope too that successful federal legislation will set an example for us locally to meet our challenge.
Incidentally I am a real estate developer and have two mountain developments in progress as well as a history of metropolitan developments. I want clear, well defined regulations and requirements and I know that only those who would perpetrate fraud or at best be careless with the truth will object to meaningful, easily understood subdivision regulations. I wish you well. Very truly yours,
MARK A. HOGAN.
Denver, Colo., July 13, 1966.
DEAR SENATOR WILLIAMS: Thank you for your letter and a copy of the amended bill and the record. I have not attempted to work in concert with any developers or real estate interests in Colorado on this legislation since I have been on the run a great deal in my present pursuit of the nomination for Lt. Governor.
However, I have read the bill myself and have a few constructive criticisms or suggestions which I hope you will consider as friendly rather than obstructive since I do favor this type of legislation.
(a) On page 7, line 24, you call for disclosure of purchase price paid by the developer. I don't believe this pertinent and often unduly influences: even commissioners who may subsconciously decide what is and isn't a "fair profit". My objection reaches a fever pitch, however, when later in the bill you include that information in the prospectus to the prospect. The unsophisticated buyer has no appreciation for costs of development and fantastic risk of failure which earns a commensurate high return if one is fortunate. Please don't leave this in the bill or many legitimate developers will have to oppose an otherwise sound piece of legislation.
(b) I was concerned about changes in lot prices which we often do on the spur of the moment in a given situation or change of circumstances but I assume the amended report can be easily filed with a minimum of red tape.
(c) Page 10, lines 1 to 7 may be too broad. I like legislation that specifically lays out what one must do to get licensed or approved and the less discreation one gives to regulatory boards the better. However, again my strongest objection is reserved for the part of the bill that includes the developer's financial statement in the prospectus to the client. This is seriously objectionable since my personal statement is indeed the business of a commission that must determine my ability to fulfill promises but it is cer
tainly not for general circulation. Thank you for your consideration of these points. I would appreciate your reaction to them and hope that I may be able to count myself as a strong supporter of your effort. I would be delighted to have this letter used as a part of the hearing record if you so choose. Very truly yours,
MARK A. HOGAN.
[From the Denver Post, June 15, 1966]
One of the oldest forms of fraud in these United States may be brought under control at last if a bill now in Congress, relating to mail-order land promotions, is enacted into law.
Hearings on the bill, which is authored by Sens. Harrison A. Williams, Jr., D-N.J., Maurine B. Neuberger, D-Ore., and Walter F. Mondale, D-Minn., will be held next week before a sub-committee of the Senate on Banking and Currency.
Senator Williams first became interested in the need for legislation of this kind after an investigation of frauds perpetrated against elderly people disclosed that mail order buyers had sunk hundreds of millions of dollars, sight unseen, a few dollars down and a few dollars a month, virtually worthless lots where they hoped to make homes.
Elderly people are not the only victims of the promoters, however.
The bill now before Congress would not impinge upon state authority to regulate real estate transactions. Instead, it would fill a gap in regulation which exists when a subdivider in one state makes a sale by mail to a buyer in another state.
Neither would the bill seek to protect a prospective buyer from his own bad judgment. Rather, it would use the full disclosure technique which has been used so successfullly by the Securities & Exchange Commission in its regulation of the sale of securities.
Under it provisions, a promoter seeking to sell by mail 25 or more lots would have to file a prospectus with the SEC setting forth all pertinent details regarding the land, its cost, its topography, its access to cities and towns, the availability of water, sewage systems and other utilities, etc.
If accepted by the SEC, the prospectus would have to be furnished each prospective lot buyer and if he later found any of the information in the prospectus was false, he could sue the promoters.
The purpose of the bill is to appraise the sight-unseen buyer of all facts regarding the land. Then if he buys a hunk of swampland or desert in the expectation of making a home on it, he will have only himself to blame.
Senator Williams believes that as cities become more crowded and as the number of elderly people increases, mail order land promotions will grow to gigantic proportions.
Legitimate promoters—and there have been many of them who have created new and attractive communities through mail advertising—would not be hurt by this bill. It is aimed at operators such as those who mail out notices that “You have won a free lot; send us the money for closing costs and it will be yours." The so-called "closing costs," of course, are likely to be far more than the value of the lot.
There has long been a need for legislation of this kind. The need in the future may be even greater. It deserves prompt consideration and passage.
GOVERNMENT OF THE DISTRICT OF COLUMBIA,
Washington, D.C., June 22, 1966.
DEAR SENATOR WILLIAMS: Thank you for your letter of June 14, 1966, transmitting copies and explanations of the revised version of the Interstate Land Sales Full Disclosure Act (S. 2672) and inviting comment of the Real Estate Commission upon the Proposed Law.
The Real Estate Commission at Meeting of June 21, 1966, studied carefully your transmittal and requested that I write you that the Commission is in complete agreement with the Act and believes such Legislation very necessary for adequate regulation of interstate land sales. Assuring you of the cooperation of the Real Estate Commission, I remain Sincerely,
KENNETH BACK, Chairman, Real Estate Commission of the District of Columbia.
NATIONAL ASSOCIATION OF HOME BUILDERS,
NATIONAL HOUSING CENTER,
Washington, D.C., June 30, 1966. Hon. HARRISON A. WILLIAMS, Jr., Chairman, Subcommittee on Securities, Banking and Currency Committee, U.S.
Senate, Washington, D.C. DEAR MR. CHAIRMAN: S. 2672, the proposed "Interstate Land Sales Full Disclosure Act”, is designed to eliminate fraudulent practices in the interstate sale of land by requiring full disclosure of essential details of the transaction through registration with the Securities and Exchange Commission.
The National Association of Home Builders is interested in the prevention of questionable practices and the punishment of fraud in real property transactions, whether interstate or intrastate. However, we believe that abuses in this field can be adequately controlled by appropriate amendments to existing state criminal statutes or by vigorous enforcement of existing Federal criminal statutes affecting the use of the mails and other means of interstate communication.
If the Congress deems it necessary to enact legislation of the type contained in S. 2672, we believe it should be accomplished in such fashion that the normal business of sale and development of land for home building and other construction is not unduly inhibited or made extremely difficult and costly.
Although the bill exempts certain land transactions from proposed SEC registration requirements, its coverage is still so broad in its impact as to greatly inhibit normal business transactions between a land developer and a home builder buying lots for use in his own business or by a land developer selling a fully developed lot.
If the purpose of the bill is to control questionable practices in the sale of land to uninformed, inexperienced individuals, there appears to be no reason why land transactions between "professionals” (i.e., those engaged in the business of acquiring or constructing buildings) should not be exempted. The exemption contained in the bill for the sale of land improved with a building or on which a building is to be built within two years would apply merely to the final sale of the building and not, in all cases, to the several stages of land sale in the process of development. For example, there is no exemption in the bill for transactions between a land developer and a home builder buying more than 25 lots in the pursuit of his business. It is doubtful whether such a purchaser requires protection at all. In such cases, the bill would merely serve to increase the difficult and add to the expense of land transactions and result in a higher price to the home buyer.
Furthermore, there seems to be no reason for subjecting to coverage transactions involving the sale of lots fully developed with utilities and access roads. Sales of fully developed land are clearly not intended to be covered.
For these reasons, the National Association of Home Builders cannot recommend enactment of the bill without the inclusion of the following exemptions (as new sections 3(a) (2) and 3(a) (3):
"(2) the sale or lease of real estate to any person (i) engaged in the business of constructing residential, commercial, or industrial buildings or (ii) who acquires such real estate for the purpose of engaging in such business or for the purpose of resale or lease to a person engaged in or who acquires such real estate to engage in such business;
“(3) the sale or lease of real estate served by access roads and water and sewer facilities generally meeting the requirements of accepted land development standards or practices prevailing in the locality or in a nearby locality containing similar land development without regard to whether such facilities and roads are required to be provided under applicable State or local law;" Respectfully,
LARRY BLACKMON, President.
STATEMENT OF DAVID DOHENY, SECRETARY AND GENERAL COUNSEL, GENERAL
DEVELOPMENT CORP., MIAMI, FLA. General Development Corporation appreciates this opportunity to make known to the Sub-Committee its views in regard to the need for Federal legislation in the field of interstate land sales, and to make this statement a part of the record of hearings in respect to S. 2672 before this Sub-Committee.
The Sub-Committee is no doubt well aware that the overwhelming majority of persons involved in the interstate sale of land are honest and reputable businessmen. Nevertheless, there has been a substantial amount of testimony at these hearings about a handful of unscrupulous and marginal operators, whose activities, it seems to us, loom disproportionately large in the eyes of the proponents of the bill before us. Perhaps some comments concerning a more representative seller of interstate land will serve to balance the record.
General Development Corporation has been in corporate existence since 1928. Its principal offices are located in Miami, Florida. It has been engaged in real estate development in the State of Florida on a large scale since 1954. It was an originator of the concept of a completely planned community development. It is presently developing the following communities : Port Charlotte, located on the Gulf coast near the Peace River and Charlotte Harbor in Charlotte and Sarasota Counties : Port St. Lucie located on U.S. Highway #1 and the St. Lucie River in Indian River County near Fort Pierce, on the Atlantic coast; Port Malabar located within the corporate limits of the City of Palm Bay in Brevard County, just south of Melbourne and close to the Cape Kennedy complex; Port St. John near Titusville in Brevard County, also near to the Cape Kennedy complex; Vero Shores and Vero Beach Highlands in Indian River County and Sebastian Highlands located on Route 1 in Sebastian, Indian River County.
The foregoing communities are in various stages of development. Port Charlotte, including North Port Charlotte in Sarasota County, has approximately 6,000 homes with 15,000 full-time residents as well as over 100 going businesses, shopping centers, churches, full-service banks, public schools and a companyoperated public transit system. Port Charlotte recently celebrated its tenth anniversary which was appropriately marked by the final payment on the purchase money mortgage by the Company on the purchase of the land. All land in Port Charlotte, which has not already been deeded to purchasers, is owned by the Company free and clear of any encumbrances.
The newer communities on the Atlantic coast, such as Port St. Lucie, Port Malabar and Port St. John, are in less advanced stages of development; Port St. Lucie, with 36,500 acres of land has 700 homes and over 2,000 residents ; Port Malabar, with 45,000 acres of land, has over 800 homes and over 2,500 residents. The Company is continuing to retire purchase money mortgages on the unsold lands in these communities. All mortgage payments have been made on schedule and in fact in many instances there have been prepayments of the mortgages.
In addition to the purchase and financing of the land, the Company has made heavy expenditures for the improvement of the properties in order to prepare the raw land for suitable homesites. These improvements include the building of roads, construction of waterways and bulkheads, as well as the construction of culverts, bridges, dams, shopping centers, industrial parks, and rec