With regard to the Selig Brothers selling Brazilian land. This came to our attention through an inquiry by a resident of Virginia City, Nevada. I enclose herewith copies of letters and correspondence. We have heard nothing about their offerings since that time. It is my intent to again present legislation to obtain some type subdivision control at the next session of our legislature in January of 1967. In the mean time, if I can be of further assistance to you and your subcommittee, please let me hear from you. Very truly yours, DON MCNELLEY, Administrator. N. C. HINES & SON, Arlington, Va., August 18, 1966. Hon. HARRISON A. WILLIAMS, Jr., U.S. Senate, Washington, D.C. DEAR SENATOR WILLIAMS: In response to your letter of August 8 I am glad to make the following statement on the subject of mail order land sales. In 1956 I wrote a book "The Truth About Florida" in which I attempted to alert the public about mail order land sales, obtaining money by fraud and deceit in Florida. I heartily endorse and favor your bill which is designed to make it a crime to use interstate commerce to sell out-of-state land in a state contrary to the laws of that state. In my research I found major criticism centered against the state commissions who were having great difficulties in enforcing laws against mail order operators. My research reveals, although unrecorded, ethical categories in the political area, changing governors and commissions every four years was to a great extent responsible for the failure of the commission to enforce ordinances and regulations. Although the land sales commission has accomplished some fine results but when the governor, for political reasons, fills a vacancy with a citizen who has been cited for violations over a period of ten years, it is natural that this presents a cloud over the integrity of the commission of Florida. This is well known in the state as tricks in the trade involving techniques oppposed by the bulk of realtors in the state. I have witnessed boiler room and intensive telephone operations by sales pitchmen, grossly distorting the truth, glowing predictions and guarantees in increased land values. This with brochures sent through the mail to unsuspecting names taken from telephone directories, is still going on in the state of Florida as I write this letter. For this reason, I am revising the 3rd series of my book, raising significant facts under the title "Before you Buy". Being interested in the elderly purchasers many of whom I have seen during my research who ran the risk and have lost modest means and life savings. I urge by all means that your bill, when passed, will strengthen postal fraud statutes broadening the provisions of advertising under the Federal Trade Act, requiring registration of interstate land sales with the Securities & Exchange Commission. I also recommend that the same legislation will require registration of real estate agents and land in foreign countries owned by foreign developers especially with misleading advertisement. I especially refer to Bahama Sales Company New York, who I note sadly, do not tell the truth and it is an open question whether any of their unlicensed agents can be relied upon to tell the truth. If required to register with a Securities and Exchange Commission, the Bahama promotion would cease to operate. Respectfully submitted. Yours very truly, NEEDHAM CHRISTOPHER HINES. STATEMENT OF W. DAN BELL, PRESIDENT AND GENERAL MANAGER, DENVER AREA BETTER BUSINESS BUREAU Since my testimony before the United States Senate Subcommittee on Frauds Affecting the Elderly, in 1964, there appear to have been changes in the methods of promoting real estate sales in interstate commerce for vacation and home sites. "Wasteland" promotions by "free lot" methods have vitually disappeared. This has been due to the widespread publicity given to the scheme which caused potential victims to be more knowledgeable; the expressed interest of government on both the state and federal levels which caused the questionable promoter to discontinue his objectionable tactics; and the prosecutions entered into by the Post Office Department which resulted in many convictions and penalties. However, some other types of promotional activity continue as in the past and more sophisticated methods of selling have been developed. Promoters of cabin sites continue to use the "bait and switch" technique. This consists of a letter sent to a large number of people, which letter states that the receipient "has been selected by our Advertising Department to receive an unsubdivided mountain home site for a cost to you of only $ This site has been valued at $-." The offering figure is generally from $95 to $195, while the "value" claim may be from $795 to over $1,000. The letter continues to describe the property and states that it is necessary for the husband and wife to be present at the site on a certain date and time in order to qualify for this bargain. When the respondent appears at the site, the property offered at the low price is shown and is usually highly undesirable. It may be a small odd-size lot, or it may be located on the site of a cliff or across a draw to make building of a cabin highly improbable, if not impossible. At this point, the prospect expresses disappointment and the salesman "switches" his interest to the more desirable property at a much higher price. To clinch the sale, the salesman will offer a "discount" to the prospect if he will purchase the higher-priced property today and now. Many of the developments whose tenants have been gained by such techniques have deteriorated into properties of less value than when they were in the virgin state. Not only are titles clouded, but shacks in various, states of disrepair, junk, and other factors contribute to their lessened value. A more sophisticated technique, and possibly one devised to avoid supervision by laws of various states, is the approach of flying groups of prospects to the situs state. By large-scale advertising of a "free" trip to some distant and desirable vacation spot, the promotional company acquires prospects for purchase of real estate. Respondents to the "free" offer are contacted and invited to a dinner or cocktail party, at which time they receive an inspirational presentation extolling the virtues of the vacation land to which they will be taken. Usually, the prospect is required to sign a contract for purchase of a particular site with the option of changing his selection or revoking the contract should be decide not to buy. In addition, he is generally required to produce a certified check approximating $500 as evidence of his ability to complete a purchase. All prospects are then flown in a group to a city near the location of the property, are wined, dined and entertained, and are subjected to an intensive sales pitch to buy the property during a rather fast tour of it and immediately afterward. If the prospect does not buy, his check is refunded and the contract cancelled. At least one firm has organized a "travel club", under which guise they offer an extremely-low-price trip to a distant vacation state. The prospect is invited to a free dinner where the virtues of the trip are extolled and effort is made to get the prospect to sign up for "membership" in the club and to pay the low-price fare. The now "members" of the travel club are then flown in a chartered plane to the situs states where the salesmen for a real estate development company take over and attempt to sell home sites. In some instances, the firm promoting the development will have a licensed real estate broker as its representative; while in other instances the promoting firm will not endeavor to sell the property within the prospect's state, but instead transports the prospect to the state in which the property is located, and the selling process takes place there. In recent months, there have been indications of stepped-up promotion of Canadian land offered on a mail order basis. The Subdivision Law passed in Colorado in 1965 is almost worthless insofar as it relates to protecting the public from the gyp type of operator. The law has been challenged in court and is recognized as inadequate. The Consumer Problems Committee of the Colorado State Legislature has prepared and recommend ed the adoption of a revision of this law which will undoubtedly receive consideration of the 1967 General Assembly. It is my opinion that proper promotional development of our land, particularly that in the west, should be permitted and encouraged. There is no doubt that people must be motivated to some degree to excite their interest in the purchase of property at a distant point, and that they must be adequately informed and educated-not only about the land itself but also about what they should look for and what they should look out for. I do not believe that regulations and laws should serve to deter promotional development, but that they should serve to protect the people from misrepresentation and fraud, and should provide the means by which people can be adequately informed. Greater recognition and expression of responsibility are evident on the part of legitimate promoters in the offering of land today. AMERICAN REALTY AND PETROLEUM CORP., Senator HARRISON A. WILLIAMS, Washington, D.C. New York, N.Y., July 5, 1966. DEAR SENATOR WILLIAMS: Thank you for your letter of June 27. We appreciate your holding the records until July 10 to give us more time for our statement. As to the question raised in your letter regarding our advertisment in the New York Daily News of November 9, 1965, I am sure you know our advertising is regulated by the various states in which we do business, and in not one instance are predictions or “crystal gazing" acceptable. I must stress that we say only what we mean, and we mean strictly what our advertising says. People have bought and are buying acreage around the Albuquerque suburbs with the anticipation of sizeable increases over the years. The reason these increases are anticipated is because the Albuquerque area has experienced a real estate boom that need take a back seat to none. A three or four-fold increase in land values over a few years has been quite ordinary, and increases many times greater not uncommon. This is history, but based on history people will anticipate the future. You ask about the growth of our development. At the present time we have over 300 residents at Rio Rancho Estates. None of them are our employees or are in any way connected with our company other than the fact that they bought a home and moved into Rio Rancho Estates. Conveniences now available are: Underground piped water-Albuquerque Utilities Corp. Underground piped gas-Southern Union Gas Co. Telephone service The Mountain States Telephone and Telegraph Co. We have also constructed community features such as clubhouse, with fulltime recreation director and planned activities, swimming pool, dining room, kitchen, meeting rooms, lockers, showers, lending library, sunbathing decksall part of the facilities available to the residents. A Volunteer Fire Department has been formed, for which we have purchased an engine, and built a firehouse. We plan to develop the area village by village, first enlarging our present community to a self-sufficient village of 2,000 to 4,000 homes. Then a second will be started and a third, and a fourth, etc. as need be, and all of them interlocking. Only demand can lay out the timetable for this development, but whether the demand is fast or slow, each newcomer is assured of his needs because the various utility companies have all assured us that if we follow our plan of orderly development, they will be happy to expand along with us. It is a self-sufficient and profitable undertaking for each of the utility companies and requires no cost outlay on our part other than the initial engineering and development, which has already been completed and fully paid for; and the additional clubhouses, swimming pools, and associated facilities which the new villages will need. These new facilities will only be built as the new housing requires, and the funds come from this new home-building and amounts to less than 12 of 1 percent of the price of the home. Our new financial statement for our year ending April 30, 1966, is in the process of being audited, so I am enclosing our annual report for the prior year. When our new figures are ready, I shall be happy to send them to you. These new figures will show the company in an even stronger position. I am enclosing a few newsletters sent to our property holders along with some of our recent recreational bulletins given to the Rio Rancho residents. They may give you a better concept of our development. If you wish a "first person" description of our development, I will be happy to arrange for you to visit Rio Rancho Estates, or see some films that were taken on the property. There are also a number of people you may wish to contact who have first hand information. If it is convenient for you, perhaps you could contact: Gov. Jack Campbell of the State of New Mexico Sen. A. L. Montoya of the New Mexico State Senate (brother of Sen. Joseph Montoya of New Mexico) Secretary of State, Alberta Miller of New Mexico Bruce King, Speaker of the House of the State of New Mexico All of the above are familiar with our development. If you wish, I could also send you comments of various reputable newspaper writers of major newspapers who have visited the property and have published articles. If there is any other information I can give you please do not hesitate to ask. Portions of our statement are presently being revised by our counsel, Royall, Koegel & Rogers, and the completed statement will be forwarded to you in a day or so. Again, many thanks for your courtesy. Very truly yours, IRVING W. BLUM, President. STATEMENT BY IRVING W. BLUM, PRESIDENT, AMERICAN REALTY AND PETROLEUM CORP. I very much appreciate the opportunity to make a statement on behalf of American Realty and Petroleum Corp. for the record of the Subcommittee's hearings on Senate Bill S. 2672. American Realty and Petroleum Corp. ("Amrep") is a publicly owned company with assets of more than twenty-five million dollars ($25,000,000), the stock of which is traded on the American Stock Exchange. It is the developer of two major subdivisions,-Rainbow Lakes Estates, near Ocala, Florida, and Rio Rancho Estates, which is outside of Albuquerque, New Mexico. It has invested millions of dollars in its subdivisions and thus has a major stake in the future of the subdivided land industry. This bill, as it stands today, by effectively eliminating interstate advertising from the land development industry, will irreparably harm many important companies owned by thousands of shareholders, and the public they serve. We realize, as any responsible land developer must, that fraudulent or misleading practices by a few irresponsible operators injure not only the land purchasers victimized, but also the responsible developers, both by unfairly competing with them and by destroying public confidence in the industry as a whole. For this reason Amrep supports any move which will reasonably and effectively curtail the use of false and misleading promotional devices by land developers. Having been engaged in the sub-divided land business nationally over ten years I have acquired a considerable amount of experience with the different types of regulation used by various states, having qualified our homesites for sale in major states regulating such sales, including California, New Jersey and New York and Ohio. I know, therefore, that care must be taken lest regulatory devices are adopted which will infringe on the ability of legitimate developers to perform their function. We appreciate, too, the assurance of your chairman that the purpose of the proposed legislation "is to protect not only individual buyers, but also reputable businessmen now developing entire communities on a very sound basis." My Company, therefore, supports the purpose of the proposed Interstate Land Sales Full Disclosure Act, which is apparently intended to insure that, before becoming irrevocably bound to a contract to purchase subdivided land, a purchaser will be given complete and accurate information about the land and its developer. 66-628 0-66- -28 The problem which apparently faces the Committee is to draft legislation which will enable the legitimate developer to perform his services to the community and to flourish, while protecting the consumer from the illegitimate operator. It appears to us that, for the most part, the proposed legislation does this well. One point, however, in the act as presently drafted would make it impossible for any honest developer to continue in the business of reaching across state lines to his market. I refer to the provision of the act which prohibits the use of any selling literature which "omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading." This clause (Section 17 Sub-paragraph (b)) will have the principal effect of eliminating effective advertising of sub-divided lands.* The denial to the industry of the use of advertising materials in my opinion is highly undesirable and totally unnecessary. Moreover, in our opinion, it is actually unnecessary to the purpose of the legislation to deny to the honest developer who has bought good land, invested substantial funds to plan and develop it along sound lines, the opportunity to reach out for his customers through advertising, wherever those customers may be. One of the prime functions of advertising is to present in an attractive manner the product being offered in order to induce a potential purchaser to make further investigation. To require that each advertisement not omit any pertinent fact is to defeat this purpose. In practice, such a requirement would necessitate such lengthy advertisements with so many qualifications of positive statements, as to be worthless. It has long been an American principle that any business legitimately performing a service is entitled to advertise that service as attractively as possible, provided there is no fraud or deception. One wonders whether a new principle is being asserted in the proposed legislation limiting advertising to bare statement of relevant facts administratively passed upon by government lawyers, and eliminating any business' proud boast about the unique advantages of its product. A more expensive and frequent purchase to the average American than a homesite lot is an automobile. Will it now be decided that manufacturers must in every advertisement note the costs of upkeep, of parts replacement, the dangers of accident and breakdown, etc. of each model? That is precisely what is being asked of us. One would hardly expect that the airline industry would advertise were it required in each advertisement to spell out in detail the dangers of air travel and point out the chances of delayed arrivals or even exposure to death or injury in the event of an accident. A manufacturer of color televsion sets could hardly be expected to advertise his wares if each ad which pointed out the brilliant pictures afforded by his sets also had to point out in detail the high costs of repairs. Nor could one expect a seller of inexpensive home appliances to advertise were it required to set forth the shortcomings of its products as compared with more expensive items. In addition to defeating the essential purpose of advertisements, the prohibition against omitting any pertinent fact would make it an extremely riskly business for anyone to advertise anything. The effect upon advertising of such a disclosure requirement can readly be appreciated by reference to the securities industry, where advertising has been reduced to the simplest forms of "tombstone" and institutional advertisements. There is no justification for singling out advertisements of subdivided lands for such stringent restrictions. As I have noted, the principal purpose of such advertising is to induce prospective purchasers to make further investigation regarding the property. The proposed Act specifically requires that at least 48 hours before becoming bound to any contract to purchase subdivided land. each prospective purchaser will have received a Prospectus containing full and accurate information regarding the land and the developer. Thus, even if a develop were to use an advertisement which contained incomplete information, the customer would nonetheless be given full, complete *See appendix for technical analysis of the portions of the act which would inevitably lead to such result. |