In the decade since the Interstate Land Sales Disclosure Act became law, the government has obtained 16 indictments charging 84 individuals and corporations with violations of the law.
If proposed new amendments to that act would have been part of the law from the beginning, however, 10 of those cases could have never been brought. And, if enacted, the measures would significantly gut consumer protection for millions of land buyers.
Ironically enough, the amendments in question were proposed by a pro-consumer Senator, but have caused loud protests from consumer groups. Congressmen and the Department of Housing and Urban Development.
Sen. Gaylord Nelson (D - Wisc.) has proposed changes in the Act that would exempt all intrastate developers from having to file reports with the federal government or supply consumers with a HUD property report before making a sale.
Nelson said that the amendments he was offering were designed to narrow the jurisdiction of the Act "so that its resources can be committed to effectively protecting the land buying consumer by controlling fraudulent "interstate" land sales operations; which was clearly the intent of Congress."
Nelson said the majority of land sales in the U.S. are small business intrastate operations. "Sales by these businessmen are rarely made without an on-site inspection by the purchaser."
The problem of too much paper-work for the small businessman was cited by Nelson as a reason to eliminate the reporting burden.
Nelson has made two specific proposals that particularly irk HUD and the consumer lobby. The first would exempt from federal reporting requirements companies who market their land almost entirely (95%) to residents of the same state. The second would also exempt companies marketing only to people who live within a 100-mile radius of the subdivision.
The theory is that consumers in both of the above instances would have ample opportunity to visit the land in question before they buy in. Or, as is known in the business world, "Let the Buyer Beware."
"We have substantial problems with both proposals," said Patricia Worthy, Interstate Land Sales administrator at HUD.
"With respect to the 100 mile radius," she said, "our concern is that the purpose of the action was to protect people from buying land in an area with which they have no familiarity. And there are a lot of people who live 100 miles from areas with which they have no familiarity."
She has the same problem with the intrastate provision. "There are people in the northern part of Texas, for example, that have no knowledge of areas in the Southern part of Texas," she added. And she said, HUD figures reveal that just as many small developers break the law as large, interstate land developers.
Worthy said she was also concerned about letting states do their own enforcement. "About 20 states don't have any disclosure laws on their book," she said. "And when law was originally passed, Congress rejected an amendment that would have limited its authority to only interstate land deals, so we feel the intent of Congress was to cover all land transactions.
In testimony before the House Banking Committee's housing subcommittee earlier this month, Rep. Joseph Minish (D-N.J.) called the Nelson proposal "unwise."
"It is far too broad,"he warned, "and contains loopholes which would allow many large interstate developers to escape federal regulations."
Minish pointed to a particularly dangerous situation that could develop in his home state if the new rules become law.
"One of the primary areas for land subdivision in the East is the Pocono Mountains in Pennsylvanis," he said. "Within 100 miles of most Pocono developers are the metropolitan areas of New York City, Northern New Jersey and Philadelphia. Taken together, these three areas represent a market of over 20 milliom people. Under the Nelson bill, none of these people would be protected by the federal law if they bought lots in the Poconos."
"The real victims here are unsophisticated, lower and middle class people who are led into buying land they often don't want throught financial arrangements they don't understanl," Minish said. "The main issue before this subcommittee is not protecting busines from hig government - OILSR (HUD's office of Land Sales Registration) has 107 employees. The main issue here is protecting little people from big business."
A non-profit public interest organization called INFORM has campaigned vigorously against the Nelson Bill. In her testimony before the same hearings Minish addressed, INFORM reaserch director Jean Halloran said that existing regulation in the area of land sales is "not adequate," and she said the Nelson Bill proposals "would be devastating to the effectiveness of the OILSR."
"Fully 27 states have no land laws of their own, or mechanisms for supervising preparation of property reports," she adds. "Thus, if the Nelson amendments become law, the intrastate sale of subdivision lots would be totally unregulated in over half of the states in the country." That means, she said, new bureacracies would have to be set up and "conflicting and duplicative rules and procedures will proliferate."
In effect, proponants of the bill claim, millions of consumers will be left with no indication of the suitability for sewerage or water supply, the probability of improvement completion or the condition of title of land they are being offered.
A sizable portion of the Eastern section of the nation could be removed from government protection in land sales. Washingtonians would not be covered for purchases in the Blue Ridge Mountains, for example.
Final action on the Nelson bill in not expected for at least a month.