There may be a message in a recent Federal Trade Commission action for unseasoned speculators in undeveloped land - if yet another message is needed. It is: Be careful.
The FTC's settlement of a civil penalty action against Great Western United Corp. of Denver, Colo., will result in refunds of almost $4 million to 14,000 customers, the biggest refund ever obtained by the FTC. But it also may be an indication that the commission could be moving away from orders requiring development as a means to protect the consumer's investment.
The settlement, through a consent judgment entered in United States District Court in Los Angeles, requires Great Western to spend up to $16 million between now and 1985 in capital improvements - roads, water, electrical, gas and sewage facilities, recreational facilities and commercial buildings - in three of its land development projects. They are California City Calif., in the Mojave Desert; Colorado City, Colo., near Pueblo, and Cochiti Lake, N.M., between Albuquerque and Santa Fe.
But FTC officials admit that the order gives Great Western a lot of leeway, and that $16 million doesn't go a long way in developing desert land in three separate locations.
FTC sources acknowledge that their agency has been burned in settlements that did require extensive development - especially with GAC Corp. In that case, commission officials suggest, an FTC consent order requiring development created a brouhaha in Florida when state officials told GAC its development plans were in conflict with state environmental protection regulations. GAC insisted that it didn't have to abide by the Florida laws, since it was under order from a federal agency.
"We wanted to make sure nothing in the settlement would allow Great Western to say later that they were going to develop the land in a certain way because federal law supercedes state law," an FTC source said.
The judgment settles a civil penalty action against Great Western for alleged violations of a previous consent order concerning representations made in connection with the company's land sales in California, Colorado and New Mexico.
Under the 1972 order Great Western signed, it agreed not to use deceptive sales practices or to violate truth-in-lending laws in its land sales. The original complaint alleged that the company falsely claimed it had completed roads, sewers, water service and other utilities for its lots.
The civil penalty complaint alleged that Great Western and its subsidiaries misrepresented:
That the land was a good investment because it was certain to increase in value.
The nature and extent of the developments.
It's policy concerning the resale of land bought by consumers.
The amount of water available at the developments.
Under the terms of the settlement, about 14,000 purchasers of land since Jan. 1, 1972 are eligible for refunds amounting to 20 per cent of the prices they paid for the lots, which ranged in size from a quarter acre to an acre and in price from $2,000 to $5,000. About 50,000 persons are said to have bought land at the three sites since the 1950s.
The money is going to be refunded to eligible purchasers by check by the end of May through a bank escrow account the company has to put the money in.
Besides the broad development requirements, the company must also include in all future estate advertising an affirmative disclosure warning consumers that they should "consider the value of any of our land to be uncertain. Do not count on a increase in value."
Another provision requires Great Western to bear the cost of arbitration of future disputes with consumers.