Present federal law does not prevent a company from selling arid, worthless land in the middle of the Arizona desert as a "homesite" so long as it informs the prospective buyer that there is no known water source, a New York-based research group has found.
While this would seem to provide adequate consumer protection against fraud, the non-profit organization INFORM says that millions of Americans are still being victimized by land developers.
In the third report in a series of studies called "Promised Lands," released this week, INFORM said that disclosure - often couched in confusing, technical, or obscure terms - was not a sufficient counterweight to the "hard sell" to which buyers are often subjected.This includes such inducements as free dinners, trips and movies, the group found.
INFORM evaluated land sales and subdivision industry regulations in six states. It singled out Colorado for giving consumers the least protection under state laws. New York, the resident state of many buyers of property in the Sunbelt and vacation lands, received the highest marks along with California. The latter requires that properties have potable water supplies, dirt-road accesses and a fair sales price-subject to state appraisal.
The Department of Housing and Urban Development's Office of Interstate Land Sales Registration can only require disclosure; it cannot regulate the quality of a development. Moreover, INFORM charged, although the land sales office issued 36 advertising guidelines in 1973, they have never been actively enforced - despite the 3,000 complaints the office receives annually from consumers who feel they've been bilked.
INFORM urged the Federal Trade Commission to issue regulations defining exactly what merchandising practices if considers decentive and unfair and to see that they are enforced. The FTC started to do so at the height of the land sales boom in the early 1970s but dropped the idea when the recession cut sales.
The study recommends that regulations be passed that would guarantee basic services such as water, sewers and roads; a right of cancellation of a sales contract during a cooling-off period, and a refund of payments made - minus the seller's costs if the buyer forfeits by missing a payment.
The disclosure form the study deems ineffective against consumer fraud is the same one that was the subject of a complaint to Congress recently by small, intrastate developers. They argued that is requirements constituted overkill through extensive legal and paperwork.
INFORM also scored the government's enforcement of environmental safeguards on land subdivisions. Arizona and New Mexico, it said, do the least to regulate lot development. As a consequence, subdividers there are free to create new communities without any provision for where they will get their water or whether they will pollute other people's water supplies," the research organization said.
It cited the example of one Arizona developer who located his project on flood-prone land, where raging waters later lead to three drownings and $4 million in damage.
Of the six states studied, Florida, California, Colorado and New York prohibit a subdivision map being filed without a determination that there is a sufficient water supply.
INFORM called for federal and state control of the development of environmentally critical and hazardous lands. These include wetlands, watersheds, prime agricultural acreage, dunes and beaches, habitats of endangered species, floodplains and earthquake zones, and lands that are important historically, or in other cultural ways.
At the regional and local levels, the group wants to see protection of water resources and more coordination of growth policy.
Alan Kappeler, OILSR's director, called the study fair, but said he differed with it on several specific points. Most of the consumer complaints, he said, do not focus on advertising, but rather on the salesman's oral pitch - usually made to the buyer in private - and the developer's failure to make promised improvements. OILSR Field inspectors have not found actual advertising to be that misleading, he said.
Kappeler said OILSR has begun simplifying the disclosure form the seller is obliged to give the buyer. And, he pointed out, a federal law already gives the purchaser the right to rescind the deal within a given time, so no state laws are needed.
Finally, Kappeler said he does not favor federal regulation of the type of property an owner is allowed to sell. Instead, he said, the states should regulate land sales.