[Federal Register Volume 61, Number 60 (Wednesday, March 27, 1996)]
[Rules and Regulations]
[Pages 13596-13611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7280]
[[Page 13595]]
_______________________________________________________________________
Part IV
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Parts 1700, 1710, and 1715
Interstate Land Sales Registration Programs: Streamlining; Final Rule
Federal Register / Vol. 61, No. 60 / Wednesday, March 27, 1996 /
Rules and Regulations
[[Page 13596]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing--Federal Housing
Commissioner; Interstate Land Sales Registration Program; Streamlining
Final Rule
24 CFR Parts 1700, 1710, and 1715
[Docket No. FR-3987-F-01]
RIN 2502-AG63
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This final rule amends HUD's regulations for the Interstate
Land Sales Registration Program. In an effort to comply with the
President's regulatory reform initiatives, this rule will streamline
the Interstate Land Sales Registration Program regulations by
eliminating provisions that are repetitive of statutes or are otherwise
unnecessary. This final rule will make the Interstate Land Sales
Registration Program regulations clearer and more concise. Guidelines
applicable to the program are available from the Department, as
provided in an uncodified attachment to this rule.
EFFECTIVE DATE: April 26, 1996.
FOR FURTHER INFORMATION CONTACT: David R. Williamson, Director, Office
of Consumer and Regulatory Affairs, Department of Housing and Urban
Development, 451 7th Street SW., Room 5241, Washington, DC 20410-8000);
telephone number: (202) 708-4560 (this is not a toll-free number). For
hearing- and speech-impaired persons, this number may be accessed via
TDD by calling the Federal Information Relay Service at 1-800-877-8339.
SUPPLEMENTARY INFORMATION:
On March 4, 1995, President Clinton issued a memorandum to all
Federal departments and agencies regarding regulatory reinvention. In
response to this memorandum, the Department of Housing and Urban
Development conducted a page-by-page review of its regulations to
determine which can be eliminated, consolidated, or otherwise improved.
HUD has determined that the regulations for the Interstate Land Sales
Registration Program can be improved and streamlined by eliminating
unnecessary provisions.
Several provisions in the regulations repeat statutory language
from the Interstate Land Sales Full Disclosure Act, 15 U.S.C. 1701 et
seq. It is unnecessary to maintain statutory requirements in the Code
of Federal Regulations (CFR), because those requirements are otherwise
fully accessible and binding. Furthermore, if regulations contain
statutory language, HUD must amend the regulations whenever Congress
amends the statute. Therefore, this final rule will remove repetitious
statutory language and replace it with a citation to the specific
statutory section for easy reference.
Many provisions of part 1720 in the regulations are based on
requirements that apply to more than one program, and therefore HUD
repeated these provisions in different subparts. This repetition is
unnecessary, and updating these scattered provisions is cumbersome and
often creates confusion. Therefore, some of part 1720 has been removed,
and a consolidated rule of investigation procedures that are in a new
part 3800 has been made applicable to the Interstate Land Sales
Registration program by cross-reference (see 61 FR 10440, March 13,
1996). In addition, the Department is developing a separate rule to
consolidate certain procedures into a uniform rule on hearings. When
that separate rule is final, the Department expects to revise
Sec. 1710.45 to include certain provisions of subpart D of part 1720
that will not be removed by the consolidated hearing procedures rule.
This final rule also removes from codification part 1700,
Sec. 1710.501, Sec. 1710.502, and Appendix A to 1710 (which are
maintained in an uncodified appendix accompanying this final rule). The
information contained in the material to be removed is informational
and will be available through separately issued guidance, which is
available from the Department (see uncodified attachment to this rule)
and may be updated from time to time and published in the Federal
Register.
Copies of this rule and related notices are available
electronically from HUD or other sources. You can access this material
through the World Wide Web at http://www.hud.gov or telenet to
hudclips.aspensys.com. You also may subscribe separately to HUDClips (a
source of all of HUD's directives) by calling 301/251-5757 or e-mailing
to hudclips@aspensys.com.
Justification for Final Rulemaking
HUD generally publishes a rule for public comment before issuing a
rule for effect, in accordance with its own regulations on rulemaking
in 24 CFR part 10. However, part 10 provides for exceptions to the
general rule if the agency finds good cause to omit advance notice and
public participation. The good cause requirement is satisfied when
prior public procedure is ``impracticable, unnecessary, or contrary to
the public interest'' (24 CFR 10.1). HUD finds that good cause exists
to publish this rule for effect without first soliciting public
comment. This rule primarily removes unnecessary regulatory provisions.
Although the rule also contain some clarification of policy, it does
not make substantive changes in the program regulations. Therefore,
prior public comment is unnecessary.
Other Matters
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this final rule, and in so
doing certifies that this rule will not have a significant economic
impact on a substantial number of small entities. This rule merely
streamlines regulations by removing unnecessary provisions. The rule
will have no adverse or disproportionate economic impact on small
businesses.
Environmental Impact
This rulemaking does not have an environmental impact. This
rulemaking simply amends an existing regulation by consolidating and
streamlining provisions and does not alter the environmental effect of
the regulations being amended. A Finding of No Significant Impact with
respect to the environment was made in accordance with HUD regulations
in 24 CFR part 50 that implement section 102(2)(C) of the National
Environmental Policy Act of 1969 (42 U.S.C. 4332) at the time of
development of regulations implementing the Interstate Land Sales
Registration Program. That finding remains applicable to this rule, and
is available for public inspection between 7:30 a.m. and 5:30 p.m.
weekdays in the Office of the Rules Docket Clerk, Office of General
Counsel, Room 10276, Department of Housing and Urban Development, 451
Seventh Street, SW., Washington, DC.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that this rule
will not have substantial direct effects on States or their political
subdivisions, or the relationship between the Federal government and
the States, or on the distribution of power and responsibilities among
the various levels of government. No programmatic or policy changes
will result from this rule that would affect the relationship
[[Page 13597]]
between the Federal Government and State and local governments.
Executive Order 12606, The Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this rule will not have
the potential for significant impact on family formation, maintenance,
or general well-being, and thus is not subject to review under the
Order. No significant change in existing HUD policies or programs will
result from promulgation of this rule.
List of Subjects
24 CFR Part 1700
Consumer protection, Freedom of information, Land sales, Reporting
and recordkeeping requirements.
24 CFR Part 1710
Administrative practice and procedure, Consumer protection, Freedom
of information, Land sales, Reporting and recordkeeping requirements.
24 CFR Part 1715
Advertising, Consumer protection, Fraud, Land sales.
Accordingly, under the authority of 42 U.S.C. 3535(d), parts 1700,
1710, and 1715 of title 24 of the Code of Federal Regulations are
amended as follows:
PART 1700--[REMOVED]
1. Part 1700 is removed.
PART 1710--INTERSTATE LAND SALES REGISTRATION PROGRAM
1a. The authority citation for part 1710 is revised to read as
follows:
Authority: 15 U.S.C. 1718; 42 U.S.C. 3535(d).
2. Section 1710.1 is revised to read as follows:
Sec. 1710.1 Definitions.
(a) Statutory terms. All terms are used in accordance with their
statutory meaning in 15 U.S.C. 1702 or with part 5 of this title,
unless otherwise defined in paragraph (b) of this section or elsewhere
in this part.
(b) Other terms. As used in this part:
Act means the Interstate Land Sales Full Disclosure Act, 15 U.S.C.
1701.
Advisory opinion means the formal written opinion of the Secretary
as to jurisdiction in a particular case or the applicability of an
exemption under Secs. 1710.5 through 1710.15, based on facts submitted
to the Secretary.
Available for use means that in addition to being constructed, the
subject facility is fully operative and supplied with any materials and
staff necessary for its intended purpose.
Beneficial property restrictions means restrictions that are
enforceable by the lot owners and are designed to control the use of
the lot and to preserve or enhance the environment and the aesthetic
and economic value of the subdivision.
Date of filing means the date a Statement of Record, amendment, or
consolidation, accompanied by the applicable fee, is received by the
Secretary.
Good faith estimate means an estimate based on documentary
evidence. In the case of cost estimates, the documentation may be
obtained from the suppliers of the services. In the case of estimates
of completion dates, the documentation may be actual contracts let,
engineering schedules, or other evidence of commitments to complete the
amenities.
Lot means any portion, piece, division, unit, or undivided interest
in land located in any State or foreign country, if the interest
includes the right to the exclusive use of a specific portion of the
land.
OILSR means the Interstate Land Sales Registration program.
Owner means the person or entity who holds the fee title to the
land and has the power to convey that title to others.
Parent corporation means that entity which ultimately controls the
subsidiary, even though the control may arise through any series or
chain of other subsidiaries or entities.
Principal means any person or entity holding at least a 10 percent
financial or ownership interest in the developer or owner, directly or
through any series or chain of subsidiaries or other entities.
Rules means all rules adopted pursuant to the Act, including the
general requirements published in this part.
Sale means any obligation or arrangement for consideration to
purchase or lease a lot directly or indirectly. The terms ``sale'' or
``seller'' include in their meanings the terms ``lease'' and
``lessor''.
Senior Executive Officer means the individual of highest rank
responsible for the day-to-day operations of the developer and who has
the authority to bind or commit the developing entity to contractual
obligations.
Site means a group of contiguous lots, whether such lots are
actually divided or proposed to be divided. Lots are considered to be
contiguous even though contiguity may be interrupted by a road, park,
small body of water, recreational facility, or any similar object.
Start of construction means breaking ground for building a
facility, followed by diligent action to complete the facility.
Sec. 1710.2 [Removed]
3. Section 1710.2 is removed.
4. Section 1710.5 is revised to read as follows:
Sec. 1710.5 Statutory exemptions from the provisions of this chapter.
A listing of the statutory exemptions is contained in 15 U.S.C.
1703. In accordance with 15 U.S.C. 1703(a)(2), if the sale involves a
condominium or multi-unit construction, a presale clause conditioning
the sale of a unit on a certain percentage of sales of other units is
permissible if it is legally binding on the parties and is for a period
not to exceed 180 days. However, the 180-day provision cannot extend
the 2-year period for performance. The permissible 180 days is
calculated from the date the first purchaser signs a sales contract in
the project or, if a phased project, from the date the first purchaser
signs the first sales contract in each phase.
Secs. 1710.501, 1710.502, and Appendix A to part 1710 [Removed]
5. Sections 1710.501 and 1710.502 and Appendix A to Part 1710 are
removed.
PART 1715--PURCHASERS' REVOCATION RIGHTS, SALES PRACTICES, AND
STANDARDS
6. The authority citation for part 1715 is revised to read as
follows:
Authority: 15 U.S.C. 1718; 42 U.S.C. 3535(d).
7. Section 1715.1 is revised to read as follows:
Sec. 1715.1 General.
The purpose of this subpart A is to elaborate on the revocation
rights in 15 U.S.C. 1703, by enumerating certain conditions under which
purchasers may exercise revocation rights. Generally, whenever
revocation rights are available, they apply to promissory notes, as
well as traditional agreements.
8. Section 1715.2 is revised to read as follows:
Sec. 1715.2 Revocation regardless of registration.
All purchasers have the option to revoke a contract or lease with
regard to a lot not exempt under Secs. 1710.5 through 1710.11 and
1710.14 until midnight of the seventh day after the day that the
purchaser signs a contract or lease. If a purchaser is entitled to a
[[Page 13598]]
longer revocation period under State law, that period is deemed the
Federal revocation period rather than the 7 days, and all contracts and
agreements (including promissory notes) shall so state.
Sec. 1715.3 [Removed]
9. Section 1715.3 is removed.
10. Section 1715.4 is revised to read as follows:
Sec. 1715.4 Contract requirements and revocation.
(a) In accordance with 15 U.S.C. 1703(d)(3), the refund to the
purchaser is calculated by subtracting from the amount described in 15
U.S.C. 1703(d)(3)(B), the greater of:
(1) Fifteen percent of the purchase or lease price of the lot
(excluding interest owed) at the time of the default or breach of
contract or agreement; or
(2) The amount of damages incurred by the seller or lessor due to
the default or breach of contract.
(b) For the purposes of this section:
Damages incurred by the seller or lessor means actual damages
resulting from the default or breach, as determined by the law of the
jurisdiction governing the contract. However, no damages may be
specified in the contract or agreement, except a liquidated damages
clause not exceeding 15 percent of the purchase price of the lot,
excluding any interest owed.
Purchase price means the cash sales price of the lot shown on the
contract.
(c) The contractual requirements of 15 U.S.C. 1703(d) do not apply
to the sale of a lot for which, within 180 days after the signing of
the sales contract, the purchaser receives a warranty deed or, where
warranty deeds are not commonly used, its equivalent under State law.
11. Section 1715.5 is revised to read as follows:
Sec. 1715.5 Reimbursement.
If a purchaser exercises rights under 15 U.S.C. 1703(b), (c) or
(d), but cannot reconvey the lot in substantially similar condition,
the developer may subtract from the amount paid by the purchaser, and
otherwise due to the purchaser under 15 U.S.C. 1703, any diminished
value in the lot caused by the acts of the purchaser.
12. Section 1715.15 is revised to read as follows:
Sec. 1715.15 Unlawful sales practices--statutory provisions.
The statutory prohibitions against fraudulent or misleading sales
practices are set forth at 15 U.S.C. 1703(a). With respect to the
prohibitions against representing that certain facilities will be
provided or completed unless there is a contractual obligation to do so
by the developer:
(a) The contractual covenant to provide or complete the services or
amenities may be conditioned only upon grounds that are legally
sufficient to establish impossibility of performance in the
jurisdiction where the services or amenities are being provided or
completed;
(b) Contingencies such as acts of God, strikes, or material
shortages are recognized as permissible to defer completion of services
or amenities; and
(c) In creating these contractual obligations developers have the
option of incorporating by reference the Property Report in effect at
the time of the sale or lease. If a developer chooses to incorporate
the Property Report by reference, the effective date of the Property
Report being incorporated by reference must be specified in the
contract of sale or lease.
13. Section 1715.27 is revised to read as follows:
Sec. 1715.27 Fair housing.
Title VIII of the Civil Rights Act of 1968, 42 U.S.C. 3601, et
seq., and its implementing regulations and guidelines apply to land
sales transactions to the extent warranted by the facts of the
transaction.
Dated: March 13, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
(Note: The following guidelines will not be codified in the Code of
Federal Regulations.)
Guidelines to the Interstate Land Sales Registration Program
A copy of these guidelines applicable to the Interstate Land
Sales Registration Program may be obtained by writing to: Interstate
Land Sales Registration Program, HUD, 451 7th Street SW.,
Washington, DC 20410-8000 or by electronic access on the World Wide
Web, at: http://www.hud.gov
These guidelines were previously published as appendix A to Part
1710; Part 1700, Introduction; Part 1700.501, Certification
criteria; and Part 1700.502, Application for certification of State
land sales program, in title 24 of the Code of Federal Regulations
(CFR) (1995 edition).
Part IV(b), Improved Lots (which pertains to Appendix A to Part
1710) is revised to reflect recent court actions on this matter, as
discussed below.
Section 1702(a)(2) of Title 15 of the United States Code exempts
(1) the sale or lease of any improved land on which there is a
residential, commercial, condominium, or industrial building; or (2)
the sale or lease of land under a contract obligating the seller or
lessor to erect such a building on the lot within a period of 2
years.
Although there is virtually no legislative history regarding
this exemption at the time Congress passed the Interstate Land Sales
Full Disclosure Act, institutional memory within the Department is
to the effect that this exemption was added by an amendment offered
late in the course of passage. The reason for the amendment was to
exclude traditional homebuilders from the Act's requirements since
they did not comprise the class of persons Congress sought to
regulate. Nor were traditional home buyers, whose purchases tend to
be reasoned and deliberative, the class of consumers for whom the
Act's protections were intended.
HUD's first set of Guidelines, denoted ``Condominium And Other
Construction Contracts,'' was published on February 28, 1974, in
response to inquiries as to the applicability of the Act and this
exemption to condominiums. The Department published expanded
Guidelines on October 8, 1975, April 23, 1979, and August 6, 1984.
The 1984 Guidelines (which had appeared as an appendix to 24 CFR
part 1710) remained applicable until the effective date of these
Guidelines on April 26, 1996.
HUD consistently has taken the position that for a lot sale to
be eligible for the exemption under section 1702(a)(2), the seller's
obligation to construct must be real and not illusory, and must be
obligatory except for the conditions described in these guidelines.
On July 11, 1995, the United States Court of Appeals for the
Eighth Circuit issued an opinion that from HUD's perspective
effectively nullified the seller's obligation to construct. In fact,
it effectively nullified the exemption.
In Attebury v. Maumelle Company, 60 F.3d 415 (8th Cir. 1995), a
case in which HUD appeared as amicus curiae as to the exemption
issue only, the developer, Maumelle, used a sales contract that
initially recited its obligation to build within two years after the
lot sale. The contract then went on to recite a number of
conditions, the effect of which was to shift the obligation to build
onto the buyer.
HUD argued these guidelines and several cases that have
recognized an unconditional requirement on the seller to build. In
part, the case law adhered to the rule of construction that
exemptions from a remedial statute should be narrowly construed. The
court, which observed that the plaintiffs had not relied on the HUD
Guidelines in the district court, dismissed the government's
arguments primarily based on the language in this section that says:
``* * * the contract must specifically obligate the seller to
complete the building within two years'' (emphasis added), by
distinguishing the Guidelines' literal requirement that the
obligation to build be ``specific'' from the argument in this case
that the requirement be ``unconditional.''
At the time of the decision the language in question read:
If a seller (or developer) is relying on this exemption and the
residential, commercial, condominium or industrial building is not
complete, the contract must specifically obligate the seller to
complete the building within two years. If the contractual
obligation
[[Page 13599]]
is not present, the sale is not exempt. The two-year period begins
on the date the purchaser signs the sales contract. The use of a
contract that obligates the buyer to build within two years would
not exempt the sale.
As amended, the above paragraph will read:
If a seller (developer) is relying on this exemption and the
residential, commercial, condominium or industrial building is not
complete, the contract must obligate the seller to complete the
building within two years. If the contractual obligation is not
present, the sale is not exempt. The two-year period normally begins
on the date the purchaser signs the sales contract. A contract that
conditions construction upon acts of a buyer will not exempt the
sale. The essence of this exemption is that it applies to the sale
of a house (if not built at the time of sale, then to be built
within two years after the sale).
HUD's interpretation of what constitutes an obligation to
construct a building relies on general principles of contract law.
Provisions for purchaser financing and remedies clauses are matters
to be decided by the parties to the contract under the laws of the
jurisdiction in which the construction project is located. However,
such clauses may not alter the obligation of the seller to build.
(Another reason the court appears to have ruled in favor of
Maumelle is that the plaintiffs based much of their case on
allegations of fraudulent conduct, conduct which the court found
wanting of proof.)
The court also refused to accept the argument that by
recognizing the Maumelle contract as eligible for the exemption it
essentially abolished the reasons for the exemption. The purpose of
the exemption was to eliminate homebuilders from the ambit of the
Interstate Land Sales Full Disclosure Act. The rationale was that a
person who buys a house is much more attentive to the transaction
than one who is buying a lot. Moreover, the methods and practices of
selling the two products usually differs with a ``heavier sell''
being employed for lot sales.
Obviously, a buyer in a non-exempt transaction will shoulder any
responsibility for building a house. If the conditions in the
Maumelle contract create a similar result, which is the effect of
the ruling, there would be no reason for the exemption. (The fact
that fewer than 200 houses had been built on approximately 2,000
lots sold over a multi-year period was not a factor that the court
considered; the district court had found this fact not probative, a
finding that the Department found puzzling, given the purpose of
this exemption.)
For the above reasons HUD is amending the third, fourth and
fifth paragraphs of this section to make it clear that the seller's
obligation to build must be unconditional, except for the conditions
HUD recognizes as acceptable for exemption eligibility. HUD also is
amending the eighth and ninth paragraphs to update the discussion of
case law.
HUD is bound by the Maumelle decision within the jurisdiction of
the Eighth Circuit but not in other federal judicial circuits.
Moreover, since the Guidelines that the court considered when making
its decision are being changed to clarify the Department's position
that the obligation to build must be that of the developer, subject
only to the conditions recognized by HUD, HUD will not recognize the
Maumelle decision as controlling within the Eighth Circuit as to
lots offered after the publication of these amendments to the
Interstate Land Sales Guidelines.
Therefore, the Interstate Land Sales Guidelines are revised as
follows:
Guidelines to the Interstate Land Sales Registration Program
Public Information
In general. The identifiable records of the Office of Interstate
Land Sales Registration are subject to the provisions of 5 U.S.C.
552, as implemented by 24 CFR part 15--Public Information, subtitle
A.
Availability of information and records. Information concerning
land sales registrations and copies of statements of record may be
obtained from the following address: Interstate Land Sales
Registration Program, Department of Housing and Urban Development,
451 Seventh Street, SW., Washington, DC 20410-8000.
In addition, statements of record may be reviewed at such
address on any business day from 9 a.m. to 4:15 p.m.
Nonapplicability of exemptions authorized by 5 U.S.C. 552. With
the exception of information exempt from disclosure under 5 U.S.C.
552(b)(7) and 24 CFR 15.21(a)(7), all information contained in or
filed with any statement of record shall be made available to the
public as provided by 15 U.S.C. 1704(d).
Duplication fee--property report. Notwithstanding the provisions
of 24 CFR 15.14, Schedule of Fees, copies of a Property Report on
file with the Office of Interstate Land Sales Registration will be
provided upon request for a fixed fee of $2.50 per copy regardless
of the number of pages duplicated. Payment may be made in cash or by
check or money order payable to the Department of Housing and Urban
Development. Personal checks are acceptable.
Duplication and certification fee-required documents to the
several States that accept Federal filings. Notwithstanding the
provisions of 24 CFR 15.14, Schedule of Fees, copies of documents on
file with the Office of Interstate Land Sales Registration that are
provided for certification to the several states that accept Federal
filings will be provided upon request for a fixed fee of $12.00 per
filing regardless of the number of pages duplicated.
Methods of payment. The fees set forth above may be paid by
cash, by personal check, or by company check; or by U.S. money
orders; or by certified check payable to the Treasurer of the United
States or to the Department of Housing and Urban Development.
Postage stamps will not be accepted. All other fees must be paid as
set forth in 24 CFR 15.14(g).
Supplemental Information on Part 1710, Subpart C--Certification of
Substantially Equivalent State Law
Certification Criteria
(a) Certification of States requiring full disclosure. The
Secretary shall certify a state when--
(1) It is determined that the laws and regulations of the state
applicable to the sale or lease of lots not otherwise exempt under
section 1403 of the Act require the seller of lots to disclose
information which is substantially equivalent to or greater than the
information required to be disclosed in the Federal Statement of
Record; and
(2) The state's administration of such laws and regulations
shall provide that the information disclosed is current and
accurate. The means for administering the disclosure requirements
must include considerations of ample staffing, budgetary provisions
for policing functions and that the requisite legal authority be
vested in the state agency or agencies responsible for enforcing the
laws and regulations of the State land program.
(b) Certification of States providing sufficient protection. The
Secretary shall certify a state when--
(1) It can be demonstrated that the laws and regulations of the
state applicable to the sale or lease of lots not otherwise exempt
under section 1403 provide the purchasers and lessees with
protection commensurate with that which is provided by the Federal
disclosure requirements. That is, a State must develop substantive
measures plus disclosure which provides a level of protection that
is, at a minimum, comparable to the protection provided by the
Federal disclosure standard; and
(2) The administration of the laws and regulations provide that
all information disclosed is accurate and current. The means for
administering the requirements of sufficient protection must include
considerations of ample staffing, budgetary provisions for policing
functions and that the requisite legal authority be vested in the
state agency or agencies responsible for enforcing the laws and
regulations of the State land program.
(c) Applicability to Federal exemptions. To be certified a state
need not provide protections with regard to the sale or lease of
lots that would qualify for a Federal exemption. The state may
choose at its discretion to provide protections on the sale of lots
exempt under the Act. However, for certification a state's laws
should, in general, apply to the same lots as would be required to
be registered under the Act.
(d) Equivalency with Federal disclosure. In order to be
determined as substantially equivalent under paragraph (a) or (b) of
this section, a state must provide protection either through
disclosure, substantive development standards or some combination
thereof in the topics delineated in paragraph (e) of this section.
In addition, a state must satisfy requirements of paragraphs (f),
(g), (h), (i), (j) and (k) of this section.
(e) Areas of required protection. In order to be certified, a
state must require specific protections for consumers with regard to
[[Page 13600]]
paragraphs (e) (1) through (10) of this section. Protection in these
areas can be secured through disclosure, substantive development
standards or some combination thereof. Establishing protection
provisions in these areas is to be considered essential to the
granting of certification to a state. Paragraphs (e) (11) through
(15) of this section are considered to be complementary protection
provisions which would give additional strength to a state's land
program if combined with the required provisions for protection. If
the protection which is required by the items listed below is
provided through substantive standards rather than solely
disclosure, it is expected that the state will buttress those
substantive standards with requirements of performance that are
enforceable against developers. The state will designate who shall
be responsible for enforcing the commitments made by developers and
the method of enforcement to be used.
(1) Subdivision and developer information. The name of the
subdivision, the name and address of the developer or owner, the
nature of the offering and the number of lots in the subdivision
must be given to the purchaser.
(2) Method of sale or lease. Information with regard to the:
developer's method of sale, type of contract used, type and time
frame for delivery of the deed, recordation of contract and deed,
whether there is a security arrangement and its description, any
escrow arrangement for monies received, title insurance,
prepayments, defaults, developer's resale and lot exchange program,
time sharing and membership sales must be given to the purchaser.
(3) Condition of title. Information about all liens,
encumbrances or mortgages affecting purchasers in the subdivision,
the lots covered and the impact on purchasers and lessees in a
subdivision should a developer default, and mortgage release
provisions must be given to the purchaser.
(4) Condition and use of property. Information regarding land
reservations, unusual or restrictive easements, mineral
reservations, land use restrictions, special zoning permits,
environmental impact studies which may have been conducted and their
results, topographical characteristics, including any subsurface
conditions and potentially hazardous natural conditions must be
given to purchasers.
(5) Financial and legal information. Information about the net
income and worth of the developer, condition of financial operations
at present and in the preceding fiscal year, bankruptcy litigation
or other litigation to which the developer is a party or action
taken against the developer by a governmental agency which may have
a material adverse impact upon its financial condition or its
ability to transfer title to a purchaser or to complete promised
facilities must be given to purchasers.
(6) Roads. Information about access and subdivision roads, type
of surface (present and final), completion dates, percentage of
completion, buyer's cost and assessment, who is responsible for
completion and maintenance and financial assurance of completion
must be given to purchasers.
(7) Water. Information as to how water is to be supplied,
supplier, completion dates, percentage of completion, any financial
assurance of completion, buyer's cost and assessment including hook-
up and water hauling costs, who is responsible for completion,
quality and quantity, source, capacity of the water system, any
intention to transfer the water system and the cost to lot owners or
property owners association and any permits or approvals required
must be given to purchasers.
(8) Sewerage facilities. Information as to the method used,
supplier, completion dates, percentage of completion, any financial
assurance of completion, buyer's cost and assessment including hook-
up and sewage pumping and hauling, capacity of central system, who
is responsible for completion, approvals and permits required,
transfer of system to lot owners or property owners association must
be given to purchasers.
(9) Utilities (gas, electric, phone). Information as to the
availability, supplier, purchaser's or lessee's cost, completion
date, percentage of completion must be given to purchasers.
(10) Recreational facilities. A list of the facilities and
information about estimated date available for use, percentage of
completion, any financial assurance or completion, buyer's or
lessee's cost and assessment, who is responsible for completion,
maintenance, disclosures on facilities which will be leased and/or
transferred to the lot owners or property owners' association and
who may use the facilities must be given to purchasers.
(11) Lots being sold or leased. Information about the legal
descriptions of the offering by lot, block and unit number may be
given to purchasers.
(12) Location, size surrounding communities. Information which
describes the county seat, surrounding communities of significant
size and services offered, population of the area, road systems and
the potential size of the subdivision may be given to purchasers.
(13) Taxes and assessments. Information about payments to
property owners' associations, the property owners' association's
functions and responsibilities, management of the association,
extent of developer control and the purpose of any special
improvement district may be given to purchasers.
(14) Community facilities. Information about the availability of
schools, medical and dental services, postal services, fire and
police protection, shopping facilities and public transportation may
be given to purchasers.
(15) Platting. Information which reports whether the
subdivision's plats have been approved by regulatory authorities,
whether the plats have been recorded and whether the survey and
staking of each lot has been done and the cost that may be passed on
to purchasers may be given to purchasers.
(f) The disclosure law of the State must be consistent with, but
not necessarily identical to, the requirements of 15 U.S.C.
1703(a)(2)(D). This provision makes it unlawful for a developer to
represent in any manner that it will provide or complete roads,
sewers, water, gas or electric service or recreational amenities
without stipulating in the contract of sale or lease that such
services or amenities will be provided. Developers registered with
the Secretary through a certified state are subject to this
requirement. Consequently, the State may itself impose this
substantive requirement upon developers. In any event, the
disclosure documents approved by any certified state must meet the
federal standard with respect to subdivision improvements.
Developers are not allowed to represent that they will provide or
complete roads, water, sewer, gas or electric facilities or
recreational facilities unless the contract or agreement for sale
obligates the developer to complete the facilities.
(g) In order to be determined substantially equivalent to the
federal disclosure requirement, the state law and regulations must
require that prospective purchasers and lessees receive, prior to or
at the time of the signing any contract or agreement for purchase or
lease, the applicable disclosure document containing complete and
accurate information on the subdivision and the developer. In
addition, state law or regulation must require developers to file
amendments if any change occurs in any representation of material
fact required to be stated in the disclosure materials filed with
the state. The state law or regulation regarding amendments should
entail requirements equivalent to those stated in 24 CFR 1710.23.
(h) For a state to be certified, it must be demonstrated that
the state has or will have adequate full-time professional and
clerical staff in its regulatory agency or agencies responsible for
regulating the sale or lease of lots within its jurisdiction; that
there is a budget approved for that staff which will permit them to
fulfill the administrative and enforcement responsibilities; and
that the staff have adequate legal authority to take official action
in cases falling within the purview of state law and regulation.
(i)(1) If a certified state modifies or amends any law,
regulation or administrative procedure with regard to subdivision
development standards, it shall so notify HUD by registered or
certified mail within 30 days after the modification or amendment
has been enacted or promulgated. The state must submit to HUD new
copies of its laws, regulations, rulings, administrative provisions
and legal opinions, as amended, mandating the disclosure of
information or establishment of development standards regarding land
sales.
(2) Should any changes occur as set forth above and result in a
measurable alteration of the protection provided to consumers by the
state, the Secretary may, upon examination of those changes, re-
evaluate the certification status of the state's land program.
(j) Once a state is certified and the state's disclosure
document has become the Federal Property Report, the Secretary may
require, as a condition of certification, a cover page, similar to
the one presently used for federal filings, to be attached to the
certified state filings. The form and substance of the federal cover
page is explained in 24 CFR 1710.105. If a certified state filing
does not have a cover page, the Secretary may require that, as a
condition of certification, the state include
[[Page 13601]]
information regarding the federal revocation period within the body
of the state disclosure document.
(k) The Secretary shall require all certified states to submit
to the Secretary a copy of any notice of suspension which the state
has issued to a developer at the time the notice is sent to the
developer.
Application for Certification of State Land Sales Program
(a) In order to be certified, a state must submit an application
to the Office of Interstate Land Sales Registration, Department of
Housing and Urban Development, 451 7th Street, SW., Washington, DC
20410. The application should be titled ``Application for
Certification of State Land Sales Program.'' The application should
use the section format and contain the information set out below:
Application for Certification of State Land Sales Program Submitted by:
(Name, Address and Telephone Number of State Agency and Person To
Contact.)
Section 1. Legal Authorities. This section should contain copies
of all laws and regulations (including rulings and legal opinions
having the effect of law) establishing and interpreting disclosure
requirements or substantive development standards with regard to
land sales and leases including all administrative provisions and
all provisions establishing exemptions from the rule. Only those
legal authorities which deal with land sales and leases subject to
the federal disclosure requirements need be submitted.
Section 2. Sample Copies of Material to be Submitted by
Developers to the State. This section should contain sample copies
of all materials required to be filed with the agency responsible
for regulating the sale of lots in subdivisions and sample copies of
all material required to be provided to purchasers and lessees and
prospective purchasers and lessees.
Section 3. Methods of Administration and Enforcement. This
section should contain a detailed statement on the methods and scope
of the state's administration and enforcement procedures to include:
(a) The name and address of the agency responsible for
regulating the sale or lease of lots in subdivisions.
(b) The staffing capacity of the responsible State Regulatory
Agency. There should be included:
(1) An organizational chart which describes not only the
internal structure of the regulatory agency (agencies) but also the
relationship of that agency to other decision-making centers;
(2) a description of the functions and duties of the full-time
staff;
(3) the eligibility criteria, i.e., training, education and
experience, for principal members of the staff; and
(4) the formula used in calculating the necessary number of
staff members to fulfill administrative, investigative and
enforcement responsibilities. The state should submit for the
Secretary's review the actual number of complaints received,
enforcement actions taken, and investigations initiated for the past
three years.
(C) A description of the anticipated additional staff, if any,
and their duties and qualifications.
(D) The method and scope of investigation and enforcement to be
used. The state should demonstrate the procedures to be followed
from the time a complaint is received until the completion of action
on that complaint and the kinds of sanctions which may be involved.
(E) Included should be an accounting of the number of new
filings received per year for the past three years, the number of
amendments received per year, and the total number of active
filings.
Section 4. Assertion of Equivalency. This section should contain
a detailed statement supporting the state's claim that its land
program provides purchasers and lessees through disclosure,
substantive development standards or combination thereof, protection
substantially equivalent to the protection provided for them by
Federal law.
(b) Upon receiving an application for certification, the
Secretary will publish a Notice of Application in the Federal
Register. The purpose of this public notice is to give other
certified states and other interested parties an opportunity to
review and comment on applications and to enhance consistency among
states which are certified. Person(s) interested in receiving
application materials for review and comment purposes may request
them from the Secretary. Comments should be submitted no later than
30 days after the Notice of Application has been published.
Supplemental Information to Part 1710: Guidelines for Exemptions
Available Under the Interstate Land Sales Full Disclosure Act
Table of Contents
Part I Introduction
Part II Definitions
(a) Anti-Fraud Provisions
(b) Common Promotional Plan
(c) Delivery of Deed
(d) Lot
(e) Sale
(f) Site
(g) Subdivision
Part III Exclusions from the Act
(a) Reservation
(b) Undivided Interest
Part IV Statutory Exemptions from the Title Requiring No
Determination by HUD
(a) Twenty-Five Lots
(b) Improved Lots
(c) Evidences of Indebtedness
(d) Securities
(e) Government Sales
(f) Cemetery Lots
(g) Sales to Builders
(h) Industrial or Commercial Developments
Part V Statutory Exemptions From Registration Requiring No HUD
Determination
(a) One Hundred Lot Exemption
(b) Twelve Lot Exemption
(c) Scattered Site Exemption
(d) Twenty Acre Lots Exemption
(e) Single-Family Residence Exemption
(f) Mobile Home Exemption
(g) Intrastate Exemption
(h) Metropolitan Statistical Area (MSA) Exemption
Part VI Regulatory Exemptions From Registration Requiring No HUD
Determination
(a) General
(b) Eligibility Requirements
(1) Inexpensive Lots
(2) Five Year Lease
(3) Lot Sales to Developers
(4) Adjoining Lot
(5) Lot Sales to a Government
(6) Sales of Leased Lots
Part VII Regulatory Exemption. HUD Determination Required
Part VIII Advisory Opinion
(a) General
(b) Requirements
Part IX No Action Letter
Part I--Introduction
The Interstate Land Sales Registration Division (also known as
OILSR) is offering these Guidelines to clarify agency policies and
positions with regard to the exemption provisions of the Interstate
Land Sales Full Disclosure Act (the Act), Pub. L. 90-448 (15 U.S.C.
1701 through 1720), and its implementing regulations, 24 CFR parts
1710 through 1730. The regulations comply with the Paperwork
Reduction Act of 1980, as evidenced by Office of Management and
Budget approval number 2502-0243. These Guidelines are intended to
assist a developer in determining whether or not a real estate
offering is exempt from any or all of the requirements of the Act.
They supersede any Guidelines previously issued by this Office.
This is an interpretive rule, not a substantive regulation. Not
every conceivable factor of the exemption process is covered in
these Guidelines and variations may occur in unique situations.
Examples are given, but the examples do not in any way exhaust the
myriad possibilities occurring in land development and land sales
activity, nor do they set absolute standards.
To understand the exemptions, the jurisdictional scope of the
Act must be understood. Any use of the mails, including intrastate
use, or advertising in media which have interstate circulation is
sufficient to establish jurisdiction. Generally, if a real estate
offering falls under the jurisdiction established by the Act, a
developer of a subdivision containing 100 or more lots must register
the subdivision. Registration includes filing a Statement of Record
and supporting documentation with HUD and providing to prospective
purchasers an effective Property Report containing important facts
about the subdivision and the developer.
Effective June 21, 1980, the provisions of the Act that prohibit
misrepresentations or practices that would result in defrauding
purchasers generally apply to sales or lease programs of 25 or more
lots offered pursuant to a common promotional plan where any means
or instruments of transportation or communication in interstate
commerce, or the mails, are used.
Real estate offerings that meet the eligibility requirements or
an exemption are exempt from all or some of the Act's requirements
unless the method of operation
[[Page 13602]]
has been adopted for the purpose of evading the requirements of the
law. The exemptions are available for subdivisions with particular
characteristics, for certain individual lot sales transactions or
for real estate meeting specific criteria. In addition, the Act
gives the Secretary authority to exempt subdivisions or lots in a
subdivision if, because of the small amount involved or the limited
character of the offering, enforcement of the Act (i.e., full
registration and disclosure) is not necessary in the public interest
and for the protection of purchasers.
If the offering is subject to the Act and does not qualify for
an exemption, it must be registered. The requirement of registration
does not imply that the real estate value is questioned or the
integrity of a business is suspect. The law simply provides that
prospective purchasers have the right to adequate disclosure of
facts about a subdivision so that an informed decision about the
potential purchase can be made.
As exceptions to the registration and full disclosure
requirements of the Act, the exemption provisions are strictly
construed. The exemption requirements do not prescribe a method of
operation or dictate how a subdivision should be developed.
A developer is not required to submit any documentation or
obtain a determination from HUD to operate under any exemption
except the one provided under 24 CFR 1710.16 (part VI of these
Guidelines). However, if there is any question whatsoever concerning
whether or not a real estate offering qualifies for any of the
exemptions, developers are encouraged to seek legal counsel or
obtain an Advisory Opinion from the Department before making any
sales or leases. Experience has shown that developers are sometimes
misinformed as to the applicability of the Act to their offering and
that such misunderstanding can result in violative sales and the
disruption of business. The instructions and format for obtaining an
Advisory Opinion are contained in Sec. 1710.17 of the regulations
and in part VIII of these Guidelines.
Part II--Definitions
The following definitions are included here because of the
importance each has to the explanation and understanding of HUD's
interpretations of the exemption requirements. Furthermore, with the
exception of ``lot'', ``sale'', ``common promotional plan'', and
``subdivision'', these definitions are not set forth elsewhere. The
definitions of ``lot'' and ``sale'' are repeated here because of
their extraordinary importance to the exemptions.
(a) Anti-Fraud Provisions means the provisions of the Act that
prohibit the use of any sales practices, advertising or promotional
materials that: would be misleading to purchasers; contain any
misrepresentation of material facts or untrue statements; or would
operate as a fraud or deceit upon a purchaser. Also prohibited are
representations that roads, sewer, water, gas or electric services
or recreational amenities will be provided or completed by the
developer without so stipulating in the contract. The relevant
provisions are set forth in 15 U.S.C. 1703(a)(2). The regulations
that implement the anti-fraud provisions are set forth in 24 CFR
part 1715, subpart B.
(b) Common Promotional Plan means any plan undertaken by a
single developer or a group of developers acting together to offer
lots for sale or lease. A common promotional plan is presumed to
exist if land is offered by a developer or a group of developers
acting in concert and the land is contiguous or is known,
designated, or advertised as a common development or by a common
name. The number of lots covered by each individual offering has no
bearing on whether or not there is a common promotional plan.
Other characteristics that are evaluated in determining whether
or not a common promotional plan exists include, but are not limited
to: a 10% or greater common ownership; same or similar name or
identity; common sales agents; common sales facilities; common
advertising; and common inventory. The presence of one or more of
the characteristics does not necessarily denote a common promotional
plan. Conversely, the absence of a characteristic does not
demonstrate that there is no common promotional plan.
Two essential elements of a common promotional plan are a thread
of common ownership or developers acting in concert. However, common
ownership alone would not constitute a common promotional plan. HUD
considers the involvement of all principals holding a 10 percent or
greater interest in the subdivision to determine whether there is a
thread of common ownership. If there is common ownership or if the
developers are acting in concert, and there is common advertising,
sales agents or sales office, a common promotional plan is presumed
to exist. Experience has led to the conclusion that sales agents
generally will direct a prospective purchaser to any or all
properties in inventory to make a sale.
The phrase ``common promotional plan'' is most often
misunderstood by those who believe that ``promotion'' implies an
enthusiastic sales campaign. Any method used to attract potential
purchasers is, in fact, the ``promotional plan''. For example,
direct mail campaigns and free dinners may be the promotional plan
of one developer while another developer's promotion may be limited
to classified advertisements in a local newspaper.
Brokers selling lots as an agent for any person who is required
to register are required to comply with the requirements of the Act
for those sales. Brokers selling lots for different individuals who
do not own enough lots to come within the jurisdiction established
by the Act generally would not be considered to be offering lots
pursuant to a common promotional plan as long as they are merely
receiving the usual real estate commission for such sales. If the
broker has an ownership interest in the lots or is receiving a
greater than normal real estate commission, the broker may be
offering lots pursuant to common promotional plan and may be
required to comply with the requirements of the Act.
(c) Delivery of Deed means the physical transfer of a recordable
deed, executed by the seller to the purchaser, to the purchaser's
agent or to the appropriate governmental recording office. If the
transfer (i.e., delivery) is to an agent or to a recording office,
there must not be any conditions imposed upon the purchaser or any
further action to be taken by either the purchaser or the seller. If
delivery is to the place of recordation, it must be accompanied by
the proper recordation fees.
(d) Lot means any portion, piece, division, unit or undivided
interest in land if such interest includes the right to the
exclusive use of a specific portion of the land or unit. This
applies to the sale of a condominium or cooperative unit or a
campsite as well as a traditional lot.
If the purchaser of an undivided interest or a membership has
exclusive repeated use or possession of a specific designated lot
even for a portion of the year, a lot, as defined by the
regulations, exists. For purposes of definition, if the purchaser
has been assigned a specific lot on a recurring basis for a defined
period of time and could eject another person during the time he has
the right to use that lot, then the purchaser has an exclusive use.
(e) Sale means any obligation or agreement for consideration to
purchase or lease a lot directly or indirectly. The time of sale is
measured from when a purchaser signs a contract, even if the
contract contains contingencies beyond the control of the seller.
For example, if a developer uses a contract which states that the
sale is contingent upon obtaining an exemption from HUD, a sale, for
the purposes of this definition, occurred when the purchaser signed
the contract. The terms ``sale'' and ``seller'' include the terms
``lease'' and ``lessor'' for the purposes of the regulations and
these Guidelines.
(f) Site means a group of contiguous lots whether such lots are
actually divided or proposed to be divided. Lots are considered to
be contiguous even though contiguity may be interrupted by a road,
park, small body of water, recreational facility or any similar
object.
(g) Subdivision means any land that is located in any state or
in a foreign country and is divided or is proposed to be divided
into lots, whether contiguous or not, for the purpose of sale or
lease as part of a common promotional plan. Any number of lots,
whether divided by the previous owner, divided by the current owner,
or merely proposed to be divided may constitute a subdivision.
``Proposed to be divided'' includes the developer's intention to
subdivide land, as well as the developer's intention to add
additional land or units.
Part III--Exclusions From the Act
The following items are excluded from the coverage of the Act:
(a) Reservation. A reservation is a non-binding agreement used
to gauge market feasibility for a developer through which a
potential purchaser expresses an interest to buy or lease a lot or
unit at some time in the future. A deposit may be accepted from the
interested person provided that the money is placed in escrow with
an independent institution having trust powers and is refundable in
full at any time at the option
[[Page 13603]]
of the potential purchaser. To be excluded from the Act, in no case
may a reservation become a binding obligation to purchase a lot; the
potential purchaser must take some subsequent affirmative action,
typically the signing of a sales contract, to create a binding
obligation. An option agreement is an arrangement for consideration
in which a potential purchaser could forfeit money; therefore, an
option agreement is not a reservation. In no event may a document
purporting to be a Property Report or other evidence of compliance
with the Act be delivered to an interested party when entering a
reservation agreement for a lot or proposed condominium unit which
is neither effectively registered nor exempt.
(b) Undivided interests. The sale of undivided interests that do
not carry with them the right of exclusive use of a specific lot
does not establish jurisdiction. For example, a camping subdivision
sold as 400 undivided interests to tenants in common, where
purchasers have a co-extensive, non-exclusive right to the use and
enjoyment of all campsites on a space available basis and no
purchaser has an expressed or implied exclusive right to repeatedly
use or occupy any specific campsite, would not be covered by the
Act.
Part IV--Statutory Exemptions Requiring No Determination by HUD
The discussions that immediately follow pertain to 15 U.S.C.
1702(a) (1) through (8). The exemptions are set forth in the
regulations at 24 CFR 1710.5 (a) through (h). These provisions
exempt sales from both the anti-fraud and the registration
provisions of the Act.
(a) Twenty-five Lots. (15 U.S.C. 1702(a)(10) and 24 CFR
1710.5(a)).
This section exempts the sale or lease of lots in a subdivision
(i.e., lots offered pursuant to the same common promotional plan)
that contains fewer than 25 lots. If a subdivision contains 25 or
more lots, but fewer than 25 of those lots are offered for sale
under a common promotional plan, those sales would be exempt. Thus,
in a subdivision of 28 lots in which 4 lots are not offered for sale
because, for example, they are permanently dedicated to the public
for a park, the sale of the remaining 24 lots is exempt.
If fewer than 25 lots are acquired in a larger subdivision, the
offer of these lots may be subject to the Act if the acquiring party
is in any way acting in concert with the previous or current
developer of the balance of the subdivision. Correspondingly, if
fewer than 25 lots are acquired in a larger subdivision, the offer
of the lots may be exempt if there is neither an identity of
interest between the acquiring party and the previous or current
developer nor any form of concerted action that constitutes a common
promotional plan.
Since the fewer than 25 lots exemption is based upon the number
of lots as opposed to the number of sales, resales of a lot will not
be counted toward the fewer than 25 lots limit.
(b) Improved Lots, 15 U.S.C. 1702(a)(2).
Section 1702(a)(2) of Title 15 of the United States Code exempts
(1) the sale or lease of any improved land on which there is a
residential, commercial, condominium, or industrial building; or (2)
the sale or lease of land under a contract obligating the seller or
lessor to erect such a building on the lot within a period of two
years.
For a building or unit to be considered complete, it must be
physically habitable and usable for the purpose for which it was
purchased. A residential structure, for example, must be ready for
occupancy and have all necessary and customary utilities extended to
it before it can be considered complete. Manufactured home lots with
pads but no structure, even if improved with utilities and roads,
will not qualify for this exemption. Recreational vehicles are not
considered buildings.
If a seller (developer) is relying on this exemption and the
residential, commercial, condominium or industrial building is not
complete, the contract must obligate the seller to complete the
building within two years. If the contractual obligation is not
present, the sale is not exempt. The two-year period normally begins
on the date the purchaser signs the sales contract. A contract that
conditions construction upon acts of a buyer will not exempt the
sale. The essence of this exemption is that it applies to the sale
of a house (if not built at the time of sale, then to be built
within two years after the sale).
HUD's interpretation of what constitutes an obligation to
construct a building relies on general principles of contract law.
Provisions for purchaser financing and remedies clauses are matters
to be decided by the parties to the contract under the laws of the
jurisdiction in which the construction project is located. However,
such clauses may not alter the obligation of the seller to build.
For example, if the type and terms of financing are subject to
negotiation between buyer and seller, but the buyer is unable to
obtain financing as a condition of the obligation to build, then the
sale fails for exemption purposes. The inability of the buyer to
obtain construction financing will not relieve the seller from the
obligation to build, thereby leaving the buyer with a lot free of a
construction obligation. Since the nature of the transaction is the
sale of a house (or other structure), there should be no reason for
separate construction financing in the normal course of business.
The contract must not allow nonperformance by the seller at the
seller's discretion. Contracts that permit the seller to breach
virtually at will are viewed as unenforceable because the
construction obligation is not an obligation in reality. Thus, for
example, a clause that provides for a refund of the buyer's deposit
if the seller is unable to close for reasons normally within the
seller's control is not acceptable for use under this exemption.
Similarly, contracts that directly or indirectly waive the buyer's
right to specific performance are treated as lacking a realistic
obligation to construct. HUD's position is not that a right to
specific performance of construction must be expressed in the
contract, but that any such right that purchasers have must not be
negated. For example, a contract that provides for a refund or a
damage action as the buyer's sole remedy would not be acceptable.
Contract provisions which allow for nonperformance or for delays
of construction completion beyond the two-year period are acceptable
if such provisions are legally recognized as defenses to contract
actions in the jurisdiction where the building is being erected. For
example, provisions to allow time extensions for events or
occurrences such as acts of God, casualty losses or material
shortages are generally permissible. Also permissible, in the case
of multi-unit construction, is a clause conditioning the completion
of construction or closing of title on a certain percentage of sales
of other units. The presale period cannot exceed 180 days from the
date the first purchaser signs a contract in the project or, in a
phased project, from the date the first purchaser signs a sales
contract in a phase. Such a clause may not extend the overall two-
year obligation to construct.
Although the factual circumstances upon which nonperformance or
a delay in performance is based may vary from transaction to
transaction, as a general rule delay or nonperformance must be based
on grounds cognizable in contract law such as impossibility or
frustration and on events which are beyond the seller's reasonable
control.
Because of the variations in applicable contract law among the
states and the many different provisions that are used by sellers in
construction contracts, HUD may condition its advisory opinions
regarding this exemption on representations by local counsel as to
the current status of state law on the relevant issues. For example,
the Florida Supreme Court has ruled that there must be an
unconditional commitment to complete construction within two years
and that the remedies available to the purchaser must not be
limited. Samara Development Corp. v. Marlow, 556 So.2d 1097 (Fla.
1990). See also Schatz v. Jockey Club Phase III, Ltd., 604 F. Supp.
537 (S.D. Fla. 1985). Developers, especially those in Florida,
should be aware of these decisions, as well as decisions in other
jurisdictions, e.g., Markowitz v. Northeast Land Co., 906 F.2d 100
(3d Cir. 1990).
For a different view, readers should refer to Attebury v.
Maumelle Company, 60 F.3d 415 (8th Cir. 1995), in which the court
upheld a contractual provision to build as sufficient to qualify for
the exemption despite the fact that the contract then shifted that
responsibility to the buyer. This revision of the Guidelines dealing
with the ``Improved lot'' exemption is in reaction to the Maumelle
decision. At the time of this writing another case of interest was
pending in the United States District Court for the Eastern District
of Michigan. Whether it ultimately will result in a decision on the
Land Sales issues is unknown, as it is the understanding of the
Department that settlement negotiations are ongoing. The court is
considering those issues on remand from the Court of Appeals for the
Sixth Circuit. See Becherer v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 43 F.3d 1054 (6th Cir. 1995).
Since questions about this exemption most often arise in
connection with condominiums, developers and others should be aware
of the decision in the case
[[Page 13604]]
of Winter v. Hollingsworth Properties Inc., 777 F.2d 1444 (11th Cir.
1985), in which the court held that the Interstate Land Sales Full
Disclosure Act applied to the sale or lease of condominium units.
This ruling is in consonance with the Department's longstanding
position on the condominium issue. The weight of authority of other
cases, both Federal and State, supports the Department's position.
Therefore, it continues to be the Department's policy that the mere
use of the condominium form of ownership does not determine
jurisdiction of the Act and that developers should look to the
specific requirements of the statutory and regulatory exemptions as
amplified in these Guidelines to determine the applicability of the
Act.
(c) Evidence of Indebtedness. (15 U.S.C. 1702(a)(3) and 24 CFR
1710.5(c)).
This section exempts the sale or lease of evidences of
indebtedness (typically a note) secured by a mortgage or deed of
trust on real estate. The sale of such notes, which is common in the
industry, is exempt; however, the underlying sale of the land is not
exempt under this provision.
(d) Securities. (15 U.S.C. 1702(a)(4) and 24 CFR 1710.5(d)).
This section exempts the sale of securities issued by a real
estate investment trust.
(e) Government Sales. (15 U.S.C. 1702(a)(5) and 24 CFR
1710.5(e)).
This section exempts the sale or lease of real estate by any
government or government agency. This exemption extends to the sale
or lease of land by a city, state, or foreign government as well as
the sale of land by the U.S. Government. However, it does not exempt
sales or leases of lots by Federal or state chartered and regulated
institutions such as banks or savings and loan associations, nor
does the fact that the development is assisted, insured or
guaranteed under a Federal or state program exempt the lot sales.
Municipal Utility Districts and Special Improvement Districts may or
may not be considered a qualified government agency under this
exemption depending on the legal basis and operation of the
District.
(f) Cemetery Lots. (15 U.S.C. 1702(a)(6) and 24 CFR 1710.5(f)).
This section exempts the sale or lease of cemetery lots.
(g) Sales to Builders. (15 U.S.C. 1702(a)(7) and 24 CFR
1710.5(g)).
This section exempts the sale or lease of lots to any person who
acquires the lots for the purpose of engaging in the business of
constructing residential, commercial, or industrial buildings or for
the purpose of resale or lease of the lots to persons engaged in
such a business. The term business is viewed as an activity of some
continuity, regularity, and permanency, or means of livelihood.
The sale or lease of lots to an individual who purchases the
lots to have his or her own home built is not exempt under this
provision. The sale to a non-broker who is buying a lot for
investment with indefinite plans for resale also is not exempt.
(h) Industrial or Commercial Developments. (15 U.S.C. 1702(a)(8)
and 24 CFR 1710.10(h)).
This section exempts the sale or lease of real estate which is
zoned for industrial or commercial development. If there is no
zoning ordinance, the exemption is available only if the real estate
is restricted to industrial or commercial development by a
declaration of covenants, conditions, and restrictions which have
been recorded in the official records of the city or county in which
the real estate is located. In addition, the following five
conditions must exist in order to establish eligibility for this
exemption:
(1) Local authorities have approved access from the real estate
to a public street or highway. The approved access to a public
street or highway must run to the legal boundary of the subdivision,
but need not run to each and every lot;
(2) The purchaser or lessee of the real estate is a duly
organized corporation, partnership, trust or business entity engaged
in commercial or industrial business. To be considered ``duly
organized'', a purchaser or lessee must have set up an
administrative structure to conduct business, such as: checking
accounts; licenses and permits, if required; evidence of intent; and
a set of accounting records. The phrase ``engaged in business''
implies an activity of some continuity, regularity and permanency,
or means of livelihood. A new entity or individual starting a
business must be authorized to conduct such business in the
jurisdiction in which the subdivision is located;
(3) The purchaser or lessee of the real estate is represented in
the transaction of sale or lease by a representative of its own
selection. The term ``representative'' is not limited to attorneys
and does not exclude sole proprietors from representing themselves.
Any person can serve as the representative of the purchaser or
lessee so long as sufficient evidence can be produced to prove
authority to act in that capacity;
(4) The purchaser or lessee of the real estate affirms in
writing to the seller that: it is either purchasing or leasing the
real estate substantially for its own use or it has a binding
commitment to sell, lease or sublease the real estate to an entity
which meets the requirements of (2) above; it is engaged in
commercial or industrial businesses; and it is not affiliated with
the seller or agent. These affirmations should be retained by the
developer in accordance with the statute of limitations of the local
jurisdiction or for a period of three years, whichever is longer. If
the affirmation is included in the contract, a space must be
provided for the purchaser to initial immediately following the
affirmation clause; and
(5) A title insurance policy or a title opinion is issued in
connection with the transaction showing that title to the real
estate purchased or leased is vested in the seller or lessor,
subject only to such exceptions as are approved in writing by the
purchaser or lessee, preferably in a separate document, prior to the
recordation of the instrument of conveyance or execution of the
lease. The recordation of a lease is not required. Any purchaser or
lessee may waive, in writing in a separate document, the requirement
that a title insurance policy or title opinion be issued in
connection with the transaction.
Part V--Statutory Exemptions From Registration Requiring No HUD
Determination
The discussions that immediately follow pertain to 15 U.S.C.
1701(b) (1) through (8) and 24 CFR 1710.6 through 1710.13.
The developer must comply with the Act's anti-fraud provisions
(15 U.S.C. 1703(a)(2)) for sales of lots in the subdivision that are
exempt under these provisions. Developers should be particular aware
of the requirements of 15 U.S.C. 1703(a)(2)(D).
(a) One Hundred Lot Exemption. (15 U.S.C. 1702(b)(1) and 24 CFR
1710.6).
This section exempts the sale of lots in a subdivision if: the
subdivision contained fewer than 100 lots on April 28, 1969; has,
since that date, contained fewer than 100 lots; and will continue to
contain fewer than 100 lots. The 100 lot count for purposes of the
exemption excludes lots that are exempt from jurisdiction under 24
CFR 1710.5 (b) through (h). It should be noted that the ``25 lot''
exemption under Sec. 1710.5(a) cannot be used in connection with the
``100 lot'' exemption.
For example, a developer of a subdivision containing a total of
129 lots since April 28, 1969, qualifies for this exemption if at
least 30 lots are sold in transactions that are exempt because the
lots had completed homes erected on them. The 30 exempt transactions
may fall within any one exemption or a combination of exemptions
noted in Sec. 1710.5 (b) through (h) and may be either past or
future sales. In the above example, the developer also could qualify
if twelve lots had been sold with residential structures already
erected on them, nine lots had been sold to building contractors and
at least nine lots were reserved for either the construction of
homes by the developer or for sales to building contractors. The
reserved lots need not be specifically identified.
Developers of subdivisions containing more than 99 lots who wish
to operate under this exemption must assure themselves that all lots
in excess of 99 have been and will be sold in transactions exempt
under 24 CFR 1710.5 (b) through (h). The sale of more than 99 lots
in transactions not exempt under Sec. 1710.5 (b) through (h) would
nullify this exemption for prior and future sales and might result
in prior sales being voidable at the purchaser's option.
Since the ``100 lot'' exemption applies to the number of the
lots as opposed to the number of sales, resales of a lot will not be
counted toward the 100 lot limit. However, any sale or resale of a
lot must comply with the anti-fraud provisions.
If fewer than 100 lots are acquired in a larger subdivision, the
offer of these lots will not be exempt if the acquiring party is, in
any way, acting in concert with the previous or current developer of
the balance of the subdivision so as to create a common promotional
plan for 100 or more lots unless sales of the other lots are exempt
under Sec. 1710.5. However, if fewer than 100 lots are acquired in a
larger subdivision, the offer of the lots may be exempt if there is
neither an identity of interest between the acquiring party and the
previous or current developer nor a form of concerted action
constituting a common promotional plan.
[[Page 13605]]
(b) Twelve Lot Exemption. (15 U.S.C. 1702(b)(2) and 24 CFR
1710.7).
This section exempts the sale of lots from the registration
requirements of the Act if, beginning with the first sale after June
20, 1980, no more than twelve lots in the subdivision are sold in
the subsequent 12-month period. Thereafter, the sale of the first
twelve lots each period is exempt from the registration requirements
if no more than twelve lots were sold in each previous 12-month
period that began with the anniversary date of the first sale after
June 20, 1980. For example, if a developer's first lot sale after
June 20, 1980 occurred on August 5, 1980 and no more than eleven
additional lots in the subdivision were sold through August 4, 1981,
the sales would be exempt.
During the second year of operation under this exemption
(beginning on August 5, 1981 in the example) at least the first
twelve lot sales would be exempt. However, if lot sales exceed
twelve in the second or any subsequent year, the exemption would
terminate on the sale of the thirteenth lot. Once eligibility has
been terminated, the exemption is no longer available and cannot be
recaptured by the same developer for the same subdivision even if
there are fewer than twelve lots sold in subsequent years.
A developer may apply to the Secretary to establish a different
twelve-month period for use in determining eligibility for the
exemption, and the Secretary may allow the change if it is for good
cause and consistent with the purpose of this section. An example
would be to change the year to coincide with the developer's fiscal
or tax year.
In determining eligibility for this exemption, all lots sold or
leased in the subdivision after June 20, 1980 are counted, whether
or not the lot is registered or the transaction is otherwise exempt,
such as the sale of a home and lot package. This exemption extends
to twelve lots, not twelve sales. Each lot would be counted in the
sale or lease of multiple lots.
Since the ``twelve lot'' exemption applies to the number of lots
as opposed to the number of sales, resales of a lot will not be
counted toward the twelve lot limit. The sale and resale of a lot
must qualify for the exemption and comply with the anti-fraud
provisions. However, lot sales exempt under Sec. 1710.5 (b) through
(h), while counted toward the total of twelve, are not required to
comply with the anti-fraud provisions.
(c) Scattered Site Exemption. (15 U.S.C. 1702(b)(3) and 24 CFR
1710.8).
This section exempts from the Act's registration requirements
the sale of lots in a subdivision consisting of noncontiguous parts
if: (1) each noncontiguous part of the subdivision contains twenty
or fewer lots; and (2) each purchaser or purchaser's spouse makes a
personal, on-the-lot inspection of the lot purchased before signing
a contract.
This exemption is intended to relieve the developers of small,
scattered offerings of the requirement to register their
subdivisions. The exemption may also apply to real estate brokers
who have an ownership interest in more than one site, each
containing 20 or fewer lots.
If a developer intends to rely on this exemption, it is
important that the developer understand the definition of
subdivision, how a common promotional plan is determined and what
constitutes a site. These terms are defined in part II of these
Guidelines.
Lots that are contiguous when they are originally platted or
developed are considered to remain contiguous. For purposes of this
exemption, interruptions such as roads, parks, small bodies of water
or recreational facilities do not serve to break the contiguity of
parts of a subdivision.
(d) Twenty Acre Lots Exemption. (15 U.S.C. 1702(b)(4) and 24 CFR
1710.9).
This section exempts the sale of lots in a subdivision from the
registration requirements of the Act if, since April 28, 1969, each
lot in the subdivision has contained at least twenty acres. In
determining eligibility for the exemption, easements for ingress and
egress or public utilities are considered part of the total acreage
of the lot if the purchaser retains ownership of the property
affected by the easement.
This exemption applies to the entire subdivision and requires
that each lot in the subdivision be twenty acres or larger in order
for the subdivision to qualify. If a single lot offered in the
subdivision is less than twenty acres in size, no lot in the
subdivision qualifies for the exemption. If a developer has two
sites which comprise the subdivision and only one of the sites
contains lots that are all greater than twenty acres in size, the
offering of these lots would not be exempt under this provision. All
lots offered pursuant to a common promotional plan must be
considered.
A subdivision which is platted of record and contains a single
lot that is less than twenty acres cannot qualify for the exemption
even if the lots are offered in multiples that aggregate twenty
acres or more. Further, if the platted lots are all twenty acres or
more in size, but a lot is divided and a portion that is less than
twenty acres is offered for sale, the exemption would not be
available to the subdivision.
(e) Single-Family Residence Exemption. (15 U.S.C. 1702(b)(5) and
24 CFR 1710.10).
(1) General. This section provides an exemption for the sale of
lots that are limited to single-family residential use. Developers
are advised to carefully review the eligibility requirements listed
below before proceeding with sales. Note especially that some of the
eligibility requirements pertain to the entire subdivision while
others apply to individual lots.
(2) Subdivision Requirements. All lots offered under the same
common promotional plan must comply with the two eligibility
requirements listed below in order for any lot to be eligible for
this exemption.
(i) The subdivision must meet all local codes and standards. If
local codes expressly permit incremental development, then only the
portions of the subdivision being offered at any given time are
required to meet the codes and standards to satisfy this
requirement. Otherwise, the entire subdivision must comply with the
local standards.
(ii) In the promotion of the subdivision, there cannot be
offers, by direct mail or telephone solicitation, of gifts, trips,
or dinners or the use of similar promotional techniques to induce
prospective purchasers to visit the subdivision or to purchase a
lot. There is no prohibition against using the mails, telephone or
other advertising media to promote or advertise the offering or to
respond to inquiries from potential purchasers. The only prohibition
is that these media cannot contain offers of gifts, trips, dinners
or other inducement.
In order to qualify for this exemption, the subdivision must
have complied with the requirements pertaining to advertising and
promotional methods since June 13, 1980, the date the exemption
became effective.
(3) Lot Requirements. Having met the edibility requirements for
a subdivision, each lot offered under the exemption also must comply
with the eight requirements listed below. Lots within a subdivision
that do not comply with these additional requirements must either be
registered or sold in compliance with another exemption, even though
the two subdivision requirements have been met.
(i) The lot must be located within a municipality or county
where a unit of local government or the State specifies minimum
standards for the development of subdivision lots taking place
within its boundaries. Each lot must comply with these standards.
The following is a list of the areas which must be regulated:
(A) Lot dimensions.
(B) Plat approval and recordation.
(C) Roads and access.
(D) Drainage.
(E) Flooding.
(F) Water supply.
(G) Sewage disposal.
(ii) Each lot sold under the exemption must be either zoned for
single-family residence or, in the absence of a zoning ordinance,
limited exclusively by enforceable covenants or restrictions to
single-family residences or, in the absence of a zoning ordinance,
limited exclusively by enforceable covenants or restrictions to
single-family residences. Manufactured homes, townhouses, and
residences for one to four family use are considered single-family
residences for purposes of this exemption. Recreational vehicles are
not considered to be residential buildings. Manufactured homes must
be affixed to the real estate to be eligible, e.g., connected to
water, sewer and electrical sources and on blocks with skirts.
The phrase ``* * * in the absence of a zoning ordinance'' is
interpreted in its literal sense. The existence of a zoning
ordinance other than single-family residence zoning is considered to
be disqualifying even if there are covenants or restrictions limited
construction to single-family residences. Situations such as the
foregoing would, however, be a candidate for a ``substantial
compliance'' exemption (24 CFR 1710.16) if all other eligibility
requirements of the exemption are satisfied substantially.
``Substantial compliance'' is discussed in part VII of these
Guidelines.
[[Page 13606]]
(iii) The lot must be situated on a paved street or highway
which has been built to standards prescribed by a unit of local
government in which the subdivision is located and be acceptable to
that local unit. If the street or highway is not complete, the
developer must post a bond or other surety acceptable to the
municipality or county in the full amount of the cost of completing
the street or highway to assure its completion to local standards.
For the purposes of this exemption, paved means concrete or pavement
with a bituminous wearing surface that is impervious to water,
protects the base and is durable under the traffic load and
maintenance contemplated.
(iv) The unit of local government or a homeowners' association
must have accepted or be obligated to accept the responsibility for
maintaining the street or highway upon which the lot is situated.
The obligation of the local government entity to accept this
responsibility may be evidenced by an ordinance which binds the
government to maintain the streets or by a written statement signed
by the appropriate government official. Maintenance independently
provided by a developer is not acceptable under this exemption.
In any case in which a homeowners' association has accepted or
is obligated to accept maintenance responsibility, the developer
must, prior to a purchaser signing a contract or agreement to
purchase, provide the purchaser with a good faith written estimate
of the cost of maintenance over the first ten years of ownership. A
good faith estimate means a current estimate based on documentary
evidence, usually obtainable from the suppliers of the necessary
services.
(v) At the time of closing, potable water, sanitary sewage
disposal, and electricity must be extended to the lot or the unit of
local government must be obligated to install the facilities within
180 days following closing.
The obligation may be in the form of a local statute or written
agreement signed by the appropriate government authority. A local
code or statute that obligates the subdivider or developer to
complete installation of water and sewage disposal systems within a
certain time does not satisfy this requirement of the exemption.
For subdivisions that will not have a central water system,
there must be assurances that an adequate potable water supply is
available year-round to service the subdivision. Assurances of an
adequate, drinkable water supply can be obtained from a hydrologist
or the local health department.
For subdivisions that will not have a central sewage disposal
system, there also must be assurances that each lot is approved for
the installation of a septic tank. If the individual lot is not
approved for the installation of a septic tank at time of sale, the
developer may provide in the contract that approval will be obtained
prior to closing provided that any purchaser deposits and/or
payments are placed in an escrow account with an institution having
trust powers in the jurisdiction where the subdivision is located.
All such monies must be refunded to the purchaser if the approval is
not obtained prior to closing. Closing must occur within 180 days.
The approval for the installation of a septic tank must come from
the appropriate government authority, usually the local health
department, local governmental engineer or county sanitarian.
Developers selling lots prior to obtaining approval for installation
of a septic tank on the individual lot are proceeding at their own
risk. The sale will not qualify for the exemption if the approval is
not obtained and the closing does not occur within 180 days.
(vi) The contract of sale must require delivery of a warranty
deed to the purchaser within 180 days after the signing of the sales
contract. The deed must be free from monetary liens and encumbrances
at the time of delivery. If a warranty deed is not commonly used in
the jurisdiction where the lot is located, a deed or grant that
warrants that the seller has not conveyed the lot to another person
may be delivered in lieu of a warranty deed. The deed or grant used
must also warrant that the lot is free from encumbrances made by the
seller or any other person claiming by, through or under the seller.
(vii) At the time of closing, a current title insurance binder,
policy or title opinion reflecting the condition of title must be
issued or presented to the purchaser showing that, subject only to
exceptions which are approved in writing by the purchaser at the
time of closing, marketable title to the lot is vested in the
seller. In order to satisfy this requirement, a developer may want
to obtain the purchaser's written approval of exceptions to title
prior to closing, although the actual title binder, policy or
opinion must be current at the time of closing and show that title
is vested in the seller. If closing occurs and the purchaser has not
approved the exceptions to title in writing, the sale would not be
exempt under this provision. The party that bears the cost of the
title binder, policy or opinion is not relevant to eligibility for
the exemption. Unless otherwise defined by state law, the time of
closing is the date that legal title to the property is transferred
from seller to buyer.
(viii) The purchaser or purchaser's spouse must make a personal,
on-the-lot inspection of the lot purchased prior to signing a
contract or agreement to purchase.
(f) Mobile home exemption. (15 U.S.C. 1702(b)(6) and 24 CFR
1710.11)
For purposes of this exemption, a mobile home is a unit
receiving a label in conformance with HUD Regulations implementing
the National Manufactured Housing Construction and Safety Standards
Act of 1974 (42 U.S.C. 5401, et seq.).
This section exempts the sale of a mobile home lot from the
registration requirements of the Act when all eligibility
requirements listed below are met:
(1) The lot is sold as a homesite by one party and a mobile home
is sold by another party, and the individual contracts of sale:
(i) Obligate the sellers to perform, contingent upon the other
seller carrying out its obligations, so that a completed mobile home
will be placed on a completed homesite within two years after the
date the purchaser signs the contract to purchase the lot (see part
IV(b) of these guidelines for HUD's position on two year completion
requirements);
(ii) Provide that all funds received by the sellers are to be
deposited in escrow accounts independent of the sellers until the
transactions are completed;
(iii) Provide that funds received by the sellers will be
released to the buyer upon demand if either of the sellers do not
perform; and
(iv) Contain no provisions that restrict the purchaser's right
to specific performance under state law.
(2) The homesite is developed in conformance with all local
codes and standards, if any, for mobile home subdivisions.
(3) At the time of closing:
(i) Potable water and sanitary sewage disposal are available to
the homesite and electricity has been extended to the lot line:
(ii) The homesite is accessible by roads;
(iii) The purchaser receives marketable title to the lot; and
(iv) Other common facilities represented in any manner by the
developer or agent to be provided are completed or, in the
alternative, there are letters of credit, cash escrows or surety
bonds in a form acceptable to the local government in an amount
equal to 100 percent of the estimated cost of completion. Corporate
bonds are not acceptable for purposes of the exemption.
(g) Intrastate Exemption. (15 U.S.C. 1702(b)(7) and 24 CFR
1710.12).
This section exempts the sale or lease of real estate in a sales
operation that is intrastate in nature. The lot must be free and
clear of all liens, encumbrances and adverse claims. The following
six eligibility requirements must be met before a lot qualifies for
this exemption:
(1) The sale of lots in the subdivision after December 20, 1979,
must have been and must continue to be restricted solely to
residents of the state in which the subdivision is located, unless
the sale is exempt under 24 CFR 1710.5, 1710.11 or 1710.13. Sales of
lots exempt under Sec. 1710.5, Sec. 1710.11 or Sec. 1710.13 may be
to out-of-state purchasers without affecting the eligibility of the
overall subdivision for the intrastate exemption. Any other sales to
out-of-state purchasers, even if the lots were registered or
otherwise exempt under any other section, would make the entire
subdivision ineligible for the intrastate exemption.
Residency is determined by state law. For purposes of this
exemption, a developer may rely on a statement signed by the
purchaser or lessee as to the state of residence. Obviously, the
prospective purchaser must be an actual resident of the state at the
time of signing the sales contract as opposed to a person visiting
the state or planning to move into the state. However, service
personnel
[[Page 13607]]
may, at their option, claim the state in which they are stationed.
(2) The purchaser or purchaser's spouse must make a personal on-
the-lot inspection of the lot to be purchased before signing a
contract. Evidence of this inspection should be retained by the
developer.
(3) Each contract must:
(i) Specify the developer's and purchaser's responsibilities for
providing and maintaining roads, water and sewer facilities and any
existing or promised amenities. If the developer is not responsible
for providing or completing a particular service or amenity, the
contract should make it clear that it is up to the buyer to make the
necessary arrangements for the desired services. If a third party is
involved, the contract must specify whether the buyer or seller is
responsible for making the required arrangements;
(ii) Contain a good faith estimate of the year in which the
roads, water and sewer facilities and promised amenities will be
completed.
This estimate is required for any facility the developer
promises or indicates will be completed. Estimates should be based
on documentary evidence, such as contracts, engineering schedules or
other evidence of commitments to complete the facilities and
amenities; and
(iii) Contain a non-waivable provision giving the purchaser the
right to revoke the contract until at least midnight of the seventh
calendar day following the date the purchaser signed the contract.
This revocation right cannot be restricted to a specific method of
notification such as requiring notification to be in writing. If the
purchaser is entitled to a longer revocation period by operation of
state law, that period automatically becomes the Federal revocation
period and the contract must reflect the longer period. If the
purchaser revokes the contract during this ``cooling-off period,''
he or she is entitled to a full refund of all money paid.
(4) The lot being sold must be free and clear of all liens,
encumbrances and adverse claims. To remain exempt, the real estate
must remain free and clear of all liens, encumbrances and adverse
claims, with the exception of those placed on the property by the
purchaser. Thus, real estate that is sold under a installment
contract prior to conveyance by deed cannot be burdened by a lien
and still qualify for the exemption. If a lien is placed on the
property, the exemption is automatically terminated at the time the
lien is perfected.
The fact that a title company will insure against a lien,
encumbrance or adverse claim has no bearing in determining whether
or not the sale qualifies for the exemption. Except as noted below,
the existence of a lien, encumbrance or adverse claim disqualifies
the affected lot or lots for this exemption. The only exceptions to
this requirement are listed below:
(i) Mortgages or deeds of trust containing release provisions
for the individual lot purchased if:
(A) The contract of sale obligates the developer to deliver a
free and clear warranty deed or its equivalent under local law
within 180 days (constructive delivery is acceptable); and
(B) The purchaser's payments are deposited in an escrow account
independent of the developer until a deed is delivered. The escrow
account must be with an institution which has trust powers or in an
established bank, title insurance, abstract or escrow company that
is doing business in the jurisdiction in which the property is
located. The purchaser's earnest money payment or any other payment
by the purchaser cannot be used to obtain a release from the
mortgage and may not be released from escrow until the deed is
delivered.
(ii) Liens that are subordinate to the leasehold interest and do
not affect the lessee's right to use or enjoy the lot.
(iii) Property reservations that are for the purpose of bringing
public services to the land being developed, such as easements for
water and sewer lines.
Other acceptable property reservations are easements for roads
and electric lines to serve the subdivision as well as certain
drainage easements. The reservation of subsurface oil, gas or
mineral rights is acceptable unless the reservation expressly or
impliedly includes the right of ingress and egress upon the
property. Examples of the types of reservations and easements that
are unacceptable and disqualify the burdened property for the
exemption include easements for high power transmission lines,
telephone long lines, pipelines and bridle trails.
(iv) Taxes or assessments which constitute liens before they are
due and payable if imposed by a state or other public body having
authority to assess and tax property or by a property owners'
association.
(v) Beneficial property restrictions that are mutually
enforceable by all lot owners in the subdivision.
Developers who wish to maintain control of a subdivision
indefinitely through a Property Owners' Association, Architectural
Control Committee, and/or restrictive covenants will find the
requirements of this exemption unsuitable.
In recognition of the fact that developer control is unavoidable
until lots are sold, for the purpose of this exemption, a developer
must provide an opportunity for the transfer of control to all lot
owners at or before the time when the developer no longer owns a
majority of total lots in, or planned for, the subdivision.
Relinquishment of developer control must require affirmative action,
usually in the form of an election based upon one vote per lot.
The developer may continue to participate in the control of the
subdivision to the extent that lots remain unsold. For example, a
developer who still owns thirty percent of the lot inventory has a
thirty percent voting block on issues regarding the subdivision.
It is acceptable for the developer to appoint, during the
initial stages of development, a governing body (panel, commission,
etc.) whose members subsequently are elected and re-elected by all
the lot owners to administer subdivision control.
To be enforceable, restrictions must be part of a general plan
of development. Restrictions, whether separately recorded or
incorporated into individual deeds, must be applied uniformly to
every applicable lot or group of lots. To be considered beneficial
and enforceable, any restriction or covenant that imposes an
assessment on lot owners must apply to the developer on the same
basis as other lot owners.
(vi) Reservations contained in United States land patents and
similar Federal grants or reservations are excepted from the term
``liens'' but must be disclosed in the Intrastate Exemption
Statement.
Many of the land patents by which land west of the Mississippi
River was originally conveyed contain reservations to the United
States for minerals and water rights-of-way for canals and ditches.
These reservations as well as any other Federal grants or
reservations must be disclosed but are not disqualifying factors.
(5) Before the sale the developer must disclose in a written
statement (see sample below) to the purchaser all liens,
reservations, taxes, assessments and restrictions applicable to the
lot purchased. The developer must obtain a written receipt from the
purchaser acknowledging that the statement required by this
subparagraph was delivered.
Neither the statement nor the written receipt have to be
submitted to HUD, but copies of the purchaser receipts should be
available for review upon demand by the Secretary or his or her
designee. It is suggested that the developer retain the purchaser
receipts for at least three years.
(6) The written statement (see sample below) also must include
good faith cost estimates for providing electric, water, sewer, gas
and telephone service to the lot. Estimates must include all costs
associated with obtaining the services. For example, if private
wells are the water source, the estimate should include the cost of
the well, pump, casing, etc. Likewise, if butane or propane gas is
used, the statement must include the cost of installing a tank and
the per gallon cost of the gas.
The estimates for services applicable to unsold lots must be
updated every two years or more frequently if the developer has
reasons to believe that at least a $100 increase or decrease for a
particular item has occurred. The dates on which the estimates were
made must be included in the statement.
Effective state property reports or disclosure statements
containing all the information required in the Intrastate Exemption
Statement may be used in lieu of a separate statement. State
property reports which do not contain all the information required
in the Intrastate Exemption Statement may be used only of they are
supplemented with the missing information.
Sample Intrastate Exemption Statement
Intrastate Exemption Statement
Name of Developer------------------------------------------------------
Address----------------------------------------------------------------
Name of Subdivision----------------------------------------------------
Location---------------------------------------------------------------
[[Page 13608]]
-----------------------------------------------------------------------
Liens
(Provide a clear and concise listing of all liens on the
property. As used in this statement, liens are security interests
such as mortgages or deeds of trust, tax liens, mechanics liens or
judgments. Liens which are acceptable for purposes of the exemption
are those which contain release provisions for the individual lot
purchased but only if the contract of sale obligates the developer
to deliver a deed within 180 days and the purchaser's payments are
held in an independent escrow account until a deed is delivered and,
in the case of leases, liens which are subordinate to the lease hold
interest and do not affect the lessee's right to enjoy or use the
lot.) A chart similar to the following may be used:
------------------------------------------------------------------------
Amount
Type of lien of lien Lots subject to lien.
------------------------------------------------------------------------
........ ..............................
........ ..............................
------------------------------------------------------------------------
Reservations
(Disclose all easements and reservations affecting the lots that
are offered for sale. The preceding narrative contains examples of
easements and reservations which are acceptable.)
Taxes
(Provide sufficient information to enable a purchaser to
estimate the annual taxes due on the lot purchased.)
Assessments
(Disclose all assessments, fees and dues that have been imposed
or may be imposed. The list of assessments, fees and dues must show
the rates and amounts and explain who has the authority for imposing
the listed assessments, fees and dues.)
Restrictions
(Recite verbatim all restrictions that apply to the lots being
offered. In the alternative, the developer may attach a complete
copy of all restrictions affecting the lots. If the restrictions do
not apply to all the lots in the offering, the developer should
specify which lots are affected by the restrictions. In addition,
the developer should explain who has the authority to enforce the
restrictions and indicate whether or not the restrictions are
recorded.)
Utility Cost Estimates
(Disclose a good faith estimate of the cost to the purchaser of
providing water, electric, telephone, sewage disposal and gas
service to each lot offered under the exemption. The estimate must
include all costs associated with obtaining the services.) A chart
similar to the following may be used.
----------------------------------------------------------------------------------------------------------------
Sewage
Lot No. Water Electric Telephone disposal Gas
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Under each heading list the estimated cost to the purchaser and
the date the estimate was made.
I affirm that to the best of my knowledge the above information
is accurate and complete.
----------------------------------------------------------------------
(Signature of Developer or Authorized Agent)
----------------------------------------------------------------------
(Date)
----------------------------------------------------------------------
(Title)
Purchaser's Acknowledgement
(The developer must obtain a written receipt from the purchaser
acknowledging that the purchaser received a written statement(s) of
all liens, reservations, taxes, assessments and restrictions
applicable to the lot and good faith estimates of the cost of
providing electric, water, sewer, gas and telephone service to the
lot.)
The receipt may be in the following form:
Sample Receipt
I acknowledge that I have received an Intrastate Exemption
Statement listing all liens, reservations, taxes, assessments,
restrictions and estimates of utility costs applicable to (identify
the subdivision and its location) from (name of developer). I have
made a personal on-the-lot inspection of (identify the lot), which
is the lot I am interested in buying or leasing.
----------------------------------------------------------------------
(Signature of Purchaser)
----------------------------------------------------------------------
(Date)
(h) Metropolitan Statistical Area (MSA) Exemption. (15 U.S.C.
1702(b)(8) and 24 CFR 1710.13).
This section exempts the sale or lease of lots in a subdivision
located in a Metropolitan Statistical Area (MSA). The eligibility
criteria for the MSA Exemption are the same as that of the
Intrastate Exemption with the following exceptions:
(1) The subdivision must have contained fewer than 300 lots on
and since April 28, 1969, and continue at or below that quantity in
the future;
(2) The lot(s) must be located in a MSA as defined and
designated by the U.S. Office of Management and Budget;
(3) The principal residence of each purchaser must be within the
same MSA;
(4) Adverse claims that are disqualifying for the Intrastate
Exemption are acceptable for the MSA Exemption. The only requirement
in this regard is for the adverse claim to be disclosed in the MSA
Exemption Statement. The party making the claim, the basis of the
claim and the property affected by the claim must be identified; and
(5) Although the MSA exemption is self-determining, a written
affirmation must be submitted by developers relying on this
exemption. The due date is January 31 of each year. Failure to
submit the affirmations will disqualify the subdivision for this
exemption. The written affirmation must be in the following format:
Affirmation
Developer's Name-------------------------------------------------------
Developer's Address----------------------------------------------------
Purchaser's Name(s)----------------------------------------------------
Purchaser's Address(es) (including county)-----------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Name of Subdivision----------------------------------------------------
Legal Description of Lot(s) Purchased----------------------------------
----------------------------------------------------------------------
I hereby affirm that all of the requirements of the MSA
exemption as set forth in 15 U.S.C. 1702(b)(8) and 24 CFR 1710.13
have been met in the sale or lease of the lot(s).
I also affirm that I submit to the jurisdiction of the
Interstate Land Sales Full Disclosure Act with regard to the sale or
lease cited above.
----------------------------------------------------------------------
(Date)
----------------------------------------------------------------------
(Signature of Developer or Authorized Agent)
(Title)
The sample Intrastate Exemption Statement shown above may be
used as a guide in preparing the MSA Exemption Statement. Simply
substitute references to the MSA Exemption in lieu of references to
the Intrastate Exemption and add a provision for disclosure of
``Adverse Claims'' after the discussion of ``Restrictions'' and
before the caption ``Utility Cost Estimates''.
Part VI--Regulatory Exemptions From Registration Requiring No HUD
Determination--(24 CFR 1710.14)
(a) General.
The Secretary has established several regulatory exemptions from
the registration and full disclosure requirements of the Act (i.e.,
filing a Statement of Record and furnishing a Property Report).
These exemptions are self-determining and do not require a
submission to HUD.
To qualify, a developer must satisfy the eligibility criteria at
all times. Exempt status ends when a developer fails to immediately
comply with the eligibility criteria. Furthermore, if there are
reasonable grounds to believe that the use of any of these
regulatory exemptions is not in the public interest in a particular
case, the Secretary may deny the use of the exemption by an
otherwise eligible subdivision, site or lot. The developers will be
given notice and an opportunity for hearing before a final
determination is made. Proceedings under this provision follow the
requirements set forth in the regulations (24 CFR 1720.105, et seq.)
and are patterned after the notice and
[[Page 13609]]
time requirements of a proceeding pursuant to 24 CFR 1710.45(b)(1).
If a sale meets any one of the following requirements, it
qualifies for exemption from the registration requirements of the
Act. However, qualifying sales must comply with the anti-fraud
provisions.
(b) Eligibility Requirements.
(1) Inexpensive Lots (24 CFR 1710.14(a)(1))
The sale or lease of a lot for less than $100, including closing
costs, is exempt if the purchaser or lessee is not required to
purchase or lease more than one lot. This exemption is available on
a lot-by-lot basis. The entire subdivision need not qualify.
(2) Leases for Limited Duration (24 CFR 1710.14(a)(2))
The lease of a lot for a term of five years or less is exempt if
the terms of the lease do not obligate the lessee to renew. This
exemption is available on a lot-by-lot basis. The entire subdivision
need not qualify.
The use of an arrangement that is called a lease but is
tantamount to the sale or long-term lease of a lot would not qualify
for this exemption; i.e., a lease with a large initial payment or
substantial payments over five years and token payments thereafter.
A five-year lease with an option to purchase or renew would be
suspect under this exemption and might or might not qualify
depending on the overall transaction. In these cases, a request for
an Advisory Opinion is strongly recommended.
(3) Lots Sold to Developers (24 CFR 1710.14(a)(3))
The sale or lease of lots to a person who is engaged in a bona
fide land sales business is exempt. For a transaction to qualify for
this exemption, the purchaser must be a person who plans to
subsequently sell or lease the lot(s) in the normal course of
business. The term business refers to an activity of some
continuity, regularity and permanency, or means of livelihood. The
sale or lease of lots to an individual who is buying the property
for investment, to be sold at some unforeseeable time in the future,
would not be exempt under this provision. This exemption is
available on a lot-by-lot basis, although most transactions would
include more than one lot. The entire subdivision need not qualify.
(4) Adjoining Lot (24 CFR 1710.14(a)(4))
The sale or lease of a lot to a purchaser who owns a contiguous
lot that has a residential, commercial, or industrial building on it
is exempt. This exemption permits a developer to sell or lease
unimproved lots to persons wishing to enlarge the property on which
their home or business is located. This exemption is available on a
lot-by-lot basis.
(5) Lot Sales to a Government (24 CFR 1710.14(a)(5))
The sale or lease of real estate to a government or government
agency is exempt. This exemption is available on a lot-by-lot basis.
The entire subdivision need not qualify.
(6) Sales of Leased Lots (24 CFR 1710.14(a)(6))
The sale of a lot or lots on which the purchaser has maintained
his or her primary residence for at least one year is exempt.
Typically, these sales will occur in a mobile home subdivision. This
exemption is available on a lot-by-lot basis. The entire subdivision
need not qualify.
(c) Termination.
If HUD has reasonable grounds to believe that exemption from
registration in a particular case is not in the public interest, HUD
may terminate the exemption as to a subdivision or as to particular
lots in a subdivision. Termination could be ordered only after the
developer is notified of HUD's intention to terminate and is
afforded a hearing opportunity. The reasons for termination will
vary from case to case but could include unlawful sales practices by
the developer or its agents, insolvency or adverse information about
the lots or the subdivision that should be disclosed to purchasers.
Part VII--Regulatory Exemption HUD Determination Required--(24 CFR
1710.16)
An Exemption Order is available for a subdivision or certain
lots in a subdivision that technically do not comply with the
eligibility requirements of one of the other available exemptions.
However, to qualify for an Exemption Order, the offering must
substantially comply with the eligibility requirements.
In evaluating the circumstances of an Exemption Order request,
HUD examines the basic intent and legislative history of the
exemption that the developer claims to substantially meet. If the
offering is not consistent with the basic intent, an Exemption Order
will not be issued even though some of the technical requirements of
that exemption are met.
Offerings that involve circumstances that are equal to or better
than the technical requirements, or that are consistent with the
basic intent of the exemption, will be judged to be in substantial
compliance and an Exemption Order will be issued. It should be noted
that an Exemption Order applies only to sales after the date of the
Order and has no retroactive effect. This is the only exemption that
requires submission of a request and a determination by HUD before
it is effective. Developers wishing to request an Exemption Order
must submit the information listed below:
(a) A detailed statement describing how the proposed sales of
lots meet, or substantially meet, each of the eligibility
requirements of the exemption that the developer claims to
substantially meet.
(b) A copy of the contract to be used. The contract must:
(1) Specify the developer's and purchaser's responsibilities for
providing and maintaining roads, water and sewer facilities and any
existing or promised amenities. If the developer is not responsible
for providing or completing a particular service, the contract
should make it clear that it is up to the buyer to make the
necessary arrangements for desired services; and
(2) Contain a good faith estimate of the year in which the
roads, water and sewer facilities and promised amenities will be
completed. This estimate is required for any facility the developer
promises or indicates will be completed. Estimates should be based
on documentary evidence, such as contracts, engineering schedules or
other evidence of commitments to complete facilities and amenities;
and
(3) Contain a non-waivable provision giving the purchaser the
opportunity to revoke the contract until at least midnight of the
seventh calendar day following the date the purchaser signed the
contract. If the purchaser is entitled to a longer revocation period
by operation of state law, that period becomes the Federal
revocation period and the contract must reflect the requirements of
the longer period; and
(4) Contain a provision that obligates the developer to deliver
to the purchaser within 180 days of the date the purchaser signed
the sales contract, a warranty deed, or its equivalent under local
law, which at the time of delivery is free from any monetary liens
or encumbrances.
(c) A plat of the entire subdivision with the lots subject to
the exemption delineated.
(d) A description of how the lots have been and will be promoted
and to which population centers the promotion has been and will be
directed.
(e) Documentation to establish that each purchaser or
purchaser's spouse will make an on-the-lot inspection of the lot to
be purchased before the contract is signed.
(f) A filing fee in the amount set forth in Sec. 1710.35(c) in
the form of a certified check, cashier's check or postal money order
made payable to the U.S. Treasury.
If, after an Exemption Order has been issued, HUD has reasonable
grounds to believe that the exempt status of the subdivision or
individual lots is not in the public interest, the Exemption Order
may be terminated. Such an action would be preceded by a notice
giving the developer an opportunity to request a hearing on the
allegations leading to termination. For example, proceedings may be
initiated because of the apparent omissions or misrepresentations in
the information upon which the Exemption Order was based, the
unethical conduct of the developer or the developer's agent or the
presence of adverse conditions at or about the real estate which
should be brought to the attention of purchasers by way of a
disclosure document.
Some examples of substantial compliance are listed below. These
are examples only and presume that all other applicable eligibility
requirements of the exemption are either fully met or substantially
met. It should be remembered that substantial compliance can occur
with virtually any of the twenty-two available exemptions.
(1) One of the eligibility requirements for the Single-Family
Residence Exemption is that the lots be zoned as single-family
residential or, in the absence of a zoning ordinance, restricted to
single-family residence development by enforceable covenants or
restrictions. As stated before, the phrase ``* * * in the absence of
a zoning ordinance * * *'' is interpreted in its most literal sense.
Therefore, the existence of any zoning ordinance other than single-
family
[[Page 13610]]
residence zoning is a disqualifying factor for the exemption.
However, substantial compliance would be considered if a
different zoning ordinance existed and the enforceable covenants or
restrictions limited development to single-family residences.
(2) Another eligibility requirement for the Single-Family
Residence Exemption states that, at the time of closing, potable
water, sanitary sewage disposal and electricity must be extended to
each lot or the unit of local government must be obligated to
install these facilities within 180 days following closing.
Substantial compliance with this provision would be considered
in those cases where one or more of these utilities is not available
but the developer has a contract with a publicly regulated utility
to install the facilities within 180-days following closing or upon
demand of the purchaser.
Furthermore, substantial compliance would be considered if the
utility trunk lines are ``reasonably close'' to the lots instead of
at each lot line.
(3) An eligibility requirement for the Intrastate Exemption is
that the lot sold must be free and clear of all liens, encumbrances
and adverse claims. Mineral reservations have been deemed to be
acceptable so long as the reservation does not include the right of
ingress or egress upon the property. If the right of ingress or
egress exists, substantial compliance will be considered if there
are written, recorded provisions from the owner(s) of the mineral
rights for compensating the lot owner for loss of the use or
enjoyment of the property when such rights are exercised.
Part VIII--Advisory Opinion--Secretary's Opinion May Be Requested--
(24 CFR 1710.17)
(a) General
When it is not clear that an offering is either exempt under the
self-determined statutory or regulatory provisions or whether
jurisdiction exists, an Advisory Opinion may be requested to clarify
the situation. The filing requirements are found in 24 CFR 1710.17
of the regulations and are described in (b) and (c) below.
The material to be submitted with all requests for Advisory
Opinions is described under (b) below. In most cases, depending on
the provision under which an exemption is claimed, additional
documentation is needed before an opinion can be given. Review (c)
below to determine what additional documentation is customarily
needed before submitting a request.
HUD's Advisory Opinions are based upon and limited to the
representations made by the developer. Therefore, if a favorable
Advisory Opinion is issued based upon incomplete, improper or
incorrect representations, the Opinion has no binding effect.
(b) Basic Requirements For Submission
(1) A filing fee in the amount required by Sec. 1710.35(c) in
form a certified check, cashier's check or postal money order made
payable to the U.S. Treasury.
(2) A comprehensive description of the conditions and operations
of the offering. Specify the provision(s) of the Act or regulations
under which sales are believed to be exempt or why there is no
jurisdiction.
(c) Additional Requirements For Submission
Depending on the provision under which an exemption is claimed,
a developer may be required to submit additional information.
Beginning with the exemption under 24 CFR 1710.5(a) of the
regulations and ending with 24 CFR 1710.14, the additional
information that should be submitted with a request for an Advisory
Opinion is listed below. In some cases, information or documentation
other than that specified may be requested after a submission has
been reviewed by HUD.
(1) To obtain an Advisory Opinion pertaining to 24 CFR
1710.5(a), the ``25 lot'' exemption, submit a plat of the
subdivision. Submit a listing of any other properties in which the
developer has an interest and the geographic relationship of those
properties to the subdivision for which the exemption is claimed. If
other properties are divided or proposed to be divided, indicate the
total number of lots planned. Indicate those properties which will
be offered by the same sales personnel or through the same sales
office as the subdivision for which the exemption is claimed.
Describe how the lots are marketed, i.e., who sells the lots, how
the lots are advertised, whether prospective purchasers are referred
between subdivisions, etc.
(2) To obtain an Advisory Opinion pertaining to 24 CFR
1710.5(b), the ``improved lot'' exemption, submit a copy of the
contract of sale or lease and an opinion of local counsel with
respect to whether the contract meets the exemption's requirements
under the law in the jurisdiction in which the subdivision is
located.
(3) To obtain an Advisory Opinion pertaining to 24 CFR
1710.5(c), the ``evidences of indebtedness'' exemption, describe the
security arrangement and submit a copy of the evidence of
indebtedness.
(4) To obtain an Advisory Opinion pertaining to 24 CFR
1710.5(d), the ``securities'' exemption, no additional documentation
is customarily required to be submitted with the request.
(5) To obtain an Advisory Opinion pertaining to 24 CFR
1710.5(e), the ``government sales'' exemptions, specify the
government agency selling the property and submit the enabling
legislation.
(6) To obtain an Advisory Opinion pertaining to 24 CFR
1710.5(f), the ``cemetery lots'' exemption, no additional
documentation is customarily required to be submitted with the
request.
(7) To obtain an Advisory Opinion pertaining to 24 CFR
1710.5(g), the ``sales to builders'' exemption, submit specific
information showing that the purchaser or lessee is engaged in the
business of building or is acquiring the real estate for resale or
lease to a builder.
(8) To obtain an Advisory Opinion pertaining to 24 CFR
1710.5(h), the ``industrial or commercial development'' exemption
submit a plat and supporting documentation, including a copy of the
instrument containing the purchaser or lessee affirmation and
evidence of the zoning or, in the absence of zoning, restrictive
covenants.
(9) To obtain an Advisory Opinion pertaining to 24 CFR 1710.6,
the ``100 lot'' exemption, submit a plat of the subdivision. In
addition, submit a listing of any other properties in which the
developer has an interest and the geographic relationship of those
properties to the subdivision for which the exemption is claimed. If
other properties are divided or proposed to be divided, indicate the
total number of lots planned. Indicate those properties that will be
offered by the same sales personnel or through the same sales office
as the subdivision for which the exemption is claimed. Describe how
the lots are marketed, i.e., who sells the lots, how the lots are
advertised, whether prospective purchasers are referred between
subdivisions, etc.
(10) To obtain an Advisory Opinion pertaining to 24 CFR 1710.7,
the ``12 lot'' exemption, submit a list of all lots sold under the
same common promotional plan since June 20, 1980. (Review Part II(b)
of these Guidelines for an explanation of common promotional plan.)
Indicate the date of each sale. State whether the developer has been
involved in the sale of any other real estate since June 20, 1980
and indicate how it is intended that future sales will be
restricted.
(11) To obtain an Advisory Opinion pertaining to 24 CFR 1710.8,
the ``scattered sites'' exemption, submit a plat of the site and
list the name and geographic location of all other properties in
which the developer has an interest. State the extent of the
developer's interest.
(12) To obtain an Advisory Opinion pertaining to 24 CFR 1710.9,
the ``20 acre lots subdivision'' exemption, submit a plat of the
subdivision with the acreage of each lot clearly delineated. In
addition, substantiate that all lots offered under the same common
promotional plan are greater than 20 acres in size and have been
that size since April 29, 1969. Describe all properties in which the
developer has an interest and the geographic relationship of such
properties to the subdivision for which the exemption is claimed.
Indicate those properties which will be offered by the same sales
personnel or through the same sales office as the subdivision for
which the exemption is claimed. Describe how the properties are
marketed, i.e., who sells the lots, how the lots are advertised,
whether purchasers are referred between subdivisions, etc.
(13) To obtain an Advisory Opinion pertaining to 24 CFR 1710.10,
the ``single-family residence'' exemption, address each of the
subdivision requirements and the eight lot requirements as set forth
in Part V(e) of these Guidelines. For example, the developer should
specifically state how the condition of title will be demonstrated,
that the purchaser's approval of exceptions to title will be
obtained prior to closing and that the purchasers will make a
personal on-the-lot inspection prior to signing the contract. The
submission should describe how the standards are being enforced by
the local authorities. The submission must also describe the
marketing and promotion of the subdivision.
The submission should be accompanied by documentation including
a copy of the contract of sale and a copy of the state or
[[Page 13611]]
local minimum standards. The documents submitted must include
minimum standards for each of the eight areas listed in the
regulations. The documentation should clearly show that the
standards are being enforced and are not merely discretionary. If
the developer states that the local authorities will take over
responsibility for the roads, submit documentation evidencing that
intent. If the developer represents that water is the purchaser's
responsibility, submit a copy of the appropriate report assuring
that an adequate year-around water supply is available. If septic
tanks are to be used, submit a copy of the approval for their
installation and a statement of how approval will be obtained for
each lot.
The above listing is not comprehensive. It is designed to give
the developer an idea of the type of statements and documentation
which will be requested before an opinion will be issued.
(14) To obtain an Advisory Opinion pertaining to 24 CFR 1710.11,
the ``manufactured home'' exemption, identify who is selling the lot
and who is selling the manufactured home. Submit a copy of the
contracts to be used.
(15) To obtain an Advisory Opinion pertaining to 24 CFR 1710.12,
the ``intrastate'' exemption, submit a copy of the contract of sale,
the Intrastate Exemption Statement, the restrictive covenants, a
statement of the status of mineral right ownership and the enabling
document(s) of the Property Owners' Association or condominium
association including the by-laws, if any. If sales have been made
since December 20, 1979, submit a list of such sales with the
purchaser's name, address at the time of sale, date of sale and lot
number(s).
(16) To obtain an Advisory Opinion pertaining to 24 CFR 1710.13,
the ``MSA'' exemption, submit a copy of the contract of sale, plat,
and MSA Exemption Statement. If sales have been made, submit a list
of such sales with the purchaser's name, address at the time of
sale, date of sale and lot number(s).
(17) To obtain an Advisory Opinion pertaining to 24 CFR
1710.14(a)(1), the ``inexpensive lots'' exemption, submit a copy of
the proposed promotional materials and the documents to be used in
the sale.
(18) To obtain an Advisory Opinion pertaining to 24 CFR
1710.14(a)(2), the ``limited term leases'' exemption, submit a copy
of the lease and other documentation relevant to the lease
transaction.
(19) To obtain an Advisory Opinion pertaining to 24 CFR
1710.14(a)(3), which exempts sales of lots to developers, submit
information to substantiate the claim that the purchaser is in the
land sales business.
(20) To obtain an Advisory Opinion pertaining to 24 CFR
1710.14(a)(4), the ``adjoining lot'' exemption, submit a map showing
the lot on which the purchaser owns a residential, commercial or
industrial building and the lot to be purchased.
(21) To obtain an Advisory Opinion pertaining to 24 CFR
1710.14(a)(5), the ``sales to government'' exemption, name the
Government entity and submit a copy of the legal document by which
the entity was created or a document evidencing the governmental
decision to purchase.
(22) To obtain an Advisory Opinion pertaining to 24 CFR
1710.14(a)(6), the ``sales of leased lots'' exemption, state the
circumstances which the purchaser has lived on or will have lived on
the lot for one year or more and submit a copy of the lease or other
agreement entitling the purchaser to occupy the lot. State whether
the purchaser is using the lot as his or her primary residence.
Part IX--No-Action Letter--(24 CFR 1710.18)
The availability of expanded regulatory exemptions has resulted
in the exemption of most transactions which may previously have
warranted the issuance of a No-Action Letter. Nevertheless, there
may be instances when one or more sales or leases fall within the
purview of the Act but do not qualify for an exemption, although the
circumstances of the sales or leases may be such that no affirmative
action is needed to protect the public interest and prospective
purchasers.
In such instances, a No-Action Letter may be requested. The
request should include a thorough explanation of the proposed
transaction(s) and the facts and supporting documentation necessary
to demonstrate that no affirmative action is needed in the
particular situation. If a request for a No-Action Letter is based
upon a belief that the offering is ineligible for an exemption due
to a minor technicality, demonstrate how other provisions of the
particular exemption are met. The issuance of a No-Action Letter
will not affect any right or remedy that the purchaser may have
under the Act, including the right to rescind a contract for a
period of two years. A No-Action Letter simply signifies that HUD
will not take any affirmative action to require registration.
However, the issuance of a No-Action Letter does not preclude any
future agency action which may become necessary because of new
information or a change in the circumstances.
HUD's No-Action Letters are based upon and limited to
representations made by the developer. Therefore, if a favorable No-
Action Letter is issued based upon incomplete, improper or incorrect
representations, the Letter has no binding effect.
In no event will a No-Action Letter be issued if the sale or
lease has already occurred.
There is no prescribed format for requesting a No-Action Letter.
Therefore, describe the circumstances as fully as possible following
a general rule that too much information is better than too little.
Upon review of the information submitted, additional clarification
may be required to permit a final determination.
[FR Doc. 96-7280 Filed 3-26-96; 8:45 am]
BILLING CODE 4210-27-P