96-7280. Office of the Assistant Secretary for HousingFederal Housing Commissioner; Interstate Land Sales Registration Program; Streamlining Final Rule  

  • [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.
    
    -----------------------------------------------------------------------
    
    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
    
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    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
    
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    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
    
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    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
    
    

Document Information

Published:
03/27/1996
Department:
Housing and Urban Development Department
Entry Type:
Rule
Action:
Final rule.
Document Number:
96-7280
Dates:
April 26, 1996.
Pages:
13596-13611 (16 pages)
PDF File:
96-7280.pdf
CFR: (12)
24 CFR 1710.1
24 CFR 1710.2
24 CFR 1710.5
24 CFR 1715.1
24 CFR 1715.2
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