Facts for Consumer from the Federal Trade Commission
November 1992

Although buying land may seem like a safe investment, it sometimes can be highly speculative and risky. Many consumers have complained to the Federal Trade Commission (FTC) that land they bought more than 20 years ago still is not worth the original selling price. In all that time, they have had to pay property taxes and, in some cases, association dues on land that remains vacant and undeveloped. More important, there is little, if any, resale market for the land.

Unfortunately, land sales scams continue even today. In some instances, the FTC has found that sellers overprice land as much as 400 percent.

This brochure describes land sales scams and tells you how to avoid them. It explains what protection you have under the Interstate Land Sales Full Disclosure Act, which is administered by the Department of Housing and Urban Development (HUD), and offers tips on selecting a lot.

The Hard Sell

Be wary of sellers who offer land primarily as a great investment opportunity. They may show you slick brochures and videos that promise "nearby" beaches or lakes, and locations "convenient" to tourist attractions, shopping malls, schools, and hospitals. Some sellers spin a tale of paradise, show you model homes, and all but "guarantee" that the land's value will increase rapidly. Prices will rise, they may claim, because a large number of planned housing communities and businesses will be moving to the area soon. As an incentive to visit the land site and attend a sales presentation, sellers may offer special discounts on lodging, meals, golf, or airfare.

The Full Disclosure Act

To help protect consumers against land sales scams, the Interstate Land Sales Full Disclosure Act was passed in 1968. This Act generally applies to developers selling or leasing--through interstate commerce--100 or more unimproved lots. Under the Act, developers must register their subdivisions with HUD. They also must give consumers a summary of that registration in a disclosure statement called a Property Report before a contract or agreement is signed.

The Report contains information about the property, such as distances to nearby communities over paved or unpaved roads; present and proposed utility services and charges; and soil and foundation conditions which could cause construction or septic tank problems. Read the Report carefully; it is meant to provide basic information about the property. However, the Federal Government does not inspect lots or prepare or verify the contents of the Property Report, so you may wish to question some of the information.

HUD has two publications, "Buying Lots from Developers" and "Before Buying Land...Get the Facts," which discuss the Full Disclosure Act, the Property Report, and more. For free copies, write to HUD at the address on page 5. You also can write to HUD to find out if a seller is subject to the Full Disclosure Act.

The Shopping Process

Whether you are looking for an immediate home site or vacation/retirement land, know what you are buying before committing yourself to making a downpayment and years of monthly payments. Here is a checklist that may help you answer some important questions: how much is the property worth now; what could you resell it for in an emergency; and how much might the property appreciate over the next five to ten years?

Inspect the property. Do not buy "site unseen." If possible, talk to people who live in the development and ask if they are satisfied. Also ask the subdivision's owners' association about the status of development in the subdivision.

Talk to local real estate agents to learn more about area land values and the resale market. You also can scan the classified ads of local newspapers to compare prices of similar properties. To find out about property appraisals and sales prices of area lots, check with the tax assessment and county recorder offices. Visit the county planning office to learn about future residential and commercial developments that may affect land values.

Contact the appropriate state or local offices to find out who is required to develop and maintain roads and put in utilities for water, electricity, and sewerage, if the land is undeveloped. Ask if there are any zoning regulations or environmental land-use restrictions that prohibit building on the property or make it costly.

Contact HUD, your local or state consumer protection office, Chamber of Commerce, or Better Business Bureau to find out if they have any information about the developer or sales agent. They may be able to tell you the number and kind of complaints that have been filed.

Consider the annual cost of property taxes and any assessment fees that may be required by the owners' association. Keep in mind, these probably will rise.

Check the clerk's office at the local court house to learn of any civil actions that have been brought by or against the seller or developer.

Check with HUD to determine whether the property is registered. Carefully read the con- tract and any disclosure documents, such as the Property Report, before making a commitment. You also may want a financial advisor or an attorney to review the documents.

Cancellation Rights

Ask about your cancellation rights before you sign a contract. If the lot is subject to the Full Disclosure Act, the contract should specify a "cooling-off" period of 7 days (or longer if allowed by state law). During this time, you may cancel the contract for any reason by contacting the developer, preferably in writing. Also, if the contract does not state that you will receive a warranty deed within 180 days after signing the contract, you may have up to two years to cancel.

If the land is not covered by the Full Disclosure Act, check the cancellation clause in the contract. In some contracts, the buyer has only three days to cancel the transaction.

Along with your contract, keep copies of promotional materials you received at the sales presentation, as well as any newspaper articles about the development. These materials would be important should you try to cancel your contract because of misrepresentations made at the time of purchase.

A Special Alert For New Immigrants

New immigrants who have difficulty understanding English may be the target of another kind of deceptive land-sales tactic. The new immigrant is paired with a salesperson of the same nationality, and the sales pitch is delivered in the immigrant's native tongue. When it is time to close the deal, however, the sales documents are written in English, which the buyer may find difficult to read and understand. Also, the sales documents may not include all the salesperson's oral promises.

Under the Full Disclosure Act, the seller must provide the buyer with sales documents and a Property Report in the same language as the sales presentation, or attach a translation to the documents. Failure to do so could void the contract.

Complaint Handling

If certain amenities, such as a swimming pool or tennis courts, are not being built as promised, or you believe false representations were made about the land, complain immediately in writing to the seller. If that does not solve the problem, write to your local or state consumer protection office. If the developer is not fulfilling the terms of your sales contract, you may want to ask an attorney to advise you of your rights. To determine whether you have any rights under the Full Disclosure Act, send details about your complaint to the Department of Housing and Urban Development, Interstate Land Sales Registration Division, 451 - 7th Street, S.W., Washington, D.C. 20410. Include the name of the developer, name and location of the subdivision, and copies of the contract or any other documents you signed.

You also can file a complaint with the FTC. Write: Correspondence Branch, Federal Trade Commission, Washington, D.C. 20580. Although the FTC usually does not handle individual cases, the information you provide may indicate a pattern of possible law violations requiring action by the Commission.