Education: the path from cocky ignorance to miserable uncertainty.
Although buying land may seem like a safe investment, it sometimes
can be highly speculative and risky. Many consumers have complained
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 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
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
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. 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
* 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
* 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
* 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 commit- ment. You also may want
a financial advisor or an attorney to review the documents.
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.
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.
Facts for Consumer from the Federal Trade Commission
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