The case of Mrs. Gomer Jones, widow of the Oklahoma athletic director and football coach, is simple and instructive for potential buyers of vacation homesites. When Mrs. Jones went to see the New Mexico lots that her husband had bought for retirement, she broke down and cried and subsequently gave her lots away.
There are an estimated 10,000 developers in the vacation home business in the U.S. Some have projects that are well conceived both financially and environmentally. But unfortunately, there are too many projects that are bad on either one count or the other or both. Indeed, the vacation home business, especially undeveloped lot sales, is rife with deceptive practices, and state and federal agencies have their hands full running down complaints from the victimized. There is so much fraud rampant that Vince Conboy, a real estate broker in Naples, Fla. and a crusader against the bunco artists roaming his state, says, "It's the single biggest swindle in the country."
George K. Bernstein, who recently took over and shook up the Office of Interstate Land Sales Registration in the U.S. Department of Housing and Urban Development, says of the industry, "Though there are many reputable developers who have every intention of performing their promises, there are those who are not reputable. We are dealing with salesmen—across the board, even among the reputable companies—who promise you the world and who are working on a commission, and thus have an incentive to sell and lie through their teeth."
For all the warnings by responsible public officials, it is almost impossible for any American with a postal address or a telephone to escape the hard-sell salesmen. Slick brochures bursting with color photographs of the great outdoors pour through the mail, and the phone rings with unsolicited calls about your chance for a second home in the wilderness—that retreat by the lake, your own beach on the sea. There are all sorts of come-ons, ranging from free plastic dishes to a free dinner at a local restaurant. The gullible who accept are met by an army of salesmen who wear bell-bottom trousers and have more teeth than Bert Parks. They pin a card on your lapel proclaiming you "Mr. V.I.P.," and within two minutes they are calling you by your first name. The pitch varies, but essentially it has the same opener. After dinner a movie is shown about the paradise you can buy. Both the film and the salesmen emphasize that Sleazy Acres is "totally planned," down to the new lake stuffed with bass built along the lines of Chicago aldermen. If the project is in Florida, anywhere in Florida, it is always "near Disney World." Wherever the locale, there almost always are swimming, water skiing (and maybe skiing, too), sauna baths, a yacht club, horseback riding, sailing, golf and, if you're lucky, a kiddie zoo! You can't miss. The salesmen have an assortment of lines. "Why I'm buying here myself just as an investment." "Sail into coves no one else knows about." "Go out in the early morning, breathe deeply and catch a whiff of the American dream." In too many cases the dream turns out to be a nightmare. That desert "ranchette" turns out to be a quarter-acre lot miles from nowhere, and the water only 800 feet away is just that, straight down. The southern hideaway is just that, too; many buyers can never find theirs behind the stands of swamp grass. Resale value is often nil. But then again, you have to have vision, as the salesman says.
July 22, 1973
Whenever a land-development scheme is announced, conservationists are usually the first to protest. Aside from any rip-off of the public—and there may be none at all involved—a development might not only put a stress on the environment but become a tax burden. Last year the Northern Environmental Council in Duluth, which takes in a host of organizations from Michigan to the Dakotas, issued a paper noting that "Local and county zoning regulations have, with very few exceptions, shown themselves to be almost useless when dealing with large-scale developments. These mass recreational promotions suddenly create vast new urban communities without adequate local government or public services." As the study points out, the promoter departs when the lots are sold, and "Left behind is usually a weak landowners association and the same rural township government to deal with mounting demands imposed by hundreds of new homeowners who expect road maintenance, sanitary-waste disposal, fire and police protection, lake and (often) dam management and miscellaneous public services including schools for those who become permanent residents. In fact, a whole new urban community arises overnight, too large and complex for the capabilities of local governments to deal with."
When the NOREC made a study of a shore development on Lake Superior in Minnesota it reported that 40% of the shore surveyed was "unsuitable for soil absorption sewage disposal systems because the soil is too heavy or underlain with rock to permit percolation. And an additional 27% of Minnesota shoreline...is so permeable that it permits too rapid a percolation rate for complete neutralization of sewage contaminants before reaching the lake water." In Wisconsin, Senator Gaylord Nelson warned, "With vast areas of the state still un-zoned, and weak controls on the massive new leisure living developments now being planned throughout the state, we are about as well equipped to deal with the recreation revolution as someone planning to shoot spitballs at a tornado. If we don't act decisively now, in a decade the once pristine environment of northern Wisconsin will be turned into a recreation slum...."
Senator Nelson is working on an amendment to Senator Henry Jackson's federal land use bill that would make developers prove that their projects are environmentally justified, but the fact is that even where there are laws some developers will do their best to bend them. In New York, for example, it is not just a matter of legislative statute but an actual state constitutional amendment that forest preserve lands in the Catskills and Adirondacks must remain "forever wild." This constitutional amendment, adopted in 1894 after destructive logging of lands owned by the state since colonial days, has been upheld time after time by the voters. Even so, battles crop up, and there are several fights going on now. In the Catskills, John H. Adams, a former assistant U. S. attorney who is now the executive director of the Natural Resources Defense Council, has personally filed suit, along with Friends of the Earth, the Atlantic chapter of the Sierra Club and the Theodore Gordon Flyfishers, against Rockland Town authorities to prevent Mr. and Mrs. Fred Haas from developing Edgewood Lakes, Inc., a 400-acre property divided into half-acre vacation lots. Adams alleges that the town unlawfully amended zoning to allow the subdivision and, moreover, he charged that sewage from the development would pollute Waneta Lake and the Beaver Kill, which are designated as forever wild areas under the state constitution. The Haases filed a counterclaim against Adams alleging that he was indulging in malicious prosecution and had prompted newspaper articles to appear that caused them financial harm. Decisions in the case may be a year off, but the New York State Department of Environmental Conservation has ruled, as the result of a hearing requested by petition, that although it is not opposed to the project, no sewage effluent could be placed either in Waneta Lake or the Beaver Kill.
In the Adirondacks, the largest wilderness area east of the Mississippi, conservationists have been contesting two proposed mammoth developments. The first of these, dubbed "Ton-Da-Lay" by promoter Louis Papparazzo, would house 20,000 people on 18,500 acres near Tupper Lake. The second, as yet unnamed by the Horizon Corporation, is supposed to be set on 24,000 acres in the northern section of the mountains. Now, however, both projects may come to naught, at least as envisioned in the eyes of the developers. Following the recommendations of the Adirondack Park Agency, the state legislature last May passed a bill imposing strict rules on development of privately owned land, so strict in fact that one conservationist says, "Massive second-home developments in the Adirondacks will be a thing of the past."
In part, the Horizon Corporation's announcement of its purchase of land in the Adirondacks prompted the legislative action. In an open letter to New York newspaper editors and state officials, Harvey Mudd II, director of the Central Clearing House, a conservation group in Santa Fe, N.Mex., wrote in June 1972, "The people of New York will get no 'bargain' if the Horizon Corporation is allowed to develop the 24 thousand acre property in the Adirondack State Park.... Horizon Corporation controls nearly a quarter of a million acres of land in New Mexico in or near two gigantic parcels known as Paradise Hills and the Rio Communities (Rio del Oro, Rio Grande Estates, Rancho Rio Grande). Their massive sales organization in New York State sells these 'sure fire investments' to thousands of New Yorkers every year who are led to believe that they are buying a lot on the edge of a verdant golf course, when in fact they are getting a piece of worthless desert half a dozen miles from the nearest utility tie-up or community services.
"Horizon Corporation sends many thousands of letters urging people to invest successfully in real estate. Horizon Corporation itself is the successful investor. They purchase large tracts of land in New Mexico, the price often under $200 an acre, cover the land with lot grids and sell it to the gullible in small size lots at prices that usually exceed $4,000 an acre.... The real estate section of the Albuquerque Journal is full of Horizon Corporation resales, which are well under the original price paid. The market is glutted with second-sale subdivision lots, and the company is certainly making no repurchases itself.
"...Horizon's largest holding in New Mexico exceeds 145 thousand acres. As of July 16, 1971 (when the latest Property Report was filed), only 154 homes had been built. In this operation, core unit development, a few houses, a golf course, and a sales office is used as the bait to sell the remote desert land."
In New Mexico, a Nirvana for big-city dwellers, more than one million acres have been scissored into small lots on paper. This land, if built upon, could accommodate more than eight million people, eight times the present state population. New Mexico's landscape is now ticktacked with roads bulldozed out of the desert (state law requires developers to provide access to lots), and the dust they raise contributes to air and stream pollution. In essence most of the parcels are ghost lots, peddled to people far away. Often the sales theme is investment. Horizon has advertised, "You can make money here even if you can't spell Albuquerque." When various civic, consumer-protection and conservation groups banded together last year to back a bill in the legislature that would have allowed the state to reject new developments that lacked sufficient water supply, they were soundly beaten, even though the legislation was supported by Governor Bruce King and leading newspapers. As State Senator Eddie Barboa argued in debate, "I don't see why we should spend hours worrying about somebody in New York spending $1,500 or $2,000 on a worthless piece of New Mexico land that doesn't have water. If they're that stupid, let them spend it.... I have a friend who is a stewardess with one of the airlines that flies them in and she tells me these people don't even drink water."
Many out-of-staters who buy lots are surprised to discover that it can rain heavily in the desert. A South Carolina man who bought a Deming ranchette after reading an ad in the Washington Post later decided to sell. He wrote a realtor in New Mexico, and the realtor replied, "...I am very sorry to inform you that I have been unable to interest anyone in [your property] at any price.... I don't know if you have seen the lots or not, but all the access roads, as well as the lots themselves, are under water during wet weather...when it is wet not even four-wheel drive vehicles can reach them."
Land sales in Florida are often an impossible mess. Robert J. Haiman, managing editor of the St. Petersburg Times, which has run a series of exposés, says, "The sale of Florida swampland to unsuspecting Northerners has long been a national joke. But it's not funny. It's a national scandal." With all deference to conservationists, Vince Conboy points out that the state has spent more money to protect alligators than it has to prevent buyers from being devoured by salesmen. Florida is crisscrossed with paper lots that are either under water or unreachable or hold no likely prospect of development for several hundred years, as Conboy makes clear in a book he wrote and published, Exposé, Florida's Billion Dollar Land Fraud. Conboy is no anarchist slinging mud at the real-estate establishment. He has short hair and belongs to Kiwanis and the Knights of Columbus. Now 70 years of age, he is a native of Wisconsin who moved to Florida 15 years ago as a real-estate broker. In Wisconsin he had worked for the Federal Government as an appraiser, and what he found going on in Florida real estate shocked him into becoming a crusader. When the St. Petersburg Times assigned Staff Writer Elizabeth Whitney to check Conboy's allegations in Exposé, it found him "virtually unimpeachable on almost every point." Conboy, who has gotten little help from either state or federal authorities, is particularly outraged by Golden Gate Estates near Naples in Collier County. GAC Properties, formerly the Gulf American Land Corporation, noted in a recent report that it had sold almost all the 113,000 acres in the subdivision. "They paid $100 to $150 an acre and sold it for as much as $1,800 an acre," Conboy says. "They went in and drained it so there are fires now. In fact, it's a forest-fire nightmare. The company boasted it would be the largest subdivision in the world, but in all this 113,000 acres there are just three houses after 10 years."
One of the houses is occupied by Wald and Mary Mitchell from Akron. The Mitchells, who are in their 70s, sank almost $6,000 of their savings into their lot, and rather than lose most of that trying to sell, they decided to build. However, they are so far out in the boondocks that they cannot afford a telephone. The phone company said the house was so remote that it would cost the Mitchells $2,880 to bring in a line. Even if the Mitchells could afford a phone, they would have little time to chat on it since fire fighting is a full-time job. In a two-month period they had to fight off fires on four fronts that threatened to engulf their little home.
Conboy says, "More than $100 million has been invested in that drained swamp by wonderful people. Some might call them suckers or fools for buying lots there, but these buyers were people who had been reared in a trusting way, people who couldn't believe that human beings could be so low as to steal their life savings." According to Conboy, Florida has more than two million lots that have little or no resale value even though many were purchased at fancy prices as an investment. When he began making noises about this, a General Development Corp. subsidiary wrote to his wife offering a $2,000 profit on lots she owned in Port Charlotte. Conboy replied that he would be happy to sell if General Development would repurchase all similar lots owned by other buyers for $1,500 each. The company refused.
The hard-sell hucksters peddling second home lots in Florida, New Mexico and other parts of the U.S. are having a feast on U.S. servicemen overseas. The European edition of Stars and Stripes last December devoted three special eight-page news supplements to U.S. land sales companies doing about $30 million a year of business in Europe with GIs. "All companies plead innocence of wrongdoing," Stars and Stripes said, "but exhaustive research in Europe turned up case after case of misrepresentation and half-truths, sins of omission and commission, advertising exaggerations and high-pressure sales tactics." Misrepresentation went so far that a salesman told one soldier that Discovery Bay was in Florida and not Mississippi.
Although European Command regulations prohibit land companies from operating on posts, the companies make the regulations a farce by routinely hiring military personnel as salesmen or scouts to find buyers. One master sergeant admitted he had collected $5 for every husband and wife "unit" that he steered to GAC. The former U.S. Army Europe commander-in-chief. General Bruce C. Clarke, has gone to work for Horizon to handle public relations. General Clarke, who last fall invited key military authorities to have lunch with him at various locations in Germany, prepared a mail-order flyer for Horizon entitled, "Why the Military Man Should Acquire Land—by General Bruce C. Clarke, U.S. Army, Retired." General Clarke was hopeful that authorities would allow salesmen who "qualify" to solicit on posts, but, as Captain David Naugle, chief of the Army's legal assistance division in Europe, advised Stars and Stripes, the best way to handle land salesmen is to "boot them into the North Sea."
For all the fraud and misrepresentation going on, relatively few of the swindled realize that they have recourse to a federal agency that has recently started going after the swindlers. The agency is the Office of Interstate Land Sales Registration run by George Bernstein and his deputy, John McDowell, in the Department of Housing and Urban Delopment. The agency, usually abbreviated as OILSR, came into being in 1968, primarily because Senator Harrison Williams Jr. of New Jersey was angered at seeing the elderly victimized while buying retirement lots. Still, until Bernstein took over the agency had accomplished little and was considered a lap dog of the land-sales industry.
A lawyer by profession, Bernstein is unusual in that he wears two hats; before he took over as OILSR chief, he was, and still is, the Federal Insurance Administrator, a position in which he caused some flap by going after Blue Cross. When he assumed controls at OILSR, he adopted the policy that he has followed to this day. "I publicly called our relationship with the land-sales industry an adversary relationship. They said we should 'work together.' My constituency is not the regulated industry but the public." That is rather a mild statement for Bernstein, who is given to such comments as "This is a bad industry—it's an industry not used to being regulated," or "I cut the big red apple and watch the worms crawl out." An aide has said, "Around here we rate developers from zero to minus 10."
The law under which Bernstein operates, the Interstate Land Sales Full Disclosure Act, requires developers selling subdivisions of 50 or more unimproved lots less than five acres in size, in interstate commerce, to file a detailed Statement of Record with OILSR. They must also give purchasers a Property Report that contains 19 items taken from the Statement of Record on such matters as the availability of sewer and water service or septic tanks and wells, distances to nearby communities over paved or un-paved roads, the number of homes currently occupied, soil conditions that could cause problems in construction, utility services and other matters. If the developer fails to give the buyer a copy of the Property Report either before or when he buys, the buyer may void the purchase. Moreover, should the developer fail to comply with the Full Disclosure Act in any way or indulge in fraud, the buyer may sue for damages, which are often measured by the purchase price and court costs. In addition, OILSR can seek criminal penalties of up to five years in prison, a fine up to $5,000, or both. Even if a developer is operating only within one state, Bernstein and OILSR can get him if he has used the U.S. mails. There are some drawbacks to the law. For one, if a buyer fails to understand the Property Report and fails to understand or doesn't read the fine print saying no water is available, he is in tough luck. As they say at OILSR, "The law will light the threshold but not unlock the door." Then again, as Bernstein puts it, "A developer could be raping the land ecologically, and there's not a thing we could do as long as there is full disclosure."
Still, the law can be effective, and to make certain that the public became aware of it and his office, Bernstein and McDowell made a nationwide swing of 17 cities last year to hold public hearings on the law and to listen to the aggrieved. They heard one horror story after another. The company that drew the most complaints was GAC, one of the largest developers. Most of the complaints concerned misleading sales practices and misrepresentation.
Last October Bernstein really stunned the American Land Development Association when he announced that a federal grand jury in Atlanta had returned a 22-count criminal indictment against four individual corporate officers, three corporations and eight land salesmen. One of the corporate officers indicted was Frank A. Carcaise, president of Great Northern Development Corporation and also chairman of the board of the American Land Development Association. Adding salt to the wound, Bernstein said, "If we were looking for a case illustrating all the abuses about which we have been warning the public at our abuses hearings we couldn't have found a more frightening example." Among the charges by the grand jury, all of which revolved around a development known as Treasure Lake of Georgia, Inc., were that the defendants had failed to register and file a Statement of Record prior to initial sales and that there was misrepresentation after they finally did; obtained by fraud the signatures of buyers on documents which showed that a Property Report had been received when it had not; showed buyers phony pictures of a lake, a golf course and other recreational improvements in a conspiracy consisting of "devices, schemes and artifices to defraud and establish a practice and course of business which would operate as a fraud and deceit."
In response to the land swindles and in answer to bad planning, several states—notably Vermont, California and Maine—have recently passed legislation to protect both the buyer and the environment. In California, Boise Cascade recently agreed to a $58.5 million settlement of lawsuits brought against the company for false and misleading sales practices, following a halt last July of recreational land sales. The Sierra Club Bulletin noted, "What sort of enterprise is it where a large, financially responsible corporation, with millions of dollars in assets, thousands of stockholders and a large staff of experts should fall so low while dozens of tacky operations continue to thrive? Boise's experience confirms what many have known all along—that the recreational land business, dealing in a largely unnecessary product that few people can afford, usually must rely for its success on glib salesmen and naive customers."
New legislation is pending on the federal level. Congressman Morris K. Udall of Arizona has introduced a bill that would, among other things, prohibit interstate advertising, and Congressman Barry Goldwater Jr. of California is drawing up a bill that would create a Securities and Real Estate Commission patterned on the Securities and Exchange Commission. Such a commission would regulate interstate land sales, not simply administer the Full Disclosure Act.
Yet for all the laws now on the books or aborning, much of the grief involved in land sales could be avoided if potential buyers used common sense. Any buyer interested in land should personally inspect it, carefully read the Property Report, have the land independently appraised and then confer with a lawyer before signing anything. As with any major purchase, but with land especially, let the buyer beware.