Office of the Assistant Secretary for HousingFederal Housing Commissioner; Interstate Land Sales Registration Program; Streamlining 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 [email protected].

Justification for Final Rulemaking

HUD generally publishes a rule for public comment before issuing a

rule for effect, in accordance with its own regulations on rulemaking

in 24 CFR part 10. However, part 10 provides for exceptions to the

general rule if the agency finds good cause to omit advance notice and

public participation. The good cause requirement is satisfied when

prior public procedure is ``impracticable, unnecessary, or contrary to

the public interest'' (24 CFR 10.1). HUD finds that good cause exists

to publish this rule for effect without first soliciting public

comment. This rule primarily removes unnecessary regulatory provisions.

Although the rule also contain some clarification of policy, it does

not make substantive changes in the program regulations. Therefore,

prior public comment is unnecessary.

Other Matters

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed and approved this final rule, and in so

doing certifies that this rule will not have a significant economic

impact on a substantial number of small entities. This rule merely

streamlines regulations by removing unnecessary provisions. The rule

will have no adverse or disproportionate economic impact on small

businesses.

Environmental Impact

This rulemaking does not have an environmental impact. This

rulemaking simply amends an existing regulation by consolidating and

streamlining provisions and does not alter the environmental effect of

the regulations being amended. A Finding of No Significant Impact with

respect to the environment was made in accordance with HUD regulations

in 24 CFR part 50 that implement section 102(2)(C) of the National

Environmental Policy Act of 1969 (42 U.S.C. 4332) at the time of

development of regulations implementing the Interstate Land Sales

Registration Program. That finding remains applicable to this rule, and

is available for public inspection between 7:30 a.m. and 5:30 p.m.

weekdays in the Office of the Rules Docket Clerk, Office of General

Counsel, Room 10276, Department of Housing and Urban Development, 451

Seventh Street, SW., Washington, DC.

Executive Order 12612, Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that this rule

will not have substantial direct effects on States or their political

subdivisions, or the relationship between the Federal government and

the States, or on the distribution of power and responsibilities among

the various levels of government. No programmatic or policy changes

will result from this rule that would affect the relationship

[[Page 13597]]

between the Federal Government and State and local governments.

Executive Order 12606, The Family

The General Counsel, as the Designated Official under Executive

Order 12606, The Family, has determined that this rule will not have

the potential for significant impact on family formation, maintenance,

or general well-being, and thus is not subject to review under the

Order. No significant change in existing HUD policies or programs will

result from promulgation of this rule.

List of Subjects

24 CFR Part 1700

Consumer protection, Freedom of information, Land sales, Reporting

and recordkeeping requirements.

24 CFR Part 1710

Administrative practice and procedure, Consumer protection, Freedom

of information, Land sales, Reporting and recordkeeping requirements.

24 CFR Part 1715

Advertising, Consumer protection, Fraud, Land sales.

Accordingly, under the authority of 42 U.S.C. 3535(d), parts 1700,

1710, and 1715 of title 24 of the Code of Federal Regulations are

amended as follows:

PART 1700--[REMOVED]

1. Part 1700 is removed.

PART 1710--INTERSTATE LAND SALES REGISTRATION PROGRAM

1a. The authority citation for part 1710 is revised to read as

follows:

Authority: 15 U.S.C. 1718; 42 U.S.C. 3535(d).

2. Section 1710.1 is revised to read as follows:

Sec. 1710.1 Definitions.

(a) Statutory terms. All terms are used in accordance with their

statutory meaning in 15 U.S.C. 1702 or with part 5 of this title,

unless otherwise defined in paragraph (b) of this section or elsewhere

in this part.

(b) Other terms. As used in this part:

Act means the Interstate Land Sales Full Disclosure Act, 15 U.S.C.

1701.

Advisory opinion means the formal written opinion of the Secretary

as to jurisdiction in a particular case or the applicability of an

exemption under Secs. 1710.5 through 1710.15, based on facts submitted

to the Secretary.

Available for use means that in addition to being constructed, the

subject facility is fully operative and supplied with any materials and

staff necessary for its intended purpose.

Beneficial property restrictions means restrictions that are

enforceable by the lot owners and are designed to control the use of

the lot and to preserve or enhance the environment and the aesthetic

and economic value of the subdivision.

Date of filing means the date a Statement of Record, amendment, or

consolidation, accompanied by the applicable fee, is received by the

Secretary.

Good faith estimate means an estimate based on documentary

evidence. In the case of cost estimates, the documentation may be

obtained from the suppliers of the services. In the case of estimates

of completion dates, the documentation may be actual contracts let,

engineering schedules, or other evidence of commitments to complete the

amenities.

Lot means any portion, piece, division, unit, or undivided interest

in land located in any State or foreign country, if the interest

includes the right to the exclusive use of a specific portion of the

land.

OILSR means the Interstate Land Sales Registration program.

Owner means the person or entity who holds the fee title to the

land and has the power to convey that title to others.

Parent corporation means that entity which ultimately controls the

subsidiary, even though the control may arise through any series or

chain of other subsidiaries or entities.

Principal means any person or entity holding at least a 10 percent

financial or ownership interest in the developer or owner, directly or

through any series or chain of subsidiaries or other entities.

Rules means all rules adopted pursuant to the Act, including the

general requirements published in this part.

Sale means any obligation or arrangement for consideration to

purchase or lease a lot directly or indirectly. The terms ``sale'' or

``seller'' include in their meanings the terms ``lease'' and

``lessor''.

Senior Executive Officer means the individual of highest rank

responsible for the day-to-day operations of the developer and who has

the authority to bind or commit the developing entity to contractual

obligations.

Site means a group of contiguous lots, whether such lots are

actually divided or proposed to be divided. Lots are considered to be

contiguous even though contiguity may be interrupted by a road, park,

small body of water, recreational facility, or any similar object.

Start of construction means breaking ground for building a

facility, followed by diligent action to complete the facility.

Sec. 1710.2 [Removed]

3. Section 1710.2 is removed.

4. Section 1710.5 is revised to read as follows:

Sec. 1710.5 Statutory exemptions from the provisions of this chapter.

A listing of the statutory exemptions is contained in 15 U.S.C.

1703. In accordance with 15 U.S.C. 1703(a)(2), if the sale involves a

condominium or multi-unit construction, a presale clause conditioning

the sale of a unit on a certain percentage of sales of other units is

permissible if it is legally binding on the parties and is for a period

not to exceed 180 days. However, the 180-day provision cannot extend

the 2-year period for performance. The permissible 180 days is

calculated from the date the first purchaser signs a sales contract in

the project or, if a phased project, from the date the first purchaser

signs the first sales contract in each phase.

Secs. 1710.501, 1710.502, and Appendix A to part 1710 [Removed]

5. Sections 1710.501 and 1710.502 and Appendix A to Part 1710 are

removed.

PART 1715--PURCHASERS' REVOCATION RIGHTS, SALES PRACTICES, AND

STANDARDS

6. The authority citation for part 1715 is revised to read as

follows:

Authority: 15 U.S.C. 1718; 42 U.S.C. 3535(d).

7. Section 1715.1 is revised to read as follows:

Sec. 1715.1 General.

The purpose of this subpart A is to elaborate on the revocation

rights in 15 U.S.C. 1703, by enumerating certain conditions under which

purchasers may exercise revocation rights. Generally, whenever

revocation rights are available, they apply to promissory notes, as

well as traditional agreements.

8. Section 1715.2 is revised to read as follows:

Sec. 1715.2 Revocation regardless of registration.

All purchasers have the option to revoke a contract or lease with

regard to a lot not exempt under Secs. 1710.5 through 1710.11 and

1710.14 until midnight of the seventh day after the day that the

purchaser signs a contract or lease. If a purchaser is entitled to a

[[Page 13598]]

longer revocation period under State law, that period is deemed the

Federal revocation period rather than the 7 days, and all contracts and

agreements (including promissory notes) shall so state.

Sec. 1715.3 [Removed]

9. Section 1715.3 is removed.

10. Section 1715.4 is revised to read as follows:

Sec. 1715.4 Contract requirements and revocation.

(a) In accordance with 15 U.S.C. 1703(d)(3), the refund to the

purchaser is calculated by subtracting from the amount described in 15

U.S.C. 1703(d)(3)(B), the greater of:

(1) Fifteen percent of the purchase or lease price of the lot

(excluding interest owed) at the time of the default or breach of

contract or agreement; or

(2) The amount of damages incurred by the seller or lessor due to

the default or breach of contract.

(b) For the purposes of this section:

Damages incurred by the seller or lessor means actual damages

resulting from the default or breach, as determined by the law of the

jurisdiction governing the contract. However, no damages may be

specified in the contract or agreement, except a liquidated damages

clause not exceeding 15 percent of the purchase price of the lot,

excluding any interest owed.

Purchase price means the cash sales price of the lot shown on the

contract.

(c) The contractual requirements of 15 U.S.C. 1703(d) do not apply

to the sale of a lot for which, within 180 days after the signing of

the sales contract, the purchaser receives a warranty deed or, where

warranty deeds are not commonly used, its equivalent under State law.

11. Section 1715.5 is revised to read as follows:

Sec. 1715.5 Reimbursement.

If a purchaser exercises rights under 15 U.S.C. 1703(b), (c) or

(d), but cannot reconvey the lot in substantially similar condition,

the developer may subtract from the amount paid by the purchaser, and

otherwise due to the purchaser under 15 U.S.C. 1703, any diminished

value in the lot caused by the acts of the purchaser.

12. Section 1715.15 is revised to read as follows:

Sec. 1715.15 Unlawful sales practices--statutory provisions.

The statutory prohibitions against fraudulent or misleading sales

practices are set forth at 15 U.S.C. 1703(a). With respect to the

prohibitions against representing that certain facilities will be

provided or completed unless there is a contractual obligation to do so

by the developer:

(a) The contractual covenant to provide or complete the services or

amenities may be conditioned only upon grounds that are legally

sufficient to establish impossibility of performance in the

jurisdiction where the services or amenities are being provided or

completed;

(b) Contingencies such as acts of God, strikes, or material

shortages are recognized as permissible to defer completion of services

or amenities; and

(c) In creating these contractual obligations developers have the

option of incorporating by reference the Property Report in effect at

the time of the sale or lease. If a developer chooses to incorporate

the Property Report by reference, the effective date of the Property

Report being incorporated by reference must be specified in the

contract of sale or lease.

13. Section 1715.27 is revised to read as follows:

Sec. 1715.27 Fair housing.

Title VIII of the Civil Rights Act of 1968, 42 U.S.C. 3601, et

seq., and its implementing regulations and guidelines apply to land

sales transactions to the extent warranted by the facts of the

transaction.

Dated: March 13, 1996.

Nicolas P. Retsinas,

Assistant Secretary for Housing-Federal Housing Commissioner.

(Note: The following guidelines will not be codified in the Code of

Federal Regulations.)

Guidelines to the Interstate Land Sales Registration Program

A copy of these guidelines applicable to the Interstate Land

Sales Registration Program may be obtained by writing to: Interstate

Land Sales Registration Program, HUD, 451 7th Street SW.,

Washington, DC 20410-8000 or by electronic access on the World Wide

Web, at: http://www.hud.gov

These guidelines were previously published as appendix A to Part

1710; Part 1700, Introduction; Part 1700.501, Certification

criteria; and Part 1700.502, Application for certification of State

land sales program, in title 24 of the Code of Federal Regulations

(CFR) (1995 edition).

Part IV(b), Improved Lots (which pertains to Appendix A to Part

1710) is revised to reflect recent court actions on this matter, as

discussed below.

Section 1702(a)(2) of Title 15 of the United States Code exempts

(1) the sale or lease of any improved land on which there is a

residential, commercial, condominium, or industrial building; or (2)

the sale or lease of land under a contract obligating the seller or

lessor to erect such a building on the lot within a period of 2

years.

Although there is virtually no legislative history regarding

this exemption at the time Congress passed the Interstate Land Sales

Full Disclosure Act, institutional memory within the Department is

to the effect that this exemption was added by an amendment offered

late in the course of passage. The reason for the amendment was to

exclude traditional homebuilders from the Act's requirements since

they did not comprise the class of persons Congress sought to

regulate. Nor were traditional home buyers, whose purchases tend to

be reasoned and deliberative, the class of consumers for whom the

Act's protections were intended.

HUD's first set of Guidelines, denoted ``Condominium And Other

Construction Contracts,'' was published on February 28, 1974, in

response to inquiries as to the applicability of the Act and this

exemption to condominiums. The Department published expanded

Guidelines on October 8, 1975, April 23, 1979, and August 6, 1984.

The 1984 Guidelines (which had appeared as an appendix to 24 CFR

part 1710) remained applicable until the effective date of these

Guidelines on April 26, 1996.

HUD consistently has taken the position that for a lot sale to

be eligible for the exemption under section 1702(a)(2), the seller's

obligation to construct must be real and not illusory, and must be

obligatory except for the conditions described in these guidelines.

On July 11, 1995, the United States Court of Appeals for the

Eighth Circuit issued an opinion that from HUD's perspective

effectively nullified the seller's obligation to construct. In fact,

it effectively nullified the exemption.

In Attebury v. Maumelle Company, 60 F.3d 415 (8th Cir. 1995), a

case in which HUD appeared as amicus curiae as to the exemption

issue only, the developer, Maumelle, used a sales contract that

initially recited its obligation to build within two years after the

lot sale. The contract then went on to recite a number of

conditions, the effect of which was to shift the obligation to build

onto the buyer.

HUD argued these guidelines and several cases that have

recognized an unconditional requirement on the seller to build. In

part, the case law adhered to the rule of construction that

exemptions from a remedial statute should be narrowly construed. The

court, which observed that the plaintiffs had not relied on the HUD

Guidelines in the district court, dismissed the government's

arguments primarily based on the language in this section that says:

``* * * the contract must specifically obligate the seller to

complete the building within two years'' (emphasis added), by

distinguishing the Guidelines' literal requirement that the

obligation to build be ``specific'' from the argument in this case

that the requirement be ``unconditional.''

At the time of the decision the language in question read:

If a seller (or developer) is relying on this exemption and the

residential, commercial, condominium or industrial building is not

complete, the contract must specifically obligate the seller to

complete the building within two years. If the contractual

obligation

[[Page 13599]]

is not present, the sale is not exempt. The two-year period begins

on the date the purchaser signs the sales contract. The use of a

contract that obligates the buyer to build within two years would

not exempt the sale.

As amended, the above paragraph will read:

If a seller (developer) is relying on this exemption and the

residential, commercial, condominium or industrial building is not

complete, the contract must obligate the seller to complete the

building within two years. If the contractual obligation is not

present, the sale is not exempt. The two-year period normally begins

on the date the purchaser signs the sales contract. A contract that

conditions construction upon acts of a buyer will not exempt the

sale. The essence of this exemption is that it applies to the sale

of a house (if not built at the time of sale, then to be built

within two years after the sale).

HUD's interpretation of what constitutes an obligation to

construct a building relies on general principles of contract law.

Provisions for purchaser financing and remedies clauses are matters

to be decided by the parties to the contract under the laws of the

jurisdiction in which the construction project is located. However,

such clauses may not alter the obligation of the seller to build.

(Another reason the court appears to have ruled in favor of

Maumelle is that the plaintiffs based much of their case on

allegations of fraudulent conduct, conduct which the court found

wanting of proof.)

The court also refused to accept the argument that by

recognizing the Maumelle contract as eligible for the exemption it

essentially abolished the reasons for the exemption. The purpose of

the exemption was to eliminate homebuilders from the ambit of the

Interstate Land Sales Full Disclosure Act. The rationale was that a

person who buys a house is much more attentive to the transaction

than one who is buying a lot. Moreover, the methods and practices of

selling the two products usually differs with a ``heavier sell''

being employed for lot sales.

Obviously, a buyer in a non-exempt transaction will shoulder any

responsibility for building a house. If the conditions in the

Maumelle contract create a similar result, which is the effect of

the ruling, there would be no reason for the exemption. (The fact

that fewer than 200 houses had been built on approximately 2,000

lots sold over a multi-year period was not a factor that the court

considered; the district court had found this fact not probative, a

finding that the Department found puzzling, given the purpose of

this exemption.)

For the above reasons HUD is amending the third, fourth and

fifth paragraphs of this section to make it clear that the seller's

obligation to build must be unconditional, except for the conditions

HUD recognizes as acceptable for exemption eligibility. HUD also is

amending the eighth and ninth paragraphs to update the discussion of

case law.

HUD is bound by the Maumelle decision within the jurisdiction of

the Eighth Circuit but not in other federal judicial circuits.

Moreover, since the Guidelines that the court considered when making

its decision are being changed to clarify the Department's position

that the obligation to build must be that of the developer, subject

only to the conditions recognized by HUD, HUD will not recognize the

Maumelle decision as controlling within the Eighth Circuit as to

lots offered after the publication of these amendments to the

Interstate Land Sales Guidelines.

Therefore, the Interstate Land Sales Guidelines are revised as

follows:

Guidelines to the Interstate Land Sales Registration Program

Public Information

In general. The identifiable records of the Office of Interstate

Land Sales Registration are subject to the provisions of 5 U.S.C.

552, as implemented by 24 CFR part 15--Public Information, subtitle

A.

Availability of information and records. Information concerning

land sales registrations and copies of statements of record may be

obtained from the following address: Interstate Land Sales

Registration Program, Department of Housing and Urban Development,

451 Seventh Street, SW., Washington, DC 20410-8000.

In addition, statements of record may be reviewed at such

address on any business day from 9 a.m. to 4:15 p.m.

Nonapplicability of exemptions authorized by 5 U.S.C. 552. With

the exception of information exempt from disclosure under 5 U.S.C.

552(b)(7) and 24 CFR 15.21(a)(7), all information contained in or

filed with any statement of record shall be made available to the

public as provided by 15 U.S.C. 1704(d).

Duplication fee--property report. Notwithstanding the provisions

of 24 CFR 15.14, Schedule of Fees, copies of a Property Report on

file with the Office of Interstate Land Sales Registration will be

provided upon request for a fixed fee of $2.50 per copy regardless

of the number of pages duplicated. Payment may be made in cash or by

check or money order payable to the Department of Housing and Urban

Development. Personal checks are acceptable.

Duplication and certification fee-required documents to the

several States that accept Federal filings. Notwithstanding the

provisions of 24 CFR 15.14, Schedule of Fees, copies of documents on

file with the Office of Interstate Land Sales Registration that are

provided for certification to the several states that accept Federal

filings will be provided upon request for a fixed fee of $12.00 per

filing regardless of the number of pages duplicated.

Methods of payment. The fees set forth above may be paid by

cash, by personal check, or by company check; or by U.S. money

orders; or by certified check payable to the Treasurer of the United

States or to the Department of Housing and Urban Development.

Postage stamps will not be accepted. All other fees must be paid as

set forth in 24 CFR 15.14(g).

Supplemental Information on Part 1710, Subpart C--Certification of

Substantially Equivalent State Law

Certification Criteria

(a) Certification of States requiring full disclosure. The

Secretary shall certify a state when--

(1) It is determined that the laws and regulations of the state

applicable to the sale or lease of lots not otherwise exempt under

section 1403 of the Act require the seller of lots to disclose

information which is substantially equivalent to or greater than the

information required to be disclosed in the Federal Statement of

Record; and

(2) The state's administration of such laws and regulations

shall provide that the information disclosed is current and

accurate. The means for administering the disclosure requirements

must include considerations of ample staffing, budgetary provisions

for policing functions and that the requisite legal authority be

vested in the state agency or agencies responsible for enforcing the

laws and regulations of the State land program.

(b) Certification of States providing sufficient protection. The

Secretary shall certify a state when--

(1) It can be demonstrated that the laws and regulations of the

state applicable to the sale or lease of lots not otherwise exempt

under section 1403 provide the purchasers and lessees with

protection commensurate with that which is provided by the Federal

disclosure requirements. That is, a State must develop substantive

measures plus disclosure which provides a level of protection that

is, at a minimum, comparable to the protection provided by the

Federal disclosure standard; and

(2) The administration of the laws and regulations provide that

all information disclosed is accurate and current. The means for

administering the requirements of sufficient protection must include

considerations of ample staffing, budgetary provisions for policing

functions and that the requisite legal authority be vested in the

state agency or agencies responsible for enforcing the laws and

regulations of the State land program.

(c) Applicability to Federal exemptions. To be certified a state

need not provide protections with regard to the sale or lease of

lots that would qualify for a Federal exemption. The state may

choose at its discretion to provide protections on the sale of lots

exempt under the Act. However, for certification a state's laws

should, in general, apply to the same lots as would be required to

be registered under the Act.

(d) Equivalency with Federal disclosure. In order to be

determined as substantially equivalent under paragraph (a) or (b) of

this section, a state must provide protection either through

disclosure, substantive development standards or some combination

thereof in the topics delineated in paragraph (e) of this section.

In addition, a state must satisfy requirements of paragraphs (f),

(g), (h), (i), (j) and (k) of this section.

(e) Areas of required protection. In order to be certified, a

state must require specific protections for consumers with regard to

[[Page 13600]]

paragraphs (e) (1) through (10) of this section. Protection in these

areas can be secured through disclosure, substantive development

standards or some combination thereof. Establishing protection

provisions in these areas is to be considered essential to the

granting of certification to a state. Paragraphs (e) (11) through

(15) of this section are considered to be complementary protection

provisions which would give additional strength to a state's land

program if combined with the required provisions for protection. If

the protection which is required by the items listed below is

provided through substantive standards rather than solely

disclosure, it is expected that the state will buttress those

substantive standards with requirements of performance that are

enforceable against developers. The state will designate who shall

be responsible for enforcing the commitments made by developers and

the method of enforcement to be used.

(1) Subdivision and developer information. The name of the

subdivision, the name and address of the developer or owner, the

nature of the offering and the number of lots in the subdivision

must be given to the purchaser.

(2) Method of sale or lease. Information with regard to the:

developer's method of sale, type of contract used, type and time

frame for delivery of the deed, recordation of contract and deed,

whether there is a security arrangement and its description, any

escrow arrangement for monies received, title insurance,

prepayments, defaults, developer's resale and lot exchange program,

time sharing and membership sales must be given to the purchaser.

(3) Condition of title. Information about all liens,

encumbrances or mortgages affecting purchasers in the subdivision,

the lots covered and the impact on purchasers and lessees in a

subdivision should a developer default, and mortgage release

provisions must be given to the purchaser.

(4) Condition and use of property. Information regarding land

reservations, unusual or restrictive easements, mineral

reservations, land use restrictions, special zoning permits,

environmental impact studies which may have been conducted and their

results, topographical characteristics, including any subsurface

conditions and potentially hazardous natural conditions must be

given to purchasers.

(5) Financial and legal information. Information about the net

income and worth of the developer, condition of financial operations

at present and in the preceding fiscal year, bankruptcy litigation

or other litigation to which the developer is a party or action

taken against the developer by a governmental agency which may have

a material adverse impact upon its financial condition or its

ability to transfer title to a purchaser or to complete promised

facilities must be given to purchasers.

(6) Roads. Information about access and subdivision roads, type

of surface (present and final), completion dates, percentage of

completion, buyer's cost and assessment, who is responsible for

completion and maintenance and financial assurance of completion

must be given to purchasers.

(7) Water. Information as to how water is to be supplied,

supplier, completion dates, percentage of completion, any financial

assurance of completion, buyer's cost and assessment including hook-

up and water hauling costs, who is responsible for completion,

quality and quantity, source, capacity of the water system, any

intention to transfer the water system and the cost to lot owners or

property owners association and any permits or approvals required

must be given to purchasers.

(8) Sewerage facilities. Information as to the method used,

supplier, completion dates, percentage of completion, any financial

assurance of completion, buyer's cost and assessment including hook-

up and sewage pumping and hauling, capacity of central system, who

is responsible for completion, approvals and permits required,

transfer of system to lot owners or property owners association must

be given to purchasers.

(9) Utilities (gas, electric, phone). Information as to the

availability, supplier, purchaser's or lessee's cost, completion

date, percentage of completion must be given to purchasers.

(10) Recreational facilities. A list of the facilities and

information about estimated date available for use, percentage of

completion, any financial assurance or completion, buyer's or

lessee's cost and assessment, who is responsible for completion,

maintenance, disclosures on facilities which will be leased and/or

transferred to the lot owners or property owners' association and

who may use the facilities must be given to purchasers.

(11) Lots being sold or leased. Information about the legal

descriptions of the offering by lot, block and unit number may be

given to purchasers.

(12) Location, size surrounding communities. Information which

describes the county seat, surrounding communities of significant

size and services offered, population of the area, road systems and

the potential size of the subdivision may be given to purchasers.

(13) Taxes and assessments. Information about payments to

property owners' associations, the property owners' association's

functions and responsibilities, management of the association,

extent of developer control and the purpose of any special

improvement district may be given to purchasers.

(14) Community facilities. Information about the availability of

schools, medical and dental services, postal services, fire and

police protection, shopping facilities and public transportation may

be given to purchasers.

(15) Platting. Information which reports whether the

subdivision's plats have been approved by regulatory authorities,

whether the plats have been recorded and whether the survey and

staking of each lot has been done and the cost that may be passed on

to purchasers may be given to purchasers.

(f) The disclosure law of the State must be consistent with, but

not necessarily identical to, the requirements of 15 U.S.C.

1703(a)(2)(D). This provision makes it unlawful for a developer to

represent in any manner that it will provide or complete roads,

sewers, water, gas or electric service or recreational amenities

without stipulating in the contract of sale or lease that such

services or amenities will be provided. Developers registered with

the Secretary through a certified state are subject to this

requirement. Consequently, the State may itself impose this

substantive requirement upon developers. In any event, the

disclosure documents approved by any certified state must meet the

federal standard with respect to subdivision improvements.

Developers are not allowed to represent that they will provide or

complete roads, water, sewer, gas or electric facilities or

recreational facilities unless the contract or agreement for sale

obligates the developer to complete the facilities.

(g) In order to be determined substantially equivalent to the

federal disclosure requirement, the state law and regulations must

require that prospective purchasers and lessees receive, prior to or

at the time of the signing any contract or agreement for purchase or

lease, the applicable disclosure document containing complete and

accurate information on the subdivision and the developer. In

addition, state law or regulation must require developers to file

amendments if any change occurs in any representation of material

fact required to be stated in the disclosure materials filed with

the state. The state law or regulation regarding amendments should

entail requirements equivalent to those stated in 24 CFR 1710.23.

(h) For a state to be certified, it must be demonstrated that

the state has or will have adequate full-time professional and

clerical staff in its regulatory agency or agencies responsible for

regulating the sale or lease of lots within its jurisdiction; that

there is a budget approved for that staff which will permit them to

fulfill the administrative and enforcement responsibilities; and

that the staff have adequate legal authority to take official action

in cases falling within the purview of state law and regulation.

(i)(1) If a certified state modifies or amends any law,

regulation or administrative procedure with regard to subdivision

development standards, it shall so notify HUD by registered or

certified mail within 30 days after the modification or amendment

has been enacted or promulgated. The state must submit to HUD new

copies of its laws, regulations, rulings, administrative provisions

and legal opinions, as amended, mandating the disclosure of

information or establishment of development standards regarding land

sales.

(2) Should any changes occur as set forth above and result in a

measurable alteration of the protection provided to consumers by the

state, the Secretary may, upon examination of those changes, re-

evaluate the certification status of the state's land program.

(j) Once a state is certified and the state's disclosure

document has become the Federal Property Report, the Secretary may

require, as a condition of certification, a cover page, similar to

the one presently used for federal filings, to be attached to the

certified state filings. The form and substance of the federal cover

page is explained in 24 CFR 1710.105. If a certified state filing

does not have a cover page, the Secretary may require that, as a

condition of certification, the state include

[[Page 13601]]

information regarding the federal revocation period within the body

of the state disclosure document.

(k) The Secretary shall require all certified states to submit

to the Secretary a copy of any notice of suspension which the state

has issued to a developer at the time the notice is sent to the

developer.

Application for Certification of State Land Sales Program

(a) In order to be certified, a state must submit an application

to the Office of Interstate Land Sales Registration, Department of

Housing and Urban Development, 451 7th Street, SW., Washington, DC

20410. The application should be titled ``Application for

Certification of State Land Sales Program.'' The application should

use the section format and contain the information set out below:

Application for Certification of State Land Sales Program Submitted by:

(Name, Address and Telephone Number of State Agency and Person To

Contact.)

Section 1. Legal Authorities. This section should contain copies

of all laws and regulations (including rulings and legal opinions

having the effect of law) establishing and interpreting disclosure

requirements or substantive development standards with regard to

land sales and leases including all administrative provisions and

all provisions establishing exemptions from the rule. Only those

legal authorities which deal with land sales and leases subject to

the federal disclosure requirements need be submitted.

Section 2. Sample Copies of Material to be Submitted by

Developers to the State. This section should contain sample copies

of all materials required to be filed with the agency responsible

for regulating the sale of lots in subdivisions and sample copies of

all material required to be provided to purchasers and lessees and

prospective purchasers and lessees.

Section 3. Methods of Administration and Enforcement. This

section should contain a detailed statement on the methods and scope

of the state's administration and enforcement procedures to include:

(a) The name and address of the agency responsible for

regulating the sale or lease of lots in subdivisions.

(b) The staffing capacity of the responsible State Regulatory

Agency. There should be included:

(1) An organizational chart which describes not only the

internal structure of the regulatory agency (agencies) but also the

relationship of that agency to other decision-making centers;

(2) a description of the functions and duties of the full-time

staff;

(3) the eligibility criteria, i.e., training, education and

experience, for principal members of the staff; and

(4) the formula used in calculating the necessary number of

staff members to fulfill administrative, investigative and

enforcement responsibilities. The state should submit for the

Secretary's review the actual number of complaints received,

enforcement actions taken, and investigations initiated for the past

three years.

(C) A description of the anticipated additional staff, if any,

and their duties and qualifications.

(D) The method and scope of investigation and enforcement to be

used. The state should demonstrate the procedures to be followed

from the time a complaint is received until the completion of action

on that complaint and the kinds of sanctions which may be involved.

(E) Included should be an accounting of the number of new

filings received per year for the past three years, the number of

amendments received per year, and the total number of active

filings.

Section 4. Assertion of Equivalency. This section should contain

a detailed statement supporting the state's claim that its land

program provides purchasers and lessees through disclosure,

substantive development standards or combination thereof, protection

substantially equivalent to the protection provided for them by

Federal law.

(b) Upon receiving an application for certification, the

Secretary will publish a Notice of Application in the Federal

Register. The purpose of this public notice is to give other

certified states and other interested parties an opportunity to

review and comment on applications and to enhance consistency among

states which are certified. Person(s) interested in receiving

application materials for review and comment purposes may request

them from the Secretary. Comments should be submitted no later than

30 days after the Notice of Application has been published.

Supplemental Information to Part 1710: Guidelines for Exemptions

Available Under the Interstate Land Sales Full Disclosure Act

Table of Contents

Part I Introduction

Part II Definitions

(a) Anti-Fraud Provisions

(b) Common Promotional Plan

(c) Delivery of Deed

(d) Lot

(e) Sale

(f) Site

(g) Subdivision

Part III Exclusions from the Act

(a) Reservation

(b) Undivided Interest

Part IV Statutory Exemptions from the Title Requiring No

Determination by HUD

(a) Twenty-Five Lots

(b) Improved Lots

(c) Evidences of Indebtedness

(d) Securities

(e) Government Sales

(f) Cemetery Lots

(g) Sales to Builders

(h) Industrial or Commercial Developments

Part V Statutory Exemptions From Registration Requiring No HUD

Determination

(a) One Hundred Lot Exemption

(b) Twelve Lot Exemption

(c) Scattered Site Exemption

(d) Twenty Acre Lots Exemption

(e) Single-Family Residence Exemption

(f) Mobile Home Exemption

(g) Intrastate Exemption

(h) Metropolitan Statistical Area (MSA) Exemption

Part VI Regulatory Exemptions From Registration Requiring No HUD

Determination

(a) General

(b) Eligibility Requirements

(1) Inexpensive Lots

(2) Five Year Lease

(3) Lot Sales to Developers

(4) Adjoining Lot

(5) Lot Sales to a Government

(6) Sales of Leased Lots

Part VII Regulatory Exemption. HUD Determination Required

Part VIII Advisory Opinion

(a) General

(b) Requirements

Part IX No Action Letter

Part I--Introduction

The Interstate Land Sales Registration Division (also known as

OILSR) is offering these Guidelines to clarify agency policies and

positions with regard to the exemption provisions of the Interstate

Land Sales Full Disclosure Act (the Act), Pub. L. 90-448 (15 U.S.C.

1701 through 1720), and its implementing regulations, 24 CFR parts

1710 through 1730. The regulations comply with the Paperwork

Reduction Act of 1980, as evidenced by Office of Management and

Budget approval number 2502-0243. These Guidelines are intended to

assist a developer in determining whether or not a real estate

offering is exempt from any or all of the requirements of the Act.

They supersede any Guidelines previously issued by this Office.

This is an interpretive rule, not a substantive regulation. Not

every conceivable factor of the exemption process is covered in

these Guidelines and variations may occur in unique situations.

Examples are given, but the examples do not in any way exhaust the

myriad possibilities occurring in land development and land sales

activity, nor do they set absolute standards.

To understand the exemptions, the jurisdictional scope of the

Act must be understood. Any use of the mails, including intrastate

use, or advertising in media which have interstate circulation is

sufficient to establish jurisdiction. Generally, if a real estate

offering falls under the jurisdiction established by the Act, a

developer of a subdivision containing 100 or more lots must register

the subdivision. Registration includes filing a Statement of Record

and supporting documentation with HUD and providing to prospective

purchasers an effective Property Report containing important facts

about the subdivision and the developer.

Effective June 21, 1980, the provisions of the Act that prohibit

misrepresentations or practices that would result in defrauding

purchasers generally apply to sales or lease programs of 25 or more

lots offered pursuant to a common promotional plan where any means

or instruments of transportation or communication in interstate

commerce, or the mails, are used.

Real estate offerings that meet the eligibility requirements or

an exemption are exempt from all or some of the Act's requirements

unless the method of operation

[[Page 13602]]

has been adopted for the purpose of evading the requirements of the

law. The exemptions are available for subdivisions with particular

characteristics, for certain individual lot sales transactions or

for real estate meeting specific criteria. In addition, the Act

gives the Secretary authority to exempt subdivisions or lots in a

subdivision if, because of the small amount involved or the limited

character of the offering, enforcement of the Act (i.e., full

registration and disclosure) is not necessary in the public interest

and for the protection of purchasers.

If the offering is subject to the Act and does not qualify for

an exemption, it must be registered. The requirement of registration

does not imply that the real estate value is questioned or the

integrity of a business is suspect. The law simply provides that

prospective purchasers have the right to adequate disclosure of

facts about a subdivision so that an informed decision about the

potential purchase can be made.

As exceptions to the registration and full disclosure

requirements of the Act, the exemption provisions are strictly

construed. The exemption requirements do not prescribe a method of

operation or dictate how a subdivision should be developed.

A developer is not required to submit any documentation or

obtain a determination from HUD to operate under any exemption

except the one provided under 24 CFR 1710.16 (part VI of these

Guidelines). However, if there is any question whatsoever concerning

whether or not a real estate offering qualifies for any of the

exemptions, developers are encouraged to seek legal counsel or

obtain an Advisory Opinion from the Department before making any

sales or leases. Experience has shown that developers are sometimes

misinformed as to the applicability of the Act to their offering and

that such misunderstanding can result in violative sales and the

disruption of business. The instructions and format for obtaining an

Advisory Opinion are contained in Sec. 1710.17 of the regulations

and in part VIII of these Guidelines.

Part II--Definitions

The following definitions are included here because of the

importance each has to the explanation and understanding of HUD's

interpretations of the exemption requirements. Furthermore, with the

exception of ``lot'', ``sale'', ``common promotional plan'', and

``subdivision'', these definitions are not set forth elsewhere. The

definitions of ``lot'' and ``sale'' are repeated here because of

their extraordinary importance to the exemptions.

(a) Anti-Fraud Provisions means the provisions of the Act that

prohibit the use of any sales practices, advertising or promotional

materials that: would be misleading to purchasers; contain any

misrepresentation of material facts or untrue statements; or would

operate as a fraud or deceit upon a purchaser. Also prohibited are

representations that roads, sewer, water, gas or electric services

or recreational amenities will be provided or completed by the

developer without so stipulating in the contract. The relevant

provisions are set forth in 15 U.S.C. 1703(a)(2). The regulations

that implement the anti-fraud provisions are set forth in 24 CFR

part 1715, subpart B.

(b) Common Promotional Plan means any plan undertaken by a

single developer or a group of developers acting together to offer

lots for sale or lease. A common promotional plan is presumed to

exist if land is offered by a developer or a group of developers

acting in concert and the land is contiguous or is known,

designated, or advertised as a common development or by a common

name. The number of lots covered by each individual offering has no

bearing on whether or not there is a common promotional plan.

Other characteristics that are evaluated in determining whether

or not a common promotional plan exists include, but are not limited

to: a 10% or greater common ownership; same or similar name or

identity; common sales agents; common sales facilities; common

advertising; and common inventory. The presence of one or more of

the characteristics does not necessarily denote a common promotional

plan. Conversely, the absence of a characteristic does not

demonstrate that there is no common promotional plan.

Two essential elements of a common promotional plan are a thread

of common ownership or developers acting in concert. However, common

ownership alone would not constitute a common promotional plan. HUD

considers the involvement of all principals holding a 10 percent or

greater interest in the subdivision to determine whether there is a

thread of common ownership. If there is common ownership or if the

developers are acting in concert, and there is common advertising,

sales agents or sales office, a common promotional plan is presumed

to exist. Experience has led to the conclusion that sales agents

generally will direct a prospective purchaser to any or all

properties in inventory to make a sale.

The phrase ``common promotional plan'' is most often

misunderstood by those who believe that ``promotion'' implies an

enthusiastic sales campaign. Any method used to attract potential

purchasers is, in fact, the ``promotional plan''. For example,

direct mail campaigns and free dinners may be the promotional plan

of one developer while another developer's promotion may be limited

to classified advertisements in a local newspaper.

Brokers selling lots as an agent for any person who is required

to register are required to comply with the requirements of the Act

for those sales. Brokers selling lots for different individuals who

do not own enough lots to come within the jurisdiction established

by the Act generally would not be considered to be offering lots

pursuant to a common promotional plan as long as they are merely

receiving the usual real estate commission for such sales. If the

broker has an ownership interest in the lots or is receiving a

greater than normal real estate commission, the broker may be

offering lots pursuant to common promotional plan and may be

required to comply with the requirements of the Act.

(c) Delivery of Deed means the physical transfer of a recordable

deed, executed by the seller to the purchaser, to the purchaser's

agent or to the appropriate governmental recording office. If the

transfer (i.e., delivery) is to an agent or to a recording office,

there must not be any conditions imposed upon the purchaser or any

further action to be taken by either the purchaser or the seller. If

delivery is to the place of recordation, it must be accompanied by

the proper recordation fees.

(d) Lot means any portion, piece, division, unit or undivided

interest in land if such interest includes the right to the

exclusive use of a specific portion of the land or unit. This

applies to the sale of a condominium or cooperative unit or a

campsite as well as a traditional lot.

If the purchaser of an undivided interest or a membership has

exclusive repeated use or possession of a specific designated lot

even for a portion of the year, a lot, as defined by the

regulations, exists. For purposes of definition, if the purchaser

has been assigned a specific lot on a recurring basis for a defined

period of time and could eject another person during the time he has

the right to use that lot, then the purchaser has an exclusive use.

(e) Sale means any obligation or agreement for consideration to

purchase or lease a lot directly or indirectly. The time of sale is

measured from when a purchaser signs a contract, even if the

contract contains contingencies beyond the control of the seller.

For example, if a developer uses a contract which states that the

sale is contingent upon obtaining an exemption from HUD, a sale, for

the purposes of this definition, occurred when the purchaser signed

the contract. The terms ``sale'' and ``seller'' include the terms

``lease'' and ``lessor'' for the purposes of the regulations and

these Guidelines.

(f) Site means a group of contiguous lots whether such lots are

actually divided or proposed to be divided. Lots are considered to

be contiguous even though contiguity may be interrupted by a road,

park, small body of water, recreational facility or any similar

object.

(g) Subdivision means any land that is located in any state or

in a foreign country and is divided or is proposed to be divided

into lots, whether contiguous or not, for the purpose of sale or

lease as part of a common promotional plan. Any number of lots,

whether divided by the previous owner, divided by the current owner,

or merely proposed to be divided may constitute a subdivision.

``Proposed to be divided'' includes the developer's intention to

subdivide land, as well as the developer's intention to add

additional land or units.

Part III--Exclusions From the Act

The following items are excluded from the coverage of the Act:

(a) Reservation. A reservation is a non-binding agreement used

to gauge market feasibility for a developer through which a

potential purchaser expresses an interest to buy or lease a lot or

unit at some time in the future. A deposit may be accepted from the

interested person provided that the money is placed in escrow with

an independent institution having trust powers and is refundable in

full at any time at the option

[[Page 13603]]

of the potential purchaser. To be excluded from the Act, in no case

may a reservation become a binding obligation to purchase a lot; the

potential purchaser must take some subsequent affirmative action,

typically the signing of a sales contract, to create a binding

obligation. An option agreement is an arrangement for consideration

in which a potential purchaser could forfeit money; therefore, an

option agreement is not a reservation. In no event may a document

purporting to be a Property Report or other evidence of compliance

with the Act be delivered to an interested party when entering a

reservation agreement for a lot or proposed condominium unit which

is neither effectively registered nor exempt.

(b) Undivided interests. The sale of undivided interests that do

not carry with them the right of exclusive use of a specific lot

does not establish jurisdiction. For example, a camping subdivision

sold as 400 undivided interests to tenants in common, where

purchasers have a co-extensive, non-exclusive right to the use and

enjoyment of all campsites on a space available basis and no

purchaser has an expressed or implied exclusive right to repeatedly

use or occupy any specific campsite, would not be covered by the

Act.

Part IV--Statutory Exemptions Requiring No Determination by HUD

The discussions that immediately follow pertain to 15 U.S.C.

1702(a) (1) through (8). The exemptions are set forth in the

regulations at 24 CFR 1710.5 (a) through (h). These provisions

exempt sales from both the anti-fraud and the registration

provisions of the Act.

(a) Twenty-five Lots. (15 U.S.C. 1702(a)(10) and 24 CFR

1710.5(a)).

This section exempts the sale or lease of lots in a subdivision

(i.e., lots offered pursuant to the same common promotional plan)

that contains fewer than 25 lots. If a subdivision contains 25 or

more lots, but fewer than 25 of those lots are offered for sale

under a common promotional plan, those sales would be exempt. Thus,

in a subdivision of 28 lots in which 4 lots are not offered for sale

because, for example, they are permanently dedicated to the public

for a park, the sale of the remaining 24 lots is exempt.

If fewer than 25 lots are acquired in a larger subdivision, the

offer of these lots may be subject to the Act if the acquiring party

is in any way acting in concert with the previous or current

developer of the balance of the subdivision. Correspondingly, if

fewer than 25 lots are acquired in a larger subdivision, the offer

of the lots may be exempt if there is neither an identity of

interest between the acquiring party and the previous or current

developer nor any form of concerted action that constitutes a common

promotional plan.

Since the fewer than 25 lots exemption is based upon the number

of lots as opposed to the number of sales, resales of a lot will not

be counted toward the fewer than 25 lots limit.

(b) Improved Lots, 15 U.S.C. 1702(a)(2).

Section 1702(a)(2) of Title 15 of the United States Code exempts

(1) the sale or lease of any improved land on which there is a

residential, commercial, condominium, or industrial building; or (2)

the sale or lease of land under a contract obligating the seller or

lessor to erect such a building on the lot within a period of two

years.

For a building or unit to be considered complete, it must be

physically habitable and usable for the purpose for which it was

purchased. A residential structure, for example, must be ready for

occupancy and have all necessary and customary utilities extended to

it before it can be considered complete. Manufactured home lots with

pads but no structure, even if improved with utilities and roads,

will not qualify for this exemption. Recreational vehicles are not

considered buildings.

If a seller (developer) is relying on this exemption and the

residential, commercial, condominium or industrial building is not

complete, the contract must obligate the seller to complete the

building within two years. If the contractual obligation is not

present, the sale is not exempt. The two-year period normally begins

on the date the purchaser signs the sales contract. A contract that

conditions construction upon acts of a buyer will not exempt the

sale. The essence of this exemption is that it applies to the sale

of a house (if not built at the time of sale, then to be built

within two years after the sale).

HUD's interpretation of what constitutes an obligation to

construct a building relies on general principles of contract law.

Provisions for purchaser financing and remedies clauses are matters

to be decided by the parties to the contract under the laws of the

jurisdiction in which the construction project is located. However,

such clauses may not alter the obligation of the seller to build.

For example, if the type and terms of financing are subject to

negotiation between buyer and seller, but the buyer is unable to

obtain financing as a condition of the obligation to build, then the

sale fails for exemption purposes. The inability of the buyer to

obtain construction financing will not relieve the seller from the

obligation to build, thereby leaving the buyer with a lot free of a

construction obligation. Since the nature of the transaction is the

sale of a house (or other structure), there should be no reason for

separate construction financing in the normal course of business.

The contract must not allow nonperformance by the seller at the

seller's discretion. Contracts that permit the seller to breach

virtually at will are viewed as unenforceable because the

construction obligation is not an obligation in reality. Thus, for

example, a clause that provides for a refund of the buyer's deposit

if the seller is unable to close for reasons normally within the

seller's control is not acceptable for use under this exemption.

Similarly, contracts that directly or indirectly waive the buyer's

right to specific performance are treated as lacking a realistic

obligation to construct. HUD's position is not that a right to

specific performance of construction must be expressed in the

contract, but that any such right that purchasers have must not be

negated. For example, a contract that provides for a refund or a

damage action as the buyer's sole remedy would not be acceptable.

Contract provisions which allow for nonperformance or for delays

of construction completion beyond the two-year period are acceptable

if such provisions are legally recognized as defenses to contract

actions in the jurisdiction where the building is being erected. For

example, provisions to allow time extensions for events or

occurrences such as acts of God, casualty losses or material

shortages are generally permissible. Also permissible, in the case

of multi-unit construction, is a clause conditioning the completion

of construction or closing of title on a certain percentage of sales

of other units. The presale period cannot exceed 180 days from the

date the first purchaser signs a contract in the project or, in a

phased project, from the date the first purchaser signs a sales

contract in a phase. Such a clause may not extend the overall two-

year obligation to construct.

Although the factual circumstances upon which nonperformance or

a delay in performance is based may vary from transaction to

transaction, as a general rule delay or nonperformance must be based

on grounds cognizable in contract law such as impossibility or

frustration and on events which are beyond the seller's reasonable

control.

Because of the variations in applicable contract law among the

states and the many different provisions that are used by sellers in

construction contracts, HUD may condition its advisory opinions

regarding this exemption on representations by local counsel as to

the current status of state law on the relevant issues. For example,

the Florida Supreme Court has ruled that there must be an

unconditional commitment to complete construction within two years

and that the remedies available to the purchaser must not be

limited. Samara Development Corp. v. Marlow, 556 So.2d 1097 (Fla.

1990). See also Schatz v. Jockey Club Phase III, Ltd., 604 F. Supp.

537 (S.D. Fla. 1985). Developers, especially those in Florida,

should be aware of these decisions, as well as decisions in other

jurisdictions, e.g., Markowitz v. Northeast Land Co., 906 F.2d 100

(3d Cir. 1990).

For a different view, readers should refer to Attebury v.

Maumelle Company, 60 F.3d 415 (8th Cir. 1995), in which the court

upheld a contractual provision to build as sufficient to qualify for

the exemption despite the fact that the contract then shifted that

responsibility to the buyer. This revision of the Guidelines dealing

with the ``Improved lot'' exemption is in reaction to the Maumelle

decision. At the time of this writing another case of interest was

pending in the United States District Court for the Eastern District

of Michigan. Whether it ultimately will result in a decision on the

Land Sales issues is unknown, as it is the understanding of the

Department that settlement negotiations are ongoing. The court is

considering those issues on remand from the Court of Appeals for the

Sixth Circuit. See Becherer v. Merrill Lynch, Pierce, Fenner &

Smith, Inc., 43 F.3d 1054 (6th Cir. 1995).

Since questions about this exemption most often arise in

connection with condominiums, developers and others should be aware

of the decision in the case

[[Page 13604]]

of Winter v. Hollingsworth Properties Inc., 777 F.2d 1444 (11th Cir.

1985), in which the court held that the Interstate Land Sales Full

Disclosure Act applied to the sale or lease of condominium units.

This ruling is in consonance with the Department's longstanding

position on the condominium issue. The weight of authority of other

cases, both Federal and State, supports the Department's position.

Therefore, it continues to be the Department's policy that the mere

use of the condominium form of ownership does not determine

jurisdiction of the Act and that developers should look to the

specific requirements of the statutory and regulatory exemptions as

amplified in these Guidelines to determine the applicability of the

Act.

(c) Evidence of Indebtedness. (15 U.S.C. 1702(a)(3) and 24 CFR

1710.5(c)).

This section exempts the sale or lease of evidences of

indebtedness (typically a note) secured by a mortgage or deed of

trust on real estate. The sale of such notes, which is common in the

industry, is exempt; however, the underlying sale of the land is not

exempt under this provision.

(d) Securities. (15 U.S.C. 1702(a)(4) and 24 CFR 1710.5(d)).

This section exempts the sale of securities issued by a real

estate investment trust.

(e) Government Sales. (15 U.S.C. 1702(a)(5) and 24 CFR

1710.5(e)).

This section exempts the sale or lease of real estate by any

government or government agency. This exemption extends to the sale

or lease of land by a city, state, or foreign government as well as

the sale of land by the U.S. Government. However, it does not exempt

sales or leases of lots by Federal or state chartered and regulated

institutions such as banks or savings and loan associations, nor

does the fact that the development is assisted, insured or

guaranteed under a Federal or state program exempt the lot sales.

Municipal Utility Districts and Special Improvement Districts may or

may not be considered a qualified government agency under this

exemption depending on the legal basis and operation of the

District.

(f) Cemetery Lots. (15 U.S.C. 1702(a)(6) and 24 CFR 1710.5(f)).

This section exempts the sale or lease of cemetery lots.

(g) Sales to Builders. (15 U.S.C. 1702(a)(7) and 24 CFR

1710.5(g)).

This section exempts the sale or lease of lots to any person who

acquires the lots for the purpose of engaging in the business of

constructing residential, commercial, or industrial buildings or for

the purpose of resale or lease of the lots to persons engaged in

such a business. The term business is viewed as an activity of some

continuity, regularity, and permanency, or means of livelihood.

The sale or lease of lots to an individual who purchases the

lots to have his or her own home built is not exempt under this

provision. The sale to a non-broker who is buying a lot for

investment with indefinite plans for resale also is not exempt.

(h) Industrial or Commercial Developments. (15 U.S.C. 1702(a)(8)

and 24 CFR 1710.10(h)).

This section exempts the sale or lease of real estate which is

zoned for industrial or commercial development. If there is no

zoning ordinance, the exemption is available only if the real estate

is restricted to industrial or commercial development by a

declaration of covenants, conditions, and restrictions which have

been recorded in the official records of the city or county in which

the real estate is located. In addition, the following five

conditions must exist in order to establish eligibility for this

exemption:

(1) Local authorities have approved access from the real estate

to a public street or highway. The approved access to a public

street or highway must run to the legal boundary of the subdivision,

but need not run to each and every lot;

(2) The purchaser or lessee of the real estate is a duly

organized corporation, partnership, trust or business entity engaged

in commercial or industrial business. To be considered ``duly

organized'', a purchaser or lessee must have set up an

administrative structure to conduct business, such as: checking

accounts; licenses and permits, if required; evidence of intent; and

a set of accounting records. The phrase ``engaged in business''

implies an activity of some continuity, regularity and permanency,

or means of livelihood. A new entity or individual starting a

business must be authorized to conduct such business in the

jurisdiction in which the subdivision is located;

(3) The purchaser or lessee of the real estate is represented in

the transaction of sale or lease by a representative of its own

selection. The term ``representative'' is not limited to attorneys

and does not exclude sole proprietors from representing themselves.

Any person can serve as the representative of the purchaser or

lessee so long as sufficient evidence can be produced to prove

authority to act in that capacity;

(4) The purchaser or lessee of the real estate affirms in

writing to the seller that: it is either purchasing or leasing the

real estate substantially for its own use or it has a binding

commitment to sell, lease or sublease the real estate to an entity

which meets the requirements of (2) above; it is engaged in

commercial or industrial businesses; and it is not affiliated with

the seller or agent. These affirmations should be retained by the

developer in accordance with the statute of limitations of the local

jurisdiction or for a period of three years, whichever is longer. If

the affirmation is included in the contract, a space must be

provided for the purchaser to initial immediately following the

affirmation clause; and

(5) A title insurance policy or a title opinion is issued in

connection with the transaction showing that title to the real

estate purchased or leased is vested in the seller or lessor,

subject only to such exceptions as are approved in writing by the

purchaser or lessee, preferably in a separate document, prior to the

recordation of the instrument of conveyance or execution of the

lease. The recordation of a lease is not required. Any purchaser or

lessee may waive, in writing in a separate document, the requirement

that a title insurance policy or title opinion be issued in

connection with the transaction.

Part V--Statutory Exemptions From Registration Requiring No HUD

Determination

The discussions that immediately follow pertain to 15 U.S.C.

1701(b) (1) through (8) and 24 CFR 1710.6 through 1710.13.

The developer must comply with the Act's anti-fraud provisions

(15 U.S.C. 1703(a)(2)) for sales of lots in the subdivision that are

exempt under these provisions. Developers should be particular aware

of the requirements of 15 U.S.C. 1703(a)(2)(D).

(a) One Hundred Lot Exemption. (15 U.S.C. 1702(b)(1) and 24 CFR

1710.6).

This section exempts the sale of lots in a subdivision if: the

subdivision contained fewer than 100 lots on April 28, 1969; has,

since that date, contained fewer than 100 lots; and will continue to

contain fewer than 100 lots. The 100 lot count for purposes of the

exemption excludes lots that are exempt from jurisdiction under 24

CFR 1710.5 (b) through (h). It should be noted that the ``25 lot''

exemption under Sec. 1710.5(a) cannot be used in connection with the

``100 lot'' exemption.

For example, a developer of a subdivision containing a total of

129 lots since April 28, 1969, qualifies for this exemption if at

least 30 lots are sold in transactions that are exempt because the

lots had completed homes erected on them. The 30 exempt transactions

may fall within any one exemption or a combination of exemptions

noted in Sec. 1710.5 (b) through (h) and may be either past or

future sales. In the above example, the developer also could qualify

if twelve lots had been sold with residential structures already

erected on them, nine lots had been sold to building contractors and

at least nine lots were reserved for either the construction of

homes by the developer or for sales to building contractors. The

reserved lots need not be specifically identified.

Developers of subdivisions containing more than 99 lots who wish

to operate under this exemption must assure themselves that all lots

in excess of 99 have been and will be sold in transactions exempt

under 24 CFR 1710.5 (b) through (h). The sale of more than 99 lots

in transactions not exempt under Sec. 1710.5 (b) through (h) would

nullify this exemption for prior and future sales and might result

in prior sales being voidable at the purchaser's option.

Since the ``100 lot'' exemption applies to the number of the

lots as opposed to the number of sales, resales of a lot will not be

counted toward the 100 lot limit. However, any sale or resale of a

lot must comply with the anti-fraud provisions.

If fewer than 100 lots are acquired in a larger subdivision, the

offer of these lots will not be exempt if the acquiring party is, in

any way, acting in concert with the previous or current developer of

the balance of the subdivision so as to create a common promotional

plan for 100 or more lots unless sales of the other lots are exempt

under Sec. 1710.5. However, if fewer than 100 lots are acquired in a

larger subdivision, the offer of the lots may be exempt if there is

neither an identity of interest between the acquiring party and the

previous or current developer nor a form of concerted action

constituting a common promotional plan.

[[Page 13605]]

(b) Twelve Lot Exemption. (15 U.S.C. 1702(b)(2) and 24 CFR

1710.7).

This section exempts the sale of lots from the registration

requirements of the Act if, beginning with the first sale after June

20, 1980, no more than twelve lots in the subdivision are sold in

the subsequent 12-month period. Thereafter, the sale of the first

twelve lots each period is exempt from the registration requirements

if no more than twelve lots were sold in each previous 12-month

period that began with the anniversary date of the first sale after

June 20, 1980. For example, if a developer's first lot sale after

June 20, 1980 occurred on August 5, 1980 and no more than eleven

additional lots in the subdivision were sold through August 4, 1981,

the sales would be exempt.

During the second year of operation under this exemption

(beginning on August 5, 1981 in the example) at least the first

twelve lot sales would be exempt. However, if lot sales exceed

twelve in the second or any subsequent year, the exemption would

terminate on the sale of the thirteenth lot. Once eligibility has

been terminated, the exemption is no longer available and cannot be

recaptured by the same developer for the same subdivision even if

there are fewer than twelve lots sold in subsequent years.

A developer may apply to the Secretary to establish a different

twelve-month period for use in determining eligibility for the

exemption, and the Secretary may allow the change if it is for good

cause and consistent with the purpose of this section. An example

would be to change the year to coincide with the developer's fiscal

or tax year.

In determining eligibility for this exemption, all lots sold or

leased in the subdivision after June 20, 1980 are counted, whether

or not the lot is registered or the transaction is otherwise exempt,

such as the sale of a home and lot package. This exemption extends

to twelve lots, not twelve sales. Each lot would be counted in the

sale or lease of multiple lots.

Since the ``twelve lot'' exemption applies to the number of lots

as opposed to the number of sales, resales of a lot will not be

counted toward the twelve lot limit. The sale and resale of a lot

must qualify for the exemption and comply with the anti-fraud

provisions. However, lot sales exempt under Sec. 1710.5 (b) through

(h), while counted toward the total of twelve, are not required to

comply with the anti-fraud provisions.

(c) Scattered Site Exemption. (15 U.S.C. 1702(b)(3) and 24 CFR

1710.8).

This section exempts from the Act's registration requirements

the sale of lots in a subdivision consisting of noncontiguous parts

if: (1) each noncontiguous part of the subdivision contains twenty

or fewer lots; and (2) each purchaser or purchaser's spouse makes a

personal, on-the-lot inspection of the lot purchased before signing

a contract.

This exemption is intended to relieve the developers of small,

scattered offerings of the requirement to register their

subdivisions. The exemption may also apply to real estate brokers

who have an ownership interest in more than one site, each

containing 20 or fewer lots.

If a developer intends to rely on this exemption, it is

important that the developer understand the definition of

subdivision, how a common promotional plan is determined and what

constitutes a site. These terms are defined in part II of these

Guidelines.

Lots that are contiguous when they are originally platted or

developed are considered to remain contiguous. For purposes of this

exemption, interruptions such as roads, parks, small bodies of water

or recreational facilities do not serve to break the contiguity of

parts of a subdivision.

(d) Twenty Acre Lots Exemption. (15 U.S.C. 1702(b)(4) and 24 CFR

1710.9).

This section exempts the sale of lots in a subdivision from the

registration requirements of the Act if, since April 28, 1969, each

lot in the subdivision has contained at least twenty acres. In

determining eligibility for the exemption, easements for ingress and

egress or public utilities are considered part of the total acreage

of the lot if the purchaser retains ownership of the property

affected by the easement.

This exemption applies to the entire subdivision and requires

that each lot in the subdivision be twenty acres or larger in order

for the subdivision to qualify. If a single lot offered in the

subdivision is less than twenty acres in size, no lot in the

subdivision qualifies for the exemption. If a developer has two

sites which comprise the subdivision and only one of the sites

contains lots that are all greater than twenty acres in size, the

offering of these lots would not be exempt under this provision. All

lots offered pursuant to a common promotional plan must be

considered.

A subdivision which is platted of record and contains a single

lot that is less than twenty acres cannot qualify for the exemption

even if the lots are offered in multiples that aggregate twenty

acres or more. Further, if the platted lots are all twenty acres or

more in size, but a lot is divided and a portion that is less than

twenty acres is offered for sale, the exemption would not be

available to the subdivision.

(e) Single-Family Residence Exemption. (15 U.S.C. 1702(b)(5) and

24 CFR 1710.10).

(1) General. This section provides an exemption for the sale of

lots that are limited to single-family residential use. Developers

are advised to carefully review the eligibility requirements listed

below before proceeding with sales. Note especially that some of the

eligibility requirements pertain to the entire subdivision while

others apply to individual lots.

(2) Subdivision Requirements. All lots offered under the same

common promotional plan must comply with the two eligibility

requirements listed below in order for any lot to be eligible for

this exemption.

(i) The subdivision must meet all local codes and standards. If

local codes expressly permit incremental development, then only the

portions of the subdivision being offered at any given time are

required to meet the codes and standards to satisfy this

requirement. Otherwise, the entire subdivision must comply with the

local standards.

(ii) In the promotion of the subdivision, there cannot be

offers, by direct mail or telephone solicitation, of gifts, trips,

or dinners or the use of similar promotional techniques to induce

prospective purchasers to visit the subdivision or to purchase a

lot. There is no prohibition against using the mails, telephone or

other advertising media to promote or advertise the offering or to

respond to inquiries from potential purchasers. The only prohibition

is that these media cannot contain offers of gifts, trips, dinners

or other inducement.

In order to qualify for this exemption, the subdivision must

have complied with the requirements pertaining to advertising and

promotional methods since June 13, 1980, the date the exemption

became effective.

(3) Lot Requirements. Having met the edibility requirements for

a subdivision, each lot offered under the exemption also must comply

with the eight requirements listed below. Lots within a subdivision

that do not comply with these additional requirements must either be

registered or sold in compliance with another exemption, even though

the two subdivision requirements have been met.

(i) The lot must be located within a municipality or county

where a unit of local government or the State specifies minimum

standards for the development of subdivision lots taking place

within its boundaries. Each lot must comply with these standards.

The following is a list of the areas which must be regulated:

(A) Lot dimensions.

(B) Plat approval and recordation.

(C) Roads and access.

(D) Drainage.

(E) Flooding.

(F) Water supply.

(G) Sewage disposal.

(ii) Each lot sold under the exemption must be either zoned for

single-family residence or, in the absence of a zoning ordinance,

limited exclusively by enforceable covenants or restrictions to

single-family residences or, in the absence of a zoning ordinance,

limited exclusively by enforceable covenants or restrictions to

single-family residences. Manufactured homes, townhouses, and

residences for one to four family use are considered single-family

residences for purposes of this exemption. Recreational vehicles are

not considered to be residential buildings. Manufactured homes must

be affixed to the real estate to be eligible, e.g., connected to

water, sewer and electrical sources and on blocks with skirts.

The phrase ``* * * in the absence of a zoning ordinance'' is

interpreted in its literal sense. The existence of a zoning

ordinance other than single-family residence zoning is considered to

be disqualifying even if there are covenants or restrictions limited

construction to single-family residences. Situations such as the

foregoing would, however, be a candidate for a ``substantial

compliance'' exemption (24 CFR 1710.16) if all other eligibility

requirements of the exemption are satisfied substantially.

``Substantial compliance'' is discussed in part VII of these

Guidelines.

[[Page 13606]]

(iii) The lot must be situated on a paved street or highway

which has been built to standards prescribed by a unit of local

government in which the subdivision is located and be acceptable to

that local unit. If the street or highway is not complete, the

developer must post a bond or other surety acceptable to the

municipality or county in the full amount of the cost of completing

the street or highway to assure its completion to local standards.

For the purposes of this exemption, paved means concrete or pavement

with a bituminous wearing surface that is impervious to water,

protects the base and is durable under the traffic load and

maintenance contemplated.

(iv) The unit of local government or a homeowners' association

must have accepted or be obligated to accept the responsibility for

maintaining the street or highway upon which the lot is situated.

The obligation of the local government entity to accept this

responsibility may be evidenced by an ordinance which binds the

government to maintain the streets or by a written statement signed

by the appropriate government official. Maintenance independently

provided by a developer is not acceptable under this exemption.

In any case in which a homeowners' association has accepted or

is obligated to accept maintenance responsibility, the developer

must, prior to a purchaser signing a contract or agreement to

purchase, provide the purchaser with a good faith written estimate

of the cost of maintenance over the first ten years of ownership. A

good faith estimate means a current estimate based on documentary

evidence, usually obtainable from the suppliers of the necessary

services.

(v) At the time of closing, potable water, sanitary sewage

disposal, and electricity must be extended to the lot or the unit of

local government must be obligated to install the facilities within

180 days following closing.

The obligation may be in the form of a local statute or written

agreement signed by the appropriate government authority. A local

code or statute that obligates the subdivider or developer to

complete installation of water and sewage disposal systems within a

certain time does not satisfy this requirement of the exemption.

For subdivisions that will not have a central water system,

there must be assurances that an adequate potable water supply is

available year-round to service the subdivision. Assurances of an

adequate, drinkable water supply can be obtained from a hydrologist

or the local health department.

For subdivisions that will not have a central sewage disposal

system, there also must be assurances that each lot is approved for

the installation of a septic tank. If the individual lot is not

approved for the installation of a septic tank at time of sale, the

developer may provide in the contract that approval will be obtained

prior to closing provided that any purchaser deposits and/or

payments are placed in an escrow account with an institution having

trust powers in the jurisdiction where the subdivision is located.

All such monies must be refunded to the purchaser if the approval is

not obtained prior to closing. Closing must occur within 180 days.

The approval for the installation of a septic tank must come from

the appropriate government authority, usually the local health

department, local governmental engineer or county sanitarian.

Developers selling lots prior to obtaining approval for installation

of a septic tank on the individual lot are proceeding at their own

risk. The sale will not qualify for the exemption if the approval is

not obtained and the closing does not occur within 180 days.

(vi) The contract of sale must require delivery of a warranty

deed to the purchaser within 180 days after the signing of the sales

contract. The deed must be free from monetary liens and encumbrances

at the time of delivery. If a warranty deed is not commonly used in

the jurisdiction where the lot is located, a deed or grant that

warrants that the seller has not conveyed the lot to another person

may be delivered in lieu of a warranty deed. The deed or grant used

must also warrant that the lot is free from encumbrances made by the

seller or any other person claiming by, through or under the seller.

(vii) At the time of closing, a current title insurance binder,

policy or title opinion reflecting the condition of title must be

issued or presented to the purchaser showing that, subject only to

exceptions which are approved in writing by the purchaser at the

time of closing, marketable title to the lot is vested in the

seller. In order to satisfy this requirement, a developer may want

to obtain the purchaser's written approval of exceptions to title

prior to closing, although the actual title binder, policy or

opinion must be current at the time of closing and show that title

is vested in the seller. If closing occurs and the purchaser has not

approved the exceptions to title in writing, the sale would not be

exempt under this provision. The party that bears the cost of the

title binder, policy or opinion is not relevant to eligibility for

the exemption. Unless otherwise defined by state law, the time of

closing is the date that legal title to the property is transferred

from seller to buyer.

(viii) The purchaser or purchaser's spouse must make a personal,

on-the-lot inspection of the lot purchased prior to signing a

contract or agreement to purchase.

(f) Mobile home exemption. (15 U.S.C. 1702(b)(6) and 24 CFR

1710.11)

For purposes of this exemption, a mobile home is a unit

receiving a label in conformance with HUD Regulations implementing

the National Manufactured Housing Construction and Safety Standards

Act of 1974 (42 U.S.C. 5401, et seq.).

This section exempts the sale of a mobile home lot from the

registration requirements of the Act when all eligibility

requirements listed below are met:

(1) The lot is sold as a homesite by one party and a mobile home

is sold by another party, and the individual contracts of sale:

(i) Obligate the sellers to perform, contingent upon the other

seller carrying out its obligations, so that a completed mobile home

will be placed on a completed homesite within two years after the

date the purchaser signs the contract to purchase the lot (see part

IV(b) of these guidelines for HUD's position on two year completion

requirements);

(ii) Provide that all funds received by the sellers are to be

deposited in escrow accounts independent of the sellers until the

transactions are completed;

(iii) Provide that funds received by the sellers will be

released to the buyer upon demand if either of the sellers do not

perform; and

(iv) Contain no provisions that restrict the purchaser's right

to specific performance under state law.

(2) The homesite is developed in conformance with all local

codes and standards, if any, for mobile home subdivisions.

(3) At the time of closing:

(i) Potable water and sanitary sewage disposal are available to

the homesite and electricity has been extended to the lot line:

(ii) The homesite is accessible by roads;

(iii) The purchaser receives marketable title to the lot; and

(iv) Other common facilities represented in any manner by the

developer or agent to be provided are completed or, in the

alternative, there are letters of credit, cash escrows or surety

bonds in a form acceptable to the local government in an amount

equal to 100 percent of the estimated cost of completion. Corporate

bonds are not acceptable for purposes of the exemption.

(g) Intrastate Exemption. (15 U.S.C. 1702(b)(7) and 24 CFR

1710.12).

This section exempts the sale or lease of real estate in a sales

operation that is intrastate in nature. The lot must be free and

clear of all liens, encumbrances and adverse claims. The following

six eligibility requirements must be met before a lot qualifies for

this exemption:

(1) The sale of lots in the subdivision after December 20, 1979,

must have been and must continue to be restricted solely to

residents of the state in which the subdivision is located, unless

the sale is exempt under 24 CFR 1710.5, 1710.11 or 1710.13. Sales of

lots exempt under Sec. 1710.5, Sec. 1710.11 or Sec. 1710.13 may be

to out-of-state purchasers without affecting the eligibility of the

overall subdivision for the intrastate exemption. Any other sales to

out-of-state purchasers, even if the lots were registered or

otherwise exempt under any other section, would make the entire

subdivision ineligible for the intrastate exemption.

Residency is determined by state law. For purposes of this

exemption, a developer may rely on a statement signed by the

purchaser or lessee as to the state of residence. Obviously, the

prospective purchaser must be an actual resident of the state at the

time of signing the sales contract as opposed to a person visiting

the state or planning to move into the state. However, service

personnel

[[Page 13607]]

may, at their option, claim the state in which they are stationed.

(2) The purchaser or purchaser's spouse must make a personal on-

the-lot inspection of the lot to be purchased before signing a

contract. Evidence of this inspection should be retained by the

developer.

(3) Each contract must:

(i) Specify the developer's and purchaser's responsibilities for

providing and maintaining roads, water and sewer facilities and any

existing or promised amenities. If the developer is not responsible

for providing or completing a particular service or amenity, the

contract should make it clear that it is up to the buyer to make the

necessary arrangements for the desired services. If a third party is

involved, the contract must specify whether the buyer or seller is

responsible for making the required arrangements;

(ii) Contain a good faith estimate of the year in which the

roads, water and sewer facilities and promised amenities will be

completed.

This estimate is required for any facility the developer

promises or indicates will be completed. Estimates should be based

on documentary evidence, such as contracts, engineering schedules or

other evidence of commitments to complete the facilities and

amenities; and

(iii) Contain a non-waivable provision giving the purchaser the

right to revoke the contract until at least midnight of the seventh

calendar day following the date the purchaser signed the contract.

This revocation right cannot be restricted to a specific method of

notification such as requiring notification to be in writing. If the

purchaser is entitled to a longer revocation period by operation of

state law, that period automatically becomes the Federal revocation

period and the contract must reflect the longer period. If the

purchaser revokes the contract during this ``cooling-off period,''

he or she is entitled to a full refund of all money paid.

(4) The lot being sold must be free and clear of all liens,

encumbrances and adverse claims. To remain exempt, the real estate

must remain free and clear of all liens, encumbrances and adverse

claims, with the exception of those placed on the property by the

purchaser. Thus, real estate that is sold under a installment

contract prior to conveyance by deed cannot be burdened by a lien

and still qualify for the exemption. If a lien is placed on the

property, the exemption is automatically terminated at the time the

lien is perfected.

The fact that a title company will insure against a lien,

encumbrance or adverse claim has no bearing in determining whether

or not the sale qualifies for the exemption. Except as noted below,

the existence of a lien, encumbrance or adverse claim disqualifies

the affected lot or lots for this exemption. The only exceptions to

this requirement are listed below:

(i) Mortgages or deeds of trust containing release provisions

for the individual lot purchased if:

(A) The contract of sale obligates the developer to deliver a

free and clear warranty deed or its equivalent under local law

within 180 days (constructive delivery is acceptable); and

(B) The purchaser's payments are deposited in an escrow account

independent of the developer until a deed is delivered. The escrow

account must be with an institution which has trust powers or in an

established bank, title insurance, abstract or escrow company that

is doing business in the jurisdiction in which the property is

located. The purchaser's earnest money payment or any other payment

by the purchaser cannot be used to obtain a release from the

mortgage and may not be released from escrow until the deed is

delivered.

(ii) Liens that are subordinate to the leasehold interest and do

not affect the lessee's right to use or enjoy the lot.

(iii) Property reservations that are for the purpose of bringing

public services to the land being developed, such as easements for

water and sewer lines.

Other acceptable property reservations are easements for roads

and electric lines to serve the subdivision as well as certain

drainage easements. The reservation of subsurface oil, gas or

mineral rights is acceptable unless the reservation expressly or

impliedly includes the right of ingress and egress upon the

property. Examples of the types of reservations and easements that

are unacceptable and disqualify the burdened property for the

exemption include easements for high power transmission lines,

telephone long lines, pipelines and bridle trails.

(iv) Taxes or assessments which constitute liens before they are

due and payable if imposed by a state or other public body having

authority to assess and tax property or by a property owners'

association.

(v) Beneficial property restrictions that are mutually

enforceable by all lot owners in the subdivision.

Developers who wish to maintain control of a subdivision

indefinitely through a Property Owners' Association, Architectural

Control Committee, and/or restrictive covenants will find the

requirements of this exemption unsuitable.

In recognition of the fact that developer control is unavoidable

until lots are sold, for the purpose of this exemption, a developer

must provide an opportunity for the transfer of control to all lot

owners at or before the time when the developer no longer owns a

majority of total lots in, or planned for, the subdivision.

Relinquishment of developer control must require affirmative action,

usually in the form of an election based upon one vote per lot.

The developer may continue to participate in the control of the

subdivision to the extent that lots remain unsold. For example, a

developer who still owns thirty percent of the lot inventory has a

thirty percent voting block on issues regarding the subdivision.

It is acceptable for the developer to appoint, during the

initial stages of development, a governing body (panel, commission,

etc.) whose members subsequently are elected and re-elected by all

the lot owners to administer subdivision control.

To be enforceable, restrictions must be part of a general plan

of development. Restrictions, whether separately recorded or

incorporated into individual deeds, must be applied uniformly to

every applicable lot or group of lots. To be considered beneficial

and enforceable, any restriction or covenant that imposes an

assessment on lot owners must apply to the developer on the same

basis as other lot owners.

(vi) Reservations contained in United States land patents and

similar Federal grants or reservations are excepted from the term

``liens'' but must be disclosed in the Intrastate Exemption

Statement.

Many of the land patents by which land west of the Mississippi

River was originally conveyed contain reservations to the United

States for minerals and water rights-of-way for canals and ditches.

These reservations as well as any other Federal grants or

reservations must be disclosed but are not disqualifying factors.

(5) Before the sale the developer must disclose in a written

statement (see sample below) to the purchaser all liens,

reservations, taxes, assessments and restrictions applicable to the

lot purchased. The developer must obtain a written receipt from the

purchaser acknowledging that the statement required by this

subparagraph was delivered.

Neither the statement nor the written receipt have to be

submitted to HUD, but copies of the purchaser receipts should be

available for review upon demand by the Secretary or his or her

designee. It is suggested that the developer retain the purchaser

receipts for at least three years.

(6) The written statement (see sample below) also must include

good faith cost estimates for providing electric, water, sewer, gas

and telephone service to the lot. Estimates must include all costs

associated with obtaining the services. For example, if private

wells are the water source, the estimate should include the cost of

the well, pump, casing, etc. Likewise, if butane or propane gas is

used, the statement must include the cost of installing a tank and

the per gallon cost of the gas.

The estimates for services applicable to unsold lots must be

updated every two years or more frequently if the developer has

reasons to believe that at least a $100 increase or decrease for a

particular item has occurred. The dates on which the estimates were

made must be included in the statement.

Effective state property reports or disclosure statements

containing all the information required in the Intrastate Exemption

Statement may be used in lieu of a separate statement. State

property reports which do not contain all the information required

in the Intrastate Exemption Statement may be used only of they are

supplemented with the missing information.

Sample Intrastate Exemption Statement

Intrastate Exemption Statement

Name of Developer------------------------------------------------------

Address----------------------------------------------------------------

Name of Subdivision----------------------------------------------------

Location---------------------------------------------------------------

[[Page 13608]]

-----------------------------------------------------------------------

Liens

(Provide a clear and concise listing of all liens on the

property. As used in this statement, liens are security interests

such as mortgages or deeds of trust, tax liens, mechanics liens or

judgments. Liens which are acceptable for purposes of the exemption

are those which contain release provisions for the individual lot

purchased but only if the contract of sale obligates the developer

to deliver a deed within 180 days and the purchaser's payments are

held in an independent escrow account until a deed is delivered and,

in the case of leases, liens which are subordinate to the lease hold

interest and do not affect the lessee's right to enjoy or use the

lot.) A chart similar to the following may be used:

------------------------------------------------------------------------

Amount

Type of lien of lien Lots subject to lien.

------------------------------------------------------------------------

........ ..............................

........ ..............................

------------------------------------------------------------------------

Reservations

(Disclose all easements and reservations affecting the lots that

are offered for sale. The preceding narrative contains examples of

easements and reservations which are acceptable.)

Taxes

(Provide sufficient information to enable a purchaser to

estimate the annual taxes due on the lot purchased.)

Assessments

(Disclose all assessments, fees and dues that have been imposed

or may be imposed. The list of assessments, fees and dues must show

the rates and amounts and explain who has the authority for imposing

the listed assessments, fees and dues.)

Restrictions

(Recite verbatim all restrictions that apply to the lots being

offered. In the alternative, the developer may attach a complete

copy of all restrictions affecting the lots. If the restrictions do

not apply to all the lots in the offering, the developer should

specify which lots are affected by the restrictions. In addition,

the developer should explain who has the authority to enforce the

restrictions and indicate whether or not the restrictions are

recorded.)

Utility Cost Estimates

(Disclose a good faith estimate of the cost to the purchaser of

providing water, electric, telephone, sewage disposal and gas

service to each lot offered under the exemption. The estimate must

include all costs associated with obtaining the services.) A chart

similar to the following may be used.

----------------------------------------------------------------------------------------------------------------

Sewage

Lot No. Water Electric Telephone disposal Gas

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

Under each heading list the estimated cost to the purchaser and

the date the estimate was made.

I affirm that to the best of my knowledge the above information

is accurate and complete.

----------------------------------------------------------------------

(Signature of Developer or Authorized Agent)

----------------------------------------------------------------------

(Date)

----------------------------------------------------------------------

(Title)

Purchaser's Acknowledgement

(The developer must obtain a written receipt from the purchaser

acknowledging that the purchaser received a written statement(s) of

all liens, reservations, taxes, assessments and restrictions

applicable to the lot and good faith estimates of the cost of

providing electric, water, sewer, gas and telephone service to the

lot.)

The receipt may be in the following form:

Sample Receipt

I acknowledge that I have received an Intrastate Exemption

Statement listing all liens, reservations, taxes, assessments,

restrictions and estimates of utility costs applicable to (identify

the subdivision and its location) from (name of developer). I have

made a personal on-the-lot inspection of (identify the lot), which

is the lot I am interested in buying or leasing.

----------------------------------------------------------------------

(Signature of Purchaser)

----------------------------------------------------------------------

(Date)

(h) Metropolitan Statistical Area (MSA) Exemption. (15 U.S.C.

1702(b)(8) and 24 CFR 1710.13).

This section exempts the sale or lease of lots in a subdivision

located in a Metropolitan Statistical Area (MSA). The eligibility

criteria for the MSA Exemption are the same as that of the

Intrastate Exemption with the following exceptions:

(1) The subdivision must have contained fewer than 300 lots on

and since April 28, 1969, and continue at or below that quantity in

the future;

(2) The lot(s) must be located in a MSA as defined and

designated by the U.S. Office of Management and Budget;

(3) The principal residence of each purchaser must be within the

same MSA;

(4) Adverse claims that are disqualifying for the Intrastate

Exemption are acceptable for the MSA Exemption. The only requirement

in this regard is for the adverse claim to be disclosed in the MSA

Exemption Statement. The party making the claim, the basis of the

claim and the property affected by the claim must be identified; and

(5) Although the MSA exemption is self-determining, a written

affirmation must be submitted by developers relying on this

exemption. The due date is January 31 of each year. Failure to

submit the affirmations will disqualify the subdivision for this

exemption. The written affirmation must be in the following format:

Affirmation

Developer's Name-------------------------------------------------------

Developer's Address----------------------------------------------------

Purchaser's Name(s)----------------------------------------------------

Purchaser's Address(es) (including county)-----------------------------

----------------------------------------------------------------------

----------------------------------------------------------------------

Name of Subdivision----------------------------------------------------

Legal Description of Lot(s) Purchased----------------------------------

----------------------------------------------------------------------

I hereby affirm that all of the requirements of the MSA

exemption as set forth in 15 U.S.C. 1702(b)(8) and 24 CFR 1710.13

have been met in the sale or lease of the lot(s).

I also affirm that I submit to the jurisdiction of the

Interstate Land Sales Full Disclosure Act with regard to the sale or

lease cited above.

----------------------------------------------------------------------

(Date)

----------------------------------------------------------------------

(Signature of Developer or Authorized Agent)

(Title)

The sample Intrastate Exemption Statement shown above may be

used as a guide in preparing the MSA Exemption Statement. Simply

substitute references to the MSA Exemption in lieu of references to

the Intrastate Exemption and add a provision for disclosure of

``Adverse Claims'' after the discussion of ``Restrictions'' and

before the caption ``Utility Cost Estimates''.

Part VI--Regulatory Exemptions From Registration Requiring No HUD

Determination--(24 CFR 1710.14)

(a) General.

The Secretary has established several regulatory exemptions from

the registration and full disclosure requirements of the Act (i.e.,

filing a Statement of Record and furnishing a Property Report).

These exemptions are self-determining and do not require a

submission to HUD.

To qualify, a developer must satisfy the eligibility criteria at

all times. Exempt status ends when a developer fails to immediately

comply with the eligibility criteria. Furthermore, if there are

reasonable grounds to believe that the use of any of these

regulatory exemptions is not in the public interest in a particular

case, the Secretary may deny the use of the exemption by an

otherwise eligible subdivision, site or lot. The developers will be

given notice and an opportunity for hearing before a final

determination is made. Proceedings under this provision follow the

requirements set forth in the regulations (24 CFR 1720.105, et seq.)

and are patterned after the notice and

[[Page 13609]]

time requirements of a proceeding pursuant to 24 CFR 1710.45(b)(1).

If a sale meets any one of the following requirements, it

qualifies for exemption from the registration requirements of the

Act. However, qualifying sales must comply with the anti-fraud

provisions.

(b) Eligibility Requirements.

(1) Inexpensive Lots (24 CFR 1710.14(a)(1))

The sale or lease of a lot for less than $100, including closing

costs, is exempt if the purchaser or lessee is not required to

purchase or lease more than one lot. This exemption is available on

a lot-by-lot basis. The entire subdivision need not qualify.

(2) Leases for Limited Duration (24 CFR 1710.14(a)(2))

The lease of a lot for a term of five years or less is exempt if

the terms of the lease do not obligate the lessee to renew. This

exemption is available on a lot-by-lot basis. The entire subdivision

need not qualify.

The use of an arrangement that is called a lease but is

tantamount to the sale or long-term lease of a lot would not qualify

for this exemption; i.e., a lease with a large initial payment or

substantial payments over five years and token payments thereafter.

A five-year lease with an option to purchase or renew would be

suspect under this exemption and might or might not qualify

depending on the overall transaction. In these cases, a request for

an Advisory Opinion is strongly recommended.

(3) Lots Sold to Developers (24 CFR 1710.14(a)(3))

The sale or lease of lots to a person who is engaged in a bona

fide land sales business is exempt. For a transaction to qualify for

this exemption, the purchaser must be a person who plans to

subsequently sell or lease the lot(s) in the normal course of

business. The term business refers to an activity of some

continuity, regularity and permanency, or means of livelihood. The

sale or lease of lots to an individual who is buying the property

for investment, to be sold at some unforeseeable time in the future,

would not be exempt under this provision. This exemption is

available on a lot-by-lot basis, although most transactions would

include more than one lot. The entire subdivision need not qualify.

(4) Adjoining Lot (24 CFR 1710.14(a)(4))

The sale or lease of a lot to a purchaser who owns a contiguous

lot that has a residential, commercial, or industrial building on it

is exempt. This exemption permits a developer to sell or lease

unimproved lots to persons wishing to enlarge the property on which

their home or business is located. This exemption is available on a

lot-by-lot basis.

(5) Lot Sales to a Government (24 CFR 1710.14(a)(5))

The sale or lease of real estate to a government or government

agency is exempt. This exemption is available on a lot-by-lot basis.

The entire subdivision need not qualify.

(6) Sales of Leased Lots (24 CFR 1710.14(a)(6))

The sale of a lot or lots on which the purchaser has maintained

his or her primary residence for at least one year is exempt.

Typically, these sales will occur in a mobile home subdivision. This

exemption is available on a lot-by-lot basis. The entire subdivision

need not qualify.

(c) Termination.

If HUD has reasonable grounds to believe that exemption from

registration in a particular case is not in the public interest, HUD

may terminate the exemption as to a subdivision or as to particular

lots in a subdivision. Termination could be ordered only after the

developer is notified of HUD's intention to terminate and is

afforded a hearing opportunity. The reasons for termination will

vary from case to case but could include unlawful sales practices by

the developer or its agents, insolvency or adverse information about

the lots or the subdivision that should be disclosed to purchasers.

Part VII--Regulatory Exemption HUD Determination Required--(24 CFR

1710.16)

An Exemption Order is available for a subdivision or certain

lots in a subdivision that technically do not comply with the

eligibility requirements of one of the other available exemptions.

However, to qualify for an Exemption Order, the offering must

substantially comply with the eligibility requirements.

In evaluating the circumstances of an Exemption Order request,

HUD examines the basic intent and legislative history of the

exemption that the developer claims to substantially meet. If the

offering is not consistent with the basic intent, an Exemption Order

will not be issued even though some of the technical requirements of

that exemption are met.

Offerings that involve circumstances that are equal to or better

than the technical requirements, or that are consistent with the

basic intent of the exemption, will be judged to be in substantial

compliance and an Exemption Order will be issued. It should be noted

that an Exemption Order applies only to sales after the date of the

Order and has no retroactive effect. This is the only exemption that

requires submission of a request and a determination by HUD before

it is effective. Developers wishing to request an Exemption Order

must submit the information listed below:

(a) A detailed statement describing how the proposed sales of

lots meet, or substantially meet, each of the eligibility

requirements of the exemption that the developer claims to

substantially meet.

(b) A copy of the contract to be used. The contract must:

(1) Specify the developer's and purchaser's responsibilities for

providing and maintaining roads, water and sewer facilities and any

existing or promised amenities. If the developer is not responsible

for providing or completing a particular service, the contract

should make it clear that it is up to the buyer to make the

necessary arrangements for desired services; and

(2) Contain a good faith estimate of the year in which the

roads, water and sewer facilities and promised amenities will be

completed. This estimate is required for any facility the developer

promises or indicates will be completed. Estimates should be based

on documentary evidence, such as contracts, engineering schedules or

other evidence of commitments to complete facilities and amenities;

and

(3) Contain a non-waivable provision giving the purchaser the

opportunity to revoke the contract until at least midnight of the

seventh calendar day following the date the purchaser signed the

contract. If the purchaser is entitled to a longer revocation period

by operation of state law, that period becomes the Federal

revocation period and the contract must reflect the requirements of

the longer period; and

(4) Contain a provision that obligates the developer to deliver

to the purchaser within 180 days of the date the purchaser signed

the sales contract, a warranty deed, or its equivalent under local

law, which at the time of delivery is free from any monetary liens

or encumbrances.

(c) A plat of the entire subdivision with the lots subject to

the exemption delineated.

(d) A description of how the lots have been and will be promoted

and to which population centers the promotion has been and will be

directed.

(e) Documentation to establish that each purchaser or

purchaser's spouse will make an on-the-lot inspection of the lot to

be purchased before the contract is signed.

(f) A filing fee in the amount set forth in Sec. 1710.35(c) in

the form of a certified check, cashier's check or postal money order

made payable to the U.S. Treasury.

If, after an Exemption Order has been issued, HUD has reasonable

grounds to believe that the exempt status of the subdivision or

individual lots is not in the public interest, the Exemption Order

may be terminated. Such an action would be preceded by a notice

giving the developer an opportunity to request a hearing on the

allegations leading to termination. For example, proceedings may be

initiated because of the apparent omissions or misrepresentations in

the information upon which the Exemption Order was based, the

unethical conduct of the developer or the developer's agent or the

presence of adverse conditions at or about the real estate which

should be brought to the attention of purchasers by way of a

disclosure document.

Some examples of substantial compliance are listed below. These

are examples only and presume that all other applicable eligibility

requirements of the exemption are either fully met or substantially

met. It should be remembered that substantial compliance can occur

with virtually any of the twenty-two available exemptions.

(1) One of the eligibility requirements for the Single-Family

Residence Exemption is that the lots be zoned as single-family

residential or, in the absence of a zoning ordinance, restricted to

single-family residence development by enforceable covenants or

restrictions. As stated before, the phrase ``* * * in the absence of

a zoning ordinance * * *'' is interpreted in its most literal sense.

Therefore, the existence of any zoning ordinance other than single-

family

[[Page 13610]]

residence zoning is a disqualifying factor for the exemption.

However, substantial compliance would be considered if a

different zoning ordinance existed and the enforceable covenants or

restrictions limited development to single-family residences.

(2) Another eligibility requirement for the Single-Family

Residence Exemption states that, at the time of closing, potable

water, sanitary sewage disposal and electricity must be extended to

each lot or the unit of local government must be obligated to

install these facilities within 180 days following closing.

Substantial compliance with this provision would be considered

in those cases where one or more of these utilities is not available

but the developer has a contract with a publicly regulated utility

to install the facilities within 180-days following closing or upon

demand of the purchaser.

Furthermore, substantial compliance would be considered if the

utility trunk lines are ``reasonably close'' to the lots instead of

at each lot line.

(3) An eligibility requirement for the Intrastate Exemption is

that the lot sold must be free and clear of all liens, encumbrances

and adverse claims. Mineral reservations have been deemed to be

acceptable so long as the reservation does not include the right of

ingress or egress upon the property. If the right of ingress or

egress exists, substantial compliance will be considered if there

are written, recorded provisions from the owner(s) of the mineral

rights for compensating the lot owner for loss of the use or

enjoyment of the property when such rights are exercised.

Part VIII--Advisory Opinion--Secretary's Opinion May Be Requested--

(24 CFR 1710.17)

(a) General

When it is not clear that an offering is either exempt under the

self-determined statutory or regulatory provisions or whether

jurisdiction exists, an Advisory Opinion may be requested to clarify

the situation. The filing requirements are found in 24 CFR 1710.17

of the regulations and are described in (b) and (c) below.

The material to be submitted with all requests for Advisory

Opinions is described under (b) below. In most cases, depending on

the provision under which an exemption is claimed, additional

documentation is needed before an opinion can be given. Review (c)

below to determine what additional documentation is customarily

needed before submitting a request.

HUD's Advisory Opinions are based upon and limited to the

representations made by the developer. Therefore, if a favorable

Advisory Opinion is issued based upon incomplete, improper or

incorrect representations, the Opinion has no binding effect.

(b) Basic Requirements For Submission

(1) A filing fee in the amount required by Sec. 1710.35(c) in

form a certified check, cashier's check or postal money order made

payable to the U.S. Treasury.

(2) A comprehensive description of the conditions and operations

of the offering. Specify the provision(s) of the Act or regulations

under which sales are believed to be exempt or why there is no

jurisdiction.

(c) Additional Requirements For Submission

Depending on the provision under which an exemption is claimed,

a developer may be required to submit additional information.

Beginning with the exemption under 24 CFR 1710.5(a) of the

regulations and ending with 24 CFR 1710.14, the additional

information that should be submitted with a request for an Advisory

Opinion is listed below. In some cases, information or documentation

other than that specified may be requested after a submission has

been reviewed by HUD.

(1) To obtain an Advisory Opinion pertaining to 24 CFR

1710.5(a), the ``25 lot'' exemption, submit a plat of the

subdivision. Submit a listing of any other properties in which the

developer has an interest and the geographic relationship of those

properties to the subdivision for which the exemption is claimed. If

other properties are divided or proposed to be divided, indicate the

total number of lots planned. Indicate those properties which will

be offered by the same sales personnel or through the same sales

office as the subdivision for which the exemption is claimed.

Describe how the lots are marketed, i.e., who sells the lots, how

the lots are advertised, whether prospective purchasers are referred

between subdivisions, etc.

(2) To obtain an Advisory Opinion pertaining to 24 CFR

1710.5(b), the ``improved lot'' exemption, submit a copy of the

contract of sale or lease and an opinion of local counsel with

respect to whether the contract meets the exemption's requirements

under the law in the jurisdiction in which the subdivision is

located.

(3) To obtain an Advisory Opinion pertaining to 24 CFR

1710.5(c), the ``evidences of indebtedness'' exemption, describe the

security arrangement and submit a copy of the evidence of

indebtedness.

(4) To obtain an Advisory Opinion pertaining to 24 CFR

1710.5(d), the ``securities'' exemption, no additional documentation

is customarily required to be submitted with the request.

(5) To obtain an Advisory Opinion pertaining to 24 CFR

1710.5(e), the ``government sales'' exemptions, specify the

government agency selling the property and submit the enabling

legislation.

(6) To obtain an Advisory Opinion pertaining to 24 CFR

1710.5(f), the ``cemetery lots'' exemption, no additional

documentation is customarily required to be submitted with the

request.

(7) To obtain an Advisory Opinion pertaining to 24 CFR

1710.5(g), the ``sales to builders'' exemption, submit specific

information showing that the purchaser or lessee is engaged in the

business of building or is acquiring the real estate for resale or

lease to a builder.

(8) To obtain an Advisory Opinion pertaining to 24 CFR

1710.5(h), the ``industrial or commercial development'' exemption

submit a plat and supporting documentation, including a copy of the

instrument containing the purchaser or lessee affirmation and

evidence of the zoning or, in the absence of zoning, restrictive

covenants.

(9) To obtain an Advisory Opinion pertaining to 24 CFR 1710.6,

the ``100 lot'' exemption, submit a plat of the subdivision. In

addition, submit a listing of any other properties in which the

developer has an interest and the geographic relationship of those

properties to the subdivision for which the exemption is claimed. If

other properties are divided or proposed to be divided, indicate the

total number of lots planned. Indicate those properties that will be

offered by the same sales personnel or through the same sales office

as the subdivision for which the exemption is claimed. Describe how

the lots are marketed, i.e., who sells the lots, how the lots are

advertised, whether prospective purchasers are referred between

subdivisions, etc.

(10) To obtain an Advisory Opinion pertaining to 24 CFR 1710.7,

the ``12 lot'' exemption, submit a list of all lots sold under the

same common promotional plan since June 20, 1980. (Review Part II(b)

of these Guidelines for an explanation of common promotional plan.)

Indicate the date of each sale. State whether the developer has been

involved in the sale of any other real estate since June 20, 1980

and indicate how it is intended that future sales will be

restricted.

(11) To obtain an Advisory Opinion pertaining to 24 CFR 1710.8,

the ``scattered sites'' exemption, submit a plat of the site and

list the name and geographic location of all other properties in

which the developer has an interest. State the extent of the

developer's interest.

(12) To obtain an Advisory Opinion pertaining to 24 CFR 1710.9,

the ``20 acre lots subdivision'' exemption, submit a plat of the

subdivision with the acreage of each lot clearly delineated. In

addition, substantiate that all lots offered under the same common

promotional plan are greater than 20 acres in size and have been

that size since April 29, 1969. Describe all properties in which the

developer has an interest and the geographic relationship of such

properties to the subdivision for which the exemption is claimed.

Indicate those properties which will be offered by the same sales

personnel or through the same sales office as the subdivision for

which the exemption is claimed. Describe how the properties are

marketed, i.e., who sells the lots, how the lots are advertised,

whether purchasers are referred between subdivisions, etc.

(13) To obtain an Advisory Opinion pertaining to 24 CFR 1710.10,

the ``single-family residence'' exemption, address each of the

subdivision requirements and the eight lot requirements as set forth

in Part V(e) of these Guidelines. For example, the developer should

specifically state how the condition of title will be demonstrated,

that the purchaser's approval of exceptions to title will be

obtained prior to closing and that the purchasers will make a

personal on-the-lot inspection prior to signing the contract. The

submission should describe how the standards are being enforced by

the local authorities. The submission must also describe the

marketing and promotion of the subdivision.

The submission should be accompanied by documentation including

a copy of the contract of sale and a copy of the state or

[[Page 13611]]

local minimum standards. The documents submitted must include

minimum standards for each of the eight areas listed in the

regulations. The documentation should clearly show that the

standards are being enforced and are not merely discretionary. If

the developer states that the local authorities will take over

responsibility for the roads, submit documentation evidencing that

intent. If the developer represents that water is the purchaser's

responsibility, submit a copy of the appropriate report assuring

that an adequate year-around water supply is available. If septic

tanks are to be used, submit a copy of the approval for their

installation and a statement of how approval will be obtained for

each lot.

The above listing is not comprehensive. It is designed to give

the developer an idea of the type of statements and documentation

which will be requested before an opinion will be issued.

(14) To obtain an Advisory Opinion pertaining to 24 CFR 1710.11,

the ``manufactured home'' exemption, identify who is selling the lot

and who is selling the manufactured home. Submit a copy of the

contracts to be used.

(15) To obtain an Advisory Opinion pertaining to 24 CFR 1710.12,

the ``intrastate'' exemption, submit a copy of the contract of sale,

the Intrastate Exemption Statement, the restrictive covenants, a

statement of the status of mineral right ownership and the enabling

document(s) of the Property Owners' Association or condominium

association including the by-laws, if any. If sales have been made

since December 20, 1979, submit a list of such sales with the

purchaser's name, address at the time of sale, date of sale and lot

number(s).

(16) To obtain an Advisory Opinion pertaining to 24 CFR 1710.13,

the ``MSA'' exemption, submit a copy of the contract of sale, plat,

and MSA Exemption Statement. If sales have been made, submit a list

of such sales with the purchaser's name, address at the time of

sale, date of sale and lot number(s).

(17) To obtain an Advisory Opinion pertaining to 24 CFR

1710.14(a)(1), the ``inexpensive lots'' exemption, submit a copy of

the proposed promotional materials and the documents to be used in

the sale.

(18) To obtain an Advisory Opinion pertaining to 24 CFR

1710.14(a)(2), the ``limited term leases'' exemption, submit a copy

of the lease and other documentation relevant to the lease

transaction.

(19) To obtain an Advisory Opinion pertaining to 24 CFR

1710.14(a)(3), which exempts sales of lots to developers, submit

information to substantiate the claim that the purchaser is in the

land sales business.

(20) To obtain an Advisory Opinion pertaining to 24 CFR

1710.14(a)(4), the ``adjoining lot'' exemption, submit a map showing

the lot on which the purchaser owns a residential, commercial or

industrial building and the lot to be purchased.

(21) To obtain an Advisory Opinion pertaining to 24 CFR

1710.14(a)(5), the ``sales to government'' exemption, name the

Government entity and submit a copy of the legal document by which

the entity was created or a document evidencing the governmental

decision to purchase.

(22) To obtain an Advisory Opinion pertaining to 24 CFR

1710.14(a)(6), the ``sales of leased lots'' exemption, state the

circumstances which the purchaser has lived on or will have lived on

the lot for one year or more and submit a copy of the lease or other

agreement entitling the purchaser to occupy the lot. State whether

the purchaser is using the lot as his or her primary residence.

Part IX--No-Action Letter--(24 CFR 1710.18)

The availability of expanded regulatory exemptions has resulted

in the exemption of most transactions which may previously have

warranted the issuance of a No-Action Letter. Nevertheless, there

may be instances when one or more sales or leases fall within the

purview of the Act but do not qualify for an exemption, although the

circumstances of the sales or leases may be such that no affirmative

action is needed to protect the public interest and prospective

purchasers.

In such instances, a No-Action Letter may be requested. The

request should include a thorough explanation of the proposed

transaction(s) and the facts and supporting documentation necessary

to demonstrate that no affirmative action is needed in the

particular situation. If a request for a No-Action Letter is based

upon a belief that the offering is ineligible for an exemption due

to a minor technicality, demonstrate how other provisions of the

particular exemption are met. The issuance of a No-Action Letter

will not affect any right or remedy that the purchaser may have

under the Act, including the right to rescind a contract for a

period of two years. A No-Action Letter simply signifies that HUD

will not take any affirmative action to require registration.

However, the issuance of a No-Action Letter does not preclude any

future agency action which may become necessary because of new

information or a change in the circumstances.

HUD's No-Action Letters are based upon and limited to

representations made by the developer. Therefore, if a favorable No-

Action Letter is issued based upon incomplete, improper or incorrect

representations, the Letter has no binding effect.

In no event will a No-Action Letter be issued if the sale or

lease has already occurred.

There is no prescribed format for requesting a No-Action Letter.

Therefore, describe the circumstances as fully as possible following

a general rule that too much information is better than too little.

Upon review of the information submitted, additional clarification

may be required to permit a final determination.

[FR Doc. 96-7280 Filed 3-26-96; 8:45 am]

BILLING CODE 4210-27-P