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Land Sales Scams
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Facts for Consumer from the Federal Trade Commission
Land Sales Scams -- November 1992
Although buying land may seem like a safe investment, it
sometimes can be highly speculative and risky. Many consumers
have complained to the Federal Trade Commission (FTC) that land
they bought more than 20 years ago still is not worth the
original selling price. In all that time, they have had to pay
property taxes and, in some cases, association dues on land that
remains vacant and undeveloped. More important, there is little,
if any, resale market for the land.
Unfortunately, land sales scams continue even today. In some
instances, the FTC has found that sellers overprice land as much
as 400 percent.
This brochure describes land sales scams and tells you how to
avoid them. It explains what protection you have under the
Interstate Land Sales Full Disclosure Act, which is administered
by the Department of Housing and Urban Development (HUD), and
offers tips on selecting a lot.
The Hard Sell
Be wary of sellers who offer land primarily as a great investment
opportunity. They may show you slick brochures and videos that
promise "nearby" beaches or lakes, and locations "convenient" to
tourist attractions, shopping malls, schools, and hospitals.
Some sellers spin a tale of paradise, show you model homes, and
all but "guarantee" that the land's value will increase rapidly.
Prices will rise, they may claim, because a large number of
planned housing communities and businesses will be moving to the
area soon. As an incentive to visit the land site and attend a
sales presentation, sellers may offer special discounts on
lodging, meals, golf, or airfare.
The Full Disclosure Act
To help protect consumers against land sales scams, the
Interstate Land Sales Full Disclosure Act was passed in 1968.
This Act generally applies to developers selling or
leasing_through interstate commerce_100 or more unimproved lots.
Under the Act, developers must register their subdivisions with
HUD. They also must give consumers a summary of that registration
in a disclosure statement called a Property Report before a
contract or agreement is signed.
The Report contains information about the property, such as
distances to nearby communities over paved or unpaved roads;
present and proposed utility services and charges; and soil and
foundation conditions which could cause construction or septic
tank problems. Read the Report carefully; it is meant to provide
basic information about the property. However, the Federal
Government does not inspect lots or prepare or verify the
contents of the Property Report, so you may wish to question some
of the information.
HUD has two publications, "Buying Lots from Developers" and
"Before Buying Land...Get the Facts," which discuss the Full
Disclosure Act, the Property Report, and more. For free copies,
write to HUD at the address on page 5. You also can write to HUD
to find out if a seller is subject to the Full Disclosure Act.
The Shopping Process
Whether you are looking for an immediate home site or
vacation/retirement land, know what you are buying before
committing yourself to making a downpayment and years of monthly
payments. Here is a checklist that may help you answer some
important questions: how much is the property worth now; what
could you resell it for in an emergency; and how much might the
property appreciate over the next five to ten years?
l Inspect the property. Do not buy "site unseen." If possible,
talk to people who live in the development and ask if they are
satisfied. Also ask the subdivision's owners' association about
the status of development in the subdivision.
l Talk to local real estate agents to learn more about area
land values and the resale market. You also can scan the
classified ads of local newspapers to compare prices of similar
properties. To find out about property appraisals and sales
prices of area lots, check with the tax assessment and county
recorder offices. Visit the county planning office to learn about
future residential and commercial developments that may affect
land values.
l Contact the appropriate state or local offices to find out
who is required to develop and maintain roads and put in
utilities for water, electricity, and sewerage, if the land is
undeveloped. Ask if there are any zoning regulations or
environmental land-use restrictions that prohibit building on the
property or make it costly.
l Contact HUD, your local or state consumer protection office,
Chamber of Commerce, or Better Business Bureau to find out if
they have any information about the developer or sales agent.
They may be able to tell you the number and kind of complaints
that have been filed.
l Consider the annual cost of property taxes and any
assessment fees that may be required by the owners' association.
Keep in mind, these probably will rise.
l Check the clerk's office at the local court house to learn
of any civil actions that have been brought by or against the
seller or developer.
l Check with HUD to determine whether the property is
registered. Carefully read the con- tract and any disclosure
documents, such as the Property Report, before making a commit-
ment. You also may want a financial advisor or an attorney to
review the documents.
Cancellation Rights
Ask about your cancellation rights before you sign a contract. If
the lot is subject to the Full Disclosure Act, the contract
should specify a "cooling-off" period of 7 days (or longer if
allowed by state law). During this time, you may cancel the
contract for any reason by contacting the developer, preferably
in writing. Also, if the contract does not state that you will
receive a warranty deed within 180 days after signing the
contract, you may have up to two years to cancel.
If the land is not covered by the Full Disclosure Act, check the
cancellation clause in the contract. In some contracts, the buyer
has only three days to cancel the transaction.
Along with your contract, keep copies of promotional materials
you received at the sales presentation, as well as any newspaper
articles about the development. These materials would be
important should you try to cancel your contract because of
misrepresentations made at the time of purchase.
A Special Alert For New Immigrants
New immigrants who have difficulty understanding English may be
the target of another kind of deceptive land-sales tactic. The
new immigrant is paired with a salesperson of the same
nationality, and the sales pitch is delivered in the immigrant's
native tongue. When it is time to close the deal, however, the
sales documents are written in English, which the buyer may find
difficult to read and understand. Also, the sales documents may
not include all the salesperson's oral promises.
Under the Full Disclosure Act, the seller must provide the buyer
with sales documents and a Property Report in the same language
as the sales presentation, or attach a translation to the
documents. Failure to do so could void the contract.
Complaint Handling
If certain amenities, such as a swimming pool or tennis courts,
are not being built as promised, or you believe false
representations were made about the land, complain immediately in
writing to the seller. If that does not solve the problem, write
to your local or state consumer protection office. If the
developer is not fulfilling the terms of your sales contract, you
may want to ask an attorney to advise you of your rights.
To determine whether you have any rights under the Full
Disclosure Act, send details about your complaint to the
Department of Housing and Urban Development, Interstate Land
Sales Registration Division, 451 - 7th Street, S.W., Washington,
D.C. 20410. Include the name of the developer, name and location
of the subdivision, and copies of the contract or any other
documents you signed.
You also can file a complaint with the FTC. Write:
Correspondence Branch, Federal Trade Commission, Washington, D.C.
20580. Although the FTC usually does not handle individual cases,
the information you provide may indicate a pattern of possible
law violations requiring action by the Commission.
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