[Federal Register Volume 61, Number 60 (Wednesday, March 27, 1996)]
[Rules and Regulations]
[Pages 13596-13611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7280]




[[Page 13595]]

_______________________________________________________________________

Part IV





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Parts 1700, 1710, and 1715



Interstate Land Sales Registration Programs: Streamlining; Final Rule

  Federal Register / Vol. 61, No. 60 / Wednesday, March 27, 1996 / 
Rules and Regulations  

[[Page 13596]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT


Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner; Interstate Land Sales Registration Program; Streamlining 
Final Rule

24 CFR Parts 1700, 1710, and 1715

[Docket No. FR-3987-F-01]
RIN 2502-AG63
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: 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