If you want to build a
new home, there are things you need to know before you begin. Learn about
construction standards and about buying land, so you know your rights.  MPS Supplementing Model
Building Codes The Minimum Property Standards (MPS) establish certain minimum standards for
buildings constructed under HUD housing programs. This includes new
single-family homes, multi-family housing and healthcare-type facilities.
HUD Minimum Property
Standards and How They Supplement the Model Building Codes Until the mid-1980s, HUD maintained separate Minimum Property Standards for different types of structures. Since that time, HUD has accepted the model building codes, including over 250 referenced standards and local building codes, in lieu of separate and prescriptive HUD standards. However, there is one major area of difference between the MPS and other model building codes -- durability requirements. Homes and projects financed by FHA-insured mortgages are the collateral for these loans, and their lack of durability can increase the FHA's financial risk in the event of default. More specifically, the model codes do not contain any minimum requirements for the durability of items such as doors, windows, gutters and downspouts, painting and wall coverings, kitchen cabinets and carpeting. The MPS includes minimum standards for these, and other items, to ensure that the value of an FHA-insured home is not reduced by the deterioration of these components. HUD Field Office
Acceptance for Areas Without Building Codes HUD requires that each property insured with an FHA mortgage meet one of the nationally recognized building codes or a state or local building code based on a nationally recognized building code. In areas where such state or local codes are used, HUD determines if the state or local code is comparable to the model building code. There are also areas of the United States that do not have building codes. If no state or local building code has been adopted, the appropriate HUD Field Office will specify a building code that is comparable to one of the nationally recognized model building codes. Interstate Land Sales The Interstate Land Sales program protects consumers from fraud and abuse in the sale or lease of land. In 1968, Congress enacted the Interstate Land Sales Full Disclosure Act, which is patterned after the Securities Law of 1933, and requires land developers to register subdivisions of 100 or more non-exempt lots with HUD, and to provide each purchaser with a disclosure document called a property report. The property report contains relevant information about the subdivision and must be delivered to each purchaser before the signing of the contract or agreement. Buying Lots from Developers Be well informed when shopping for land. Lots may be marketed as sites for future retirement homes, for second home locations, or for recreational or campsite use. However, be wary of any investment aspect that may be stressed by sales personnel. If you plan to purchase a lot which is offered by promotional land sales, take plenty of time before coming to a decision. Before signing a purchase agreement, a contract, or a check:
 Generally, if the company from which you plan to buy is offering
100 or more unimproved
lots for sale or lease through the mail or by means of interstate commerce, it
may be required to register with the U.S. Department of Housing and Urban
Development (HUD). This means that the company must file with HUD and provide
prospective buyers with a property report containing detailed information about
the property. Failure to do this may be a violation of federal law,
punishable by up to five years in prison, a $10,000 fine, or both. The
information filed by the developer and retained by HUD must contain such items
as these:
The company filing this
information must swear and affirm that it is correct and complete, and an
appropriate fee must accompany submission. The information is retained by HUD
and is available for public inspection. The property report, which is also
prepared by the developer, goes to the buyer. The law requires the seller to
give the report to a prospective lot purchaser prior to the time a purchase
agreement is signed. Ask for it. The seller is also required to have the
buyer sign a receipt acknowledging receipt of the property
report. Do not sign the receipt unless you have actually received the property
report. Check the developer’s property report before buying. This is the kind
of information you will find in a property report: Read the Property Report
Before Signing Anything This report is prepared and issued by the developer of this subdivision. It is
not prepared or issued by the federal government. Federal law requires that you
receive this report prior to signing a contract or agreement to buy or lease a
lot in this subdivision. However, no federal agency has judged the merits or
value of the property. If you received the report prior to signing a contract
or agreement, you may cancel your contract or agreement by giving notice to the
seller any time before midnight of the seventh day following the signing of the
contract or agreement. If you did not receive this report before you signed a
contract or agreement, you may cancel the contract or agreement any time within
two years from the date of signing. Your Contract Rights If the lot you are
buying is subject to the jurisdiction of the Interstate Land Sales Full
Disclosure Act, the contract or purchase agreement must inform you of certain
rights given to buyers by that Act. The contract should state that the buyer
has a "cooling-off" period of seven days (or longer, if provided
by state law) following the day that the contract is signed to cancel the
contract, for any reason, by notice to the seller, and get his or her money
back. Furthermore, unless the contract states that the seller will give the
buyer a warranty deed, within 180 days after the contract is signed, the buyer
has a right to cancel the contract for up to two years from the day that
the contract is signed, unless the contract contains the following
provisions: It has always been the law that if the developer has an obligation to register with the Interstate Land Sales Division, the developer or sales agent must give the buyer a copy of the current property report before the buyer signs a contract. Otherwise, the buyer has up to two years to cancel the contract and get their money back. That fact must also be clearly set forth in all contracts. You may have the right to void the contract if the subdivision has not been registered with HUD, or you were not given a property report. Furthermore, if the developer has represented that it will provide or complete roads, water, sewer, gas, electricity or recreational facilities in its property report, in its advertising, or in its sales promotions, the developer must obligate itself to do so in the contract, clearly and conditionally (except for acts of nature or impossibility of performance). In addition to the right to a full disclosure of information about the lot, the prospective buyer may have the right to void the contract and receive a refund of their money if the developer has failed to register the subdivision with HUD or has failed to supply the purchaser with a property report. While a purchaser may have the right to void the contract with the developer under these conditions, the purchaser may still be liable for contract payments to a third party if that contract has been assigned to a financing institution or some similar entity. The registration is retained by HUD and is available for public inspection. If the property report contains misstatements of fact, if there are omissions, if fraudulent sales practices are used, or if other provisions of the law have been violated, the purchaser may also sue to recover damages and actual costs and expenses in court against the developer. However, depending on when your sale occurred, you may be barred from taking further action due to the Act's statute of limitations. Your attorney can advise you further on this matter. "Cooling-Off"
Period The HUD unit which administers the law, examines the developer's registration
statement, and registers the land sales operator is the Interstate Land Sales
Division. Except for disclosure purposes, this office is not concerned with
zoning or land-use planning, and has no control over the quality of the
subdivision. It does not dictate what land can be sold, to whom, or at what
price. It cannot act as a purchaser's attorney. But it will help purchasers
secure the rights given to them by the Interstate Land Sales Full Disclosure
Act. HUD is authorized by law to conduct investigations and public hearings, to
subpoena witnesses and secure evidence, and to seek court injunctions to
prevent violations of the law. If necessary, HUD may seek criminal indictments.
HUD is authorized by law to conduct investigations and, if necessary, seek
criminal indictments.
Exemptions from the Law The prospective buyer
should be aware that not all promotional land sales operations are covered by
the law. If the land sales program is exempt, no registration is required by
HUD, and there will be no property report. Here are some of the specific
situations for which the statute allows exemptions without review by HUD,
including the sale of: Other exemptions are available which are not listed above. If you have reason to believe that your sale is not exempt and may still be covered by the law, contact the Interstate Land Sales Division. Know the Developer Once you have decided on an appealing subdivision, inspect the property. Don't
buy "sight unseen." Better yet, hire an InterNACHI inspector to
perform a thorough property inspection. Also, check the developer's plans for
the project and know what you are getting with your lot purchase. It's a good
idea to make a list of the facts you will need to know. Some of the questions
you should be asking, and answering, are these:
Know the Facts About the
Lot Once you have decided on an appealing subdivision, inspect the property. Don't buy "sight unseen." Better yet, hire an InterNACHI inspector to perform a thorough property inspection. Also, check the developer's plans for the project and know what you are getting with your lot purchase. It's a good idea to make a list of the facts you will need to know. Some of the questions you should be asking, and answering, are these: Know What You are Doing Here are some of the practices avoided by reliable sales operations. Watch out
for them and exercise sales resistance if you suspect they are occurring: 1. Concealing or
misrepresenting facts about current and resale value. Sales agents may
present general facts about the area’s population growth, industrial or
residential development, and real estate price levels as if they apply to your
specific lot. You may be encouraged to believe that your piece of land
represents an investment which will increase in value as regional development
occurs. A sales agent may tell you that the developer will re-sell the lot, if
you request. This promise may not be kept. Future resale is difficult or
impossible in many promotional developments because much of your purchase price
-- sometimes as much as 40% -- has gone for an intensive advertising campaign
and commissions for sales agents. You are already paying a top price and it is
unlikely that anyone else would pay you more than you are paying the developer.
You may even have to sell for less than the price you originally paid for
the lot. Sales promotions often are conducted in a high-pressure atmosphere.
Furthermore, when you attempt to sell your lot, you are in competition with the
developer, who probably holds extensive, unsold acreage in the same
subdivision. In most areas, real estate brokers find it impractical to undertake
the sale of lots in subdivisions and will not accept such listings. It is
unlikely that the lot you purchase through interstate land sales represents an
investment, in the view of professional land investors. Remember, the elements
of value of a piece of land are its usefulness, the supply, the demand,
and the buyer's ability to re-sell it. The Urban Land Institute estimates that
land must double in value every five years to justify holding it as an
investment. In some areas, the cost of holding the land, such as taxes and
other assessments, can run as high as 11% a year. 2. Failure to
honor refund promises or agreements. Some sales promotions conducted
by mail, email or long-distance telephone include the offer of a refund if
the property has been misrepresented, or if the customer inspects the land
within a certain period of time and decides not to buy. When the customers
request the refund, s/he may encounter arguments about the terms of the
agreement. The company may even accuse its own agent of having made a
money-back guarantee without the consent or knowledge of the developer.
Sometimes, the promised refund is made, but only after a long delay. 3. Misrepresentation
of facts about the subdivision. This is where the property report
offers an added measure of protection. A sales agent may offer false or
incomplete information relating to either a distant subdivision or one which
you visit. Misrepresentations often relate to matters such as the legal title,
claims against it, latent dangers (such as swamps or cliffs), unusual physical
features (such as poor drainage), restrictions on use, or lack of necessary
facilities and utilities. Read the property report carefully with an eye to
omissions, generalizations, or unproved statements that may tend to mislead
you. If you are concerned about overlooking something important, discuss the
report and the contract with a lawyer who understands real estate matters. The
developer also may use advertisements that imply that certain facilities and
amenities are currently available when they are not. Read the property report
to determine whether these facilities and amenities are actually completed, or
proposed to be completed in the future. If the company advertises sales on
credit terms, the Truth in Lending Act requires the sales contract to
fully set forth all terms of financing. This information must include
total cost, simple annual interest, and total finance charges. 4. Failure to
develop the subdivision as planned. Many buyers rely upon the developer's
contractual agreement or a verbal promise to develop the subdivision in a
certain way. The promised attractions that influenced your purchase (golf
course, marina, swimming pool, etc.) may never materialize after you
become an owner. If they are provided, it may be only after a long delay. If
you are planning on immediate vacation use of the property, or are working
toward a specific retirement date, you may find that the special features
promised of the development are not available when you need them. 5. Failure to
deliver deeds and/or title insurance policies. Documents relating
to the sales transaction may not be delivered as promised. Some sales in the
promotional land development industry are made by contract for a deed to be
delivered when the purchaser makes the last payment under the terms of the
contract. A dishonest developer may fail to deliver the deed, or deliver it
only after a long delay. A sales agent may offer false or incomplete
information. 6. Abusive
treatment and high-pressure sales tactics. Some sales agents drive
prospective customers around a subdivision in automobiles equipped with citizen
band radios which provide a running commentary on lot sales in progress. The
customer may be misled by this and other sales techniques to believe that
desirable lots are selling rapidly and that a hurried choice must be made.
Hurrying the buyers into a purchase they may later regret is only one ploy of
high-pressure sales agents. More offensive is abusive language used to
embarrass customers who delay an immediate decision to buy. In some instances,
hesitant buyers have been isolated in remote or unfamiliar places where
transportation is controlled by the sales agent or the agent's organization. 7. Failure to
make good on sales inducements. Free vacations, gifts, savings bonds,
trading stamps, and other promised inducements are used to lure people to sales
presentations or to development sites. These promised treats may never
materialize. Sometimes, special conditions are attached to the lure, or a
customer is advised that gifts go only to lot purchasers. A "free
vacation" may be the means of delivering the prospective buyer to a
battery of high-pressure sales agents in a distant place. The promised
attractions may never materialize. 8. "Bait
and switch" tactics. Lots are frequently advertised at extremely
low prices. When prospective buyers appear, they are told that the low-priced
lots are all sold and then are pressured to buy one that is much more
expensive. If the cheaper lot is available, it may be located on the side of a
cliff or in another inaccessible location. If accessible, it may be much too
small for a building or have other undesirable features. The buyers may be
lured to the property with a certificate entitling them to a "free"
lot. Often, the certificate bears a face value of $500 to $1,000. If the buyers
attempt to cash it in, the amount is simply included in the regular price
(often inflated) of the lot they choose. Often, this so-called "bait and
switch" technique has a delayed fuse. Buyers who purchase an unseen lot for
later retirement may be unpleasantly surprised when they visit the development.
The lot they have paid for may be remote from other homes, shopping and medical
facilities. It may be insufficiently developed for use. When the buyers
complain, sales personnel attempt to switch them to a more expensive lot,
applying the money paid for the original lot to an inflated price for the new
one, and tacking on additional financing charges. If the unhappy purchasers
lack sufficient funds to accept this alternative, they are left with an
unusable, unmarketable first choice. 9. Failure to grant
rights under the Interstate Land Sales Full Disclosure Act. Purchasers
may not be given copies of the property report before they sign a sales
contract. Some sales agents withhold this detailed statement until customers
choose a specific lot. Sometimes, the buyers receive the report in a mass of
promotional materials and legal documents. Unaware that the report is in their
possession, they fail to read and understand it before signing a sales
contract. Article by NACHI Richard Morse (770) 564-1505 |
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