Building a Home
If you want to build a new home, there are other
things you need to know before you begin. Learn about
construction standards and about buying land, so you know your
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
health care type facilities.
HUD Minimum Property Standards and How They Supplement the Model
Until the mid-1980's, 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 FHA's financial risk in the event of default. More
specifically, the model codes do not contain any minimum
requirements for the durability of such items 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
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:
Know Your Rights as a Buyer.
Know Something about the Developer.
Know the Facts about the Development and the Lot You Plan to
Know What You Are Doing When You Encounter High-Pressure
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 the 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
A copy of the corporate charter and financial statement.
Information about the land, including title policy or
attorney's title opinion & copies of deed and mortgages.
Information on local ordinances, health regulations, etc.
Information about facilities available in the area, such as
schools, hospitals, and transportation systems.
Information about availability of utilities and water and
plans for sewage disposal.
Development plans for the property, including information on
roads, streets, and recreational facilities.
Supporting documents, such as maps, plans, and letters from
suppliers of water and sewer facilities.
The company filing this information must swear
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 you sign a receipt
acknowledging that you received the property report. Do not sign
the receipt unless you have actually received the property
report. Check the developers property report before buying. This
is the kind of information you will find in a property report:
Distances to nearby communities over paved or unpaved roads
Existence of mortgages or liens on the property Whether
contract payments are placed in escrow
Availability and location of recreational facilities
Availability of sewer and water service or septic tanks and
Present and proposed utility services and charges
The number of homes currently occupied
Soil and foundation conditions which could cause problems in
construction or in using septic tanks
The type of title the buyer may receive and when it should
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 7 days (or longer
if allowed 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 2 years from the
day that the contract is signed unless the contract contains the
A clear description of the lot so that the buyer may record
the contract with the proper county authority.
The right of the buyer to a notice of any default (by the
buyer) and at least 20 days after receipt of that notice to
cure or remedy the default.
A limitation on the amount of money the seller may keep as
liquidated damages, of 15% of the principal paid by the
buyer (exclusive of interest) or the seller's actual
damages, whichever is greater.
Contract Rights Concerning Property Reports
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 2 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.
Even if you received the property report prior to
the time of your signing of the contract or agreement, you have
the right to revoke the contract or agreement by notice to the
seller until midnight of the seventh day following the signing
of the contract. You should contact the developer, preferably in
writing, if you wish to revoke your contract and receive a
refund of any money paid to date. Even if the property report is
delivered to you before you sign a sales agreement ... the law
gives you a "cooling off " period. This right cannot be waived.
A Word about the Interstate Land Sales Division
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, 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. Sale of:
Tracts of fewer than 100 lots which are not otherwise
Lots in a subdivision where every lot is 20 acres or more in
Lots upon which a residential, commercial, or industrial
building has been erected or where a sales contract
obligates the seller to build one within two years.
Certain lots which are sold only to residents of the State
or metropolitan area in which the subdivision is located.
Certain low volume sales operations (no more than 12 lots a
Certain lots that meet certain local codes and standards and
are zoned for single family residences or are limited to
single family residences by enforceable codes and
Certain lots, contained in multiple sites of
fewer than 100 lots each, offered pursuant to a common
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
Knowing your rights under the law is the first
step in making a sensible land purchase. To exercise those
rights you also must know something about the honesty and
reliability of the developer who offers the subdivision that
interest you. Don't fail to ask questions. Whether you are
contacted by a sales agent on the telephone or by mail, at a
promotional luncheon or dinner, in a sales booth at a shop-ping
center, or in the course of your own inspection of the
subdivision, make it your business to find out all you can about
the company and the property. In addition, get any oral promises
or representations in writing. Don't fail to ask questions. If
you are seriously interested in buying a lot, ask if the company
is registered with HUD or is entitled to an exemption. Request a
copy of the property report and take the time to study it
carefully and thoroughly. If you still have unanswered
questions, delay any commitment until you have investigated.
Discuss current prices in the area with local independent
brokers. Talk to other people who have purchased lots. A local
Chamber of Commerce, Better Business Bureau, or consumer
protection group may have information about the seller's
reputation. Inquire through county or municipal authorities
about local ordinances or regulations affecting property similar
to that which you plan to buy. Don't be high-pressured by sales
Know the Facts about the Lot
Once you have decided on an appealing subdivision, inspect the
property. Don't buy "site unseen." 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:
How large will the development become?
What zoning controls are specified?
What amenities are promised?
What provision has the developer made to assure construction
What are the provisions for sewer and water service?
Are all of the promised facilities and utilities in the
Will there be access roads or streets to your property and
how will they be surfaced?
Who maintains them? How much will they cost?
Will you have clear title to the property? What liens,
reservations, or encumbrances exist?
you receive a deed upon purchase or a recordable sales
What happens to your payments? Are they placed in a special
escrow account to pay for the property or are they spent at
once by the developer?
If the developer defaults on the mortgage or goes bankrupt,
could you lose your lot and investment to date to satisfy a
claim against the development?
What happens when the developer moves out? Is there a
homeowners' association to take over community management?
Are there restrictions against using the lot for a campsite
until you are ready to build?
Are there any annual maintenance fees or
special assessments required of property owners?
This is a partial list of points to consider before you
commit your money or your signature.
Know What You are Doing
Interstate land sales promotions often are
conducted in a high-pressure atmosphere that sweeps
unsophisticated buyers along. Before they are aware that they
have made a commitment, these buyers may have signed a sales
contract and started to make payments on a lot. They may be
delighted with the selection made but, if not, it may be too
late for a change of mind.
Nine Dishonest Sales Practices
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 areas 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 resell 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 percent- 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
paid for the lot originally. 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 in a piece of land are its usefulness, the
supply, the demand, and the buyer's ability to resell 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 percent a year.
2. Failure to honor refund promises or agreements. Some sales
promotions conducted by mail 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, they 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 set forth fully 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 an oral
promise to develop the subdivision in a certain way. The
promised attractions that influenced your purchase -golf course,
marina, swimming pool- 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
promised special features of the development are not available
when you need them.
5. Failure to deliver deeds, 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 lot 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. Some sales agents
provide a running commentary on lot sales in progress.
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.