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
HUD Minimum Property Standards and How They Supplement the Model Building Codes
HUD Field Office Acceptance for Areas Without Building Codes
Interstate Land Sales
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 buy; and
- know what you are doing when you encounter high-pressure sales campaigns.
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:
- a copy of the corporate charter and financial statement;
- information about the land, including title policy or attorney’s title opinion, and copies of the 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; and
- supporting documents, such as maps, plans and letters from suppliers of water and sewer facilities.
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:
- distances to nearby communities over paved and 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 wells;
- 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; and
- the type of title the buyer may receive and when it should be received.
Read the Property Report Before Signing Anything
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:
- 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
A Word About the Interstate Land Sales Division
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:
- tracts of fewer than 100 lots which are not otherwise exempt;
- lots in a subdivision where every lot is 20 acres or more in size;
- 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 year);
- 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 restrictions; and
- certain lots, contained in multiple sites of fewer than 100 lots each, offered pursuant to a common promotional plan.
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
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:
- How large will the development become?
- What zoning controls are specified?
- What amenities are promised?
- What provision has the developer made to assure construction and maintenance?
- What are the provisions for sewer and water service?
- Are all of the promised facilities and utilities in the contract?
- 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?
- Will you receive a deed upon purchase or a recordable sales contract?
- 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
Nine Dishonest Sales Practices