PART 1011—PURCHASERS' REVOCATION RIGHTS, SALES PRACTICES AND STANDARDS (REGULATION K) Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1718. Source: 76 FR 79522, Dec. 21, 2011, unless otherwise noted. Subpart A—Purchasers' Revocation Rights § 1011.1 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. § 1011.2 Revocation regardless of registration. All purchasers have the option to revoke a contract or lease with regard to a lot not exempt under §§ 1010.5 through 1010.11 and 1010.14 until midnight of the seventh day after the day that the purchaser signs a contract or lease. If a purchaser is entitled to a 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. § 1011.4 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 Purchase price (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. § 1011.5 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. Subpart B—Sales Practices and Standards § 1011.10 General. Sales practices § 1011.15 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 included by reference must be specified in the contract of sale or lease. § 1011.20 Unlawful sales practices—regulatory provisions. In selling, leasing or offering to sell or lease any lot in a subdivision it is an unlawful sales practice for any developer or agent, directly or indirectly, to: (a) Give the Property Report to a purchaser along with other materials when done in such a manner so as to conceal the Property Report from the purchaser. (b) Give a contract to a purchaser or encourage him to sign anything before delivery of the Property Report. (c) Refer to the Property Report or Offering Statement as anything other than a Property Report or Offering Statement. (d) Use any misleading practice, device or representation which would deny a purchaser any cancellation or refund rights or privileges granted the purchaser by the terms of a contract or any other document used by the developer as a sales inducement. (e) Refuse to deliver a Property Report to any person who exhibits an interest in buying or leasing a lot in the subdivision and requests a copy of the Property Report. (f) Use a Property Report, note, contract, deed or other document prepared in a language other than that in which the sales campaign is conducted, unless an accurate translation is attached to the document. (g) Deliberately fail to maintain a sufficient supply of restrictive covenants and financial statements or to deliver a copy to a purchaser upon request as required by §§ 1010.109(f), 1010.112(d), 1010.209(g), and 1010.212(i). (h) Use, as a sales inducement, any representation that any lot has good investment potential or will increase in value unless it can be established, in writing, that: (1) Comparable lots or parcels in the subdivision have, in fact, been resold by their owners on the open market at a profit, or; (2) There is a factual basis for the represented future increase in value and the factual basis is certain, and; (3) The sales price of the offered lot does not already reflect the anticipated increase in value due to any promised facilities or amenities. The burden of establishing the relevancy of any comparable sales and the certainty of the factual basis of the increase in value shall rest upon the developer. (i) Represent a lot as a homesite or building lot unless: (1) Potable water is available at a reasonable cost; (2) The lot is suitable for a septic tank operation or there is reasonable assurance that the lot can be served by a central sewage system; (3) The lot is legally accessible; and (4) The lot is free from periodic flooding. § 1011.25 Misleading sales practices. Generally, promotional statements or material will be judged on the basis of the affirmative representations contained therein and the reasonable inferences to be drawn therefrom, unless the contrary is affirmatively stated or appears in promotional material, or unless adequate safeguards have been provided by the seller to reasonably guarantee the occurrence of the thing inferred. For example, when a lot is represented as being sold by a warranty deed, the inference is that the seller can and will convey fee simple title free and clear of all liens, encumbrances, and defects except those which are disclosed in writing to the prospective purchaser prior to conveyance. The following advertising and promotional practices, while not all inclusive, are considered misleading, and are used to evaluate a developer's or agent's representations in determining possible violations of the Act or regulations. In this section “represent” carries its common meaning. (a) Proposed improvements. (b) Off-premises representations. (1) It is clearly stated that the scenes or improvements are not related to the subdivision offered; or (2) In the case of drawings that the scenes or improvements are artists' renderings; (3) If the areas or improvements shown are available to purchasers, what the distance in road miles is to the scenes or improvements represented. (c) Land use representations. (d) Use of “road” and “street.” (e) Road access and use. (f) Waterfront property. (g) Maps and distances. (2) The use of the terms such as “minutes away,” “short distance,” “only miles,” or “near” or similar terms to indicate distance unless the actual distance in road miles is used in conjunction with such terms. Road miles will be measured from the approximate geographical center of the subdivided lands to the approximate downtown or geographical center of the community. (h) Lot size. (i) “Free” lots. (j) Pre-development prices. (k) False reports of lot sales. (l) Guaranteed refund. (m) Discount certificates. (n) Lot exchanges. (o) Resale program. (p) Symbols for conditions. (q) Proposed public facilities. (r) Non-profit or institutional name use. § 1011.27 Fair housing. Title VIII of the Civil Rights Act of 1968, 42 U.S.C. 3601, et seq., § 1011.30 Persons to whom subpart B is inapplicable. Newspaper or periodical publishers, job printers, broadcasters, or telecasters, or any of the employees thereof, are not subject to this subpart unless the publishers, printers, broadcasters, or telecasters: (a) Have actual knowledge of the falsity of the advertisement or (b) Have any interest in the subdivision advertised or (c) Also serve directly or indirectly as the advertising agent or agency for the developer. Subpart C—Advertising Disclaimers § 1011.50 Advertising disclaimers; subdivisions registered and effective with the Bureau. (a) The following disclaimer statement shall be displayed below the text of all printed material and literature used in connection with the sale or lease of lots in a subdivision for which an effective Statement or Record is on file with the Director: “Obtain the Property Report required by Federal law and read it before signing anything. No Federal agency has judged the merits or value, if any, of this property.” If the material or literature consists of more than one page, it shall appear at the bottom of the front page. The disclaimer statement shall be set in type of at least ten point font. (b) If the advertising is of a classified type; is not more than five inches long and not more than one column in print wide, the disclaimer statement may be set in type of at least six point font. (c) This disclaimer statement need not appear on billboards, on normal size matchbook folders or business cards which are used in advertising nor in advertising of a classified type which is less than one column in print wide and is less than five inches long. (d) A developer who is required by any state, or states, to display an advertising disclaimer in the same location, or one of equal prominence, as that of the Federal disclaimer, may combine the wording of the disclaimers. All of the wording of the Federal disclaimer must be included in the resulting combined disclaimer.