Real Estate Record

AND     BUILDERS'    GUIDE.





Vol. XVn.





NEW YOKE, SATUEDAY, JANUARY 8, 1876.





No. 408.





I^Wished Weekly by

THE REAL ESTATE RECORD ASSOCIATION

0. W. SWEET...............Peesident and Tbeasdeeb

PRESTON I. SWEET...........Seceetart.

L. ISRAELS.........................Business Manages

TERMS.
OSTE TS^AR, iu advance....$10 00.

Cc»nmunications should be addressed to

Nos. 345 AND 34ff Beoadwat.





THE CEISIS IN EEAL ESTATE.





VI.





We continue our analysis of the existing situa¬
tion in real estate, and exposition of its causes.

BONDS AND  MOBTGAGES.

The credit system, as applied to real estate in¬
terests, is peculiar and intricate; almost wholly
unknown or incomprehensible to the outside
public.   Bonds and mortgages, those familiar
but mystical terms, are the only forms of credit
known in the world of real estate transactions.
A careful and thoughtful perusal of the printed
blanks will famish some insight into their char
acteristies; though their real effects may best be
studied in times of panic through the decrees of
courts and the proceedings at the Exchange
Salesrooms. "Hundreds have executed and de¬
livered these instruments with only superficial
knowledge of their contents and the faintest
glimmering of their far-reaching and oppressive
legal consequences.   The delusion that usually
obscures   men's   minds   when   thus  involving
themselves is that these obligations reprssent a
debt more than amply secured by the pledge of
the property   mortgaged, forgetting   that  the
security   lies   in   the   abstract    question    of
values,    and   that   the   future   weal  or  woe
of the confiding mortgagor and bondsman de¬
pends upon the stability or increase of those
values.   Panics and the shrinkage of deprecia¬
tion suddenly convert these amply secured obli¬
gations into pressing personal debts, wholly ir¬
respective of the intrinsic or supposed value of
the land pledged; the bond which accompanies
the mortgage, and which is separate and distinct
from it, binds the bondsman personally, by its
conditions, to the extent of his whole estate, so
long as the bond has a legal existence.

The genesis of some of these instruments
maybe easily traced. The original owners of
land are usually corporations, estates, and indi¬
viduals of ample fortunes; and the tendency, es¬
pecially during the recurring panics, is for
property to revert to such ownership by the pro¬
cess of foreclosure. In such strong hands it
rests securely while the storms of disaster rage
and the long shadows of depression fall athwart
the financial landscape. With the first dawn of
prosperity, the whole tribe of speculators is on
the-alert to catch the flying profits. Some
■ of them have wealth and. ready money to
back them, but the majority are cursed with





moderate bank accounts. . The first move in the
game of speculation is to induce the land-owner
to accept in payment of his stipulated price the
smallest possible amount of cash aud the largest
possible amount of mortgage.   In this way the
complacent land-owner too often connives at
the risks of speculation.    The customary pro¬
portions are 30 per cent, cash and 70 per cent,
mortgage, sometimes assuming the risky ratios
of 10 per cent, cash and 90 per cent, mortgage.
Cases have occurred where land has been sold
wholly on mortgage.   The easy terms thus af¬
forded for speculative ventures in real estate
mean in reality the contraction of debt in its
harshest and most concrete form—a debt, too,
carrying interest, failure to pay v/hich involves
the gravest penalties.   With the aid of these
paper devices, bonds and mortgages, the game
of speculation is fostered and promoted.   In
times of rampant inflation these obligations are
Hghily regarded, being construed to represent
only a fraction of total value.    The speculator
concerns  himself principally  about   the   so-
called equity of redemption,  being  the   sur¬
plusage   of   value   over   the    mortgage-sum.
This   is   the   real   subject-matter  of   specu¬
lation.     To   augment, to expand, to   enlarge,
to magnify this mere remnant of value until its
colossal proportions quite overtop the purchase-
money mortgage, and render a so-called second
and third mortgage not only easily attainable,
but necessary to the proper expression of the
lot value, is deemed the high function and pre¬
rogative of the professional operator.   For this
he toils and strives; in this his energies are
speat,  until   credulity has exhausted its last
dollar, or the land groans with the weight of
mortgage laid upon it.   At length overstimu-
lated values obey a natural law, reaction sets
in, undue tension demands relaxation,  disaster
looms its grim visage, public   confidence in
values is withdrawn and the finale is reached.
Equity of redemption gradually dwindles, and
at last is extinguished.    The lot value runs a
scrub race with the face of the purchase money
mortgage; and being handicapped with taxes,
assessments,   interest . account,   lawyers   aud
brokers' fees, it finally succumbs and the land
falls an easy prey to the mortgagee.

Persons not familiar with real estate finance
can form no conception- of the aggravated em¬
barrassment resulting from its peculiar forms
of obligation, given usually under the buoyancy
of speculative hope, the settlement of them be¬
ing often enforced in times of depreciation, dis¬
aster a;nd panic. Unlike the insolvent merchant,
or the failed speculator in stocke, cotton or prod¬
uce, whose difficulties culminate in a day and
are adjusted on the following day, the victim of
a collapsed real estate speculation is held in the
iron vice of his personal bond, his creditor—
proyerbiiallysremorseless—ready to pursue him
to the ends of the earth with a.grotesque claim





called a judgment for deficiency, even though
the property pledged for the payment of the
original debt has been confiscated and absorbed.
We will not dwell on the details of a situation,
at the present time, too real and tiue in
the experience of many a man, who has awoke
from his dreams and delusions to confront not
only loss of fortune and property, but recorded
judgments, the terror of which may haunt him
all his days. The time must come when sellers
of property and lenders of money on real estate
will be compelled to accept mortgages without
bonds and look for their security to the land
value only. Instead of buyer beware, we need
the maxim, seller or lender beware, to infuse a
proper conservatism into our real estate values.
Shrewd operators adopt the plan of letting men
of straw—a coachman, a porter or a clerk—take
the title to property purchased and give the nec¬
essary bonds and mortgages, and subsequently
convey, subject to the mortgages, to the real
owner. A purchaser of property already mort¬
gaged, by agreeing to assume the payment of the
existtag mortgage, becomes thereby a co-obligor
with the original bondsman, and, in law, liable
to similar penalties.

The purchasing of second mortgages assumes
the proportions of a business to which many
capitalists and some small investors addict
themselves in"the halcyon days of speculation—
a business, however, which is fraught with im¬
minent peril, and laden with risks altogether
disproportioned to the profits likely to be real¬
ized therefrom. The second mortgage consti¬
tutes a dyke between the first mortgage and
the biUowy surges of land values, and the
holders of such securities incur a responsibility
next to that of ownership. During panics and
revulsions they have the choice of but two
altemalives, either to become owners of the
property mortgaged by foreclosure, or to strike
colors and sink their investment in the mael¬
strom of disaster.

The long periods over which mortgages gen¬
erally extend, covering terms of one, three, five,
or ten years, render the question of resumption
or non-resumption of specie payments a vitally
interesting one to both mortgagors and mort¬
gagees. Unless special provision is made by
Congress to cover such cases, the mortgagor
runs the risk of having to pay in gold a loan
contracted in depreciated paper money, and,
vice versa, the mortgagee takes the chance of hav¬
ing to accept the repayment of his capital in a
currency still more depreciated than the one in
which the loan was made. In this view and
connection, it will be seen that continued agita¬
tion and prolonged delay in settling this ques-
<ion tend to paralyze and hamper all real estat
transactions based upon credit,

MVATiTtTES.

The continent presents no such configuration,
to the beholder's gaze, so adftipted^nd adaptable