Real  Estate   Record





AND BUILDERS^ GUIDE.





Vol. XVIII.





NEW YOKK, SATURDAY, SEPTEMBER 30, 1876.





No. 446





Published Weeldy by

Cfjc geal (fslals getorb %%natmiian,

C. W. SWEET............President and Treasurer.

PRESTON I. SWEET..............Secretary.

. TERMS.
ONE YEAR, in advance....$10.00.
Communications should be addressed to

C.  W.  SWEET,
Nos. 345 and 347 Broadway.





THE FRAUDULENT BUILDING LOAN.
At the antipodes of the real estate market,
that is, at the periods of greatest exaltation,
and depression, this vicious form of transac¬
tion  is  ahnost  invariably  developed.     It
springs in either case from an undue desire
on the part of certain lot owners, who are
also capitalists, to realize for their vacant
property a greater price than could be pro¬
cured in any other way, or in default of real¬
izing it to appropriate, without payment,
materials and labor of others.   They are re¬
gardless of the remote consequences of their
conduct, while their minds are dazzled by the
splendor of their prospective achievements.
The parties to such transactions are usually
an unscrupulous capitalist on the one side
and a knavish contractor on the other side.
Together, they pursue their separate ways at
the expense of guUible creditors and a con¬
fiding public.     We cannot find  language
strong enough wherewith to characterize the
nature and results of these peculiar doings.
Multitudes are to-day suffering the pangs of
poverty and its attendant miseries in conse¬
quence of a hapless connection with one of
these reprehensible schemes.   The germ of
the undertaking is inherent fraud, no matter
how the perpetrators may seek to gloss it
over with the name of enterprise and the de¬
velopment of the city's growth.   Not a few
of these fraudulent schemers have the au¬
dacity to claim the title of public benefactors
and,   after misfortune  fairly  overwhelms
them, to ask for the  sympathy  of their
friends and the public.   We call attention to
this subject at the present time, not from any
apprehension that capitalists, who have here¬
tofore experienced the loss, anxiety and dis¬
appointment attending these transactions,
will ever have any desire to repeat that expe¬
rience.   We appeal to their experience as the
strongest confirmation of the justice of our
present remarks.   The indispensable factor
la all these proceedings is the capitalist with
his plethoric bank account, and as new men
are constantly appearing in this special role,
and are liable to the seductions of unprin¬
cipled brokers and crafty builders, we offer
here these few words of counsel and warn¬
ing in the hope^of deterring them from em-
harking in these peculiar ventures, ■ojr if de¬





termined to invite such perils, at least to
make plain to them the disasters which wiU
surely beset their way.

We venture to say that the naked outlines of
this transaction, if presented in the counting-
room of any honorable banker or merchant,
would be scouted as the baseless fabric of a
vision, or as a scheme of stupendous fraud,
and the parties to it regarded as freebooters
or pirates.

To clearly define our subject, we will say
that the case here alluded to is, where
lots are sold by a capitalist at from 25 to 50
per cent, above the market price, with the
accompaniment, however, of a liberal loan,
which the builder receives as an assistance
and encouragement in building. The extra
price paid by the builder is virtually a
"shave" or bonus for the use of the money
loaned and for the liberal credit extended by
the capitalist. In other words, for the sake
of handling this money, the builder consents
to handicap himself with a purchase money
from 25 to 50 per cent, greater than an honest
and solvent builder would pay for similar
land without the stimulus of the loan. At a
glance it will be seen that the affair must
yield an inordinate proflt in order to enable
the builder to pay his creditors, or, as almost
invariably in such cases is the result, the
bonus is found not only to have absorbed all
the profit that remained in the transaction,
but even to have trenched upon the cost
price or capital sum laid out in the construc¬
tion of the buildings. So that usually it may
be demonstrated from the beginning that the
builder is simply rushing into a morass of in¬
solvency, and that the confiding creditors—
material men, mechanics and laborers—^who
unite with him in erecting the improvements,
must give a large share of their labor and
materials for naiight. More than likely, it
results in their bankruptcy or the serious
crippling of their business standing.

As far as the principals in this business are
concerned, we have no hope of making any
Impression upon their moral sense. We fear
no arguments of ours can restrain their greed
and knavery; but for the confiding and
luckless creditors, and the innocent public of
New York, who will be called upon to pur¬
chase houses built under this method, we
claim the right to interpose our word of ad¬
monition. No honest citizen can take any
delight in witnessing the improvement of
our city by such disreputable practices. The
whole building trade, which numbers among
its members a large proportion of high-toned
and honorable men, is prejudiced and dam¬
aged in public estimation by. the encourage¬
ment of such schemes. We are sure we have
characterized them with sufficient plainness





to enable the most casual observer to dis¬
tinguish between them and those noble pro¬
jections of building enterprise which now
abound within the limits of our city, and to
whose achievements we owe its principal
and most reliable growth,

A direct evil is wrought through these
practices upon the legitimate and solvent
builder by creating an apparent market
price for land which is wholly fictitious
and unnatural, but which nevertheless
has the immediate effect of raising the
expectations of other property owners,
who may be unable or unwilling to resort
to the same means for disposing of their
property, and yet are thus deluded into ask¬
ing more for their land than they would
otherwise be willing to accept. The legiti¬
mate builder, who in contemplating a build¬
ing enterprise has no other thought than that
of paying his debts and reaping a moderate
profit, is thus forced to pay a higher price
than the prospective results would warrant.
Fortunately, the attempts to renew these
practices, which have been made since the
panic of 1873, Jiave proved signal failures.
We can point to many cases of this kind,
where buildings have been carried to a certain
point of progress and have then been stopped
and boarded up like cowsheds, to await the
tedious solution of their difficulties in the
courts. We know of scores of structures,
every one commenced since the panic, which
have proceeded by regular steps from their
inception to the foreclosure of mortgage, the
appropriation of the property by the capital¬
ist and the submerging of a host of innocent
creditors, as if such an end were the original
object had in view at the start,        ,

It is usual for the capitahst to con¬
sider in these matters that the builder's
extremity is his opportunity; and he ac¬
cordingly calculates that, after the legal
proceedings are settled, he can help him¬
self to the fruits of other men's labors
at a trifling cost. We warn all those thus
minded, that the long delays attending
the legal settlements of these transactions,
and the heavy expenses to which they are
subjected, among the largest of which are
the legal costs and the expenses of complet¬
ing and finishing the houses and making
them ready for the market, have been found,
in the cases which have occurred during the
past two years, to increase the capitalist's out¬
lay to an extent that actually involves him
in a heavy loss. The fact is in representative
cases, to which we could easily refer and
which are notorious among well-informed
real estate operators, the creditors have not
been the only ones to suffer, but a large share
of the loss has fallen upon the capitalist, who,