Real  Estate  Record





AND BUILDERS' GUIDE.





Yol. XX.





NEW YORK, SATUEDAY, DECEMBER 29, 1877.





No.  511.





Published Weekly by

TERMS.
ONE YEAR, in advance....$10.00.

Communications should be addresised to

C.  ^V.  STREET,

Nos. 345 and 347 Broadway

THE ETHICS OF BUILDING LOANS.

Perhaps it would be a proper preface to our
presenfc remarks to offer a definition of the par¬
ticular-view of this famUiar subject, -which -we
propose to take afc the present time. In au age,
■which has produced a coi-porate manager,
who seeks to evade the crimihaUty of his acts by
the miserable plea of a simrUiated oath, we may
be justified in assuming that the study of ethics
has become one of the lost sciences. We should
despair of being able to condense within the Umits
of a paragraph our sense of fche imporfcance of
this science or even to offer an adequate defini¬
tion of it. Affcer our reader has exhausted the re¬
sources of Webster, we can only commend to him
for a fuUer insight into the subject such standard
-works as Hickok's Moral Science, or Cobbe's In¬
tuitive Morals; or if such research should seem
too onerous we can further suggest an attendance
upon the lecfcm-es of thafc exceUent institution
which is just budding into Ufe designed for the
promotion of ethical cidfcure. For our presenfc
purposes, we wiU define ethics to be the science
of right and wrong.

Our past efforts have been directed in the line
of demonstrating thafc there is a right and
-wi-ong in the matter of buUding loans. We pro¬
pose now to locate the divergence of these two
elements, and as far a,s possible to define the in¬
dividual responsibUifcy of those who are commonly
associafced in this line of business.

The whole virtue or turpitude of a scheme of
buUding loan centres in the valuation which is
placed upon fche real esfcafce serving as the basis
for the operation. No more meritorious, praise¬
worthy or afctracfcive scheme can be proposed than
one in which buUder and capitalist combine their
respective, energies, talents and capifcal to secure
the purchase of lots at the lowest markefc price
upon which they may erecfc suifcable and salable
buildings. Such transactions may be said'to re¬
present and embody the maximum of merit in
the buUding Une. The pracfcical knowledge and
sMU of the buUder are supplemented by the ready
capital and shrewd commercial insight and busi¬
ness method of the capitaUst. Under such con¬
ditions, if success is attainable in any human
speculation ifc would seem that the certainty of it
might be predicated or guaranteed in respect to
this one. Bufc when capitaUsfc and builder
disregard the element of mutuality and set out
like-vultures to devour each other, or attempt to
do so, the fa.te of such an operation can be fore¬
told without the spirit of prophecy. It can be
summed up in a single word—disa^er. As far as
the pubUcat large is concerned, and particularly
those mechanics and material men who may hap¬
pen to be invited to parfcicipate ui the affcer con¬
sequences of a building loan scheme, a suflBcient





insight into the status of the undertaking may be
gathered from the basis of the arrangement be¬
tween the capitaUsfc and buUder. OrdinarUy it
is difficult to discover this, owing fco fche secrecy
and attempted concealment which is generaUy
practiced by the conspiring capitaUst and buUder.
But there are ways and means by which this in¬
formation may be afcfcained. If not through the
medium of our columns at any rate by personal
appUcation at our offiee, it wUl be generaUy easy
to acquire the currenfc or correct belief enter¬
tained with regard to any parfcicular buUding
loan transaction. As we have observed, the
whole merit or demerit of such transactions is in¬
cubated directly in the price demanded and agreed
to be paid for the land. If this price is stUfced
twenty-five, fif fcy or a hundred per cent, above rul¬
ing prices, or above what solvent and prudent
builders would be wiUing to pay for such land, the
scheme ainounts to nothing more than an at¬
tempt at grand larceny or highway robbery.
Any clear-headed business man, at aU acquainted
with the costs of building and the prices which
may be reasonably expected for the complefced
producfc, may determine with sufficient accuracy
the financial result of any of these undertakings.
In the least objectionable of these cases of specu¬
lative loans, the worst that can be aUeged is fchat
the assumed land value has eaten up, in advance,
all the profit that may be reasonably reaUzed
from the operation, and, in consequence, the
builder wiU have spent his labor and fcrouble for
nothing. In more 'flagrant examples the
land value not only exhausfcs aU possible profifc
but is fixed afc such an altitude as to determine
an unavoidable loss in the. transacfcion. In this
case the buUder simply preys upon fche credulifcy
of his credifcors, appropriafcing for his privafce
use as much of the buUding loan as he can con¬
sistently reserve. He expects, and deUberately
plans, to abandon the job when only two-thirds
finished, and to leave the capitalist and creditors
to fight out the battle the besfc way t/hey can. If
the disastrous consequences of these undertakings
were -visited solely Upon the builder-and capital¬
ist who embark in them we woiUd cheerfuUy
leave them to their fate, and no voice of ours
would be raised in expostulation or reprobation.
But the resulfcs are not always measured out on
the line or in the degree of turpitude that marks
the inception, of these undertakings. UsuaUy the
capitalist, by foreclosure, secures an undisputed
right to the property out of which, by shrewd
management, he may be able to make himself
whole or more than whole. The buUder is least
to be pitied, except for his disgrace. As the
cashier of the undertaking he is prefcfcy apt to
Une his purse weU and lay by a dollar or two for
a rainy day. Where a monied institution happens
to become involved in these schemes, it is often
a part of the project>f both the builder and capi¬
taUsfc to unload, as it were, the whole operafcion
upon the insfcitution. In this case a third party
is introduced, and the beneficiaries of such an in¬
stitution become involuntary participanfcs in fche
final results of the transaction. There are savings
banks and Ufe insurance companies to-day, in and
out of bankruptcy, that are loaded down -with
unsalable   and almost unrentable propertv    c-





quired through this method of intruding their
offices upon persons engaged in buUdrug loan ven¬
ture. It is doubfcful whefcher twenfcy-five per
.cenfc. of the nioney invesfced in some of these
schemes wUl ever be again realized. In bmlding
loan schemes the three principal actors are the
capifcaUst, the buUder, and the monied institution
which is relied upon to make a permanent mort¬
gage loan. Upon these three heads must be laid
the chief responsibiUty for the inception and dis¬
asfcrous consequences of these affairs. They are
the coconspirators, as it were, and may worfchUy
have dealt out to them the whole measure of ob¬
loquy which should attach fco unsound and im-
mercanfcDe enfcerprises. There are subordinates,
however, inaU these undertakings, at whose door
a minor share of the moral responsibiUty may
be laid. These schemes are frequently floated by
an enterprising broker whose methods of business
are loose and unscrupulous. In fact, some brokers
give their exclusive afcfcenfcion to this class of jobs,
flnding tn them a much more remunerative em¬
ployment than they could expect in legitimafce
efforts. We have yet to deal at length with
the ethics of the broker's caUing, but we think it
must be obvious to any one, even of the
mosfc obfcuse moral sense that the broker, as the
negofciafcor, conniver and go-between of the
respective principals incurs a responsibility nexfc
to that of the principals themselves. As the
capitalist is oftentimes misophisticated and in¬
experienced in the business, he is obUged to rely
upon the advice and assistance of his counsellor-
at-law, upon whose shoulders rests a remofce bufc
weU defined measure of accounfcabiUty. It is in
the power of safe, prudent and judicious counsel
to avert many of fchese disasfcers by explaining in
advance to his cUents the natm-e, merits £ind
probable resulfcs of fchese transacfcions; but as
they offcen afford liberal fees to the counsel em¬
ployed, the tempfcafcion fco encourage them is
generally all too great fco be resisfced by the
average attorney at law. And yet in nine cases
oufc of ten it would be cheaper for the cUent to
pay his counsel the fuU amount of the fees fchafc
he is likely fco receive, and to forego the proposed
scheme. The mechanics and material men also
are amenable to a share of accountabUifcy in these
cases, but in different orders and degrees. The
brick dealer and lumber merchant have the best
oppoi-fcunity of fostering or thwarting such
schemes, as by their natural ^business equipment
they are best qualified to sfcudy fcheir initial
stages and symptoms. After the consummation
of a bargain between the capitaUst and buUder,
the brick and lumber merchants are the first
ones usuaUy caUed upon for fcheir co-operation.
The excavating, or contracting as ifc is caUed,
involves so smaU an outlay in comparison to fche
tofcal cost of the job, that the contractor is readUy
pacified either by advanced payments or by
guarantees of payment at an early day. The
excavation, when diUgently pm-sued, gives an air
of earnestness and sprightlinesstofche work which
is sure to attract the attention of all competing
material men and boss mechanics. If the brick
and lumber merchants wotUd satisfy themselves
of the good or bad character of these jobs, as
they are presented, and determine theii- action