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Real estate record and builders' guide: v. 18, no. 446: September 30, 1876

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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,