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The mortgages sold through the big title Practically the only disadvantage of an agencies, however, are usually pretty unguaranteed mortgage bought through good ones, whether guaranteed or not. a reputable title agency is that the ownThe advantages of a guaranteed mort- er must collect the interest. Likewise, gage, aside from the security of princi- he must see that taxes and insurance are pal and interest, are that the company kept up. When the mortgage matures watches the property and sees that the he must also see that the property is owner keeps up the insurance and taxes. revalued. Here is another item of su
In buying a mortgage the investor preme importance. Mortgages usually should lay down certain rules which, if run for three years, but more than 50 followed in all other investments, will per cent. are renewed several times, be found helpful. First of all, he should making the average life of the loan about find out the nature of the property mort- ten years. But many investors carelessgaged. It may be a dwelling house or ly permit a mortgage to be renewed afta store, and it must produce income. er three years, without making a revalThen it a good plan for him to go uation of the property. Many things out and look it over. In an investment may happen in that time to impair its where you can see for yourself, never value. If the mortgage is on a dwelling take anybody's word.
house, for instance, some undesirable At this point comes an important fact structure may have been erected alongthat the mortgage buyer should know side which has depreciated the value. and heed: A mortgage is always more It may be a stable, a gas house or a desirable for investment when it is on brewery. Undesirable people may have a house in which the owner lives, or on settled on the same street, and this runs a store in which he does business. The property down. The whole character of reason is quite obvious. If the house
If the house the neighborhood may have changed is his home it is reasonable to suppose from a residential district to a manufacthat he will keep it in good condition turing section. If the mortgage is guarand that it will be the last thing he is anteed the company makes the revalualikely to sacrifice. If it is his store he tion; if not the holder of the mortgage will find it to his profit to make it at- can have it done by one of the companies . tractive to customers.
for a small fee, usually about $10. When the investor with his $2,000 finds all these conditions met the com
Interest Adjustments pany assigns the original mortgage to In connection with the renewal of the him. If it is a guaranteed mortgage a mortgage comes the revision of interest guaranty accompanies it. On such a rate. If the mortgage happens to mamortgage in New York the investor ture when the money market is very would get 412 per cent. The company tight and rates high the lender can raise itself is getting 5 per cent. from the bor- the rate and, if the giver of the mortrower, the half per cent. difference rep- gage objects, can "call” it—that is, deresenting the cost of doing business and mand the money. One-half of 1 per profit. If it is an unguaranteed mort- cent. is a fair raise in a tight money gage the investor gets the full 5 per market, while 1 per cent. is considered cent. that the borrower is paying, the a panic raise. The reverse is also true. company having got its fee and profit If the mortgage was drawn when money out of the original transaction.
was high and rates are much lower when
it matures the borrower has the advan- claimed to be single when he gave a tage in a reduction of interest.
mortgage. Later, when the property The amount of money loaned on a was foreclosed or sold it developed that mortgage is of great importance. It he had a wife and she had her dower should never be more than two-thirds rights in the property. This right varies of the valuation put on the property. with the different states. In New York If the house is valued at $3,000 the it is one-third. mortgage should not be for more than There is still another pitfall which ap$2,000.
plies particularly to women in small In the real estate mortgage business towns, where frequently the only means the path of the lender is strewn with of securing small loans on real estate is pitfalls. First, take what is known as through the local lawyers. A woman, the “fake lease,” which is something like for example, who has saved a thousand a “salted” mine. In order to show a dollars goes to the lawyer who says he higher renting power than the property has a client with property on which he really has, which would help largely in wants to borrow. He is willing to pay determining the amount to be loaned, the 6 per cent. interest. The proposition is unscrupulous borrower executes a de- agreeable to the woman, who leaves the ceptive lease. It is done in this way: money. The lawyer then says, “I'll keep The owner may claim that the house is the papers for you,” to which the lender bringing $50 a month, when in reality, also assents. The interest is paid regthe tenant is only paying $40. The lease ularly. Then it stops suddenly; the says $50 a month, but the landlord gets lawyer gets into financial trouble, or he around this by giving the tenant a re
may skip out.
When the woman tries ceipt in advance for two months' rent to get her mortgage and papers she finds free. The “fake lease” is often practic- that they do not exist. The lawyer has ed by the owners of small flat houses in used the money for speculation and paid the bigger cities. In connection with the interest himself. It is a typical inloans on this kind of property it is im- stance. The lesson of this is simply that portant to watch out for another decep- when you buy a mortgage, no matter tion. The flats are only occupied on an where you live, insist upon having all average of eight months a year, because the papers yourself.
the papers yourself. Then you know the tenants disregard their leases and just when and where your savings are move out in the summer. The landlord invested. of an apartment house, in getting a loan, If your mortgage is not guaranteed it however, tries to impress the lender with is of the utmost importance to see yourthe fact that the flats are occupied and
self that the title to the property is good. yield rent all the year round. In mak- Likewise, the fire insurance must be kept ing such a loan, therefore, use eight up, for a fire is liable to start any time months as the total rent basis, and this and wipe out the house. will be generally a safe estimate on which to base the earning power of the
First Mortgages Best property.
The dower rights of a wife may cause Experience has taught that the best unpleasant complications if they are not and safest mortgage for the small inconsidered when the mortgage is execut- vestor is the first mortgage, which is the ed. It has often happened that a man
first claim on the property. Many peo
ple, especially foreigners residing in big hand with which to buy in the property cities, make the mistake of buying sec- and hold it. ond mortgages because, like many specu- The average rate of interest on the lative enterprises, they have the lure of small mortgage in the East is about 5 a high interest rate, usually 6 per cent., per cent., and in the West it is 6 per with a discount for cash. Many second cent, and sometimes higher. The smallmortgages are sold on installments, and er the mortgage the higher the rate of the 10 per cent. discount for cash is a interest. The mortgages on skyscrapers, good bait. This means that a $3,000 for example, seldom pay more than 4 mortgage may be sold for $2,700 cash. per cent., and some less. A mortgage Of course, this deal looks very fine; but on an income-producing property like a the average buyer of such a mortgage store pays a lower rate than one on a does not realize that there is a first mort dwelling. In the big cities it is possible gage ahead of his; that if the property to obtain mortgage certificates in denomshould get into trouble through a default inations of $200, $500, $1,000 and highof the interest on this mortgage, or er, that pay 41/2 per cent. and are guarthrough failure to pay fixed charges, or anteed as to principal and interest. They some other reason, the house is liable are issued against groups of mortgages to be sold and his investment lost unless on city property and are really substihe has enough cash on hand to protect tutes for mortgages and bonds. If one all these obligations. Since very
Since very few of the mortgages comprising the group buyers of second mortgages have surplus matures another is put into its place. cash, they lose out. The buying of sec- These certificates should not be conond mortgages illustrates a very com- founded with debenture bonds issued by mon financial mistake, because it shows companies speculating in real estate, that the man with a small sum of money which pay a much higher rate of interis always willing to take chances with est. his savings in the hope of a big return, A small mortgage on unimproved land, and the result is that he loses savings save on a very highly developed farm, and yield. Therefore, do not buy a sec- is never desirable. The small mortgage ond mortgage unless you have a good on a farm is a good investment when cash balance on hand to meet any emer- you can see the farm, or when you buy gencies that may arise. A rich man
the mortgage through a house which often makes big money out of second makes a specialty of such investments mortgages because he has the money on and which has a reputation for integrity.
Letters on Legal Education From Choate, Wirt,
Webster, and Calhoun
HE following letters, written of hard labor and scanty revenue; so many years ago on the subject of at least I shall surely find it, and then
the money and the applause of ont legal education by Rufus Choate, Wil
community are worth just about as liam Wirt, Daniel Webster, and J. C. much as those of another. Only we Calhoun to several young friends about
both love New England a little too
sincerely, I dare say, to think that life to begin the study of law, will prove of would be worth anything away from interest to the readers of the Review: it-unless, of course, we could pass it
at the west end of the city of Washing
ton. Salem, June 1, 1823.
I should be very happy to suggest Mr. Edmund Carleton,
anything that would be of service in City of Washington, D. C. the outset of your professional readDear Sir: * I am sorry to ing, but I very much doubt if I have say, in reference to your suggestion as thought enough about the proper to the encouragement with which the course of study to be able. You will law meets in the Eastern States, that
find much excellent matter, however, I really do not think Massachusetts at along with a great deal of bad taste. least at all a promising stand for a
in Hoffman's course, the merely legal young practitioner. As inevitably hap- part of which is very well, the other, pens in every comparatively old com- to you or any respectable Northern munity and in all kinds of business the graduate, of little service. The letters profession is full to overflowing and on the study of the law, too, are worth starvation; and in this country par- reading, and a little book mentioned by ticularly the complaint is general and Hoffman, and which I found in French's earnest. The amount of professional bookstore, Pennsylvania Avenue, is business here varies very much with
still better-the Barrister. It strikes the condition of our foreign commerce,
me as liberal, scholarlike and highly and lawyers and merchants grow rich judicious to lay a broad and deep founor poor together. The latter are be- dation in the first place for a future coming insolvent, and looking to a war
course of historical reading that shall in Europe as a last and only chance embrace the whole history of modern for relieving their fallen fortunes; the Europe. The common law is really of former lounge in their offices, "pick Middle Age growth, and its true esclean teeth” and talk of the scarcity of sential spirit can never be well underclients and the still greater scarcity of stood but by one who has lived much fees and the neglect of merit. I sus- in feudal times, has mingled in the pect, however, that New Hampshire strifes and aided in the public councils would furnish some very eligible situ- and drunken at the feasts of that proud ations. You can tell better than I. At baronial aristocracy which shaped the any rate the fluctuations of a capri- first forms of government and the first cious and uncertain commerce affect its forms of jurisprudence that were rearlawyers but little, and the people gen- ed upon the subsiding flood of civi: erally, I am inclined to fancy, are revolution and anarchy which had rollsomewhat more litigious than in this ed over the Roman world. For this well ordered, orthodox, exhausted purpose Hallam's Middle Ages, and neighborhood. But, after all, all situ- then Robertson's introduction to his ations are very much alike. The first Charles V are the best and are indisyears of a professional life-spend pensable. Then would naturally folthem where you will-must be years low Hume's England, and then I
should think one might plunge at once
would not embarrass myself much with into the elementary writers on English them for two years. Yet if they are common law.
pressed upon your notice in conversaIt was a great mistake in my own tion, or by the office business, or if you course of reading that I passed Black- light on them in books, the only possible stone so hastily and superficially. He way to retain them for after purpose is is the first author, and I really think to enter them under their proper titles that one or two years in the beginning in a commonplace book. I would cerwould be well spent on him. The tainly therefore procure one. largest part of the first volume, though I shall always be happy to hear from the analysis of the English Constitu- you on the subject of professional studtion, is, as law, entirely useless; but ies, or any other, and it will give you may work it very advantageously me great pleasure to see you once into your course of political studies more, if your plans of life bring you along with De Lolme, The Federalist, this way again in New England. etc. The rest of his four volumes, with With much esteem, sir, and the best the exception of a few chapters here wishes, yours, etc., and there, I should impress every word
RUFUS CHOATE. of it on my memory and let it serve as a sort of central point to which to refer and around which to dispose and
Washington, July 22, 1822. arrange all your after acquisitions. Sir: I regret extremely that I have Once fully master of this inimitable to answer your very polite and obliganalysis and digest of the English com- ing letter of the 3d inst, currente calmon law the rest of the course is easy anio. It arrived while I was absent on and delightful, and you may ascend a professional tour, and I have returnfrom his finished and perspicuous ed only in time to equip myself for an chapters into a minuter study of the expedition to the Bedford Springs in several departments of that complicat. Pennsylvania, rendered necessary by ed jurisprudence without a single one the state of my health. of those feelings of perplexity and It is not entirely certain whether I those vague, misty, bewildering and shall myself be a resident of this place unsatisfying views with which, as Stew- at the close of the next winter, the earart somewhere remarks, we make our liest period at which you speak of befirst acquisitions in every science. The ing here. I have some thought of first of these departments with which moving to Baltimore before that time. you will make it your business to form In this uncertainty I can only say that a more close and practical acquain- if I should be here, and your inclinatance than such a merely elementary tion hold, I shall be very happy to rewriter as Blackstone can give you is ceive you as a student and to assist the law of real property. Before be- you with my opinion in the direction ginning Cruise, someone calls it a good of your studies. plan, and surely it is an admirable one, T'he plan of study which I have used to review that part of Blackstone's sec- has depended on the time which the ond volume relating to it very atten- student proposes to devote to it. For tively, and then part of his third on every plan, however, Blackstone is the real actions and injuries to realty; then best introductory author, as opening Sullivan's lectures, and then "Cruise, to the student all the original sources with some considerable exceptions. of his science, beside giving him a After Cruise, if you know where you clear and comprehensive view of its are to practise, the statutes and judi- present state. In all studies, historical, cial decisions of the State Legislature political or any other, dependent for and State Court are the subjects of their system on the march of mind, a your reading. Then follows personal- synopsis like that of Blackstone is of ty; but I dare say you are quite satis- great value. Geography, for example, fied already. There is one observation, is best taught by stamping in the first however, that I should have been glad place on the mind the great outline of to have had made to me at the outset the different countries, and their relaof my legal studies. The alterations tive position toward each other. The which English law has undergone here details are afterward encountered with are very many and material, but I more intelligence, and consequently