The mortgages sold through the big title agencies, however, are usually pretty good ones, whether guaranteed or not. The advantages of a guaranteed mortgage, aside from the security of principal and interest, are that the company watches the property and sees that the owner keeps up the insurance and taxes.

In buying a mortgage the investor should lay down certain rules which, if followed in all other investments, will be found helpful. First of all, he should find out the nature of the property mortgaged. It may be a dwelling house or a store, and it must produce income. Then it a good plan for him to go out and look it over. In an investment where you can see for yourself, never take anybody's word.

At this point comes an important fact that the mortgage buyer should know and heed: A mortgage is always more. desirable for investment when it is on a house in which the owner lives, or on a store in which he does business. The reason is quite obvious. If the house is his home it is reasonable to suppose that he will keep it in good condition and that it will be the last thing he is likely to sacrifice. If it is his store he will find it to his profit to make it attractive to customers.

When the investor with his $2,000 finds all these conditions met the company assigns the original mortgage to him. If it is a guaranteed mortgage a guaranty accompanies it. On such a mortgage in New York the investor would get 42 per cent. The company itself is getting 5 per cent. from the borrower, the half per cent. difference representing the cost of doing business and profit. If it is an unguaranteed mortgage the investor gets the full 5 per cent. that the borrower is paying, the company having got its fee and profit out of the original transaction.

Practically the only disadvantage of an unguaranteed mortgage bought through a reputable title agency is that the owner must collect the interest. Likewise, he must see that taxes and insurance are kept up. When the mortgage matures he must also see that the property is revalued. Here is another item of supreme importance. Mortgages usually run for three years, but more than 50 per cent. are renewed several times, making the average life of the loan about ten years. But many investors carelessly permit a mortgage to be renewed after three years, without making a revaluation of the property. Many things may happen in that time to impair its value. If the mortgage is on a dwelling house, for instance, some undesirable structure may have been erected alongside which has depreciated the value. It may be a stable, a gas house or a brewery. Undesirable people may have settled on the same street, and this runs property down. The whole character of the neighborhood may have changed from a residential district to a manufacturing section. If the mortgage is guaranteed the company makes the revaluation; if not the holder of the mortgage can have it done by one of the companies for a small fee, usually about $10.

Interest Adjustments

In connection with the renewal of the mortgage comes the revision of interest rate. If the mortgage happens to mature when the money market is very tight and rates high the lender can raise the rate and, if the giver of the mortgage objects, can "call" it—that is, demand the money. One-half of 1 per cent. is a fair raise in a tight money market, while 1 per cent. is considered a panic raise. The reverse is also true. If the mortgage was drawn when money was high and rates are much lower when

it matures the borrower has the advantage in a reduction of interest.

The amount of money loaned on a mortgage is of great importance. It should never be more than two-thirds of the valuation put on the property. If the house is valued at $3,000 the mortgage should not be for more than $2,000.

In the real estate mortgage business the path of the lender is strewn with pitfalls. First, take what is known as the "fake lease," which is something like a "salted" mine. In order to show a higher renting power than the property really has, which would help largely in determining the amount to be loaned, the unscrupulous borrower executes a deceptive lease. It is done in this way: The owner may claim that the house is bringing $50 a month, when in reality, the tenant is only paying $40. The lease says $50 a month, but the landlord gets around this by giving the tenant a receipt in advance for two months' rent free. The "fake lease" is often practiced by the owners of small flat houses in the bigger cities. In connection with loans on this kind of property it is important to watch out for another deception. The flats are only occupied on an average of eight months a year, because the tenants disregard their leases and move out in the summer. The landlord of an apartment house, in getting a loan, however, tries to impress the lender with the fact that the flats are occupied and yield rent all the year round. In making such a loan, therefore, use eight months as the total rent basis, and this will be generally a safe estimate on which to base the earning power of the property.

The dower rights of a wife may cause unpleasant complications if they are not considered when the mortgage is execut

ed. It has often happened that a man

claimed to be single when he gave a mortgage. Later, when the property was foreclosed or sold it developed that he had a wife and she had her dower rights in the property. This right varies with the different states. In New York it is one-third.

There is still another pitfall which applies particularly to women in small towns, where frequently the only means of securing small loans on real estate is through the local lawyers. A woman, for example, who has saved a thousand dollars goes to the lawyer who says he has a client with property on which he wants to borrow. He is willing to pay 6 per cent. interest. The proposition is agreeable to the woman, who leaves the money. The lawyer then says, "I'll keep the papers for you," to which the lender also assents. The interest is paid regularly. Then it stops suddenly; the lawyer gets into financial trouble, or he may skip out. When the woman tries to get her mortgage and papers she finds that they do not exist. The lawyer has used the money for speculation and paid the interest himself. It is a typical instance. The lesson of this is simply that when you buy a mortgage, no matter where you live, insist upon having all the papers yourself. Then you know just when and where your savings are invested.

If your mortgage is not guaranteed it is of the utmost importance to see yourself that the title to the property is good. Likewise, the fire insurance must be kept up, for a fire is liable to start any time and wipe out the house.

First Mortgages Best

Experience has taught that the best and safest mortgage for the small investor is the first mortgage, which is the first claim on the property. Many peo

ple, especially foreigners residing in big cities, make the mistake of buying second mortgages because, like many speculative enterprises, they have the lure of a high interest rate, usually 6 per cent., with a discount for cash. Many second mortgages are sold on installments, and the 10 per cent. discount for cash is a good bait. This means that a $3,000 mortgage may be sold for $2,700 cash. Of course, this deal looks very fine; but the average buyer of such a mortgage does not realize that there is a first mortgage ahead of his; that if the property should get into trouble through a default of the interest on this mortgage, or through failure to pay fixed charges, or some other reason, the house is liable to be sold and his investment lost unless he has enough cash on hand to protect all these obligations. Since very few buyers of second mortgages have surplus cash, they lose out. The buying of second mortgages illustrates a very common financial mistake, because it shows that the man with a small sum of money is always willing to take chances with. his savings in the hope of a big return, and the result is that he loses savings and yield. Therefore, do not buy a second mortgage unless you have a good cash balance on hand to meet any emergencies that may arise. A rich man often makes big money out of second mortgages because he has the money on

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hand with which to buy in the property and hold it.

The average rate of interest on the small mortgage in the East is about 5 per cent., and in the West it is 6 per cent. and sometimes higher. The smaller the mortgage the higher the rate of interest. The mortgages on skyscrapers, for example, seldom pay more than 4 per cent., and some less. A mortgage on an income-producing property like a store pays a lower rate than one on a dwelling. In the big cities it is possible to obtain mortgage certificates in denominations of $200, $500, $1,000 and higher, that pay 42 per cent. and are guaranteed as to principal and interest. They are issued against groups of mortgages on city property and are really substitutes for mortgages and bonds. If one of the mortgages comprising the group matures another is put into its place. These certificates should not be confounded with debenture bonds issued by companies speculating in real estate, which pay a much higher rate of inter

est.

A small mortgage on unimproved land, save on a very highly developed farm, is never desirable. The small mortgage on a farm is a good investment when you can see the farm, or when you buy the mortgage through a house which makes a specialty of such investments and which has a reputation for integrity.

Mr. Edmund Carleton,

City of Washington, D. C. Dear Sir: * * * I am sorry to say, in reference to your suggestion as to the encouragement with which the law meets in the Eastern States, that I really do not think Massachusetts at least at all a promising stand for a young practitioner. As inevitably happens in every comparatively old community and in all kinds of business the profession is full to overflowing and starvation; and in this country particularly the complaint is general and earnest. The amount of professional business here varies very much with the condition of our foreign commerce, and lawyers and merchants grow rich or poor together. The latter are becoming insolvent, and looking to a war in Europe as a last and only chance for relieving their fallen fortunes; the former lounge in their offices, "pick clean teeth" and talk of the scarcity of clients and the still greater scarcity of fees and the neglect of merit. I suspect, however, that New Hampshire would furnish some very eligible situations. You can tell better than I. At any rate the fluctuations of a capricious and uncertain commerce affect its lawyers but little, and the people generally, I am inclined to fancy, are somewhat more litigious than in this well ordered, orthodox, exhausted neighborhood. But, after all, all situations are very much alike. The first years of a professional life-spend them where you will-must be years

of hard labor and scanty revenue; so at least I shall surely find it, and then the money and the applause of one community are worth just about as much as those of another. Only we both love New England a little too sincerely, I dare say, to think that life would be worth anything away from it-unless, of course, we could pass it at the west end of the city of Washington.

I should be very happy to suggest anything that would be of service in the outset of your professional reading, but I very much doubt if I have thought enough about the proper course of study to be able. You will find much excellent matter, however, along with a great deal of bad taste, in Hoffman's course, the merely legal part of which is very well, the other, to you or any respectable Northern graduate, of little service. The letters on the study of the law, too, are worth reading, and a little book mentioned by Hoffman, and which I found in French's bookstore, Pennsylvania Pennsylvania Avenue, is still better-the Barrister. It strikes me as liberal, scholarlike and highly judicious to lay a broad and deep foundation in the first place for a future. course of historical reading that shall embrace the whole history of modern Europe. The common law is really of Middle Age growth, and its true essential spirit can never be well understood but by one who has lived much in feudal times, has mingled in the strifes and aided in the public councils. and drunken at the feasts of that proud baronial aristocracy which shaped the first forms of government and the first forms of jurisprudence that were reared upon the subsiding flood of civil revolution and anarchy which had rolled over the Roman world. For this purpose Hallam's Middle Ages, and then Robertson's introduction to his Charles V are the best and are indispensable. Then would naturally follow Hume's England, and then I

should think one might plunge at once into the elementary writers on English common law.

It was a great mistake in my own course of reading that I passed Blackstone so hastily and superficially. He is the first author, and I really think that one or two years in the beginning would be well spent on him. The largest part of the first volume, though the analysis of the English Constitution, is, as law, entirely useless; but you may work it very advantageously into your course of political studies along with De Lolme, The Federalist, etc. The rest of his four volumes, with the exception of a few chapters here and there, I should impress every word 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 arrange all your after acquisitions. Once fully master of this inimitable analysis and digest of the English common law the rest of the course is easy and delightful, and you may ascend from his finished and perspicuous chapters into a minuter study of the several departments of that complicated jurisprudence without a single one of those feelings of perplexity and those vague, misty, bewildering and unsatisfying views with which, as Stewart somewhere remarks, we make our first acquisitions in every science. The first of these departments with which you will make it your business to form

a

more close and practical acquaintance than such a merely elementary writer as Blackstone can give you is the law of real property. Before beginning Cruise, someone calls it a good plan, and surely it is an admirable one, to review that part of Blackstone's second volume relating to it very attentively, and then part of his third on real actions and injuries to realty; then Sullivan's lectures, and then Cruise, with some considerable exceptions. After Cruise, if you know where you are to practise, the statutes and judicial decisions of the State Legislature and State Court are the subjects of your reading. Then follows personalty; but I dare say you are quite satisfied already. There is one observation, however, that I should have been glad to have had made to me at the outset of my legal studies. The alterations which English law has undergone here are very many and material, but I

would not embarrass myself much with them for two years. Yet if they are pressed upon your notice in conversation, or by the office business, or if you light on them in books, the only possible way to retain them for after purpose is to enter them under their proper titles in a commonplace book. I would certainly therefore procure one.

I shall always be happy to hear from you on the subject of professional studies, or any other, and it will give me great pleasure to see you once more, if your plans of life bring your this way again in New England.

With much esteem, sir, and the best wishes, yours, etc.,

RUFUS CHOATE.

Washington, July 22, 1822.

Sir: I regret extremely that I have to answer your very polite and obliging letter of the 3d inst. currente calamo. It arrived while I was absent on a professional tour, and I have returned only in time to equip myself for an expedition to the Bedford Springs in Pennsylvania, rendered necessary by the state of my health.

It is not entirely certain whether I shall myself be a resident of this place at the close of the next winter, the earliest period at which you speak of being here. I have some thought of moving to Baltimore before that time. In this uncertainty I can only say that if I should be here, and your inclination hold, I shall be very happy to receive you as a student and to assist you with my opinion in the direction of your studies.

The plan of study which I have used has depended on the time which the student proposes to devote to it. For every plan, however, Blackstone is the best introductory author, as opening to the student all the original sources of his science, beside giving him a clear and comprehensive view of its present state. In all studies, historical, political or any other, dependent for their system on the march of mind, a synopsis like that of Blackstone is of great value. Geography, for example, is best taught by stamping in the first place on the mind the great outline of the different countries, and their relative position toward each other. details are afterward encountered with more intelligence, and consequently

The