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Real estate record and builders' guide: v. 20, no. 511: December 29, 1877

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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