230 TlLeReal,taBlue Book of CaLiforni.

s,

ttome
Financing

HAiRY F. Hossac(
I ecnr itl| E a6ing Car porntia n
LaB Aftgcles
 TheRealtuBlue Eook of Cotilornin 231

Home Financing
81/ HAnnY F. HoSsAc(

Tlu ee Fields of HonL. Fin(m(:i.tr(J-FLn.ctionsaf Buit(t-

.,.ll nr'l Loo. .1rs,' ra,i ,,. 1.,.nn.., to 1l t,a,,. ttodL_DiL)et
s ; I t ; - s t l , p R : r A . . 1 , . . . , t . : r t , u , . .R o t ? . . o l t , , t p r p . t _
Monthht PuJiite\t nat.s-pt olits oj1Actuat Sat;s-D,"sbLrse-
lnent-MetlLad .f Pa1t1e]tt I)ltrin!/ Ca).st1.1t.(.t'ibtS.r:ontl
1,1ot t s ( lt c F bta tt ( i its.

lf O M C f i n : . .n ; r ' g ., 6 a : e r , f a r . D j , . ' . ] a j b e d i \ i d D d i r , r o r h r e p
'
I I fi:r9.. Ba.'k!. Privrr, iuon"! 2 d Buitdin: rr,d Tnnn Asso
cl:l_rolrs. I t- i jrl lpr tL p, I l.jllc th. no.t Don lr" lour.p of ,or',S
m a d et ^ r 'h u m , . . o , r sr i" r . i i o n ,i . . . b p f o r er h p I o s p i . b u j l l

FORTIS OI IINANCING
The rcal estate bro}er, both for his own infomation anal the ser-
vice of his clients, should be familiar.\\,ith the rnachinery of making ol.
obtainirs loaDs. \fe have irctuded in this discussjon'the norig;gc
discoxDt, mortgage insur.arce and kindred for'nls of financing._ iill
suppienent lhe *-ork of Bnilding and Loan Associations.
FUNCTTONS OIi ]]UILDINC AND LOAN ASSOCIATIONS
Building and loan associations have a verJ definite char.acter
and vely delinite fuDctions plescr.ibed by law. They :lr.e olganjzeal
undel the State La$ and are r.egulatedand suDcr'\,isedby a B:uildirs
and Loan Com issioner. They ar'e allowed to do cer.tain things an_d
ar€ prevented fr.om doing a great many other thi)rgs.
The) a,^ mutujrl org.n zations.or F"rI:zndiu tfonnta rh. ir ar d
h o m .o $ n e r s li n . a n ' l d " r ' i v ", h . i r l u ' , , i sf r o m r h p j . u $ r r r n p nb p ' s f u I
chasing various class€s of stock and flon] inveslors ir1 savings-cer-
tifcates. Aside fiom a vell linited ability 10 borTon money from the
banks, they can only make loans to the cxtent that memberlsalil cer--
tfficate investors pror'ide thcm \r.ith fuDds. Funds retur.ning fr.om pre-
vions loans in iDterest and plincip^l payments are also avrilable fo1.

LOANS-TO WHOM IIADE

Loans :lr.e nade to nrembers and to no -members_ Other things
being equal, members hnre the pr.efclence. When anple funds are on
hand, and insuilicierlt apDlications aDpeal fron membel.s,?rlit e ad-
ve*isinE usually brilgs in enough appljcations fr'onl non-menbers to
use up the loanable funds.
 TlLe Real,tA Bl,ueBook ol Cal,ifornil,

DII-ERSIFYINCTIIE RISKS
The youngerthe BuildiDgand Loan Association,the smaller.as a
rule, is irs averagcloan. Thjs js due ol only to rhe wisdomof di-
versifying its sks, and k€eping its possibleloss on any one fore-
closureto a minimum, but is also due to the mutual characte! of the
institution itself- It gains funds from membels,on monthly duesor
investments,and is morally bound,other lhings being equal,to make
loansto jhesesane membersif they havc worthy applicarions.To
rea.h ihe largestpossiblenumberof suchm"mbeis,ij naturallyfol-
lows that the averageloan will be small.
IN\,'DSTMENTS, APPRAISAL AND INSPDCAION
. As such an association gr.ows ir total resources,age and prestige,
it also gains increasingly large investments from certificate, term
ihyestors. The institution is enabled to make larqer loans. and mor€
Ioansto non-memberq. Limired by law in the amounl ol expenseil
may incur iI adminislrrliorr,cnd, as ir colls no more [o appraise.in-
spect and handlea la|ge loan rhar a small one, it followsihst a ipn-
dency will developrowaj-dsrhp highesr scJeavFrageloan.
In addilion to tha size oi rh^ loan. iis amouni in dollars,-Lhere
is another teadency: When the loan institution is small. and its fuDds
most limiled as comparpdwjth tha denand from ils own membsrc.il
will try io .u( eachloan down 1o i he min imum, nor olllv in dollals, buL
in proportion to the value of the property. As the institution gro$rs,
and has increasing funds to loan, the tendency wilt be to mak€ large
loans with r€latiot to the appralsed values on which the loans will
Test.
There are plenty of exceptions. Some young institutions, backed
or fostefed by business men interested in the development of a com-
munittr. $ill siinulate home bujlding bJ making generousloans.Somp
big insliiuiions, whose prestigp brings lhel-l morA applicationstha
thay care to hflrrdle.will selecicarefully xnd kppp their averrge loan.,
even if large in amounts, do*'n to a conselvative DroDortion of the
^Dprflispd values.
PE&CENTAGEAVERAGINCLOANS
Broadly speaking, the Building and Loan Associations in Califor-
nia are very ably aDd conservatively managed. Though pelmitt€d
by law to make loans to the amount of 80 per cent of appiaisid vatues,
their average loans will come much below that percentage.
METHODIN HANDLINGAPPLICATIONS
The actual prospective home owner, who eithel wants to buv a
housealraadybuill or io bo/rcw funds with which to build on a vcc;nt
lot, makes application to a Building and Loan Association, submitting
all data. If his loan be apprcved, he executes a mo*g;ge or trus'i
deed, has title brought down to show the lien, closes his purchase
through escrow. if a co'nDleied house. or draws money through the
course of construction, if a constr.uction loan,
AMORTIZATION, ETC.
His pa]'rnents vatl' acco/ding to the llan and according to the in-
 Tke Realt!! Blue Book ol Cd,l,ifor,tlia 233
stitution. The loan will be an amortizing loan through a perioalof
years, usually len or elevanyears. Each month he Daysa-ninstall-
ment of principal and interest. lf he is a -member',he also pays an
installment of dues on his stock. In somecaseshe is oblised io be-
comca memberlo ger the loan,consequenlly his monthlv;avrnents
on tle loan are plactically incleasedby his dueson ttre it6cli. gut
w"henbuyin-gstock he is investing fas+pr,or Dayingoff the principal
oTnrs roanlaster.Inasmuch as his stockhasa dpfiniteeamingpower
and surrender value and can b€ usedto retire part or all of h"isloan,
under certain conditions.
RATESOF INTEREST
. .The average arhal rate of inlerest paid on building and loan asso-
ciations loans in this territor'), will run between 8 peicenl and g oer
cent per annum. Tterp are some whose rate is set lorlh as 10 per
cent. There are others whose rates are ostensibly moderatq irut
which. thlough mprhodsof comDujaiion.through penalies on ieiin_
quencres-.etc.. are ac_tualiybetween 10 per cent and [2 pcr. qqnl paa
annum lor the perlod.
There is norhing more deceprivethan inlerest on money bor_
rowed, lt the transactlon is complicated in any way, partjcularlv on
monthty payment loans. A lamiliar fallacy js found in the praitlce
of taking.the toral.of all pa},ments, deducr_ingthe total origi,ial loan,
ano olvtolng LneOIfleren.e,whrch is intelpsl. by lhe number of years
r€quueo.
TIIX BENEFITSOI' TIIRIFA
There is no reason for any monthly pa],rnenLloan assqcialion,
mutual oI olherwise. 1o attempt fo Concealils actual rates, It is
much.moreprofitablpand wofihy to devotelhe same effort to educat-
ing lne.home-buyer.In thp ways and benefts of thrifr. No matter
wnar,rare ts cnarged on a rnonl h ly payment home_bu)ing loan, so long
as rr ls cneapertnan rent and wrlhin the usury laws ( l2 per Centmax_
'mum per.annum), it will pay the home-builderio boirow. There
wlll prrd)aoly never bp a ljme jn this growing .ountry, at least Jor a
generatron or two. whe it will not be proEjable fol any man, vrho
can. to.buyhishomeandpay inreresrtor ton or eloren years. Heis
oblrgeclto pay renl if he does not own. Hc should be encourased to
pay rent to himsplf, especiallywbc unde| rhesc excpllanrte_nand
elevenyear plans,hp owns his home clear eveniually.
MONTIILY PAYMENTIATES
Monthly palrent money deso-ves a higher rate thar ,,flat" three
year mortgage money. If a man had only a thousand dollars to lend
out on modgage. he would nol want to have it paid back {o him. with
injerest, in payments of gl2 io $14 per month for Lenoieleven vears.
fie coulddo notrung wrrh Lhapa}.rnenls.Hc.ouldnot re_inveslthem.
except.in a savings bank ac.ount. He would have lrouble makinq
colecuons. sendrng receipts, etc. And he would have the annoyanci
and anxrely o[ maintaining a p]aceo.f collecrion for kn years. lI he
lumcd the accoun[over to a bank it would (ost him two or three per
cent.. I[ he.pul it into a safc three year mo*gage. the interesi oniv
woruqDecottectedat quarterly or semi_anl|ual per.iods. He would eel
1!

234 The Realta Bl,ueBook ol Cali.fomia

the principal back in a lump in three yeaK, could count on it as a

1ump,and re-ilvest it as a lump.
A building and loan associationhas hundredsof these monthly
accounts. They have as good facilities as a bank for ta}ins care of
ther nori.esand colle.tions.They havpea.h monlh |Jletoial ofall
these collectionsfor immediate reinvestment. It is becauseof the
reinvestmentpossibilitiesof thesecollectionsthat a buildins and loan
insrilu{ioncan afford1omake monlhlypa].l11enl loansat a-nyrate of
interest. They could not afford to do it at sevenDer cent. \xrhichis the
normalrrl,eonagoodIhreeyparbankloan. Duiing periodsof great
demandor "tight" money they cannot afford to do it for eight per
cent,which is the nor"malrate of a "plivate" three year building loan.
It is only on the le-inv€stment,or turn-over, that such an institution
makesmoney for its stockholde$ and is able to increasethe assets
behindits six and sevenper cent investmentcertificates-
A distinction shouldbe made,and the public educateal on the dif-
ferenceb€tweenactual interest rates on particular loans, and the
earning power o{ a corporation or association,through its ,,tum-
over.r'Two illustrations may not be out of place.

PROTITSON ACTUALSALES
The great packing.ompaniesadverlise,and lrulhlullv. thaf rhpv
make only about tvro per.enl tfont on lheir sales. They show ritir
gleat padicularity their costs in purchase of raw material, distribu-
tion, administration, etc., and their actual salesprices, atd prove their
net proit or @singl,e transd,ction-to be slightly over two per cent.
But if they revolve their capital twjce in a year, it makes four Der
cent, four times, over eight per cent,iand so on. If they increase their
eaptial by borrowing on preferred stock, on bonds, or at the banks.
on a five or six per cent basis, and use that capital to increase their
volume another t'wo or thr'€e turn-overs, it is patent that,-with a
6-\ed capital of iheir own in the business,-they can retum them-
selves dividends several times as lar'ge as their ost€nsibl€ profits on
sales.
The othei"illustra{ion: a bank l-an91.000.000in capijat and 9500-
000indeposils. Ifloringdeiails of bank praclice and reserva re-
quirements, assumethat the bank pays 3 per cent on the deposits, and
lends the whole $1,500,000at seven per cert,-a net anJ|ual total of
$90,000 ditrerence between interest paid and interest received. As-
sume that one of ev€ry three dollars loaDed is also deposited in the
same bank at three per cent interest and is aqain loaned at seven Der
cpn1. The Lum-over is thus fesponsiblelo,i thp differarrcabalwec\
thr_e€and seven per cent on half a million dollars, or 920,000. Every
additional half million in deposits would theretore add g20,000 to the
bank's g?oss earnings. The bank's dividends. instead of beins at the
rate they charge.lesslheil. cosrsof doing business,might b. ;td fr"-
quently are, several times the rate of interest they receive on a siDgle
lrancaclion. This illustration does nol allow Jor the manv rules.
rcgulationsand pra(tices which govprn banking. Bul in principle it
serves to bear out the point we are discussing and applies in the same
way to building and loan institutions.
 r

The Bea)ltaBl,ueBook of Caklolnio

BORBOWING FI'OM STOCKIIOLDERS

Building and loun associations borrow money at one rate from
their stockholderE,-iust as the bank does fmm its stockholdeN. That
rate varies from year to year and changes according to the average
tum-over. They also borrow money from investment or certiicate
buyers on a fxed rate, just as a bank does from depositor.s. The gain
from the use of this money applies in increased ear"ningson the capittl
stock. Due to the mutual character of the loan associations.and their
limitations under the law, dividends are diflused and keDt to below a
cerlain pfactic.l maximum. wl i.h is abour 8 pFr cpnl. Bonowers
arc also stockholders, stockholders are also bolroweB: to a lar.se de-
gree they arc o\crllapping clrqsFs. The p|acticnl elTecrof lhls, as
well as the plain intent of the law, is to make home-buying money
cheaper. In other uords, if it were not for the mutual character of
the building and loan associations, prcbably moDthly paj'ment teD
year loans would cost much more than they do. Also to identify ou!
discussionof turD-over lvith building and loan rates, those rates are
lower because a building and loan association can re-invest its
monthly collections every month.
CONSULT PROPER AUTIIORIAIES
For the various laws, plans, rates, charges, options, etc., of the
building and loan associations, consult the Civit Code of California,
chapter devoted to Buitdilg and Loan Associations. A letter ad-
drcssedto the Building and Loan Commissioner of California, Sacra-
me[to, will bring you a list of atl of the associations. their several
. capitalizations,and other data.
CAUTIONAND CONSE&VATISM NECESSARY
One word of caution: To anyone familiar with Eastern buitding
and loan associations,particularly in Pennsylvania, our local associa-
tions may seern to be too conservative in their loans and too hiah in
lleir rates. Tha growlh of t^alifo"nia is rpsponsiblelor this .on-
servative position. This growth creates a competitive demand for
money,rcflected in higher rates paid by loan associationson deposits.
It makes it impossible for a loan committee to be sure of a neiqhbor-
hood stayi|lg ln the residenceclass for Fvpn a few yearo. Conse-
q u ^ n t l ti t m a k e sa . n n m i r r p eu n t \ i l l i n gt o l o a na s h i g h a q t h e ) w o u l d
in an Easlprn city wbprc Ihe charactal.of _he neiqhborhoodhas bpen
fxed lof , genArationand can bp Frpsumedjo ran ain thp samp for
the period of their loan.
STATISTICS
(Cf: AInual Repon of GporgeS. Wall(er, Building & L,oanCom-
missioner.Slalc of California. lor rhe fis.al Jear.ending June 30,
1923. This report shows that ther€ are 115 associationsin the State.
$rilh roral alsprs oi $85,000,0n0.00, of uhich 28 arc locaredin South-
em Califomia. The aggregat€ numt,er of bor-rowers from these
a.ssociations is 34,0?7, with an average loan of 92,360.74. The total
number of share holders and cer-tiicate holders combined amount to
88,039. The mean average of dividends is ?.5? per cent. The mean
averageof interesi rate is 8.;16par cent.)
256 Tke Realtu BLueBook of Cotif.,rnia

.MORTCACE DISCOUNT COMPANIES

Under this head should be inchrdedall the so-ca,lledmortgage
companiesexceptthe mortgageinsuranceand one or two other insti-
tutions. Any company which lends money on mortgages and then
sells th€m piecemealor in block or which buys ffrst or secondpaper
at s discountis a mortgagediscountcompany. Their contribution to
the field of homefinancingconsistsof the following: first, advancing
moneyfor homeconstructionon either a first or secondmortgage,or
both; second,by buying suchpapersfrom contractorsor other leiders
ard thus indirectly afording renewedfunds for new building.
PBOI'IT MAXCINS
They derive their pr.ofit from the margin between what they pay
for the money they lend or usein their businessand what they receive,
and buy the paper at the best price at th€ time. The discount on first
mortgagepap€r, i{ it is at all sound,is alwaysvery slight. They may
sell the papel at par and accruedinterest or se]l eight per cent paper
to earn seven. First mortgagesare alwaysa favorite form of in\'est-
ment. Secondpaper,however,commandsa discount,evenin prosper-
ous times, of roughl,l"fi\'e per cent off the face for. eachyear it runs.
RATE OF DISCOUNT
Frcm the standpointof home fnancing the discountcost or t,|e
rate of discountis fixedby the law of supply and demand. It is a part
of the cost of financing. While the borrcvrer or home builder may
think he is paying sevenper cent on a secondmortgage,he may, in
fact, be paying eight or nine per ceDton his irst mortgageand any-
thing from fifteen to thirty per cent per annum on his secondmolt-
gage. This is due to the fact that whatever the discountsmav have
beentheyare truly chargesto be addedro {he ostpnsible inrercslrale
or costof his money.
The methodof the mortgagediscountcompaniesand of the many
hundTedsof private lendersvho use the samemethodsare entirely
legitimate and have enabledthem to render vcry signai aid in the
upbuildingof many communities.
MORTGACE INSURANCE COMPANIES
These companies, o{ which th€re is one very successful example,
are organized under a special act in Califomia (see Civil Code). They
r€quire vely considerable initial capital, make loans to 50 per cent
maximum, but through their pledges to the State are able to issue
certificates against moltgages i.nsure(Las to the paymeDt of interest
and pr;ncipal. The buyers of certificates th€refore have not oDIy first
mortgage secu ty, but that security irsured against defaults or de-
linquencies. A very large portior of our new construction has been
ffnanced through this form and At rates approxinating the bank rates
for similar loans.
SER,VICE LOAN COMPANIDS
There are as yet oni,!''one or two hom€-financing companieswhich
have entered this virgin field. The plan is to fumish 60 to 70 per cent
loans (usually enough for a moderate priced home) and through
 Ike Redtu Blue Book ol Caifornie 247

organized technical and inspection departments to prot€ct the bor-

lower from excessivecosts,baalwork or lien losses. The most notable
example of this new form of finencing expresses its functions as
follows:
"Complete Financing of an Oidinary Home. Owner's
plans analcontractor checkedand supervised; contract price
ard completion GUARANTEED. Easy monthly paj,.menis
teginning in ninety days,property clear in ten years."
Thereis sucha demand,by inexperienced builde$, or salariedmen
tied to their jobs, for this double service-adequate financing and
technical supervision-that undoubtedly further development will
o€curin this field. Various individuals,fictitious companies,or fly-by-
nights,from time to time se up to avail themselvesof this de-
mand. But it requires prodigiouscapital to cover the volumeDecea-
lary to makethe costscomerFithin reasonablebounds.
A broker before negotiating for his client, for any such plan,
shouldmake sure of the lender's ability both in financing and in
technical seNice. Too often the offer of "service" is a dissuise
-witb for
concealpdprofiLs through dire.l or indirecl pari,icipaiion the
contractor,or is a cover for uneamedbonuses.
TIIE MECIIANICS OF A HOME FINANCING OPERATION
AND TIIE BROKER,SFUNCAION
No matter from what concernor individual a homebuilder bor-
rowshis money,the proceduregoesthrough the follorr_ingstages:
(1) Application; (2) Investigation; (3) Approval and Executiol
of Loan; (4) Disbursementof Mo[ey.
The averagepersonfrequentlyemploysa broker,that is, he drops
into an oflice where loans are advertised. It is the brokeris function
to ascertain the requirements of the applicant, the merits of his
secu ty and to heb the prospectivehonrebuilder to preparehis appli-
cation. He is entitled to and lrsually r€ceivesa flat fee when the loan
is g"antedof from one to three per cent of the face of the loan (any
largerfee is a violation of the law).
APPLICATION
To a p vate lender or to abroker $,'hocontrols private funds the
application may be purely verbal, notes being taken of the location of
the property, etc., and the loan may be approved without the siglature
or any formal application. Most banks, mortgage companies and
building and loan associations require appiication on a printed for"m
which sets forth the desc ption of the propelty, var-ious personal
data, the amount of the prcposed loan, the rate of inter€st, etc.
If the application is made to a private lender or a broker con-
trclling private funds, qppraisal is usually mad€ immediately and the
loan approved, disapproved or modified within a few days. With a
financial institution, however-,the application is passedon by the man-
. age} of the loan depadment. appraisal nade by the regular appraiser
and the application and appraise/s report together go before a loan
cornmittee. With foreign loan corporations the broker is also in many
caBesthe appraiser and a brcker of standing always has influence with
 234 The EealtA Bl,ueBook of Cal,ifomia,

his company or with the financial institution with which he does

business.
INVESTIGATION

.Investigation vades with va ouslenalers. With a private lender

or broker conlrolling.privatefunds a very cursoryin"esigario; ii
mad€ol l,heborroweCspersonalstandingand ihe loan is madeor not
on rne merrlsot Lrrcreal estaleas spcurity. With buildingand loan
associationsand kindred financial concerns,usually elso li banks, a
moreor less.ursory investigationis madeof thc borrow". p"."onri
stanclrng,
clecltthislory and businessconne.tions. "
APPROVALAND EXECUTIONOF LOAN

_ If th€ appraisal and other investigation produces a favorable

errecron ine tender or the toan .ommittee and they have funds to loan.
the loan is approved, or a loan approved lor a ies;e; ;;;;[. Th;
placuce varres rn the proportion of loans. Building and loan associa_
rrons -are allowed by taw to go to eighty per cenL o[ thp lalue of
ror ano proposecltlurtdtng. but jn the matter of practice seldom exceed
nrry ppr ceni. .Eanks are limited by law to sixty Der cent. but as a
matter of practice s€ldom excped .lorty_five per cen1. Mortgage dis_
count companie8 follow a practice of approximalely fiftv pei cinl on
rhe nrsl mortgage, Morlgag€ fnsurarce Companies afe limited bv
law to lilly per cent. Private lenden who have difficullv findin;
places l-or their money will sometimes go as high as eighw'per
cent:
especrarry rt lhey know the borlower personally. Corsiderjns the
Detd.ot lrome hnancing as a $rhole, firsl mortgage fnancing ca-n be
oDratnecl only to Jjlty pet cent,
A.fter the loan is approved papers arc prepared, usually by the
.
reroer, I ne papers-usualty consjsl of a morlgage and mortgage note.
i ney are dated as oi thF day ol signature and bear inlerest from that
date. "Execution" consisls of the sigrjng of papers before a notary
oy me Oorrower anct hls wif? or wife and husband or ihe bol.l'ower
alone, if single. Some lendels givc lhe borrower at tbis iime a recei;t
or a conjTacl. It isa pra|"iice not general nor is iL nefessary under the
raw. as the oorrower has ihe rcmedy of repudiating the morlgage if
ne ooes noc tn lact recptve the monev spl rorth in tle note.

DISBURSEMENT
A lender. parlicularly if l.he lender is an institulion. reouires
that the cedificate of tirlp bp brought dorvn showing (his morigage
or recoro. Ih)s means thal the modgage as soon as execuled
rnust be sent to the County Recorder,s ofice ancl recorded. I'he
guarantee of title on thc property is continued at the ownefs or
borrowef s expense.lo show this lien as a matl er of record, Frequeni_
ly, private len_d-ers
will stad advan.ing money as soon as the paper-s
are srgreo. when Lhey clo so they take a chan.c, and any broker
represen{,in-gthem takes a chance. of some judgmenl, pnoperly trans_
rer or pendlng action at law, being registered against the DroDertv
aheaclof the mortgage and making the moftgage in fact a seloridary
llen.
 Tke ReoJtUBLueBooL ol Caklorntur 239

METIIOD OF PAYMENTS DIMING CONSTRUCAION

As soon as the loan shows of record in the certificat€ of title, pay-
$ents are made on construction. The usual method is one-fourth
when the house is framed and the roof in place, one-fourtll when the
roughplumbing is in plaeeand the houseplastered,one-fourthwhen
the home is finished and ready for occupancy,and the last one-foutth
thirty-five days after completion, as set forth in the "Notice of Com-
pletion." These proportions may be varied into fifths. Some lenders
will advancemoney only upon presentation of bills without regard to
the progressof the building, but the customon the moderatepriced
dvelling is in qualterly payments as shown. These payments are
usuaily made to the owner upon evidencebeing shown that materials
andlabor to the amountof suchpaj.lnentshave beenput in placeand
that the moneyfr-omthe losn is to be appliedto suchbills. Wherethe
contractor is well known and has dealt previously .with the sam€
lenderor. where the owner is weli known to the lender. the lender
merelysatisfieshimself that the househas reachedthe stage of pro-
gTessrequired and issueshis checkon the owner'sorder to the con-
tlactor. At ihe time the last paluent is due the owner or contractor
is usuallyrequir-edto show receiptedbills for all materials and labor
usedon the job, or releasesseNing the sane purpose.
The broker for pdvate lenders or for foreigr financial institu-
tions,that is, institutions having their main offfce in other cities,
usuallyacts as the l€nde/s agentto visit the housefrom time to time.
He seesthat the work is going for-ward and checks over the owner's
or contractor'sbills to seethat the moneyis being appliedto that par-
ticular iob
ADEQUATEBOND ADVISABLE

Unfor-tunately,it is seldomthat surety bond is required of the

contractor.W}lilea skillful and expcrienced brokercan uluallv dis-
covera contractorwho is misapplying funds.irregularirieslrequently
oCCUI and they almoslalwaysoc.ur at the exppnse of the owrer, Bv
holdingbackall funJlerpalnnellsthe lendercan prorerthimsclfancl
force the owner to cure any irregulalities. But the brcker would
se[vehis borro\r-ingclientsbetter and alsohis lenderclientsif he took
the attitude that it was as much his duty to protect the owner as the
lender by requiring the contractor to furnish adequate bond. In the
caseof the "selvice loan" companythc co6p2n, assumesall responsi-
bilityfor.orrp.l construclion and full pa],menr of all bilts.

than the average home builder is willing to face and that net
is gaeater tha[ the usury law permits in a direct transaction
borrower and lender. The lender can buy a pieceof paper,
240 The Reo,ltaBl,11,e
Book of Calilomip,

secondmortgageor trusl deed.at any plice the holder therpof is v/ill-

ing to jake. For example.he can lpgallybuy for S1,000or gl,2OOa
secondmortgage for $1,500. He could not legally lend a borrower
direct $1,000and take back a secondmortgagefor g1bo0,if the ditrer.
ence,or 9500,addedto and distributed with the interest made the
actual retum on $1,000more than twelve per.cent per year.
IGNORANCE OI' USIMY LAWS
The usury Iaw is a comparativelyrecent enactmentin the State
of California and should be studied by every real estate broker. Fre-
quent violations of the law are observed every day and the brokeN
and lendersconcernedin theseviolationsdo not sufer simply because
the bo1?owersare as ignolant or as indifferent to the larF as thev.
Careful srudy should also be given by pvery prospectivebioker
to the Mecharics'Lien Law of the state. It is not only a very vreighty
elementin all buildingloanc.but it concemsviially l.hetitle of every
recen y complet€ctproperty.