Copyrighted 1922 
 
 BY 
 
 Benjamin H. Dugdale
 
 MORTGAGE 
 LOAN VALUES 
 
 A Few Comments on Various Matters 
 Pertaining to Real Estate Mortgages 
 
 B}^ 
 
 BENJAMIN H. DUGDALE
 
 PREFACE 
 
 Mortgage Loan Values is, as its sub-title states, a 
 series of "comments upon various matters pertaining 
 to the mortgage loan business. ' ' 
 
 This book is intended for the use of investors in 
 Real Estate mortgages and of those persons who may 
 be called upon to act in an advisory capacity to such 
 investors in passing judgment upon the physical, 
 moral or legal features of Real Estate securities. 
 
 None such can read it without profit and few, hav- 
 ing once read it, will be willing to dispense with it as 
 a reference book, for it will often enable them to 
 avoid errors which might result in unsatisfactory 
 experiences. 
 
 The treatment of the subject is in no sense technical 
 nor theoretical but is simply a few discussions of 
 practical questions w4iich are apt to arise in the 
 mortgage loan business and is written by one whose 
 experience in such matter has extended over many 
 years and into many different sections of the country. 
 
 The book contains a number of valuable tables and 
 sketches, some of which are difficult or impossible to 
 find elsewhere and which add much to its practical 
 value.
 
 386460
 
 The illustration shown on the opposite page together 
 with its translation, for which I am indebted to the 
 kindness of S. W. Strauss & Company, represents a 
 clay tablet which is said to be the oldest record now 
 in existence of a mortgage security although such 
 mortgages are said to have been used among the Baby- 
 lonians for many years prior to the date of this one.
 
 MORTGAGE LOAN VALUES 
 I 
 
 THE DESIRABILITY OF REAL ESTATE SECURITIES 
 
 During what are known as "good times," when 
 everything seems to be working together for pros- 
 perity, Capital is inclined to encourage the launching 
 of new, and the enlarging of old enterprises. 
 
 The wheels of manufacture grow busy, the paths of 
 commerce become crowded, and Capital, being ven- 
 turesome when anticipating large profits, is apt to 
 overestimate the value of the securities offered and 
 to proceed along lines which at other times might be 
 considered hazardous. 
 
 Lender such conditions, mining, manufacturing, 
 transportation, banking and mercantile enterprises all 
 apparently flourish, and the securities which tliey 
 offer often sell readily upon the market even when 
 a careful analysis would fail to demonstrate their 
 stability. 
 
 Capital, however, although sometimes inclined to 
 be greedy, is also easily alarmed, and, when losses 
 occur, as they are apt to do under very liberal credit 
 conditions, it at once develops greater caution, it 
 depreciates its own former valuations and demands a 
 larger margin of security. Its confidence is so easily 
 disturbed that if many losses occur it soon becomes 
 
 9
 
 10 MORTGAGE LOAN VALUES 
 
 inclined to donl)! all securitios and even to withhold 
 its support from undertakings Avhich really give good 
 promise of success, and which, if properly financed, 
 might prove to be very profitable. These conditions 
 are frequently spoken of as "hard times," and at such 
 times new enterprises are often unable to gain a 
 foothold, while old ones halt along the road and some- 
 times fall by the wayside. Thus the financial credit 
 pendulum swings a little too far on either side of the 
 perpendicular of sound business sense, which indeed 
 it is compelled to do, for its use and safety depend to 
 a great extent upon its compliance with the spirit of 
 the times. 
 
 A condition of financial uncertainty and depression 
 naturally brings about a period of liquidation and a 
 readjustment of values, and causes inquiry to turn to 
 the least easily affected securities. It is at such times 
 that we most often hear it said that Real Estate Mort- 
 gages afford the best security obtainable, for nothing 
 else seems to stand upon so solid a foundation, inas- 
 much as Real Estate is less sensitive, except in special 
 instances, to adverse financial conditions than are the 
 stocks, bonds, and other securities which command as 
 good a rate of interest. 
 
 Although such a conclusion may not be true in each 
 individual instance, in a general way it is true, and 
 is a view of the matter which appeals very strongly 
 to those who have charge of trust funds, whether of 
 the many millions held by the great Insurance and 
 Trust Companies, or the few hundreds guarded by 
 the individual for the future use of his family or for 
 his own old age, for upon such persons rests not only
 
 MORTGAGE LOAN VALUES 11 
 
 the principal obligation of safe investment, but also 
 the necessity for such investments as will return a 
 fair rate of interest, and which, once placed, may 
 remain undisturbed for a reasonably long time. 
 
 The practice of pledging property to secure the 
 payment of debts is ancient and universal, and by 
 virtue of law and custom it extends, at least indirectly, 
 to almost all credit transactions. 
 
 If the person borrowing money or otherwise con- 
 tracting a debt is possessed of a sufficient amount of 
 property, the debt, in the ordinary course of business, 
 is considered to be well enough secured, even if there 
 is no definite pledge of specified property, provided, 
 of course, that its payment may be called for within 
 a limited time, but, when the maturity of the debt is 
 postponed for a considerable length of time, such for 
 instance as for a term of years, the simple fact that 
 the present property holdings of the debtor or his 
 indorsers are sufficient, adds but little strength to the 
 security, especially if their holdings are of such a 
 character that they can be easily or quickly dissipated 
 or transferred to others without the consent of the 
 creditor. 
 
 The direct Real Estate mortgage overcomes this 
 objection, and the use of this form of security is also 
 an ancient one. (More than a thousand years ago 
 Sighelm, an Anglo-Saxon warrior, pledged his lands 
 at Cooling to Goda to secure the payment of thirty 
 pounds which he had borrowed, and his daughter, 
 who inherited the lands, had to repay the loan in 
 order to ' ' cleanse ' ' them of the debt, although she was 
 then the Queen of England.) It is true that Real
 
 12 MORTGAGE LOAN VALUES 
 
 Estate value often enters, either directly or indirectly, 
 into the secnrity offered by stocks, bonds and munici- 
 pal securities, and that it sometimes constitutes a large 
 part of such security, but in this form it is too far 
 removed from any control by tlu^ investor to l)e prop- 
 erly classed as Real Estate security, and it is not often 
 held in as high esteem by those whose main object is 
 the safety of their investments as is the direct Real 
 Estate mortgage, which, while not so liquid in its 
 character, nevertheless affords a right of recovery 
 from property that, to them at least, is of a more 
 tangible form and value. 
 
 There is, however, a necessary slowness about all 
 Real Estate transactions which must be taken into 
 account. Almost all agreements concerning it must 
 be in writing and many of these are required to be 
 made matters of public record ; if it is taken as 
 security, a careful and unhurried examination of the 
 physical features and of the title to the property is 
 also necessary, for no general investigation can be de- 
 pended upon to determine the value and ownership 
 of any individual holding as may be done in the case 
 of stocks or bonds, nor can any specific investigation 
 for one transaction in Real Estate be made to cover 
 fully the requirements for subsequent transactions; 
 and if the payment of a debt secured by mortgage is 
 defaulted, foreclosure and recovery is in many States 
 rather a slow process, and if it is bidden in l)y the 
 mortgagee still further delay is apt to accompany the 
 conversion of the propertj^ into cash. 
 
 For these reasons Real Estate securities while 
 among the safest to be had are not so satisfactorv to
 
 MORTGAGE LOAN VALUES 13 
 
 those investors whose needs may at any time require a 
 quick realization upon their assets. 
 
 Such things, however, do not necessarily affect the 
 soundness of mortgage securities; on the other hand, 
 they supply reasons for a somewhat higher rate of 
 interest, accompanied by a maximum of safety, being 
 obtainable, and in contrasting them with the more 
 liquid securities, the rule does not apply that a higher 
 rate of interest inversely indicates the value of the 
 security, although in its other applications, that is, in 
 comparing the individual securities of either class 
 with others of the same class, the rule is undoubtedly 
 a sound one.
 
 II 
 
 THE MORTGAGE LOAN BUSINESS 
 
 Taking the country as a whole, the mortgage loan 
 business is one of vast proportions and importance; 
 it has followed wherever Real Estate has gained a 
 market value, and its importance has gone beyond the 
 benefits accruing to those immediately concerned and 
 far into the field of general business and general de- 
 velopment. The great bulk of the money so invested 
 is made up of trust funds which are composed princi- 
 pally of the savings of a vast number of persons of 
 limited individual earning capacities, and these funds 
 are entrusted to the care of the many Insurance Com- 
 panies, Trust Companies and Savings Banks. 
 
 Under this plan, not only is no account too small to 
 yield its proportionate earnings to its owner but, as 
 the company or bank to which the money is intrusted 
 usually makes either large loans or a large number of 
 loans, it is in a better position to give borrowers at- 
 tractive rates and terms than is the small investor, 
 principally because its overhead charges upon a per- 
 centage basis are proportionately smaller. 
 
 If it makes a large number of loans it is also en- 
 abled to grant more liberal prepayment privileges to 
 borrowers and yet suffer less proportionate loss of 
 interest by reason of loan funds lying idle than would 
 probably be suffered if the investments were few in 
 
 14
 
 MORTGAGE LOAN VALUES 15 
 
 number, and with this advantage it is able to attract 
 the better class of borrowers whose securities entitle 
 them to the best terms which the market allows. 
 
 If the business is in any sense an extensive one, 
 however, either in the amount loaned or the number 
 of loans made or in the territory covered, its success 
 absolutely depends upon its being conducted along 
 very conservative lines. On the other hand, the in- 
 vestor who makes only a limited number of loans and 
 makes these in a territory with which he is familiar, 
 to persons whom he knows personally, and upon prop- 
 erty with the value and merits of which he is Avell 
 acquainted, will frequently accept securities which 
 M'ould not pass the scrutiny of any expert in this line, 
 and, although he may even ignore important rules of 
 procedure in making them, he is usually able to avoid 
 any ultimate loss. Being upon the ground he is able 
 to keep in close jDersonal touch with his investments 
 and protect them if necessary; he is therefore in less 
 proportional danger of suffering loss than he could 
 possibly be in his average investment if his operations 
 were extensive, or if, for any other reason, the inti- 
 mate personal conditions did not exist. 
 
 It is not the purpose of these comments, however, 
 to point out how far, or upon what occasions, it may 
 be safe to vary from the beaten lines followed by the 
 more careful class of lenders, but rather, simply to call 
 attention to the main principles underlying mortgage 
 loan values, and to some of the conditions affecting 
 those values which are most apt to be encountered in 
 the ordinary course of a mortgage loan business. 
 
 If it is desired that a high degree of safety shall
 
 16 MORTGxiGE LOAN VALUES 
 
 be combined with reasonable earnings, it is important 
 that the rules affecting such securities should be 
 clearly understood and intelligently applied. 
 
 To do this successfully requires a good working 
 knowledge of the whole subject, unless indeed the 
 transactions are confined within very narrow limits, 
 for, while a number of mortgage loan rules are general 
 in their character and apply to all such loans, the im- 
 portance and applicability of other rules vary as the 
 general class of property or the surrounding circum- 
 stances may differ. 
 
 While no theoretical knowledge of this suliject can 
 be said to be dependable, except as interpreted by the 
 light of a practical knowledge, it is believed that such 
 a discussion may be interesting and possibly of use, 
 not only to those who are engaged in lending upon or 
 investing in Real Estate securities and to whom these 
 comments are especially addressed, but also to those 
 whose interest in the matter is a less direct one. 
 
 In this discussion many very simple and apparently 
 obvious matters will be mentioned, the apology being 
 that just such simple and obvious matters are often 
 overlooked by those whose training in the business 
 has not been such as to compel their consideration of 
 each and every fact affecting the questions at issue. 
 
 It may also be mentioned that, notwithstanding any 
 rules which may be cited, in no part of the mortgage 
 loan business is the personal equation of minor im- 
 portance, and practical "common sense" must inter- 
 pret every rule in its application to any question to 
 be decided, nor are these comments to be regarded as 
 being in the nature of a text book on mortgage loans
 
 MORTGAGE LOAN VALUES 17 
 
 but rather merely as a series of suggestions upon 
 various features of the subject and warnings of cer- 
 tain dangers which may be encountered. 
 
 In order that there may be no misunderstanding nor 
 confusion of the terms used herein it may be said that 
 the term "investor" has been chiefly used to designate 
 the person or company who procures securities 
 from whatever source, purely for investment, and 
 that the term "lender" has been used to designate the 
 person or company always dealing directly with the 
 borrower, and generally with the object of selling the 
 loans to the investor. 
 
 Certain erroneous ideas of loan values are held by 
 many persons, and if any such are entertained by the 
 prospective investor or lender it is quite important 
 that he should disabuse his mind of them before he 
 undertakes to deal in such securities. 
 
 Some of these ideas seem absurd to those who have a 
 knowledge of the subject, but to the uninformed their 
 absurdity is not always apparent; for instance, it is 
 supposed by some persons that a Real Estate mort- 
 gage is per se a good investment; this is not true, 
 however, for the property value may be inadequate or 
 unstable, the title may be defective, the net income 
 may be insufficient, the personal hazard may be un- 
 satisfactory, the time of maturity may be too long 
 deferred or of too short duration, the location may 
 be too remote from markets or other conveniences, or 
 it may have any one or more of many other defects. 
 
 It is thought by some that an expert can determine 
 the exact value of real property, but this cannot be 
 done because of the fact that too much of the unknown
 
 18 MORTGAGE LOAN VALUES 
 
 enters into each proposition to enable any expert to 
 "split dollars" in his valuations, and he can only give 
 approximate estimates. 
 
 It is also believed that because the interest of the 
 borrower and the lender differ, they are antagonistic 
 — that the average borrower is the unfortunate victim 
 of circumstances and the average lender ever watchful 
 of opportunities to oppress and overcharge him. 
 Nothing could be further from the facts, for almost 
 every borrower has or believes he has a more profit- 
 able use for the money than its rental cost to him, and 
 almost every lender is willing to grant as easy and 
 favorable terms as are consistent with the proper pro- 
 tection of his legitimate interests. 
 
 Nor is the belief uncommon that a greater volume of 
 business may be obtained by the lender in hard times 
 than in good times; l)ut this is not the fact for iu 
 hard times the people are more economical in their 
 expenditures and more conservative in their invest- 
 ments and there are fewer apparently profitable uses 
 for money, but it may be remarked in passing that in 
 hard times the lender's interests are more often safe- 
 guarded by the fact that there is then less danger 
 from high property valuations or the unwise use by 
 the borrower of the proceeds of the loan. 
 
 Another mistake which the investor should avoid 
 is the provincial error of supposing conditions to l)e 
 necessarily inferior ones because they differ from 
 those that are found in the territory with wliich he 
 is familiar. It is sometimes hard, for instance, for 
 the person whose knowledge is confined to the wheat 
 belt to realize that just as dependal^le values may
 
 MORTGAGE LOAN VALUES 19 
 
 exist in the cotton belt and vice versa, or for one who 
 has always lived in a section where there is a satisfac- 
 tory rainfall to believe that irrigation has passed 
 beyond the experimental stage. 
 
 Yet another common error is the belief that there 
 are large sections where all of the land is practically 
 "worn out," and he who lives in the newer parts of 
 the North or West often so regards the older lands of 
 the South and East. He looks askance even at the 
 ' ' red pebble ' ' lands of Georgia, and regards nearly all 
 of the balance as being practically worthless, although 
 with proper care and management many parts of it 
 may be made to produce as much net revenue as may 
 the black loam of Iowa or the "black waxy" lands of 
 Texas.
 
 THE COTTON COUNTRY 
 
 20
 
 Ill 
 
 BASIS OF MORTGAGE LOAN VALUES 
 
 Although subject to some exceptions, wliieli will 
 be referred to later, it is a general rule that loan val- 
 ues, (aside from questions of title and personal haz- 
 ard) are based upon market and income values, and 
 that these are based upon certain facts of which it is 
 important that the investor or lender should have a 
 general idea in order that he may have a clearer 
 understanding of the main causes which promote the 
 growth of such values or which, on the other hand, 
 may tend to diminish or destroy them, for the only 
 safe w'ay of determining the soundness of any proposi- 
 tion is by examining the foundation upon which it 
 rests. 
 
 Briefly stated, the physical foundation of mortgage 
 loan values is made up of the two principal factors of 
 population and fertility of soil, united by the third 
 factor of transportation. 
 
 The first two are essentially the basis of all values, 
 for population cannot exist witliout fertility of soil, 
 nor can any value attach to fertility of soil without 
 population, but in order that such values may main- 
 tain any degree of stability these two principal factors 
 must be fairly well l)alanced ; that is, both must exist 
 where each is available to the other at a cost which 
 is not too burdensome, and here the factor of trans- 
 portation enters and furnishes the means to that end. 
 
 21
 
 22 MORTGAGE LOAN VALUES 
 
 Nor is this factor of less importance, so far as ex- 
 change or loan values are concerned, than are the 
 others, for it is also an essential factor in the estab- 
 lishment and maintenance of such values. 
 
 Neither is the term ' ' transportation facilities ' ' as 
 used in this discussion intended to be confined to the 
 ordinary means of moving products by railway or 
 boat lines, but is intended to extend to country roads 
 and city streets and all of the various public facilities 
 which may exist for the transportation of persons or 
 commodities and the lack of which causes otherwise 
 desirable city and suburban locations and fertile lands 
 to remain unimproved and unproductive. 
 
 Notwithstanding the fact that a section of country 
 is new and undeveloped and its population sparse, if 
 it is not barren its land may be said to have an income 
 value, inasmuch as its products furnish food and cloth- 
 ing and shelter for its inhabitants ; such supplies may 
 be poorer and coarser in quality, and more meager in 
 quantity and variety than they may afterwards 
 become under more populous and advanced conditions, 
 but, as they supply the needs of the inhabitants and 
 require a certain amount of manual labor to secure 
 them, the facts are much the same in either case, the 
 difference being more one of degree than of kind. 
 
 Such an income value as this does not necessarily 
 carry with it at first any rental or sale value which 
 the possessor of the land might obtain by transfer- 
 ring its uses and profits to another, for under the con- 
 ditions of a sparse population and abundant land, 
 each may easily obtain for himself at either no cost or 
 at a trifling one, such land as he may be able to use.
 
 MORTGAGE LOAN VALUES 23 
 
 The development and appreciation in value of agri- 
 cultural lands, and the growth of villages into towns, 
 or of to\^^ls into cities, are due to many causes of 
 which the increase in the local population is the pri- 
 mary one. 
 
 As the population increases conditions change; the 
 natural resources of the section become better de- 
 veloped, the lands most suitable for agricultural pur- 
 poses are taken up and divided under separate owner- 
 ships, roads are opened, and lines of communication 
 and traffic with other sections are established, and, 
 when persons come into that locality who wish to use 
 or own lands that are held by others. Real Estate 
 shows the beginning of a rental and a sale value. 
 
 As this development progresses and the population 
 still further increases, churches, schools, and centers 
 for trade and government are established, all of whit-h 
 encourage still further growth, and the former uncei-- 
 tain salability of Real Estate becomes more certain 
 and crystallizes into market value. 
 
 With a few exceptions (notably that of Gary, In- 
 diana) towns and cities have had small beginnings, but 
 the sites originally selected for their location were 
 usually so chosen for one or more of the various 
 causes which go to promote urban growth, and, in 
 some instances, these have really proved to be suffi- 
 cient to that end, although in most cases they have 
 been found to be wholly inadequate in themselves to 
 any very large groAvth either in population or indus- 
 tries. 
 
 Under the primitive conditions of an early civiliza- 
 tion, situations adjacent to hunting grounds and
 
 24 MORTGAGE LOAN VALUES 
 
 places wliicli afforded a g-ood supply of wator, timber, 
 or pasturage were often favored, and under conditions 
 where local warfare, robber bands, or liostile savages 
 were a constant threat to the inhabitants, locations 
 suitable to defense were chosen ; the origin of many 
 important cities may be traced to these primitive 
 causes. 
 
 In later times, portages, the crossings of established 
 lines of travel, water power for milling or manufactur- 
 ing purposes, proximity to valuable mineral deposits 
 or to large bodies of timber, convenient seats for local 
 government, or centers for local trade, have all been 
 common causes for the location of towns, some of 
 which have afterward acquired considerable import- 
 ance, although in a majority of instances tliey have 
 shown very marked limitations. 
 
 While this has been generally true, other and at 
 first unforeseen conditions have sometimes developed 
 and have been so favorable to urban growth that the 
 original village has afterward attained considerable 
 importance as a town or city. It is said, for instance, 
 that the two most potent reasons for the selection of 
 the site of the present Capital of Indiana were the 
 possibilities of a steamboat landing on White River 
 and the water power afforded by Fall Creek neither 
 of which afterwards proved to be of any practical 
 value. 
 
 When a certain stage of development has been 
 reached, mortgage loan values come into existence and 
 they will always be found to have developed in accord- 
 ance with the character and stability of the foundation 
 upon which the market values have been built. If
 
 MORTGAGE LOAN VALUES 25 
 
 these values have been based upon well balanced con- 
 ditions the loan values are almost sure to be satisfac- 
 tory; if upon unsupported promises of future devel- 
 opment or illy balanced conditions, they are in the ag- 
 gregate as certain to be unsatisfactory. 
 
 When a town is established, and the land which is 
 used for that purpose is divided into lots, some or all 
 of which are sold to separate owners, any loan value 
 which the land may previously have had as agricul- 
 tural land is at once almost or quite destroyed, and 
 any loan value which may afterward attach to it must 
 be calculated upon a different set of facts, for the 
 more direct and active factor in its basis of value will 
 then be its population and its suitability to the needs 
 of that population instead of the fertility of its soil, 
 as was the case when it was agricultural land. 
 
 In the case of the larger towns and cities it is also 
 almost invariably true that although as a whole they 
 may have the elements of growth, and even of large 
 growth, certain portions of them will lack attractive- 
 ness. Sometimes this is for no very obvious reason 
 although true to a degree which depresses the Real 
 Estate market of that section, and it is also frequently 
 true that when Real Estate promotions are under- 
 taken, towns or portions of towns are built up and 
 improved bej^ond what is warranted by any support 
 which they can safely hope to command. 
 
 These facts should be kept in mind, for, although a 
 certain degree of development is always necessary 
 before any loan values can be said to be established, if 
 such development or growth is one of the past but is 
 one which has become stagnated, or if, on the other
 
 26 MORTGAGE LOAN VALUES 
 
 hand, it is a recent one but has passed beyond that 
 stage which is justified by the conditions upon, which 
 a stable market value can be based, the loan value in 
 either case is always weakened and, in some instances, 
 it may even be destroyed.
 
 IV 
 
 CLASSIFICATION OP REAL ESTATE SECURITIES 
 
 Preliminary to an intelligent discussion of the sub- 
 ject it is important first to recognize the fact that 
 mortgage investments are naturally separated into two 
 general classes which are knowTi to those who are 
 engaged in the business as "farm" loans and "city" 
 loans. 
 
 These two classes of Real Estate securities differ 
 from one another in many important respects and, 
 while many of the rules of the loan business apply 
 equally to either class, the differences are so man}' 
 and so marked as to fully justify their separate 
 classification. 
 
 These differences arc due to the fact that althougli 
 all Real Estate loan values are based upon tlie dual 
 foundation of population and fertility of soil, the 
 more direct and immediate cause of the inception and 
 growth of city loan values lies in population, and that 
 of farm loan values in the fertility and products of 
 the soil. 
 
 In the actual work of making loans it becomes ap- 
 parent at the very outset that this difference is not 
 a superficial one ; in one case the borrower must sho^v 
 a set of facts in his application different from those 
 which are required to be shown in the other; and 
 throughout all subsequent transactions both in the 
 
 27
 
 28 MORTGAGE LOAN VALUES 
 
 making and during tlie life of the loan, certain dif- 
 ferences mnst be understood and taken into account. 
 
 There is also a large amount of Real Estate which 
 does not rightly belong in either of the above classes 
 and will not be discussed here for the reason that it has 
 no definite loan value except, indeed, a very limited 
 local one. Such property consists of the various kinds 
 of improved and unimproved Real Estate located in 
 the country or in small tow^ns and villages or upon 
 the outskirts of larger towns, where there is an insuf- 
 ficient acreage to give it any farm loan value and 
 insufficient urban development to give it any city loan 
 value. 
 
 This list also includes arid lands and swamp lands 
 and all oil, mineral, timber and range lands, when 
 the soil and surface are unfit for farming purposes, 
 or when they cannot be agriculturally developed 
 except at a considerable cost, none of which is 
 regarded as acceptable security. 
 
 There is no possible question, however, but that 
 very high grade and satisfactory loans may be ob- 
 tained from either of the main classes of Real Estate 
 securities, but the fact must also be recognized that 
 the terms "farm" loans and "city" loans are each 
 subject to either a liberal or a conservative interpreta- 
 tion. 
 
 Thus the more conservative lenders and investors 
 confine the meaning of the term "farm" loans to 
 loans upon agriculturally improved lands and that of 
 "city" loans to loans upon standard income property 
 well Avithin the limits of cities or fair sized towns; 
 while those who are more liberal in their views ex-
 
 MORTGAGE LOAN VALUES 29 
 
 tend tlie nieaiiiiiji' of hotli tonus to include less desir- 
 able locations, <ind h ss fully developed properties and 
 also to includ;' many properties in either class, the 
 uses of which are confined to special purposes. 
 
 While an ai'l)iti-ai'y line is thus drawn in each g'en- 
 eral class by the conservative investor separating cer- 
 tain kinds of Real ]")ro]ierty as being more desirable 
 from otliei- kinds regarded as less desirable, it does 
 not follow that all on one side of that line are good 
 nor that all on the other side are necessarily bad ; 
 and it is no doubt true that such a rule excludes many 
 offerings both of farm and city loans where the prop- 
 erty has, not only a present market value, but where 
 it has also a present or potential income value that 
 would seem to justify a loan value. 
 
 Such loans are usually refused for the arbitrary 
 reason that the class to which they belong is an unde- 
 sirable one or because it is Ix'lieved that the security 
 rests too much upon the development or maintenance 
 of certain favorable conditions not yet fully estab- 
 lished, and that while the security may have both 
 the promise and prospect of the needed support, there 
 is, nevertheless, an element of uncertainty as to future 
 happenings and future values which is not attractive 
 to a conservative investor. 
 
 The desirability of such securities grades from the' 
 very highest down to those offerings which are simply 
 impossible, and the line is generally intended to be 
 drawn at a point which will exclude the various kinds 
 of property that, as a class, are each liable to certain 
 loan faults, although it is not usually intended that 
 the rule shall be applied with such rigor as to exclude
 
 30 MORTGAGE LOAN VALUES 
 
 the individual exception which is not seriously af- 
 fected by the faults of its kind. 
 
 One example of this may be seen in the fact that 
 timber, orchard, and range lands are usually excluded, 
 except by local lenders, as belonging to an objection- 
 able class, although in the individual instance it is 
 readily admitted that a certain amount of timber, or- 
 chard, and permanent pasture may add to the average 
 acreage value of a farm rather than detract from it. 
 Another example may be found in the fact that a 
 city property which is classed as being a special pur- 
 pose property, because such is its intended and pres- 
 ent use, may have an availability for other purposes 
 which will give to that individual offering a perfectly 
 legitimate loan value notwithstanding the fact that 
 theoretically it belongs in an undesirable class. 
 
 Various kinds of Real property, however, which 
 may be fairly listed as "city" property or as "farm" 
 property are nevertheless open to objections when 
 viewed from a reasonably conservative standpoint; 
 this list includes the cheaper class of city properties 
 which are too liable to material depreciation and the 
 very costly residences which wilL pay no adequate 
 cash return upon the investment and which will sel- 
 dom be found to be marketable except at a great 
 sacrifice. 
 
 It includes vacant lots and very generally includes 
 all such "special purpose" properties as churches, 
 schools, halls, hospitals, lodges, theatres, hotels, mills 
 and manufacturing plants. 
 
 It includes those lands which in their present state 
 or location or uses are only potentially farming lands
 
 MORTGAGE LOAN VALUES 31 
 
 but which may be reclaimed in time or developed at a 
 nominal cost, such, for instance, as those that lack a 
 proper equipment in fences and buildings, or those 
 that are too remote from markets to have a satisfactory 
 net income value or are so poorly located as to have 
 no "social" value, or lands which are used for such 
 special purposes as orchards, etc., or those which have 
 too large a proportion of "bone" or are either too wet 
 or too dry for profitable farming but may be easily 
 drained or irrigated. 
 
 From a loan point of view none of the above kinds 
 of property is very attractive and a strictly conserva- 
 tive view excludes them, although a more liberal view- 
 finds occasional exceptions in individual offerings 
 from among them. 
 
 It may be the part of wisdom not to attempt too 
 rigid a classification and to recognize exceptions 
 when they are well defined, considering each offering 
 upon its individual merits, but in doing so there is 
 the danger that a door will be opened through which 
 doubtful loans may crowd unless it is very wisely 
 guarded. 
 
 The strict rule in this matter, ho^^^ever, is no doubt 
 the safe one, for the temptation is always great to 
 allow the action in one case to establish a precedent 
 for other cases where the conditions may not be 
 exactly similar, and there is always the chance that 
 outside interests, greed or optimism may incline the 
 investor to stretch a rule that has come to be regarded 
 as being an elastic one. 
 
 Whatever practice is followed in this matter it 
 should be remembered that certain kinds of property
 
 32 ]\IORTGAGE LOAN VALUES 
 
 have not been excluded by conservative investors 
 except for sound reasons. It mnst also be remem- 
 bered that in going outside of the regular lines man}'' 
 unfavorable facts may escape notice, and that if the 
 kinds of property Avhich are not fully acceptable 
 under strict rules are arbitrarily rejected it will at 
 least leave a safer field for mortgage loan invest- 
 ments; and it may be repeated here that those legiti- 
 mate and safe Real Estate securities concerning 
 which there is no element of doubt from a physical 
 point of view, will be found to be principally confined 
 to two general classes, to-wit, farm loans and city 
 loans, as these designations are understood by conser- 
 vative lenders. 
 
 The one class embraces only such lands as are either 
 wholly or in a large part agriculturally developed and 
 of a general productivity that justifies tlieir value, 
 and the other only such well located and substantial 
 business or residence properties as have a satisfa-'tory 
 income value and a satisfactory "balance" of ground 
 and improvement values.
 
 UNATTRACTIVE FARM 
 
 33
 
 FARM LOANS VS. CITY LOANS 
 
 It is perhaps an open question as to which general 
 class of Real Estate securities is the more desirable 
 one, for each has some advantages and some disad- 
 vantages peculiar to itself, and the proper answer to 
 the question probably is that it is that class of which 
 the investor has the most intimate knowledge and the 
 most complete equipment for its investigation. 
 
 The bad loan is the individual loan of either class. 
 It is the one Avhich has been selected without due cau- 
 tion or without due knowledge of that ])ranch of the 
 loan business to which it belongs; but both farm loans 
 and city loans, when they have been properly selected, 
 will prove to be very safe and satisfactory either as 
 investments or as salable securities. 
 
 Lenders, or those who procure mortgages for the 
 market, very generally operate only in the one class 
 for which their territory and their knowledge and 
 equipment are best fitted, but investors are very gen- 
 erally ready and willing to consider both farm loans 
 and city loans, provided that their know^ledge and 
 equipment are such that they are able to properly 
 investigate and handle offerings from each class, 
 otherwise they usually confine their investments ex- 
 clusively to one or the other. 
 
 The city affords the best field for very large loans; 
 34
 
 MORTGAGE LOAN VALUES 35 
 
 for instance, a city business or office building repre- 
 senting an investment of hundreds of tliousands of 
 dollars is not unnsnal, and it is a compact proposition 
 that can seldom be duplicated in salability, income or 
 ease of management by any farm or ranch of ecjual 
 value, although in smaller loan propositions, which, 
 of course, make up the bulk of the business, farms 
 show some points of superiority over city properties. 
 
 The average city loan also has certain advantages, 
 one of which is that it can be made more expeditiously 
 and more cheapl.y than can the average farm loan, the 
 borrower's application is more apt to be filled out in a 
 satisfactory manner, and when this is not the case, less 
 time is usually required for its correction. It is less 
 difficult in the case of city loans to ol)tain the services 
 of disinterested appraisers and of competent abstrac- 
 tors and attorneys, and less time is consumed in per- 
 fecting faulty record titles and in assembling the per- 
 sons necessary to the closing of loans. 
 
 Nor are the location and dimensions of city prop- 
 erty often matters of any uncertainty, while it is 
 sometimes impossible to determine the lines or the 
 exact acreage of a farm until a survey of it has been 
 made ; nor is the inspection of city property apt to be 
 difficult at any time, while the proper inspection of a 
 farm is often delayed by a bad condition of the roads, 
 inclement weather, a covering of snow or a very wet 
 and muddy condition of the land itself. 
 
 City property also has the advantage of being less 
 troublesome for the mortgagee to keep in touch with 
 during the life of his loan and more convenient for 
 him to handle in event of a foreclosure, its use at a
 
 36 MORTGAGE LOAN VALUES 
 
 cash rental will I)e considered liy a greater nmnber of 
 persons, and if offered for a qnick sale it will usually 
 command the attention of a larger number of buyers, 
 thus insuring a more ready sale and a price which is 
 nearer its then true value. 
 
 Interest and principal collections are not usually 
 more difficult in one class than in the other, but if 
 the paj-ment of the principal is defaulted and the 
 property comes into the possession of the mortgagee, 
 he often finds himself unable to make the farm yield 
 him any profit, for the reason, not always recognized, 
 that the successful management of a farm requires 
 the constant personal attention of a practical farmer, 
 while city property" may only require the occasional 
 attention of an agent. 
 
 It is also true that the enhancement of the ground 
 value, if it should occur in any section, is apt to be 
 much greater in a growing city where the population 
 is considerable in proportion to the available »pace 
 in which it can conveniently live and transact its busi- 
 ness, and where the land is divided into comparativelj'" 
 small portions, than could be the case with any farm 
 properties under their conditions of larger areas and 
 a sparser population. 
 
 On the other hand, properly made farm loans have 
 an advantage in one feature that is of paramount 
 importance; they have a certain stal)ility of value not 
 generally to be found in city loans ; their actual value 
 rests upon a more simple foundation, and for this 
 reason is not likely to be seriously affected during the 
 ordinary life time of a mortgage loan by the many 
 causes which affect city values.
 
 MORTGAGE LOAN VALUES 37 
 
 From the laud come the products which are esseu- 
 tial to life; the towus and cities do not produce them; 
 they help to absorb and consume them; they collect, 
 assort, exchange and distribute them ; they change 
 their form, combine them and make artificial pro- 
 ducts from them, which, while not essential to life, are 
 more or less important to civilization; but the land, 
 in the first place, produces them. 
 
 The value of city property therefore rests upon 
 more complex conditions than does that of farms, and 
 is subject to more changes and often to changes over 
 which the owner has no control. The city, as a whole, 
 may either gain or lose in its competition with other 
 cities and in consequence its Real Estate values may 
 rise or fall, its limits may be extended and new addi- 
 tions laid out and improved so as to overshadoAV the 
 older sections, once desirable business or residence dis- 
 tricts may be shifted to other localities to the detri- 
 ment of the old, and the value of a certain piece of 
 property, which may have been, in a great measure, 
 due to the former improvement of surrounding or 
 nearbj' properties, may suffer a depreciation due 
 Avholly to their depreciation, without any changes 
 whatever having been made in that particular prop- 
 erty; but no similar facts apply to farms, for prac- 
 tically all of the land that is suitable for agriculture 
 has already been taken up and made into farms, each 
 of which may be operated or improved in value as an 
 independent unit in itself with little fear that it will 
 ever suffer from any changes in its surroundings. 
 
 The farm is not so sensitive to many other causes 
 which may bring unpopularity and consequent loss of 
 
 386460
 
 38 MORTGAGE LOAN VALUES 
 
 value to a city locality, nor to the over-valuation inci- 
 dent to "booms," for the measure of its value depends 
 less upon an arbitrary public opinion; its perishable 
 improvements also constitute a much smaller part of 
 the security than they do in the case of city property, 
 and in order to maintain their value it is not so neces- 
 sary that they should be, or be kept, "up to date;" 
 nor is the farm so liable to excessive taxation nor so 
 likely to be charged with the cost of public improve- 
 ments that may become a lien against it prior to the 
 mortgage, which improvements are sometimes of little 
 actual advantage to selling or income values. 
 
 A remarkable illustration of what may unexpectedly 
 happen in this way is that of the middle western city 
 which replaced its old Court House with a modern 
 million dollar structure and soon found that the value 
 of the nearby business property had depreciated more 
 than fifty per cent. The explanation, however, was 
 simple, for the neighborhood business had been sup- 
 ported by the trade of the farmers with whom the old 
 Court House had been a popular meeting place, while 
 the new one proved to be so unattractive to them that 
 their trade soon drifted to other localities. 
 
 Although the present market value of city property 
 may be more readily determined, a safer basis for esti- 
 mating loan values is undoubtedly true of farms, for 
 these combine tlie homes and business of the farmers, 
 and while unfavorable seasons or lower prices for 
 farm products may temporarily affect their earning 
 power, with ordinarj^ industry these earnings will 
 seldom fall below an amount necessary for the support 
 of the farmer and his family and the payment of his
 
 MORTGAGE LOAN VALUES 39 
 
 taxes and interest ; nor does the farm, even under 
 unfavorable crop conditions, often fail to furnish some 
 part of the supplies which are needed by a constantly 
 increasing city population, and whatever its earning 
 power may be, to some degree at least it is a depend- 
 able one, for farm products must always be in demand, 
 although the enforced idleness of hard times may 
 cause retrenchments sufficient to greatly lessen, if 
 they do not temporarily destroy, the income value of 
 city property. 
 
 No valid objections, however, can be urged against 
 the properly selected security afforded by either 
 farms or city properties, and, although there are dif- 
 ferences of opinion as to their respective desirability, 
 it may be said that while the city loan is no doubt the 
 most convenient for the investor or lender to handle, a 
 contention in favor of the superior stability of farm 
 securities seems to be sustained by the experienae of 
 the larger investing companies who have ajquired 
 fewer farm than city properties by foreclosure of 
 mortgages and have suffered less ultimate loss in that 
 class of securities, notwithstanding the fact that the 
 managers of such companies have usually had a less 
 intimate knowledge of the requirements of a farm 
 loan business than they may easily have had or have 
 acquired concerning a city loan business.
 
 IN THE CORN BELT 
 
 40
 
 \1 
 
 MORTGAGE LOAN T1:RRIT0RY — GENERAL FEATURES 
 
 The willingness or unwillingness of investors to 
 enter any particular loan field rests (except as it may 
 be affected by a local optimism) upon such conserva- 
 tive opinions as may properly result from a knowl- 
 edge of various relevant facts, few of which are con- 
 clusive in themselves but each one of which has its 
 proper place and weight when taken in connection 
 with the others in determining the main question. 
 
 It naturally follows, therefore, that different lend- 
 ers and investors sometimes reach different conclu- 
 sions as to the desirability of a certain territory, and 
 while there is often ample ground for such differences 
 of opinion even among experts, it is also true that 
 investors are generally too much inclined to overvalue 
 certain pet theories and either to accept or to reject 
 any section of territory upon insufficient grounds, 
 without waiting to assemble and digest all of the evi- 
 dence concerning its advantages or disadvantages as a 
 loan field. 
 
 If the investor is cautious he will be little inclined 
 to lead the way into untried territory but neither 
 should he follow the lead of others until he has care-, 
 fully examined the field and convinced himself that 
 the facts fully justify their decisions, for they may 
 have either approved or rejected it on insufficient 
 
 41
 
 42 MORTGAGE LOAN VALUES 
 
 grounds, and before reaching a decision it is important 
 that he should know to what extent it has been ap- 
 proved by others, what rates and terms they grant 
 therein, and whether or not the favorable view will 
 release enough capital to care for its loan needs and 
 its probable loan defaults. For to say the last word 
 first concerning the desirability of any given territory 
 for mortgage loan purposes, will be to say that the 
 section should contain in itself, or be able to attract 
 from outside sources, sufficient capital to absorb anj- 
 defaulted loans which may have been originally made 
 along sound and conservative lines, and this financial 
 ability, "whether it rests upon tlie use of home funds or 
 of foreign capital, should be based upon local condi- 
 tions which are not likely to lose their force and effect 
 during the ordinary life of a loan. 
 
 Before investigating the special features of any 
 given loan field certain general facts should be taken 
 into account, and it is perhaps best to consider first 
 the State laws affecting mortgage loans therein, for 
 the reason that these laws affect all of a large and 
 well defined territorj^, and if the investor rejects the 
 territory upon the ground that the laws are objection- 
 able, all other questions as to that particular State are 
 thereby disposed of. If, on the other hand, he finds 
 this feature to be unobjectionable and decides to enter 
 the territory, he will already have acquired at least 
 some small part of the knowledge necessary for the 
 protection of his interests. 
 
 While the laws of the various States differ with re- 
 spect to many matters which are of interest to invest- 
 ors, and although such laws often seem, at first sight,
 
 MORTGAGE LOAN VALUES 43 
 
 to be unfavorable to the lender, they are seldom so ob- 
 jectionable as they appear to be to those who are un- 
 familiar with them, and the investor will find that 
 loss or trouble may usually be easily avoided by the 
 exercise of a proper degree of care. 
 
 These laws touch the mortgage loan business at 
 many, and sometimes at unexpected points — some are 
 radical, while others seem to be of comparatively 
 slight importance, some extend to the contractual 
 rights of the parties, and others affect modes of pro- 
 cedure only, but it is exceedingly important that all 
 such laws should be fully understood, and that all 
 of their requirements should be strictly complied with 
 if any loans are made in that territory. 
 
 It is a somewhat singular fact that investors gener- 
 ally are also disposed to adopt State and County 
 lines as defining the physical and moral as well as 
 the legal limits of satisfactory or unsatisfactory ter- 
 ritory, which rule does not seem to follow a practical 
 view of the situation, for although State lines mark 
 the boundaries wherein laws which may be regarded 
 as being either favorable or unfavorable to the mort- 
 gage loan business are operative, and County lines 
 mark tlie boundaries wherein satisfactory evidence of 
 titles may be easy or difficult to obtain, and County 
 as well as City limits mark the lines wherein taxation 
 may be excessive, or law enforcement lax, and while 
 in such matters as these the civil boundary becomes a 
 part of the question at issue, it is hard to understand 
 why any such arbitrary limits should be adopted in 
 other matters, as they are more apt to be misleading
 
 44 I\IORTGAGE LOAN VALUES 
 
 than helpful in determining the loan value of the 
 territory. 
 
 It happens more often than otherwise that tlie terri- 
 tory under consideration, when taken as a whole, pre- 
 sents both attractive and unattractive pliysical and 
 moral features, and the lines of demarcation between 
 those portions which measure up to a satisfactory 
 standard and those which fail to do so should be made 
 along other lines than those which have been pre- 
 viously established for an entirely different purpose, 
 — for instance, it may be wiser for an investor in farm 
 loans to follow an exceptionally good section of land 
 across a county line rather than to exclude that whole 
 county (as is the practice of some investors) because 
 in some sections its lands are of an inferior quality. 
 
 Another general feature which should be consid- 
 ered (more especially in the case of farm territory) is 
 that of its altitude and climatic conditions, the annual 
 amount and distribution of rainfall, the tendency to 
 extremes of moisture or drouth, and the ability of the 
 soil and usual crops of the section to resist the bad 
 effects of such extremes; and if irrigated territory is 
 considered, the sufficiency, dependability and quality 
 of its water supply and the legal status and priority 
 of its water-rights must be carefully investigated. 
 
 Another matter of importance is the general useful- 
 ness of the territory; that is to say, a very large pro- 
 portion of it should be productive ; and it is also a 
 good feature for its earning power to be rather diverse 
 than otherwise, or at least not confined Avithin too nar- 
 row limits, for to be a good loan field it must have 
 the ability upon occasion to care for its own needs at
 
 MORTGAGE LOAN VALUES 45 
 
 least temporarily. It should also have various attrac- 
 tions which will tend to Iciupt outside capital; for 
 example, a city which is almost wholly dependent upon 
 a single industry, or a strictly "one crop" farming 
 section cannot be said to be so attractive from a loan 
 point of view as one which is supported to the same 
 extent by the income derived from a variety of inter- 
 ests or products, any one of which might fail without 
 seriously impairing the general prosperity. 
 
 If it is territory which is very largely dependent 
 upon a single "money crop" the conditions surround- 
 ing this crop should be studied and the suitability of 
 soil, climate, labor and other conditions for the profit- 
 able production of other crops, if this one should fail 
 to remain profitable, should be considered. 
 
 It ma}^ also be stated that one of the most tempting 
 as well as one of the most dangerous sections in which 
 a mortgage loan business can be undertaken is terri- 
 tory which is experiencing a "boom," and that per- 
 haps the most difficult task in selecting a loan field in 
 new or developing territory is to distinguish between 
 the evidences of a permanent and those of a temporary 
 prosperity.
 
 46
 
 VII 
 
 MORTGAGE LOAN TERRITORY — SPECIAL FEATURES 
 
 When considering the various matters which go to 
 make up general conclusions as to the acceptahility of 
 loan territory it slionld not be expected that any one 
 section, although satisfactory as a whole, will be found 
 to be equally good in all of its parts or in all of its 
 more desirable features. It sliould, however, be 
 known to be generally good, and that its good features 
 are based upon conditions that are not likely to change 
 for the worse or to become relatively poorer in the 
 general march of improvement, and it should also be 
 knQwn that a sufficient number of acceptable secur- 
 ities can probably be obtained therein to justify the 
 investor in thoroughly investigating it and in keeping 
 in close touch with it during the life of his loans, and 
 experience will teach him that he can not do these 
 things from railway trains nor by confining his 
 inquiries to those persons whose interests require that 
 he should reach certain conclusions, but that he can 
 only obtain reliable information by more painstaking 
 and intelligent methods. 
 
 Among the various local conditions which should be 
 observed by him, some will of course show their char- 
 acter upon the surface while others will require a 
 closer observation and more careful inquiries, but in 
 either case he should learn the facts, and it is desirable 
 
 47
 
 48 MORTGAGE LOAN VALUES 
 
 that they should show the territoiy to be reasonably 
 well populated and 1o have eomparatively few idle 
 lands or vaeant houses. Its labor conditions should be 
 fairly good and its population in the main both pros- 
 perous and law-abiding; the ownership of its Real 
 Estate should not incline to single holdings of large 
 bloeks but should be well distributed, it being a good 
 feature if owner occupants are numerous and absentee 
 landlords scarce, and if some portions of the territory 
 are undeveloped, it should be known why this is true, 
 and to what extent, if any, they may be irreclaimable. 
 
 The territory should be healthful and should have 
 a good w^ater supply and good drainage ; it should 
 not be especialh^ liable to any disaster (such as flood 
 damage) nor to any general failure of income; and 
 all parts of it should be accessible by good streets or 
 roads and have sufficient other transportation facili- 
 ties to maintain the proper balance between its pro- 
 duction and consumption at reasonable cost. 
 y There is another matter that enters into loan values, 
 
 although not so often considered, which may be called 
 the social value of the territory. This does not con- 
 template on the one hand that it should have excep- 
 tionally high social advantages, nor on the other that 
 it should barely avoid feuds or conditions of general 
 immorality, but only that its general social tone should 
 be wdiolesome and unobjectionable to the average per- 
 son who might not otherwise consifler it as a suitable 
 location for his home. 
 
 If farm territory only is desired it should have in 
 addition to the advantages heretofore enumerated, 
 convenient schools and churches, fairly good and con-
 
 MORTGAGE LOAN VALUES 49 
 
 venient local niarkcts and sliippiii^- jioiiits. and reason- 
 ably good wagon roads ovci- wlii -h its prodnots may 
 be transported. 
 
 It slionld also l»e known to what extent it may eon- 
 tain faults that make the aetnal value less than the ap- 
 parent value and yet do not appear plainly upon the 
 surface at all seasons, sueh as portions containing un 
 desirable sub-soils or surface soils which for some 
 reason are of inferior productivity although of the 
 same color and general appearance as the lands not so 
 affected. 
 
 If city loans only are desired, the size and location 
 of the city must be considered and its proportionate 
 area and population ; the boundaries, natural or other- 
 wise, that may limit or confine its growth to certain 
 sections ; its transportation facilities, labor conditions, 
 power and fuel supply and such other competitive 
 advantages as it may have over other nearby cities; 
 its financial condition, tax rate, fire protection, and 
 public improvements, and the general class and char- 
 acter of its population are all matters which should 
 be taken into account. 
 
 From a city loan point of view the importance of 
 well balanced conditions is greater than is the mere 
 fact of a large population, and the larger size of a 
 city is never conclusive evidence of its greater desir 
 ability as a loan field; on the contrary it has. espe- 
 ciall}^ if it is a growing city, at least one distinct disad- 
 vantage in the greater liability to shifting values of an 
 important character. It should, of course, be large 
 enough to insure competition among buyers when 
 real property is offered for sale at a fair bargain,
 
 50 .MOKTGACiE LOAN VALUES 
 
 but Real Estate in a moderate sized town, one, for 
 instance, wliieli is princi])ally dependent iii)()n its 
 agricultural surroundings, may have as safe a loan 
 value in such amounts as are justified by its sur- 
 roundings, as may a city of several times its size which 
 is dependent upon less stable conditions, except that 
 loan values are perhaps in more danger in the smaller 
 cities because of an extravagance in expenditures for 
 development and management, for this is a relative 
 matter and in the smaller cities such expenses are apt 
 to be greater in proportion to the taxable wealth than 
 they are in the larger ones, and this may add an 
 extra burden of taxation to Real Estate which, added 
 to the cost of insurance and upkeep, may materially 
 reduce its loan value by reducing its net earning 
 power. 
 
 It will be seen that the desirability of loan territory 
 depends upon many different things, a number of 
 which have been herein enumerated, but in consider- 
 ing them, two facts must be kept in mind ; first, that 
 while it is not necessary for the territory to greatly 
 excel in any of these matters, a marked deficiently in 
 any one of them is apt to be a serious objection ; and 
 second, that each feature should be measured at its 
 true w^orth as modified by other existing conditions, 
 the danger being that the investigator may allow his 
 interest in some features to obscure the importance of 
 others, or may cause him to overlook modifying con- 
 ditions. 
 
 Many illustrations in support of this fact could be 
 given; for example, the inspector may be so greatly 
 impressed by the heavy pay-roll of a town 's industries
 
 MORTGAGE LOAN VALUES 51 
 
 that he will fail to give proper weight to the fact that 
 these industries are very few in numl)er and may not 
 be permanent in location or successful in operation; 
 or, when considering the importance to all parts of a 
 farming section of convenient shipping points, he 
 may lose sight of the fact that some crops can be 
 transported much more cheaply than others, roughly 
 speaking, the product of at least ten acres of lint cot- 
 ton can l)e hauled on each trip to market by the same 
 team that would only be able to haul the product of 
 one acre of corn, and the money value of the load of 
 cotton is usually even more than ten times that of 
 the load of corn, and so the more comprehensive view 
 shows the lack of numerous shipping points in one 
 instance to be less objectionable than in the other.
 
 VIII 
 
 METHODS OP SECURING MORTGAGE LOANS 
 
 The question of what pUin should l)o adopted in 
 order to secure a satisfactory line of securities is on(! 
 of considerable interest to tlie investoi-, and the answer 
 depends somewhat upon the kind and amount of loans 
 wanted and the territory from which they are to be 
 drawn. 
 
 This matter is one of especial interest to the investor 
 whose yearly investment fund is a large one, and who 
 is anxious to secure business but does not care to make 
 any very large individual loans ; if he is very particu- 
 lar as to the character of the securities which he will 
 accept he soon finds that he cannot confine his busi- 
 ness to too limited an area, for the sim]ilo reason that 
 it will not afford a sufficient outlet for his funds ; 
 what outlet it does afford being apt to be divided by 
 the competition of other investors. 
 
 This, of course, is speaking of those cases where 
 rather extensive operations are undertaken in medium 
 sized loans and in the ordinary farm or combined farm 
 and city loan business; because, if the investor con- 
 fines his business entirely to city loans and operates 
 only in a large city, and especially if he considers very 
 large individual loans, he may in such cases maintain 
 a close personal supervision over the placing of large 
 sums ; otherwise he will find it necessary to go into 
 
 52
 
 MORTGAGE LOAN VALUES 53 
 
 sections ^vhicli are too remote fi-oni his home territory 
 for him to give a close personal attention to the details 
 of the business. 
 
 The proper supervision of these details is ((uite im- 
 portant, often vitally so, and it can only be accom- 
 plished by the aid of a rather comprehensive knowl- 
 edge of local matters. Therefore the investor finds 
 that if he would maintain such supervision when he 
 goes into new fields, he must have some sort of a 
 local organization or connections therein upon wliieli 
 he can rely ; that he must have some one on the ground 
 whom he is willing to trust with both preliminary 
 and detail work, some one who can keep in touch with 
 the territory and the loans, and Avith whom the bor- 
 rowers can conveniently deal ; and that, otherwise, his 
 business in that territory is apt to be either very light 
 in volume, or unsatisfactory in character, or both. 
 
 Although loans which have been made in territory 
 where' the investor has no representative may seem 
 at first to be very attractive ones, their isolated situa- 
 tion is liable to be a source of annoyance at least, if 
 not of danger, for the investor cannot then pass intel- 
 ligently upon such requests as are frequently made for 
 l^artial releases, extensions of interest payments, priv- 
 ileges of making changes in buildings or of selling 
 timber, etc., nor can he, without a re-examination of 
 the property, pass intelligently upon the desirability 
 of renewing the loan when it becomes due, for, in 
 addition to other difficulties, the security may be 
 neglected or despoiled -witli little chauv-e of his atten- 
 tion being called to that fact. As a result the larger 
 investors, seeking some more efficient and less ob-
 
 54 i\IORTGAGE LOAN VALUES 
 
 jectionable plan, either estal)lish local branches of 
 their main organizations or form agency connections 
 ■with local lenders. 
 
 Where snch l)ranch organizations are establislicd it 
 is usnally for the purpose of procuring loans for 
 investment purposes only, and of dealing as directly 
 as possible with the borrowers. They are usually 
 operated strictly upon a salary basis, no one connected 
 with them having any interest in the success or fail- 
 ure of any application, and they no doubt afford the 
 investor the best possible control over the details of 
 his business and enable him to require all forms and 
 practices to conform to his rules. 
 
 This plan is used with satisfaction and success by 
 some of the more important investing companies, but 
 ordinarily it may be said to be unsuited to the needs 
 of those whose command of funds is at times limited, 
 for it is open to the objection of not being elastic 
 enough to meet the varying conditions of the business. 
 To be effective and dependable such branches must 
 be under very high class management and completely 
 equipped for the work, and to be economical, they 
 must not have periods of inaction while their over- 
 head expenses continue; and this last requirement is 
 practically impossible in organizations devoted ex- 
 clusively to making such investments, for in any ter- 
 ritory the demand for loans differs greatly and often 
 unexpectedly at different times, and although such 
 organizations may at all times be amply supplied with 
 investment funds, they cannot well avoid periods of 
 comparative idleness when there is a light demand. 
 
 It is a very common practice, therefore, for inves-
 
 MORTGAGE LOAN VALUES 55 
 
 tors, instead of establishing branch organizations, to 
 procure their loans under some form of contract from 
 a local trust or loan company which has been organ- 
 ized, not only for the purpose of making Real Estate 
 mortgages in a certain section, but also for tlie pur- 
 pose of disposing of them to investors. 
 
 Such lending concerns operate in almost evei-y part 
 of the country and are better able to avoid the diffi- 
 culties which attend branches organized for invest- 
 ment purposes only, for they work both the buying 
 and selling ends of the business, and if sufficiently 
 strong in finances or credit, they can make and carry 
 loans during periods when their outlet may be tempo- 
 rarily dammed and the demand heavy. Nor is the oc- 
 casional necessity of doing this apt to embarrass them, 
 for they seldom depend altogether upon a single out- 
 let for the sale of their securities, and as they also 
 frequently engage in other kindred lines of business 
 such as banking, trusteeships, Real Estate or insur- 
 ance, these additional lines furnish partial employ- 
 ment for their loan employees and help to cover over- 
 head expenses during dull loan seasons. 
 
 In most cases, this seems to be the most satisfactory 
 source through which the investor can get his securi- 
 ties, and lending companies are very generally anxious 
 to make loan connections with him for under normal 
 conditions they are in the position of the dealer in 
 merchandise who has less trouble in o])taining the 
 goods to fill his shelves than he has in finding enough 
 customers to make his business profitable. 
 
 On the other hand, there are times when the money 
 which seeks this form of investment is so abundant,
 
 .56 IMORTGAGE LOAN VALUES 
 
 either generally or in some particular section of the 
 country, that the local lenders are in sharp competi- 
 tion for securities instead of funds, and at such times, 
 lenders are less anxious for connections witli conserva- 
 tive investors. 
 
 This very easy credit condition sometimes has the 
 effect of inducing overvaluations, etc., but when it is 
 extreme it may always be expected to be temporary, 
 for its evils will in time cure themselves and skillful 
 and conservative lenders are usually able to secure a 
 satisfactory line of securities, if not at once, at least 
 within a reasonable time. 
 
 When an investor adopts this plan of procuring 
 loans through the agency of others, it is of a primary 
 importance to him that he should make the right con- 
 nections, for many, even among those who bear a high 
 reputation for honesty and general business ability, 
 are unsafe persons to intrust with the making of mort- 
 gage loans or from whom to buy them. 
 
 It is also really remarkabh^ what attractive looking 
 references and what plausible statements and argu- 
 ments can be presented by those with whom no loan 
 connections should be made and sometimes even by 
 those who are thoroughly unscrupulous, irresponsible 
 and incompetent. 
 
 It is true, however, tliat the less skillful and less 
 conservative among them often have the least trouble 
 in getting business, for they will take loans that more 
 competent lenders refuse to consider, and they will 
 also be found to be the most insistent when offering to 
 sell them, and are always the ones who will offer the 
 investor the greatest apparent bargains.
 
 IX 
 
 IMPORTANCE OF PROPER LOCAL CONNECTIONS 
 
 A VERY large proportion of the great number of 
 mortgage loans which are absorbed each year by inves- 
 tors are originally made for that market by local 
 lenders, and as this seems to be the most available 
 source of supply for the average investor the relations 
 existing between the buyers and sellers of such secur- 
 ities should be entitled to a careful consideration. 
 
 (It should be kept in mind that distinctions are 
 herein made for the purposes of this discussion, in 
 the use of the words "investor" as one who procures 
 mortgages for investment purposes, and "lender" as 
 one who makes loans, acting either as the agent of 
 the investor or with the purpose of offering the 
 mortgages upon the market.) 
 
 Danger lies in the path of the investor who is indif- 
 ferent or careless as to the medium through which he 
 gets his securities, for if he is, he will be very sure 
 at sometime to find himself connected with persons 
 who, however exceptional they may be in other re- 
 spects, are lacking in what may be called mortgage 
 loan judgment. 
 
 They may, for example, be persons in whose minds 
 one idea is apt to overshadow all others, and they 
 may have false notions of the value of high interest 
 rates, large commissions or other more indirect profits 
 from loans. 
 
 57
 
 58 MORTGAGE LOAN VALUES 
 
 They may be unduly aggressive, and in following 
 the main ol)ject of geltin<? the business away from 
 their competitors, maj^ be disposed to minimize the 
 faults of the security and to overrate its o-ood points. 
 
 They may be too optimistic and inclined to dist-ount 
 the future and accept promises of future betterments 
 as accomplished facts, or to bolster up weak loans with 
 personal indorsements or the stipulation for prepay- 
 ments, which, if made, would make the loans good. 
 
 Thej^ may be too politic and allow the high social 
 or political standing of the applicant or the chance of 
 granted favors being reciprocated, or even considera- 
 tions of personal friendship, to have weight in their 
 loan decisions. 
 
 They may be too liberal in their interpretation of 
 the ordinary loan rules, and what is most common, 
 they may be too careless in the details of the work to 
 fit the requirement of a businesslike investor. 
 
 The loan connections which are made with local 
 lenders are matters of grave importance and although 
 the investor may realize that there are certain unde- 
 sirable possibilities in ill-advised connections, unless 
 he is exceedingly careful he may easily overlook im- 
 portant points or be deceived by the fact of the lend- 
 er's unquestionably high character and financial 
 standing. 
 
 If he is neither indifferent nor incautious, however, 
 and makes an intelligent preliminary investigation of 
 the proposed agency, there is little danger that he will 
 make any serious mistake, for his choice is seldom cir- 
 cumscribed in this particular and if the agency which 
 is under consideration does not measure up to the
 
 MORTGAGE LOAN VALUES 59 
 
 proper standard he can nsually find other persons in 
 tliat loeality wlio are wholly competent and relial)h' 
 and with w^hom he can form loan connections. 
 
 I f both the investor and the lender are experienced 
 in the l)usiness and familiar with the contemplated 
 territory, they are very likely to agree on all matters 
 except perhaps as to the d-egree of importance which 
 should attach to certain points — for instance, while 
 they may agree on all other points, one may hold the 
 personal hazard to be very important as indicating 
 the probable performance or non-performance of the 
 loan contract, and the other may give it slight consid- 
 eration as being no real part of the security. 
 
 It is very necessary that all such questions should 
 be fully discussed and that the ideas of the investor 
 and lender should be in harmony on all important 
 matters; but prior to their discussion the investor 
 should know that the lender has a practical knowledge 
 of the conditions and values in all parts of the terri- 
 tory in which he operates and that he is both honest 
 and careful. 
 
 He should also know that the lender is not only com- 
 petent himself but that he maintains an efficient 
 working force and does not trust to the work of 
 "cheap" inspectors, attorneys and clerks and that he 
 has a reputation among his borrowers for fair dealing 
 and moderate charges, and among his competitors for 
 understanding his ])usiness and taking none but good 
 loans. 
 
 The lender's business should also be a prosperous 
 one, and he should have a fair amount of financial 
 responsibility; but in this matter of financial respon-
 
 60 MORTGAGE LOAN VALUES 
 
 sibilily the investor should wei<;'li the facts very care- 
 fully, remembering that the reputation of possessing 
 large means often carries with it an undeservedly good 
 reputation in other matters, and that the lender may 
 for that reason, and independently of the true facts, 
 bear a reputation for possessing other qualifications 
 which he does not possess, and Avhich are of greater 
 importance to the investor than is the single one of 
 his having abundant funds. 
 
 While investigations along the above mentioned 
 lines should be very thorough and while nothing 
 should be accepted that is not found to conform to 
 sound practice, the investor should not lose sight of 
 the fact that the fully competent lender will under- 
 stand the peculiar needs of his own organization, his 
 territory and his borrowers better than they are likely 
 to be understood by the investor ; and unless he is will- 
 ing to recognize this fact there will be many occasions 
 for needless friction in their business relations, to the 
 disadvantage of both. For instance, the investor who 
 makes loans directly to borrowers will follow certain 
 rules and practice in the matter and although these 
 may be suited to the class of property and the terri- 
 tory where they are applied, they may not be well 
 suited to other conditions. Nevertheless he may insist 
 that they shall be followed by the lender or corre- 
 spondent who represents him in another section where 
 they are not applicable — as did the northern investor 
 in southern securities when he insisted that each house 
 must have a good cellar. 
 
 Mistakes of this kind are not likely to occur, how- 
 ever, if the investor is able to go upon the ground
 
 MORTGAGE LOAN VALTTES 61 
 
 and to become personally acquainted with the condi- 
 tions before entering any given field, and it is very 
 desirable that he shonld do this if possible, for it may 
 not only reveal facts which otherwise might be un- 
 thonght of by him Ijnt it will afford him the oppor- 
 tunity for understanding any peculiar requirements 
 of the territory w^hich should be taken into account in 
 his dealings with the lender, and an examination of a 
 number of securities that have been accepted by the 
 lender will indicate more clearly than would any 
 other test the measure of that lender's knowledge of 
 the loan business and his conservatism and the char- 
 acter and efficiency of his organization and equip- 
 ment.
 
 X 
 
 BLANK APPLICATION AND REPORT FORMS 
 
 The equipment of the lender should of course in- 
 clude all of the necessary blank forms, and these 
 should be very carefully prepared; each form should 
 be submitted to a competent attorney of the State in 
 which loans are to be made, and his opinion, of course, 
 should be regarded as sufficient and final concernino- 
 all such blanks as deeds of trust, mortgages, notes 
 bonds, affidavits, disclaimers, etc., the proper form 
 and substance of which are necessary to the legality of 
 loan transactions. 
 
 There are also certain preliminary papers which 
 are of importance, such as applications, inspection 
 reports and agency contracts. Tlie form of these 
 blanks should also be approved by the attorney but 
 they should not be adopted by the lender until they 
 have also been passed upon by a practical loan man 
 who has had experience in the territory and with the 
 class of securities under consideration. 
 
 No loans upon Real Estate should he considered 
 unless they are based upon written applications and 
 reports but the forms for these are often carelessly 
 adopted in the belief that such things are of a second- 
 ary importance inasmuch as their use is not ess?ntial 
 to the legality of the loans, which conclusion is only 
 
 62
 
 MORTGAGE LOAN VALUES 63 
 
 true in the same sense that it is true that an abstract 
 of title is not essential; aud there is quite as little 
 reason for indifference or carelessness in regard to 
 one as to the other, for the facts in each matter are 
 really of vital importance and while the abstract pur- 
 ports to show them as to the title, the application, in 
 connection with the inspector's report, is expected to 
 show them as to the pliysical and moral features of 
 the security. 
 
 The application, when accepted, forms the basis of 
 the loan contract, and it is important that this blank 
 should provide for statements and answers which are 
 simple and concise as well as comprehensive ; it should 
 provide for all necessary statements and for no un- 
 necessary ones ; and it should also be suited to the ter- 
 ritory and to the general class of business for w^hich 
 it is intended to be used. 
 
 Certain facts must be shown in a farm application 
 which would not be at all pertinent to a city applica- 
 tion and vice versa, nor do the requirements for the 
 same kinds of property ahvays conform in these re- 
 spects when the properties are located in different 
 sections ; for instance, those facts relating to irrigation, 
 or homestead rights, or diversity of crops, etc., which 
 are necessary to be known in one section may be 
 wholly irrelevant or of very minor importance in 
 another. It should not be attempted, then, to make a 
 single blank form cover too wide a field. 
 
 Almost any applicant will overestimate the merits 
 of his offering, and wnll seek to avoid any admission 
 of its faults, and if the application blank provides 
 for statements or answers where the facts can onlv be
 
 64 MORTGAGE LOAN VALUES 
 
 estimated, such estimates will seldom be found to be 
 dependable; and if it provides for answers which will 
 not be insisted upon by the lender, or contains ques- 
 tions which may be confusing to the applicant or 
 otherwise hard for him to answer correctly, or if it 
 provides for information which is not fully applicable 
 to the matter in hand, a large proportion of the ap- 
 plications submitted will be imperfectly filled out, 
 not only as to these, but also as to other matters. The 
 blank should, therefore, be one which the lender can 
 consistently insist shall be fully filled out before it 
 will receive his consideration. 
 
 The application should state the amount, the time, 
 the rate of interest, and the terms of the proposed 
 loan ; it should give a legal description of the property 
 which would be sufficient to enable a surveyor to posi- 
 tively locate and plat it and should also contain a 
 statement of the location, general characteristics, im- 
 provements, use and occupancy of the property which 
 would be sufficient to enable an inspector who is not 
 a surveyor to positively locate and identify it. 
 
 It should give a statement of the main facts which 
 go to show the present value and earning power of 
 the property, and a brief statement showing the kind 
 and present condition of the title under which the 
 applicant claims ownership and of any claims or mat- 
 ters which might become claims against it. 
 
 It should contain a brief personal and financial 
 statement giving the applicant 's age, business and ad- 
 dress, and if married, the name and age of his wife, 
 and an approximate estimate of his holdings and his 
 indebtedness, and should also state the purpose for
 
 MORTGAGE LOAN VALUES 65 
 
 which the money is to be borrowed ; and it sliovild give 
 a short statement covering any agreements made as 
 to the fnrnishing of abstracts, the payment of taxes 
 and insurance and of any expenses that may be in- 
 curred in making and caring for the loan. 
 
 The application should be made by the owner of 
 the property and signed by him in person ; and if he 
 is required to make affidavit as to the truth of his 
 statements it will often afford the lender some protec- 
 tion against careless statements or attempted frauds. 
 
 The inspector's report blank is not subject to the 
 same requirements as is the application blank in those 
 matters which are a part of the loan contract, nor 
 to the same requirements as to simplicity and brevity, 
 but it is also a very important loan paper. Like the 
 application blank it should be suited to the territory- 
 and class of property for which it is to be used, but it 
 ma}^ and should embody reports on any or all other 
 matters which will assist the lender in reaching proper 
 conclusions. Its most vital part is perhaps its sliowing 
 that the property has been visited and examined by 
 the inspector and has been positively identified by 
 him as that offered in the application, for, unless this 
 is the fact, any such report is far worse than useless. 
 (In this connection it may be remarked that a photo- 
 graph of city property, or a plat of farm property, is 
 always of value.) 
 
 The inspection report should go to the verification 
 ■or correction of the statements made by the applicant, 
 and should go much further than does the application 
 into those details which, taken in the aggregate, indi- 
 cate the general desirability of the security, its de-
 
 GG MORTGAGE LOAN VALUES 
 
 pciidahle ineomo capacity, its al)ility to withstand mis- 
 luaiiagcnieiit or neglect, its availal)ility for othei- pur- 
 poses than its present uses, and its sahil)ility under 
 any adverse conditions that are likely to arise during 
 the life of the loan. 
 
 Any physical, legal, or business conditions which 
 are peculiar to the section should also l)e sliown in 
 their relation to the property under consideration; 
 for instance, the liability of overflows or erosions, un- 
 usual homestead and exemption laws, irrigation mat- 
 ters, one crop conditions, etc. It should show the 
 general moral hazard as indicated by the surrounding 
 conditions of prosperity, and also show tlie results of 
 an investigation of the personal hazard ; it should 
 show by whom the property is occupied and the 
 nature of his claim of right to such occupancy, and it 
 should show in detail and in the aggregate, the inspec- 
 tor's opinion of the present cash market value of the 
 property, and contain liis definite recommendation as 
 to the amount which should be loaned upon it. 
 
 Certain facts in addition to those relating to the 
 contract itself are always necessar\' to be first shown 
 by the application in order that the lender may be 
 able to judge in advance of an inspection whether or 
 not it may be worth while to make one, but as the 
 applicant is always an interested party it is a safe 
 rule for the lender to depend so far as possible upon 
 an expert and unbiased inspection report covering all 
 of the material facts, and especially all such facts as 
 might be colorable by the applicant 's self interest.
 
 XI 
 
 LOCAL LENDING AGENCIES 
 
 The lonclor who deals only in city loans usually 
 obtains both his borrowers and his investors through 
 the general publicity which he gives his business, his 
 financial standing furnishes him with one of his prin- 
 cipal arguments, and, in a way, his relations with both 
 borrowers and investors are on a more impersonal 
 basis than is the case in a farm loan business. 
 
 On the other hand, the lender who deals in farm 
 securities usually depends more upon the efforts of 
 his sub-agents to secure his business, his borrowers 
 are apt to be less impressed by his financial condi- 
 tion than they are by his reputation for fair dealing, 
 and while his business relations are usually with 
 fewer investors they are more likely to be sul)ject to 
 the terms of a specific contract which anticipates a 
 continuation of the business. 
 
 The business understanding between the investor 
 and the lender is in some cases simply a working agree- 
 ment and in others it takes the form of a written con- 
 tract. In any case its provisions follow along certain 
 lines which, in the main, are very similar to one 
 another, although they sometimes differ as to details, 
 but it is of great importance that in every case it 
 should be comprehensive and clearly understood by 
 both parties. 
 
 67
 
 68 MORTGAGE LOAN VALUES 
 
 Ordinarily the investor agr-ees, at least tentatively, 
 that he will make investments from time to time of 
 estimated approximate snms in certain designated 
 territory, in secnrities of a stipulated class and char- 
 acter, at a stated rate of interest and on certain speci- 
 fied terms of contract with the borrower, and tliat he 
 will recognize the lender as his local correspondent 
 in such territory; and the lender on his part agrees 
 that, so far as he is able to do so, he will furnish the 
 investor with the desired amount of securities, wliich 
 shall conform in all respects to his requirements. 
 
 The amount of securities to be furnished by the 
 lender, and of the funds to be supplied him by the 
 investor can only be estimated at the outset, for the 
 lender can have no real control over the demand for 
 funds in his territory, and the investor may easily 
 find it difficult to adjust his available capital to any 
 unusual or unexpected requirements. 
 
 The lender usually wishes to make as definite an 
 arrangement as possible with an investor who can 
 furnish with reasonable regularity an amount of 
 funds for investment at an interest rate and upon 
 terms all of which will enable the lender to furnish 
 the desired securities with profit to himself; but in 
 addition to making connections which give promise of 
 proving satisfactory in this respect, it is quite import- 
 ant to the lender that they should be such as will aid 
 him in maintaining his organization, and keeping in 
 as close touch as possible with his borrowers in order 
 that he may profit by their future business. 
 
 To the end that he maj^ accomplish this purpose and 
 at the same time offer inducements to the investor,
 
 MORTGAGE LOAN VALUES 69 
 
 the lender usually agrees that, until any loan is pciid, 
 he will cause the pi-operty to be kept insured in ac- 
 cordance with the terms of the mortgage or deed of 
 trust, that he will see to the payment of all taxes and 
 assessments that may become a lien against tlie prop- 
 erty, and that he will attend to the collection and re- 
 mittance of interest to the investor, all without any 
 charge for such services. 
 
 He will guarantee the title to the property to be a 
 marketable one (there being but few perfect titles), 
 and that the mortgage or deed of trust is a first lien 
 against it, and will also guarantee that if the property 
 is re-examined by the investor within a certain stipu- 
 lated time, it will be found to be satisfactory to him. 
 and that if found to be unsatisfactory, the loan will 
 be at once taken up and repayment made. 
 
 The attempt is sometimes made to cover this point 
 by a guarantee that upon examination the property 
 will be found "to be as represented'' Init this form is 
 objectionable, as it opens the door for niisundfu-stand- 
 ings and discussions that are based uyxm difference of 
 opinion and judgment only. 
 
 In these agreements a stated time is usually allowed 
 the investor for making re-inspections of the securities 
 he purchases, and he should insist upon the time al- 
 lowed being ample for the purpose, and should never 
 neglect to have such inspections made. 
 
 It is also very important that the person who does 
 this work should be expert in that line, not only Ihat 
 he may do justice to the interests of the investor, but 
 that he may not cause an injustice to be done to the 
 lender by requiring him to take up loans which should
 
 70 MORTGAGE LOAN VALUES 
 
 have been approved. Noi- is lliis llu' oiil\' reason, for 
 if he is ineonipetent he v/ill never ho able to eonceal 
 that Faet from the lender, whose poor opinion of 
 the ins])eetor's ability to proteet the interests of his 
 principal may tempt him lo seek advantap:e to him- 
 self from that faet. 
 
 In selling his mortgages the lender soitietimes makes 
 a broader guarantee than the one above indicated, fre- 
 quently he does not specify any time limit within 
 which the re-examinations shall be made and some- 
 times even goes to the extent of indorsing the notes of 
 the borrower. 
 
 The danger of loss to liim by reason of such l)road 
 guarantees is small provided all of liis se;'urities have 
 been wisely and carefully selected, and it may be made 
 yet smaller if, by its terms, he is allowed a reasonable 
 time after any foreclosure of a loan before it becomes 
 effective. But any such guarantee is nevertheless of 
 doubtful value, for it unavoidably creates a contingent 
 liability against the maker which, althougli small at 
 first, may develop a dangerous growth unless all of 
 his loans are very judiciously made, for each loan 
 that is made adds its new liability, and each year that 
 passes brings changes in the old securities w^hich may 
 add more, until, if his business is considerable, his 
 guarantee becomes practically worthless. 
 
 It is true that if the lender is naturally conserva- 
 tive and cautious the making of a broad guarantee 
 may incline him to be more so and cause him to esti- 
 mate with greater care the possibility of any future 
 depreciation in values, and therein lies the only ad- 
 vantage it gives to the investor; for if the lender is
 
 MORTGAGE LOAN VALUES 71 
 
 not naturally consorvaiivo and cautious, the making 
 of such guarantee will hardly make him more so. In- 
 stead, he will be in-lined, despite any guarantee which 
 he may make, to ignore a danger of loss that seems to 
 him to be remote, and he may be tempted to use the 
 guarantee to strengthen otherwise weak loans. 
 
 It is also true that the investor may be disposed to 
 lean upon a broad guarantee as being at least some 
 part of his securit}', and that he may either neglect to 
 make careful re-examinations of the securities, or to 
 accept those which he would otherwise decline as not 
 measuring up to his standard, and thus rest to some 
 extent upon a guarantee that might easily prove to be 
 a mere rope of sand.
 
 XII 
 
 CONTRACT BETWEEN INVESTORS AND LENDERS 
 
 There are several other matters pertaining to the 
 business relations of investors and lenders which, 
 whether or not they are made parts of a specific 
 written contract, should be clearly understood by 
 the interested parties before any loan connections are 
 made by them. 
 
 It should be understood, for instance, that all forms 
 used by the lender shall be satisfactory to the investor 
 and that the forms of notes and mortgages or deeds of 
 trust shall accord with the approved legal forms of 
 the State in which they are used, and it should be 
 stipulated that no loans shall be made, either directly 
 or indirectly, to any persons having an interest in the 
 agency contract. 
 
 It should also be understood and agreed that in all 
 matters, and especially in those involving the pay- 
 ment of commissions and expenses, the treatment of 
 the borrower by the lender shall be fair and reason- 
 able, for the reason that the satisfied borrower adds 
 to, and the dissatisfied one detracts from, the desir- 
 ability of the security. 
 
 Nor should the investor on his part ever attempt to 
 drive a hard bargain with the lender, for if he should 
 induce him to give more than he can afford, he may 
 expect that the evil consequences will, to some extent, 
 re-act upon his own interests. 
 
 72
 
 MORTGAGE LOAN VALUES 73 
 
 The lender who wishes to make a loan connection is, 
 in fact, always inclined to offer all that he can reas- 
 onably afford to give; indeed, the competition of 
 others who desire the connections is apt to make it 
 necessary for him to do so, but if lie deals only in tlie 
 best class of securities he cannot offer as high a rate 
 of interest as can the lender who deals in more doubt- 
 ful loans; if his charges against the borrower are 
 reasonable ones he cannot offer the amount of broker- 
 age that he otherwise might offer; if he is wholly 
 responsible financially he will scarcely make the 
 sweeping and unlimited guarantees w^hich a more 
 irresponsible person would make, and, all in all, the 
 measure of his willingness to give more than others 
 are willing to give is often, if not alwa3%s, inversely 
 the measure of the desirability of his connection. 
 
 The investor is usually a city man and if his busi- 
 ness is confined to city loans he will deal with matters 
 upon which he is likely to be well posted, but the farm 
 loan business has peculiarities with which he is not so 
 apt to be thoroughly familiar, and he will perhaps, in 
 such cases, frequently find himself hampered by his 
 lack of knowledge concerning the field conditions. 
 
 It is quite important, however, that he should un- 
 derstand them; he should understand, for instance, 
 that the lender who covers a farm loan field finds it 
 necessary to have sources through which he may 
 receive applications in proper form from the various 
 neighborhoods or counties in which he operates, and 
 through which he can obtain at first hand reliable 
 information as to the loan offerings. 
 
 He should understand that the personal acquaint-
 
 74 ]\rORTGAGE LOAN VALUES 
 
 aiice of the pro.S])ective horrowci- with a person wlio 
 has access to loan funds, and in whose reputation for 
 fair dealing he has confidence, plays an inipoi-tant 
 part in the initial step in almost every farm loan 
 transaction, for the borrower will almost invariably 
 go to such a person in pi-eference to going to others. 
 
 Other considerations also enter into the situation; 
 for instance, the applicant himself is seldom expert in 
 filling an application blank properly, and is apt to 
 overstate the facts which are favorable to him and to 
 ignore or minimize those which are unfavorable ; there 
 are also many persons who, if allowed to do so, will 
 present applications which are not -worthy of any 
 consideration. 
 
 It is very necessarj- then that the lender should 
 have local representatives or sub-agents who are 
 active, well known and respected, in order that at 
 least a fair share of the best business may be obtained, 
 and it is also important that tliey should be compe- 
 tent, careful and locally well informed in order that 
 bad business may, as far as possible, be weeded out at 
 its source. 
 
 The comparatively limited area which constitutes 
 an ordinary farm loan field is therefore organized by 
 the lender, into w^hat may be called neighborhood or 
 county units, in each of which he arranges with a 
 local bank or an attorney or a Real Estate dealer to 
 act for him upon a commission basis in procuring ap- 
 plications and in doing such other preliminary work 
 as may be required. 
 
 The proper selection, training and oversiglit of 
 these sub-agents is attended Avith much work and
 
 ]\IORTGAGE LOAN VALUES 75 
 
 many difficulties, and those among them who are able 
 to use good loan judgment and are persons who may 
 be depended upon to present all matters fully and 
 honestly are very valuable assets to the organization 
 of any lender as well as to the investors with whom he 
 may be associated. 
 
 The investor may, when necessary, go upon the 
 market and purchase the needed securities that his 
 regular loan correspondents have failed to furnish, 
 although it is less satisfactory to do this than it is to 
 get them through tried and proved sources, but, on 
 the other hand, the lender whose outlet connection 
 fails, is placed in a much more serious situation, for 
 relief is more difficult to obtain and unless it is ob- 
 tained promptly the disturbance to his business is 
 greater. 
 
 He cannot, of course, hope to retain the services of 
 his sub-agents unless he is able to give their offerings 
 reasonably prompt attention and for this reason he is 
 little inclined to depend wholly upon connections 
 which are barely sufficient to meet his average needs, 
 and his usual practice is to guard this point by pro- 
 viding for more than one outlet for his securities. 
 
 lie at least endeavors to secure some minor con- 
 nections which upon occasion might be developed or 
 which might be made to serve temporarily to bridge 
 over the loss of his principal outlet if that loss should 
 occur. 
 
 The fact of a lender having agency arrangements 
 for the same territory with more than one investor is 
 not necessarily harmful to the interests of any of 
 them, but this situation should be watched, for it con-
 
 76 MORTGAGE LOAN VALUES 
 
 tains possibilities for the opportunist and iniglit be 
 made to favor one investor as against another. 
 
 No lender, for example, may hope to make any 
 great number of loans each of which will measure up 
 to an equal standard of excellence, and it will be but 
 natural for him to present his best offerings to the 
 investor whose business he values the most liighly and 
 his less desirable ones to those whose business is not 
 so important to him or who are disposed to drive hard 
 bargains in interest rates, expenses or disr-ounts. 
 
 It may be urged in answer to this that if the secu- 
 rities are safe that that is all the investor need ask, 
 for in no case could he collect more than was owing to 
 him and that their re-inspection should cover this 
 point; theoretically this answer is sufficient but the 
 practical loan man knows that there is a very real 
 difference in desirability even among loans that are 
 not affirmatively bad, and that such difference often 
 depends upon facts which could easily be concealed 
 from the most expert inspector. 
 
 The investor should also know the form and nature 
 of the lender's profits; the borrower, as a matter of 
 course, pays all of the expenses and profits incident 
 to his loan transaction ; the sum which is thus charged 
 against him being calculated to cover the necessary 
 expenses of his loan, with a reasonable amount added 
 as his share of the general expenses and just profits of 
 the lender. The plan which is adopted for the pay- 
 ment of these charges is largely governed by local 
 usage ; sometimes the payment is in the form of a 
 cash commission, sometimes in an agreed sum secured 
 by a second mortgage and sometimes it is covered by
 
 MORTGAGE LOAN VALUES 77 
 
 an excess of interest above the rate at which the loan 
 is made for the investor. 
 
 When a cash commission is paid by the borrower the 
 interest of the lender in the loan is to some degree 
 ended, and for this reason there would seem to be 
 an advantage to the investor in either of the other 
 plans, for then the lender's interest continues for a 
 time at least; but whatever plan is followed in this 
 matter, the main interest of the investor is in the 
 reasonableness of the lender's charges. 
 
 In considering this feature the investor should 
 remember that the legitimate overhead expenses inci- 
 dent to making loans in some sections and in some 
 classes of securities are much greater than in others 
 and he should be very sure that the lender's mind is 
 not clouded by a greed that will incline him to avoid 
 any proper expenses in order to increase his own 
 profits, or to impose smy harsh terms upon the bor- 
 rower to that end.
 
 XIII 
 
 BUSINESS RELATIONS OF INVESTORS AND LENDERS 
 
 It IS desirable in the interest of the clear under- 
 standings and jnst actions which will tend to make 
 their relations pleasant as well as profitable that the 
 investor and lender shonld each be as well informed 
 as possible of conditions "at the other end of the line," 
 for it is one of those connections in which each party 
 may advance and protect his own interests by the 
 consideration which he gives to the interests of the 
 other. 
 
 The lender therefore should endeavor to maintain a 
 dependable organization in which no "slipshod" work 
 is permitted ; he shonld endeavor to obtain and keep a 
 satisfactory and satisfied line of borrowers who Avill 
 realize the importance of complying strictly with the 
 terms of their loan contracts ; and he shonld endeavor 
 to take without any unreasonable delay such loans as 
 may prove to be desirable. It is not intended to say, 
 however, that these matters should ever be hurried, 
 for no more dangerous practice could be followed, but 
 only to say that there should not be any unnecessary 
 delay, for this would be manifestly unfair to the ap- 
 plicant whose need for prompt action may be urgent 
 and who agrees to accept the loan if it is granted and 
 thus bars himself, pending its acceptance or rejec- 
 tion, from securing it from another source. 
 
 78
 
 MORTGAGE LOAN VALUES 79 
 
 AVlu'u offering loans to the investor tlie lender 
 should confine himself to the class and character of 
 securities which the investor has indicated as being 
 satisfactory to him, and should refrain from present- 
 ing such as would for any reason be exceptions to the 
 agreed class although he may consider them to be 
 good loans, because if the investor has defined certain 
 lines, he usually wishes to stay within their limits and 
 does not care to consider "exceptions." 
 
 He should also appreciate the fact that the investor 
 desires his investments to be as permanent as possi- 
 ble and that he will not be pleas;'d with propositions 
 to disturb them l)y partial releases, unauthorized 
 repayments, etc., after the minds of the parties have 
 met upon the terms of the contract and the loan has 
 been closed. 
 
 lie should know that if he sends incomplete and 
 imperfect applications and i eports to the investor, in 
 which there are obvious mistakes or mis-statements or 
 unfilled blanks or the "illuminating" answers given 
 that the applicant "don't know" or "can't remem- 
 ber, ' ' that the case is not advanced but that this prac- 
 tice is, at best, only a source of annoyance and delay, 
 and that carelessness on his part even in compara- 
 tively unimportant matters may cause the investor to 
 doubt his entire reliability in more important ones. 
 
 He should keep the investor informed of any chang- 
 ing conditions that may effect his securities, and if 
 he makes advancements to borroweis for the purpose 
 of paying taxes, insurance or interest, he should fully 
 inform the investor of that fact. 
 
 It will also be seen that in furtherance of satisfac-
 
 80 MORTGAGE LOAN VALUES 
 
 tory relations, tlie investor on liis i)}ni sliotild main- 
 tain as nearly as possible a dcfiiiilc and dependable 
 assignment of funds to the lender and grant him such 
 a rate and terms as will enable him to do a profitable 
 business in the best class of securities and to handle 
 all of the details of the work with the help of tlie most 
 expert assistants. 
 
 Unless the lender can do these things, his organiza- 
 tion will soon be disturbed and will often suffer dam- 
 age in places where it will be difficult or impossible 
 to restore it; his most valuable connections may be 
 lost to him and the best offerings go elsewhere, and, 
 in endeavoring to hold on to his own profits, he may 
 attempt to do so by cutting down the pro]^er class of 
 work in investigating and closing his loans or l)y deal- 
 ing in a cheaper class of securities. 
 
 The volume of business which is done through such 
 connections must also rest largely upon the good faith 
 of each party to the contract in working for the in- 
 terests of the connection, and, to a certain extent, 
 changing conditions of supply and demand may be 
 foreseen and provided against by them. 
 
 Either condition of a heavy or a light demand for 
 money is indeed apt to be a cause for an opposite con- 
 dition to exist in its supply ; a period of heavy borrow- 
 ing diminishing the supply and a period of repay- 
 ments increasing it, with the compensating fact, how- 
 ever, that a strong demand in any section has a ten- 
 dency to attract capital and that a ^\^eak demand 
 inclines it to seek investment elsewhere. 
 
 It will be noted in studying the probabilities of 
 future demands and future repayments that the im-
 
 MORTGAGE LOAN VALUES 81 
 
 mediate effect of unusual or increased earnings from 
 Real Estate in any section is that of the repayment of 
 mortgage loans, and that, if such prosperity continues 
 and seems to become stable, there is a secondary effect 
 of increased borrowing for the purposes of investment 
 and development. 
 
 On the other hand, if the productivity of the Real 
 Estate should be lessened, the first effect may be seen 
 in an increased demand for funds with which to adjust 
 unexpected losses, but if the bad conditions should 
 continue they will not only have the effect of dis- 
 couraging investments and development, but will 
 cause owners to relieve themselves, so far as they are 
 able to do so, from the burden of the mortgage debts 
 which they may owe, and so, as has been said else- 
 where, there is a smaller demand from desirable bor- 
 rowers during hard times than there is during good 
 times. 
 
 The probabilities for future business may thus be 
 anticipated to a certain extent, and while its volume 
 cannot be definitely known, intelligent co-operation 
 of the investor and lender will often serve to prevent 
 greatly mistaken estimates in this matter as well as 
 mistakes in other things. 
 
 To those who may think that undue emphasis has 
 been given in these comments to the dangers of ill- 
 considered loan connections it may be said that, 
 while perhaps a very large majority of the persons 
 who are engaged in the business are both competent 
 and honest, there are at least some who are neither, 
 and that it is a very easy matter for the legal respon- 
 sibility of the principal for the acts of his agent to be
 
 82 MORTGAGE LOAN VALUES 
 
 established. It may also be said that these various 
 matters have been mentioned with some particularity 
 for the primary reason that false views respecting 
 them will breed errors of policies and practices that 
 may lessen the loan values of the securities taken, and 
 for the main reason that in a legitimate mortgage loan 
 business there is no room for losses.
 
 XIV 
 
 CONTRACTS WITT! I^ORROWERS — AMOUNT 
 
 There are a numl)er of things, such as tlif» amount 
 of the loan, the time it is to run, the rate of interest 
 whieh is to he paid and its other terms and conditions, 
 that are necessarily matters of contract between the 
 lender and the borrower ; and these things should be 
 definitely determined and agreed upon before any 
 specific investigation of the security, title or personal 
 hazard is entered into. 
 
 The lender is theoretically in a position (within the 
 laws as to usury) to dictate his requirements in these 
 matters, but in practice he will find that his policy, to 
 be successful, must be governed and modified by the 
 various loan conditions presented by different classes 
 of securities, different conditions of territory, differ- 
 ent State laws, and different loan competition. 
 
 He will also find that the policy which he adopts as 
 to one matter will often indicate the policy that must 
 be adopted in another ; for instance, if he demands an 
 unusually wide margin of security he will find that he 
 must be more liberal as to time and terms and interest 
 rates ; if he demands the maximum interest rates he 
 will find that he can not be so exacting in other mat- 
 ters; and if he adopts any policy which fails to recog- 
 nize this principle he will simply fail to get a desirable 
 line of offerings. 
 
 83
 
 84 MORTGAGE LOAN VALUES 
 
 One of tlie fii'st jiikI i)riii('ipal pi-ovisioiis of the loan 
 eontraet relates to tlie amount -which shall be loaned 
 upon the security offered, and the principal rule 
 adopted by the lender to cover tliis ])oint usually fixes 
 a certain per cent, of the market value of the property 
 as the maximum loan limit ; sometimes the lender also 
 fixes an arbitrary loan limit which he applies to any 
 security or to certain classes of pi'o])erty, independ- 
 ently of the market value. 
 
 The rule limiting a loan to an amount not exceeding 
 a certain percentage of the market value of the secu- 
 rity, presupposes such value to have been accurately 
 determined and to possess a reasonable stalnlity. The 
 value of the rule depends absolutely upon this founda- 
 tion and when too optimistic views of these matters 
 are accepted, which is often the case when lenders are 
 either inexperienced or over-anxious to obtain busi- 
 ness, the mistake will be a fruitful cause of an unsat- 
 isfactory experience in the mortgage loan business. 
 
 If this danger is provided against, however, the 
 question is then fairly upon the percentage of the 
 market value which is safe as a basis for loans, and 
 it may be said as to this that the per cent, should be 
 small enough to leave a margin of value in the prop- 
 erty sufficient to cover the costs of a possible fore- 
 closure and sale and to provide for the accumulation 
 of interest, taxes, insurance and other charges in ev3nt 
 of their payment being defaulted either before fore- 
 closure or during any period of redemption wliich may 
 be allowed by law. It must also be sufficient to cover 
 any depreciation in the market value of the property 
 which is likely to occur during the life of the loan,
 
 MORTGAGE LOAN VALUES 85 
 
 or which it might suffer because of the condition of 
 an enforced sale. 
 
 This limit of safety nnder the percentage rule is 
 variously estimated by different lenders to be from 
 forty per cent, of the value of the property by the 
 more conservative ones, to sixty per cent, by tlie more 
 liberal ones; but as a forty per cent, rule practically 
 shuts out a great deal of good business and sixty per 
 cent, sometimes leaves too narrow a margin of value 
 above the loan, conservative lenders very generally 
 agree upon fifty per cent, as being more satisfactory, 
 although, as the perishable improvements are more 
 apt to depreciate, a rule limiting loans to fifty per 
 cent, of the value of the ground, and forty per cent, 
 of the value of the improvements, is adopted by some 
 and is perhaps a safer one. 
 
 This, of course, refers to ordinary loans which are 
 subject to the ordinary conditions in other matters. 
 If the loan is made for an unusually long time, how 
 ever, the lender is apt to be more conservative as to 
 the amount, while if it is to be made on an amortiza- 
 tion plan he may (perhaps with less reason) be in- 
 clined to be more liberal. 
 
 It is a common practice also for lenders and inves- 
 tors to adopt arbitrary rules as to the maximum and 
 the minimum amounts which they will consider in 
 single cases. They ordinarily feel that it is not a good 
 business policy to place any very large part of their 
 funds in a single loan, and so they follow the homely 
 philosophy of "not putting too many eggs in one 
 basket." On the other hand they realize that the time 
 and money necessarily expended in making and caring
 
 86 MORTGAGE LOAN VALUES 
 
 for a small loan is almost, if not (inite, as great as it is 
 for a larger one, and that proportionately it is always 
 greater, and there is, therefore, a miiiitmiin limit 
 below wliieh they cannot afford to go. 
 
 The policy W'hich is followed in these matters, how- 
 ever, often depends upon circumstances ; in some cases 
 it depends upon the amount of loan funds which the 
 lender may control, and in others upon the ability of 
 his organization to care for smaller details with 
 economy. 
 
 The rules above mentioned are often thought to 
 cover all that is necessary in defining the proper loan 
 limits, but there are cases of rather frequent occur- 
 rence where the application of these rules will fail to 
 fully protect the interests of the lender ; for example, 
 the dependable average net income producing capacity 
 of the property is not always a controlling factor in 
 establishing its market value, as is often the case with 
 an expensive residence or a farm which is supposed to 
 have a "proximity" value, and if its present market 
 value is based upon some less stable foundation than 
 that of its dependable income, that value may not 
 be maintained during the life of the loan. 
 
 The safety of the investor or lender, then, often 
 calls for an arbitrary rule that loans in excess of 
 certain fixed sums shall not be made on certain 
 classes of property, notwithstanding the fact that 
 their present market value is ample ; and such a rule 
 is usually applied on an acreage basis to farm loans 
 and is even more arbitrarily applied to detached 
 dwelling house city loans. 
 
 Such rules are wise and useful only when their
 
 MORTGAGE LOAN VALUES 87 
 
 terms have been very earefnlly considered in connec- 
 tion with the circumstances which may affect the 
 generality of cases, for it is very easy to make such 
 mistakes as that of establishing too low a limit and 
 thus shutting out the better offerings, or that of 
 adopting too high a limit and thus inducing the con- 
 sideration of offerings at valuations which are liased 
 upon temporary high prices or upon the cost of the 
 property rather than upon its average earnings or the 
 competition among buyers which may be expected if it 
 should be offered for sale. 
 
 None of these rules, however, is intended to fix the 
 amount which, under a given set of facts, is always a 
 safe or desirable one to be loaned; but on the other 
 hand each is intended to fix a limit above which, in 
 the average case, a loan will not be safe and desirable, 
 which is quite a different thing. 
 
 It is the rule of some investors (especially in the 
 matter of farm loans) that only the producing parts 
 M the property shall be considered and others desig- 
 nate the proportion which must show a present income 
 value. 
 
 These rules, however, fail to recognize the fact that 
 the proportional relationship between income values 
 and market values is not alwaj'S the same, and that 
 w^hile the income from the producing parts of an of- 
 fering may be sufficient to justify a loan of a certain 
 amount, the market value of this part alone (which is 
 acceptable under such rule) may fail to do so, or, 
 while the market value of the entire property may 
 be ample, the net income from the producing portion 
 of it may be so reduced as to be insufficient if it is
 
 88 MORTGAGE LOAN VALUES 
 
 charged with the cost of maintenance of the whole 
 property. 
 
 A more practical rule therefore would seem to he 
 that the property as a whole should be subjected to 
 each test, for a portion of its actual market value is 
 often based upon the potential income value of its 
 undeveloped parts and is entitled to consideration 
 provided that the developed income value is sufficient 
 to warrant the loan. 
 
 Although loan offerings may technically measure 
 up to the required standard, they will often be found 
 to contain certain features that are not wholly unob- 
 jectionable; some doubt may be felt as to the con- 
 tinued popularity of the neighborhood or some defect 
 may exist which might in time grow to be a more 
 serious one, and when such shortcomings do not seem 
 to be of sufficient importance to warrant the rejei^tion 
 of the loan, and at worst, can only operate to reduce 
 and not to destroy the loan value, they may be prop- 
 erly offset by reducing the amount loaned in pro- 
 portion to the importance of the fault. But cures for 
 such defects should not be sought through the unwise 
 remedies sometimes resorted to — of the borrower 
 agreeing to make future reductions in his loan, or of 
 the lender reviewing the fact from a more optimistic 
 point of view^ than he at first thought to be right and 
 then making more liberal decisions.
 
 XV 
 
 CONTRACTS AS TO TIME OF MATURITY 
 
 Time is also a necessary feature of all loan eon- 
 tracts, and the investor or lender will find, as in the 
 rule governing tlie amount loaned, that his own wishes 
 cannot always arbitrarily determine the policy which 
 he adopts ; he should, of course, consult his own inter- 
 ests, but in doing so he must also give consideration to 
 certain loan conditions with which he will be con- 
 fronted. 
 
 All Real Estate mortgages for whatever time they 
 may be drawn are properly classed as "long time" 
 loans, and they are seldom made for a shorter period 
 than three years nor for a longer one than ten years; 
 the usual term being either five, seven or ten years, 
 shorter terms than three years being favored in locali- 
 ties and on securities where there is some doubt as to 
 the permanency of values, and the ten year terms in 
 sections and on properties about which no such doubt 
 exists. 
 
 The question of what is the most desiraljle length 
 of time for which mortgages should run is also some- 
 what involved with the fiuestion of their terms, for 
 while their full amount is sometimes made to run 
 for the full time, the contract is often modified by 
 required or privileged prepayment conditions. 
 
 The cost of a loan to the l)orrower is also a matter 
 89
 
 90 ArORTrjAOE LOAN VALUES 
 
 of interest to the lender wlien considering the time for 
 whieh it is to be drawn, for altlioufi'h neitlier of these 
 things can be expected to control tlie othei-, there is a 
 relation between llieiu wliich, in juslice to the bor- 
 rower, shonld be recogniz(Hl within Ihe l)()unds of 
 safety. 
 
 The actnal time consnmed and expense incnrred 
 may, for instance, l)e as great or even greater in the 
 case of a small loan as it is in that of a larger one, 
 but as the service required in the latter case is usually 
 the more valuable it is customary for this charge to 
 be made upon a percentage basis with a compensating 
 rule that a larger percentage shall be charged on the 
 smaller transactions, l)ut however the expense may be 
 calculated and whatever form its payment may take, 
 it adds its sum to the cost of the loan and for all prac- 
 tical purposes may be treated as a part of the interest 
 paid by the borrower. 
 
 It is very evident then that, figured upon this 
 basis, the expense charge grows proportionately 
 smaller with each year that is added to the term of 
 the loan and that if the term is too short such a 
 charge may easily be heavier than would seem to be 
 reasonable. For example, if the cost of procuring a 
 five thousand dollar loan should be one hundred dol- 
 lars it would add two per cent, to the interest if the 
 term was one year, while it would only add one-fifth 
 of one per cent, per annum to the interest on a ten 
 year loan; and if, as is the case in some sections, the 
 loans are small and the cost of doing business is great, 
 the percentage chai'ge on short term loans will neces- 
 sarily be such a heavy one that they will be burdened
 
 MORTGAGE LOAN VALUES 91 
 
 beyond reason, the only remedies being longer terms 
 or the foolish one of elieapened investigations. 
 
 As a general rule the borrower is anxious that his 
 loan shall be written for a loug period, provided he is 
 given liberal prepayment privileges, and as the in- 
 vestor naturally wishes to avoid the trouble and loss 
 incident to the frequent reinv(^stment of his funds he 
 is nearly always willing to concede as long a term as 
 is consistent with the safety of his interests. 
 
 In other words, the borrower realizes that he may 
 need the use of at least a part of the money for a 
 comparatively long time and does not wish to place 
 himself in a position wlun-e he may be compelled to 
 repay the full amount before a time when he is sure 
 that it will be convenient for him to do so, but he does 
 want a contract that will allow him to repay it in 
 part or in wliolc l)efore maturity if such repayment 
 becomes practicable and desirable to him ; and it has 
 become a common practice of investors to consent to 
 longer terms and to gi-ant some form of such options. 
 
 On the other hand, it is said with reason by those 
 who do not favor long terms that expert judges of 
 loan values are usually able to foresee with reasonable 
 certainty the probalnlity or improljability of any oc- 
 currence in the near future which may affect the 
 value of the security, but that as the time is extended 
 their ability to forecast its events rapidly diminishes 
 and soon becomes negligible, and if loug terms are 
 granted there is ordinarily a greater danger that the 
 securities may become impaired before the maturity 
 of the loans than is the case if they are made for 
 shorter terms.
 
 92 MORTGAGE LOAN VALTIP]S 
 
 It is also said that while the effect of ordinary 
 changes in the physical surroundings of property is 
 not apt to be immediate and if the property itself is 
 in a good condition at the time the loan is made, it 
 will usually be able to withstand neglect or misman- 
 agement for a reasonable length of time without 
 serious loss. It is also true that favorable luizards, 
 especially personal hazards, may be changed at any 
 time, and that when any unfavorable conditions do 
 come into existence and reach a stage where their 
 effect becomes marked, the depreciation in the loan 
 value from that time on is nearly always a very rapid 
 one. 
 
 And again, it is urged that the long term contract 
 binds the investor, while under the common plan of 
 granting prepayment privileges it does not so bind 
 the borrower, who, if prevailing interest i-ates should 
 be lowered, can take advantage under sucli option to 
 secure a lower rate by refunding his loan, l)nt if inter- 
 est rates should advance the investor has no corre- 
 sponding opportunity to profit by that fact. 
 
 These points seem to be well taken, and therefore, 
 while investors may desire, they very generally fear 
 long terms, and stipulations for required prepayments 
 and amortization plans are sometimes used for the 
 purpose of extending the time for the final payment of 
 the whole loan and at the same time modifying the 
 length of its term as applied to its full amount, in 
 the belief that this plan will harmonize the interests 
 at stake as shown by the various arguments for and 
 against the policy of granting either very long or very 
 short loan terms.
 
 MORTGAGE LOAN VALUES 93 
 
 Theoretically, this amortization plan is a very at- 
 tractive one, for with each payment that is made upon 
 the principal the security is bettered, and for a cer- 
 tain class of loans, especially loans on city property 
 jdelding a fixed and dependable income sufficient to 
 meet the required payments, such plans are often 
 found to be not only practical but also very desirable ; 
 but for certain other classes of securities, especially 
 the ordinary farm loans, they are frequently either 
 impractical or undesirable, and in all cases the plan 
 contains one very dangerous feature in the fact that 
 it inclines the lender to take a too optimistic view 
 of the situation. 
 
 It is the proper habit of the investor's or lender's 
 mind to look into the future and to consider his secu- 
 rity from that angle, and if the contract provides a 
 promise for its betterment in the future he will almost 
 unconsciously give a certain weight to that feature, 
 when in fact it is only a promise and not entitled to 
 any consideration whatever as bettering the security 
 at the time when the loan is made. 
 
 Although there are exceptional cases when long 
 terms with no required prepayments are unobjection- 
 able because of a large margin of security in stable 
 land values, and a good rate of interest without 
 unduly liberal prepayment privilege, a majority of 
 investors seem to have agreed that in the ordinary city 
 and farm loan business the weight of the argument is 
 against either extreme, and that a term of either five 
 or seven years is the most generally satisfactory one, 
 five years being preferred by the more conservative 
 who very generally feel that if ten year terms are
 
 ,94 i\iortoa(;e loan values 
 
 granted, a substantial repaj^ment should be i-eqiiired 
 at the end of the five year period as this will afford 
 the investor an opportunity to prolcct himself in a 
 measure against the evils that soineliincs attend long 
 terms, and will be long enough to answer the more 
 serious objections to very short ones. 
 
 When some sueli plan as the above is adopted the 
 investor is afforded a needed opportunit}' to review 
 the record of the loan, to re-examine the property, and 
 to call in a part of the loan if there is occasion foi' do- 
 ing so, or of granting either in whole or in part such 
 extensions as may be asked, if the circumstances war- 
 rant him in extending it. 
 
 It is true that the need of the borrower is more 
 frequently than otherwise for a longer period than 
 five years, but if he maintains a good record for his 
 loan he seldom finds it difficult to obtain its extension 
 at a moderate cost which, if divided by five, seven or 
 ten, as the case may be, and treated as an annual 
 expense, will usually seem to be a trifling one.
 
 XVI 
 
 CONTRACTS AS TO PREPAYMENTS, ETC. 
 
 City loans are very common in which a large pro- 
 portion of the valne of the property is represented by 
 perishable improvements that must necessarily depre- 
 ciate with age, and in such cases the plan of requiring 
 partial repayments to be made after one or two years 
 in sums that will offset any such depreciation and in 
 sums that can be realized from the net income of the 
 property, is no doubt a wise one, and one which should 
 be applied to all reasonably large city loans which 
 approach the limit of fifty per cent, of the value of 
 the security. 
 
 If moderately small city loans are considered, such 
 as those on average priced dwellings, the probable 
 future depreciation of the property should be dis- 
 counted in the amount loaned, for if this is not done, 
 and the required pai-tial repayments to cover this 
 depreciation rest upon the personal ability of tlie bor- 
 rower, or upon the net revenues from the property 
 when such revenues are not sufficient to justify tlie 
 investor in looking after them, this repayment plan 
 will often be a source of worry to the ordinary in- 
 vestor. 
 
 It is no doubt true that any plan requiring that 
 prepayments be made is often of benefit to that class 
 of borrowers who are inclined to use their money for 
 
 95
 
 96 MORTGAGE LOAN VALUES 
 
 other purposes unless eonipelled to apply it upon their 
 debts, but the smaller loans in which tiiis is a prom- 
 inent feature belong almost exclusively to such 
 financing as is done by Building and Loan and othc'r 
 similar institutions which can make their prepayment 
 collections at such frequent intervals and in such 
 small amounts that there is seldom any occasion for 
 waiving or extending them. 
 
 In the case of farm loans, howevei-, there are at 
 least two very good reasons why the required yearly 
 curtailment plan is objectionable. 
 
 First, while the farm may produce a very depend- 
 able average annual revenue it cannot be depended 
 upon to produce a fixed annual revenue. Too much 
 depends upon seasons and conditions that are beyond 
 human control, nor may the bad effects of a disastrous 
 year be w^holly confined to a direct loss of revenue 
 from the crop affected. 
 
 For instance, if a farmer should meet with a total 
 failure of his corn crop he may find added to his loss 
 of expected revenue from this source the necessity of 
 buying corn to feed his live stock, and if a prepay 
 ment on his loan should fall due in a lean year he 
 might be compelled to make sacrifices or to ask for its 
 extension, although his security was above question. 
 
 Second, a large number of the best farm applica- 
 tions are made for the purpose of obtaining money 
 to use in making improvements to the farm or its 
 equipment, and as returns on such outlays cannot be 
 expected for some time, the farmer may not, mean- 
 while, be able to repay portions of his loan, although 
 by its proper investment in barns, fences, ditching,
 
 MORTGAGE LOAN VALUES 97 
 
 live stock, etc., he may have made himself much bet- 
 ter able to pay it in full at maturity. Under such 
 conditions, requests for waivers or extensions of credit 
 are frequent and the lender is often compelled either 
 to grant these requests or to foreclose his loan, neither 
 of which actions was a part of his original expectation 
 and neither of which is satisfactory to him from a 
 business point of view. 
 
 Farming lands are, of course, subject to deprecia- 
 tion from neglect or mismanagement, but they are not 
 subject to many of the other conditions which may 
 depreciate city values; and when the betterment of 
 farm loans is sought l)y requiring annual prepayments 
 to be made it would seem to be chiefly from an igno- 
 rance of their peculiarities or an attempt to strengthen 
 those which may have some questionable feature in 
 location, amount, character, length of term^ stability 
 of value, or personal hazard that easts a doubt upon 
 their entire desirability. 
 
 As has been stated, it is a very usual practice to 
 make loan contracts in which an option is granted the 
 borrower of repaying a part or all of his principal 
 debt before its maturity and this is quite different in 
 most of its effects from the above mentioned required 
 prepayment plan. 
 
 There is, of course, some difference in the terms of 
 such options as granted by different lenders, owing 
 to the difference of opinion among them as to whether 
 a liberal or a restricted policy is better. 
 
 Occasionally such privileges are granted without 
 any restrictions whatever, or with the simple require- 
 ment that prepayments, if made, shall be on interest
 
 98 M()RT(JA(IE LOAN VALUES 
 
 dates, thus opeiiing: a door 1o short t(M-)n loans at 
 times wlien they are difficult to obtain through other 
 soui'ccs. On the otlier hand, some lendei'S refuse to 
 grant sudi privilege for more than a stated amount 
 each year, and sometimes they stipulate thnt no rcpsiy- 
 ment shall be made with borrowed money, ihiis un- 
 necessarily hampering tlu' mortgagor in the ronduct 
 of his affairs. 
 
 It may be said tluit there seems to be little reason 
 or demand for the more liberal of these policies, and 
 little, if any, benefit to be had from the very restricted 
 ones; a middle course, howcA'er, has been found to be 
 a desirable one ; for instance, some lenders have had 
 a very satisfactory experience in granting borrowers 
 the option of making any prepayments desired at 
 interest dates after the loan has run for two years, 
 and also to make such payments at any time prior to 
 two years provided an amount equal to three months 
 interest is paid for the privilege. 
 
 Under some such a policy the investor may be pro- 
 tected against loss because of idle funds or reinvest- 
 ment expenses, and the borrower is better able to con- 
 trol his affairs if he wishes to sell his property or to 
 reduce his debt. 
 
 Reasonably liberal prepayment privileges are very 
 much desired by the better class of borrowers, and 
 especially by the farmers and such others as have 
 few opportunities of making profitable temporary 
 investments, for such an option furnishes them, in 
 effect, with a Savings Bank that is absolutely sound, 
 but they will seldom insist upon a degree of liberality 
 that would be unfair to the investor.
 
 :\IORTGAGE LOAN VALUES 99 
 
 Nor should the investor proceed upon the mistaken 
 theorj' that no favors can be granted by him to bor- 
 rowers Avithout corresponding disadvantages to him- 
 self, for lie will gain s,);iie advantage in every case 
 where the borrower avails himself of a reasonable pre- 
 payment option; not because of any betterment that 
 is made to the security hy a reduction of the propor- 
 tionate amount of the debt, for if the loan has been 
 properly made the security will need no such better- 
 ment, but because of a certain betterment to the moral 
 hazard which cannot be shown by any enforced pre- 
 payment. For instance, when voluntary prepayments 
 have l)een made the investor may feel more assured 
 that he will have no trouble because of defaulted 
 interest, taxes, or insurance, that the ultimate neces- 
 sity of a foreclosure has grown more remote, that the 
 value of the property is not likely to depreciate from 
 want of care and attention and that the borrower is, 
 to some degree at least, prosperous and a good per- 
 sonal risk; while the required partial prepayment 
 may have l)een met by the sale of stock or produce 
 before it was ready for the best market, or by delaying 
 needed repairs to the buildings or fences. 
 
 As a matter of course prepayment privileges in- 
 crease the mortality of loans, and equally as a matter 
 of course, the increase from this cause is greater dur- 
 ing a period when interest rates are being lowered, 
 and less during a period Avhen they are advancing; 
 it is also greater in the better class of loans and lower 
 in the ordinary or poorer class, and, as has been noted 
 in another connection, the activity or depression of
 
 100 MORTGAGE LOAN VALUES 
 
 the Real Estate market also seems to affect it to some 
 extent. 
 
 On the Avhole, however, the prepayment of loans is 
 less than is often feared by the inexperienced investor 
 who is contem])lating the granting of snch ])rivileges, 
 bnt what it will be cannot be estimated in advance 
 with any degree of certainty unless all of the condi- 
 tions as to territory, character of securities, and the 
 terms of contract affecting a given collection of loans 
 could be assembled, and then only as it would be indi- 
 cated b}' some former experience under similar con- 
 ditions. A general idea, however, may perhaps be 
 formed from the fact that under fairly liberal prepay- 
 ment options, and no prepayment requirements, sev- 
 eral millions of dollars in medium sized high class 
 loans, that are about equally divided between farm 
 and city loans and are located in about twenty dif- 
 ferent States, have shown an average increase in 
 mortality of about ten per cent. — that is, the average 
 life of a five year loan according to this experience 
 has been about four and one-half years when the 
 final repayment of the principal has not been ex- 
 tended beyond the original period. 
 
 This increase in mortality, however, only shows tlie 
 comparative effect of such prepayment privileges, 
 for the actual average life of five year loans with 
 their extensions is ahvays much longer than five 
 years, notwithstanding the fact that prepayment 
 privileges have been granted.
 
 XVII 
 
 CONTRACTS AS TO INTEREST RATES, ETC. 
 
 The rate of interest that is to be paid by tlie bor- 
 rower is also a necessary part of the loan contract 
 and, next to the amount loaned, is probably the most 
 important one. 
 
 Preliminary to completing the loan contract with 
 the borrower, the lender determines upon and asks 
 for a rate which he believes the condition of the local 
 money market will entitle him to receive and which 
 will make the loan a marketable one, and the appli- 
 cant usually agrees to pay such rate provided that 
 the security which he has to offer will not afford him 
 better terms from other sources. 
 
 The investor very naturally desires to obtain as 
 high a rate as possible and at the same time to main- 
 tain the safety of his invested capital and will always 
 attempt to accomplish both of these objects although 
 in practice he Avill almost unavoidably make one of 
 them in some degree secondary to the other. 
 
 His business and that of the lender must, of course, 
 show reasonable profits but if his primary purpose is 
 safety rather than profit, his inclination is to make 
 his rate demand as low as may be necessary in order 
 to obtain the choicest securities and the main question 
 with him is not then so much the question of larger 
 or smaller profits as it is that of more or less desirable 
 
 101
 
 102 MORTGAGE LOAN VALUES 
 
 securities. If, on tlie other liand, he is especially im- 
 pressed hy the importance of higher rates lie will be 
 inclined 1() dcinaiid as iii<^'h a one as seems to him In 
 be oI)tainable on good secnrities, and the main (pics- 
 tion will cease to be the nii(|uestioiiable desirability 
 of the h)ans and rest more npoii llie I'alc that is obtain- 
 able on those which may appear to him to be safe. 
 
 This difference between the maximum and the 
 minimum rate asked, as such demand uuiy be influ- 
 enced by the above views, is usually that of one per 
 cent, of interest, l)ut it is sometimes more or less than 
 this if the investor holds extreme views as to the 
 greater or lesser importance of one of his objects. 
 
 The rental value of money on mortgage securities 
 iu any territory primarily depends, as does the price 
 of commodities, upon its supply eompai-ed with the 
 demand that there may be for its use, the demand 
 generally representing some form or degree of Real 
 Estate development or the refunding of old loans, and 
 the supply of money for this purpose usually being 
 more or less plentiful according to the known stability 
 of Real Estate values in that section. 
 
 These local rates also vary somewhat in each section 
 owing to the relative desirability and size of the loans 
 offered, the minimum rate being granted to large or 
 medium sized loans on the best class of property with 
 wide margins of security and desirable personal haz- 
 ards, and a higher rate being charged when any of 
 these features are not so attractive. 
 
 The factor of time also enters into the question of 
 local rates and as the shorter term mortgage loans 
 are not so generally attractive to investors they often
 
 MORTGAGE LOAN VALUES 103 
 
 command a somewhat lii<i'lu'r rate than do those that 
 run for a h)nger period, sneh mortfjages being fre- 
 quently taken hy kx-al banlvs, not as investments, but 
 for the purpose of strengthening weak personal haz- 
 ards. 
 
 It must not be uiuh'rstood, however, that these com- 
 ments on interest rates are intended to extend in any 
 manner to that chiss of loans commonly known as 
 "short time" loans, for these are usually based upon 
 the pledging of stocks, bonds, chattels or personal 
 obligations. They are usually made with funds the 
 owners of which desire to turn frequently oi* to keep 
 as nearly as possible available for other uses, and 
 they usually command rates which are very sensitive 
 to changing conditions for the reason that this is 
 also true of the market for the securities upon which 
 they are made, and there is no occasion for mention- 
 ing this class of loans here except for the purpose of 
 calling attention to the faet that the rates which they 
 command are Inised upon a different set of facts than 
 those upon which mortgage investment rates are based 
 and for the reason that investors sometimes make the 
 mistake of supposing that the reported rate in a given 
 locality is necessarily the rate at which high class 
 Real Estate loans can be made. 
 
 This discussion, on the contrary, is intended to be 
 confined to interest rates upon the ordinary Real 
 Estate loans which are made wholly and exclusively 
 upon the security afforded by fii'st mortgages on the 
 classes of property which have been mentioned as 
 being the most generally desirable for that purpose; 
 and these loans, being made with funds the owners
 
 104 MORTGAGE LOAN VALUES 
 
 of which dosiro to koep invested as permanently as 
 possible, and being based npon values that ai-e lu'lieved 
 to be very stable, are written at rates whicli arc not 
 inclined to yield except under strong or long continued 
 pressure ; the non-liciuid character of the loans tending 
 to keep the rate up, while the stability of the security 
 tends to keep it down; thus any variation from the 
 standard rate on such mortgages in any locality is apt 
 to be due chiefly to differences in the desirability of 
 the individual loans. 
 
 A very common as well as a very serious mistake 
 which inexperienced investors make is in demanding 
 a higher rate than the one that is generally accepted 
 on the standard securities of the territory, for such a 
 demand always tends to drive away the better class of 
 borrowers w'ho can get accommodations elsewhere and 
 serves to attract the less desirable class who find it 
 difficult to get accommodated anywhere. 
 
 Such mistakes are often made by those who have 
 no wish for undue profits at the expense of safety, 
 but who have been misled by quotations of the rates 
 obtainable in sections where they are not personally 
 well posted as to the facts. The statement that a 
 certain rate of interest is paid by the borrowers in a 
 given territory may be, and indeed often is, accepted 
 b}^ them at its face value and, in a sense, the statement 
 may be correct, but from a practical loan point of 
 view the securit}^ itself needs to be explained; the 
 territory may have faults which prevent its considera- 
 tion on ordinary terms by other investors, the rates 
 whicli are quoted may be those which are paid only
 
 MORTGAGE LOAN VALUP]S 105 
 
 on the more imdcsirable loans or they may oven he 
 the rates charged for short time loans. 
 
 "While investors in Real Estate loans very *>'(Mierally 
 wish to confine their business to standard s 'curities 
 at the best rate which they can obtain, they will oc- 
 casionally go into a section at a lower rate tlian has 
 been customary there, with the idea that by so doing 
 they can promptly secure a large share of the busi- 
 ness of that territory, but in practice this plan seldom 
 works satisfactorily, for the Real Estate loan l)usi- 
 ness cannot be stimulated to any extent by lowering 
 interest rates, and if other lenders meet the com- 
 petition, "Nvhich they are very apt to do, the cut-rate 
 investor soon finds himself with no more and no 
 better business than he might have had at the regular 
 rate; for if he can establish a reputation for prompt 
 action, fair dealing, favorable terms, and reasonable 
 expense charges, such reputation will usually enable 
 him to get and hold a good amount and good class of 
 business at the full standard rate. 
 
 On the other hand, investors sometimes hold to 
 the opinion that the ol)tainable rate is largely a mat- 
 ter of the asking, but tliis view is as far wrong as is 
 the one that would expect to create business by low- 
 ering rates that are already reasonable and competi- 
 tive; and an attempt to force either idea into the loan 
 business will only end in disappointment. 
 
 The better class of borrowers, even the farmers who 
 are remote from money centers, are usually as well 
 informed as to the current rates of interest in their 
 localities as they are on the market price of any com-
 
 106 MORTGA(JE LOAN VALUES 
 
 moditirs wliicli tlipy may desire eitlier to bny or sell, 
 and with few exceptions the price ]iaid by them for 
 the nse of money will be found to indicate tlie true 
 loan value of their securities as surely as that the 
 price paid for the purchase of property indicates its 
 market value. 
 
 There are sometimes exceptions to this rule but 
 when one is found it suggests the possibility of unde- 
 sirable conditions existing along other lines, such, for 
 instance, as the personal hazard, and for this reason 
 these cases should be given a very careful scrutiny 
 before they are accepted as genuine exceptions.
 
 XVIII 
 
 MODERATION IN THE DEMANDS OF THE MORTGAGEES 
 
 Certain facts, which counsel moderation in interest 
 demands, lie upon the surface and are patent to all 
 investors and lenders. 
 
 It is true, for instance, that a section of territory 
 which measures up to a high standard of excellence 
 from a loan point of view usually enjoys a low interest 
 rate and vice versa. 
 
 It is true that the minimum local rate, whatever 
 that rate may be in any given territory, applies to 
 such individual offerings as measure up to a certain 
 required -standard, and that those which do not so 
 measure up pay a higher rate. 
 
 It is true that a fairly large number of the obtain- 
 able loans in any locality w^ill be classed as undesir- 
 able by any expert in such matters and will not be 
 wanted by the more conservative investors. 
 
 There is another fact, however, which is as true and 
 as well known but which, unfortunately for the inex- 
 perienced investor, contains a suggestion of ];)rofits to 
 be made by waiving the more conserA'ative rules ; it is 
 the fact that many loan offerings may not be classed 
 as Avholly satisfactory but, nevertheless, cannot be said 
 to be affirmatively bad, and that a seasoned investor 
 by a wise and careful selection of such securities may 
 be able to stay within the bounds of safety on the 
 
 107
 
 108 MORTGAGE LOAN VALUES 
 
 limited nnraber of tliese loans to Avhirli lie vnn trivo a 
 close personal investigation. 
 
 It is safe to say that few, if any, investors cvci- ])ur- 
 posely allow their desire for larger profits to carry 
 them beyond the limits of safety in selecting their 
 securities, but it is also true that many, who are influ- 
 enced by the above mentioned fact, unintentionally do 
 so. There is no lack of arguments bj' which the un- 
 wary and inexperienced investor who has too much 
 confidence in his owm ability to discovei- exceptions to 
 the general rules, or the greed}' one who looks with too 
 much favor upon high interest rates, is enabled to 
 convince himself that he can ignore the more conserva- 
 tive rules of lending without danger of loss. 
 
 The poorer class of loans will not only yield a 
 higher rate of interest to the investor but they will 
 also pay more liberal commissions to the agent who 
 negotiates them, and for this reason every ' ' doubtful ' ' 
 section where the people wish to borrow money, and 
 every questionable loan from W'hatever section it may 
 come, may be expected to have enthusiastic advocates 
 who will declare it to be as good as any and who will 
 enlarge upon every favorable feature it may have and 
 will depreciate every objectionable one. 
 
 Cases will sometimes be presented, of course, which 
 are so worthless from a loan point of view that no 
 convincing argument can be offered in their favor, 
 but if they are simply questionable cases they will 
 often be supported so skillfully as to deceive the 
 unwary and unseasoned investor, for any undue 
 anxiety on his part to secure a high interest rate
 
 MORTGAGE LOAN VALUES 109 
 
 will encourage liiin to listen with a friendly ear to 
 sneli advocacy. 
 
 The investor sometimes refers with pride to the fact 
 that he has secured higher rates than have his com- 
 petitors, but this is apt to be more a matter for con- 
 cern than for congratulation. While there are oc- 
 casions, such as the temporary withdrawal of invest- 
 ment funds because of some general disturbance of 
 ordinary conditions, wlien he can favor his interest 
 receipts without treading upon dangerous ground, it 
 may be accepted as a sound conclusion that, in the 
 regular course of the business and under normal con- 
 ditions, he who finds a rate which is alcove the market 
 or who imposes harsh terms or heavy expense charges 
 and commissions in an effort to increase his earnings 
 will get, on the whole, a poorer class of offerings than 
 will tlie person who is content with more moderate 
 profits and who is willing to grant more favorable 
 terms. 
 
 A case in point occurred when a certain small insur- 
 ance company, desiring to liquidate, offered to sell 
 their mortgage securities; these were about sixty in 
 number and one hundred and forty thousand dollars 
 in aggregate amount (running fairly even as to the 
 individual amounts), approximately two-thirds of 
 these loans had been written at the then standard rate 
 of five per cent, and the others at five and one-half 
 and six per cent, rates. In order to induce purchasers 
 the company offered to sell all or any of them on a 
 six per cent, basis. 
 
 A buj'er had the Real Estate examined by three 
 competent appraisers; these appraisers were told
 
 no MORTGAGE LOAN VALUES 
 
 iiolli'm^' and knew ii<»ll)iii<]j as lo llic amoniit, rate or 
 tornis of any of the loans; their valuations were favor- 
 able as to approximately eighty pei- cent, and unfavor- 
 able as to tAventy per cent, of the securities, and a 
 further examination of their report showed that prac- 
 tically all of those which had been written at five per 
 cent, had been reconnncnded and that over half of 
 those which had been written at a higher rate had 
 been rejected ; thus showing that the lending com- 
 pany, while securing a)i average of about one-fourth 
 of one per cent above the standard rate on the whole 
 amount of their investments, liad acquired twenty 
 per cent of unsalable (although perhaps not positively 
 bad) securities. 
 
 It is not an uncommon failing, though few will 
 acknowledge it as their own, to seize the immediate 
 advantage even at a risk to the ultimate object, and 
 the evil of this tendency when alloAved to find ]ilace 
 in the investment business is great, because in many 
 cases no loss will occur and in each case where no 
 loss occurs there is encouragement for further liber- 
 ality. The inclination to overvalue good qualities and 
 to minimize defects grows; after each fortunate expe- 
 rience, real loan faults seem to be of a less serious 
 nature ; and, when they are contingent on future hap- 
 penings, such happening in the particular case under 
 consideration seems to be unlikely, although expe- 
 rience may show that in the average case its occur- 
 rence is probable. 
 
 In this attitude of mind the investor is apt to 
 accept promises of future betterments Avithout ques- 
 tion, and to conclude that under ordinary circum-
 
 MORTGAGE LOAN VALUES 111 
 
 stances a loss would bo improl)aI)le, that in any event 
 it wonld 1)0 inconsiderable, and that a small loss, if 
 it slioiild occur in one loan, would bo more than offset 
 l)y the excess of interest received on many. 
 
 Somewhere along the above line of action and argu- 
 ment he, of course, leaves the field of investment and 
 enters the field of speculation, and if he suffers no 
 losses he soon becomes confirmed in these views and 
 regards himself as an expert judge of such invest- 
 ments. His doubts come later when he attempts more 
 extensive operations, for he then begins to realize 
 more clearly that yielding to the temptations of more 
 than ordinary profits most certainly means a depar- 
 ture from the more reliable class of securities. He 
 finds the maintenance of an interest rate which is 
 above the market to be a difficult and dangerous un- 
 dertaking, bringing him into contact with more doubt- 
 ful loans, more faulty titles, more olijectionable moral 
 and personal hazards, more misrepresentations of 
 facts and concealment of adverse conditions than 
 would otherwise be the case ; and he finds that he who 
 is able to steer his financial boat clear of these rocks 
 must not only be very clever indeed but must also be 
 very fortunate if he escapes loss. But even though 
 he should accomplish this, he finds that his gross ad- 
 vantage is materially lessened because the excess in 
 interest must be charged with the cost of an increased 
 number of fruitless investigations and with the loss of 
 interest suffered by reason of funds lying idle for 
 want of sufficient satisfactory securities at the higher 
 rate.
 
 XIX 
 
 MINOR MATTERS OF LOAN CONTRACTS 
 
 There are certain other matters whieli will become 
 parts of the loan contract when it is made, and, 
 although in a way they are of minor- importance, their 
 careful consideration is, in no sense, unimportant, for 
 there will be occasions when the interests of the parties 
 will be affected by the policies which are adopted con- 
 cerning them. 
 
 One of these matters relates to the payment of inter- 
 est, the question being whether it should be made 
 payable annually or semi-annually and whether its 
 due date should be arbitrarily fixed or should be al- 
 lowed to follow the date of the loan. . 
 
 The proper answer to each part of this question 
 seems to be based upon the same principle — i. e., that 
 the ordinary income from the property should be 
 expected to meet the interest charges when due. 
 
 The avoidance of defaults is the nuiin object to be 
 sought for, and it will be found that this can be better 
 accomplished under certain conditions by adopting a 
 rule requiring semi-annual payments and under other 
 conditions by a rule requiring annual payments. 
 
 On city loans generally and on farm loans in sec- 
 tions where crops are diversified and marketable 
 throughout the year, semi-annual interest is prefer- 
 able, for aside from affording the investor a slightly 
 
 112
 
 MORTGAGE LOAN VALUES 113 
 
 better return in the difference betwe(^n the nominal 
 and the effective rate, it also enables him to keep in a 
 closer toncli witli his interest collections and witli any 
 chano'ing conditions in the moral hazard. 
 
 When the income from the propertj^ is a steady one 
 it makes little difference to the borrower when his 
 interest payments may become due, but it is usually 
 easier for him to meet semi-annual payments because 
 they are smaller, and in such eases there are, without 
 doubt, fewer defaults under a rule requiring them to 
 be so made. 
 
 On the other hand, in those cases where the income 
 from the mortgaged property is an annual one, such 
 as a farm from which the principal "money crop" is 
 marketed but once a year, the requirement of semi- 
 annual interest payments will often woi-k a hardship 
 upon the borrower and will frequently be the cause 
 of defaults, for the reason that at least one of the 
 interest due dates will come at a time when tliere is 
 no income from the property with which to meet it, 
 and probably also at the time of the borrower 's great- 
 est expense in conducting his business. 
 
 Accommodating the date of the borrower's interest 
 payments to the date of his income receipts will there- 
 fore lessen the danger of defaults, and in those cases 
 where the income is an annual one it is also perhaps 
 the best practice to fix an arbitrarj^ interest due 
 date to come at the most promising time for its prompt 
 payment, although this will of course make it neces- 
 sary in many instances to vary from a strict uniform- 
 ity in the time and amounts of the interest coupons. 
 
 It would seem then that the interests of neither the
 
 114 M()KT(JAOE L()A\ VALUES 
 
 investor nor the l)orrower Avill he served by the adop 
 tion of a fixed nile to he applied in all eases, hut that 
 the interests of hoth will he served hy a iMile that in 
 eaeh ease the requirements shall he made to fit the 
 conditions. 
 
 Another matter whieli may hecome a part of the 
 loan contract and should he previously considered is 
 that of fire insurance. 
 
 • If buildings are a part of the Real Estate mort- 
 ga'^ed and are insurable, it is always desirable, as 
 bettering- the moral hazard, that they should be kept 
 insured whether or not the land value alone is suffi- 
 cient to cover the physical hazard. 
 
 If, however, the land value is not sufficient in 
 itself for the protection of the mortgagee and the 
 buildings thereon are taken as a part of the physical 
 security, it is not only desirable but is then very 
 necessary that they should be kept insured during the 
 life of the loan in a proper amount, written by a 
 responsible company, and that the policy should be 
 assigned to the mortgagee "as his interest may 
 appear," and it is usual in such cases for the loan 
 contract to provide for this. 
 
 The main questions to be decided in this matter are 
 first as to the amount of insurance w^hich should be 
 demanded, and second, as to what rule should govern 
 the acceptability of insurance* companies. 
 
 As to the first of these questions, the only matter 
 that can be profitably considered here is how to de- 
 termine what is the minimum amount which the mort-
 
 ^MORTGAGE LOAN VALUES 115 
 
 g:agop can in any case accept with safety; and the best 
 rule for detei-miiiing this seems to be that it should 
 be in a sum that is at least equal to the amount of 
 the loan less one-half of the ground value. 
 
 When this rule is adopted it will be evident that if 
 there is a loss and the insurance is collected and 
 applied in reducing the debt, the remaining unpaid 
 portion (aside from defaults) will be equal to only 
 one-half of the value of the remaining security, and 
 the loan will still be Avithin the fifty per cent rule. 
 
 As to the question of the acceptability of the insur- 
 ance companies, it may be said that the mortgagee 
 will, of course, very properly insist that they shall 
 be financially sound and of a good reputation for 
 fair dealing. He will usually require that they shall 
 be regular stock companies and will ol)ject to mutual 
 or local assessment companies on the ground that they 
 are generally of inferior financial standing and incon- 
 venient to keep in touch with and that the validity of 
 the assignments of their policies without the assignee 
 incurring a contingent liability is also often open to 
 question. 
 
 Lenders sometimes act as the agents for insurance 
 companies and are then tempted to adopt the ques- 
 tionable practice of demanding, instead of soliciting, 
 the business of writing the necessary policies for their 
 borrowers. 
 
 From a loan point of view this practice seems to 
 be faulty inasniuch as it tends to create an unfriendly 
 feeling in tliose borrowers who believe tliat they have 
 a right to place their insurance elsewhere and have 
 good reasons for desiring to do so. They are willing
 
 116 .MOKT(JACE LOAN VALUES 
 
 to do whatever maj' be necessary in order to make 
 their security good, but they know tliat there ai-e 
 iiumy companies against wliich no legitimate objec- 
 tions can be urged and whose policies would afford as 
 full protection to the mortgagee as would those of his 
 own agency, and they regard his action as that of 
 going outside of any just requirements for the pur- 
 pose of securing a little extra profit on the side. 
 
 Other matters which are commonly made parts of 
 the loan agreement, such as the borrower's liability 
 for certain agreed expenses, his obligation to furnish 
 a satisfactory abstract of title with its necessary con- 
 tinuations, and to furnish evidence from time to time 
 during the life of the loan of the payment of taxes and 
 other liens having priority rights, require no special 
 comment and may be dismissed with the remark that 
 their terms, as well as those of all other agreements, 
 should be reasonable, well understood and clearly 
 stated in the contract.
 
 XX 
 
 QUALIFICATIONS OF INSPECTORS 
 
 When an application for a loan upon Real Estate 
 is submitted to a lender or investor and is fomid to 
 comply with his requirements as to tlie various matters 
 which have been referred to in these comments, there 
 will still remain two most vital questions which must 
 be fully investigated by some competent person in 
 his behalf before he can reach an intelligent final 
 decision for or against making any loan. 
 
 One of these questions relates to the actual value 
 of the property /or mortgage loan purposes, and the 
 other to the legal value of the title in the applicant for 
 such purposes, for it must be remembered that 
 although the present market value of the Real Estate 
 may exceed an amount necessary to justify the loan, 
 it may nevertheless lack dependable evidence of stabil- 
 ity, and that while the applicant may have a good 
 prescriptive title that will enable him to hold the 
 property in his possession, such title may not be suf- 
 ficient of record to insui-e the safety of a mortgagee's 
 interests. 
 
 It is customarj^ for the loan value of the Real Estate 
 to be determined in advance of the title investigation, 
 the main reasons being that findings as to loan values 
 are apt to be based upon a greater variety of facts 
 than are findings as to title values and that any faults 
 
 117
 
 UNBALANCED VALUES 
 
 118
 
 MORTGAGE LOAN VALUES 119 
 
 wliich may be found in tlie physical sccniity are less 
 likely to be curable ones. 
 
 The question as to whom this work of determiniufy 
 loan values shall be intrusted is a matter of p:rave 
 concern to the investor. This person should, of 
 course, be both honest and competent, but his qualifi- 
 cations should go beyond what is embraced in the 
 ordinary use of these terms; his honesty should be of 
 that quality which extends to an al)solute thorovp-li- 
 ness in his work and his competency should in-lud^ 
 a loiowledjje of all of the conditions which make and 
 maintain values in the class of ])roperty and the terri- 
 tory that are to be investifrated. 
 
 It would be useless to attempt to enumerate tbe 
 various things which the inspector should know in 
 order to be efficient in his work, for not only the class 
 of property, but the territory Avill have its special 
 requirements in these matters. 
 
 It may be said, however, that in all cases his laiowl- 
 edge should cover a wide range of facts that it 
 should be dependable and that above all else it should 
 be of a practical nature. 
 
 He should, for instance, understand the use and 
 importance of the public records and approved plats 
 in the work of locating and identifying property. 
 
 He should have a fair idea of the approximate cost 
 of each of the various kinds of construction, of its 
 yearly depreciation and its yearly cost for mainte- 
 nance, of its suitability to its location and the proper 
 balance between its ground and its building values. 
 
 He should have a good eye for details, and an ap- 
 preciation of their relative importance and of their
 
 120 ]\IORTGAGE LOAN VALUES 
 
 relation to the principal questions under considera- 
 tion. 
 
 His information does not necessarily need to be so 
 complete as to qualify him as an expert in each and 
 every minor matter, but it should ])e sufficient in 
 these minor matters to enable him to avoid any serious 
 mistakes in the main matters of which they are parts. 
 For example, he may not have a working knowledge 
 of any of the building trades, but in examining a city 
 building of which any one can see the size, material, 
 style, and equipment, the competent inspector will also 
 see those little things whicli, although each is a com- 
 paratively small part of the whole, tell the true story 
 of the general character of the construction, and 
 especiallj^ of those parts which are hidden. His 
 trained eye will not only observe the completed build- 
 ing but will also take note of its window glass, its 
 hardware, its painting, its plumbing, its floors, its 
 finish, its foundation, and its roof, and perhaps many 
 other things which will indicate its relative cost and 
 character, and, knowing something about each of 
 these things, he will not be open to any considerable 
 deception as to the cost of the whole and will be able 
 to serve the mortgagee as well as if he possessed the 
 skill of an expert builder. 
 
 Neither is it necessary that the farm inspector 
 should be a soil expert. 
 
 In surveys which cover less than one-fifth of the 
 total agricultural area of the United States there have 
 been found to be more than seven hundred different 
 types of soil and for the farm inspector to attempt a 
 detailed study of them would be impractical.
 
 MORTGAGE LOAN VALUES 121 
 
 But there are many lliiii^i's al)out the soil that he 
 must know; he must be i\h\e to read the signs of its 
 fertilit}' as shown by i!s (•oh;)r and texture and normal 
 water content and liy its native growth of trees and 
 grasses. 
 
 He will not neglect to note its workable qualities, its 
 sub-soil, its drainage, its topography, its tendency to 
 erosions, its liability' to overflows, and its present 
 state of cultivation, and will be able to arrive at very 
 correct, practical conclusions as to its agricultural 
 value although he may be unable to classify it by its 
 finer distinctions. 
 
 He should be able to distinguish between profitable 
 and unprofitable methods of farming, and should 
 know something about the conservation of the soil and 
 of practical methods of reclaiming worn lands, for 
 otherwise he will often be unable to judge intelligently 
 of the likelihood of future improvement or deprecia- 
 tion. 
 
 He should know something aliout the systems of 
 land measurements and divisions in use in the terri- 
 tory in which his inspections are made, and it is es- 
 pecially important that he should have a good eye for 
 distances and be able to estimate areas with approx- 
 imate accuracy. 
 
 If he makes inspections in a section where the soil 
 is liable to erosions, he should be able to judge of the 
 efficacy of the terracing and otlier metliods of preven- 
 'tion which may be used. 
 
 In an irrigated section lie should understand the 
 different w^ays of measuring water and the approxi-
 
 122 MORTGAGE LOAN VALUES 
 
 mate amonnts noeded for ajyri cultural purposes under 
 the various soil and erop condilions. 
 
 In a "one crop" section ])e should understand the 
 evil effect which this condition is apt to impose on 
 the general market and he al)le to recognize intelligent 
 neighborhood efforts to overcome it. 
 
 The various tilings which the expert inspector will 
 see and from which he will form his conclusions might 
 perhaps be seen by any observant person but not seen 
 so clearly nor understandingly, and to rely upon his 
 deductions from those facts would be like giving an 
 unskilled person a set of surveyor's instruments and 
 expecting him to use them skillfully — he might get 
 some things right but his work would be lacking in 
 any dependable qualities.
 
 XXI 
 
 DUTIES OF INSPECTORS 
 
 Aside from questions of title and personal hazards, 
 the loan valne of Real property is based upon its 
 market value plus the stability of that value, and the 
 various conditions that indicate such stability or 
 instability are known under the general term of the 
 moral hazard and form the crux of the mortg'age loan 
 business. 
 
 The investor cannot expect to find, even in a limited 
 class of s;'cnrities and in a limited territory, that a 
 state of facts of equal importance is co-existent in 
 any considera])le number of instances; some shades of 
 difference will always be observed and some points 
 found to be favorable and some to be unfavorable in 
 almost every offering, and it is the most important 
 work of the inspector to discover and assemble these 
 facts and to estimate them at their true worth as 
 affecting the general moral hazard. 
 
 Some of these hazards may be found to be affirma- 
 tively good and some to be bad ; these wall trouble the 
 expert very little, but there may be others which 
 when viewed from one angle will seem to be good and 
 when viewed from another angle contain an element 
 of uncertainty that may be very perplexing. It is true 
 that a single unfavorable fact is often conclusive in 
 itself, but this is never true of the single favorable 
 
 123
 
 124 MORTGAGE LOAN VALUES 
 
 fact and in these cases where the hazard sooms to be 
 generally good although there is some cloud uiioii its 
 excellence, favorable decisions should be wilhluOd 
 until all of the facts which may in any way affect llic 
 moral hazard have been very closely serutiuizcd 
 
 There are persons, of course, whose experience has 
 been such as to qualify them to judge intelligently of 
 both city and farm values, but as a rule the opinion 
 of an inspector, no matter how capable he may be in 
 one field, is not dependable in both, for, as has been 
 pointed out, the conditions in these are wid-ly differ- 
 ent in many respects and the things that may be 
 obvious to the expert in one line may be entirely over- 
 looked by the expert in the other line. 
 
 A most competent judge of farm loans may, for 
 instance, be unable to see a "misfit" in a city build- 
 ing and its location, or he may fail to detect evidences 
 of stagnation in neighborhood values. On the other 
 hand, a shrewd and practical city loan man seldom 
 knows the surface indications of an unfavorable sub- 
 soil and may easily be deceived by a brave showing of 
 crops on land which could not produce them except 
 under very unusual conditions, while each inspector 
 in his own field would be able to see these things at a 
 glance. 
 
 The opinion of a farm expert is seldom sought in 
 the matter of city values, and a majority of investors 
 in such securities would no doubt consider it unwise 
 to do so, but it does not seem to be unusual for an 
 investor in farm mortgages to make the mistake 
 (although the lender seldom does so) of depending 
 upon the judgment of a city loan man in determining
 
 MORTGAGE LOAN VALUES 125 
 
 farm values. They apparently regard the expert in 
 city loans as an expert in all Real Estate loans 
 although in fact his judgment as to certain features of 
 farm securities is really more apt to be at fault than 
 is that of tlie farm expert when attempting city valua- 
 tions. 
 
 The investigator is always at a disadvantage when 
 attempting to do work outside of the lines to which 
 he is accustomed, and this is especially true when the 
 city man attempts the inspection of farms. When 
 making city inspections he will find many distinter- 
 ested persons among bankers, builders, money lenders 
 and Real Estate dealers, the concensus of whose 
 opinions is of value, but in the country he is without 
 this aid, for those w^io know the facts will often 
 hesitate to speak frankly to a stranger if doing so 
 would be unfavorable to the locality or would be 
 regarded as unfriendly by a neighbor. 
 
 While the neighborhood opinion as to the value of 
 the property is always important, it is usually of 
 more consequence in the case of a farm than of city 
 property, for in such a case it will have more influ- 
 ence on the salability of the property; and in this 
 matter it is much more difficult for any one, and 
 especially for the city man, to get candid and truthful 
 expressions from those who are in a position to know 
 than it is for almost any one to do so in city investiga- 
 tions. This is not because of any local lack of knowl- 
 edge, for the contrary is nearly always true, but it is 
 because of greater suspicion of the stranger who does 
 not "belong" and an appreciation of the fact that
 
 126 ]\IORTGAGE LOAN VALUES 
 
 more intimate neiglil)()i-h()()d relations exist amonf? 
 country people. 
 
 The farm expert, however, when examining farm 
 lands, is able to learn many things without asking 
 questions, and when he finds it heeessary to ask them, 
 he knows how to do so in a way that will elicit much 
 information which might and prol)Ml)ly would ho with- 
 held if it were apparent that he did not understand 
 his business. When examining farm securities, the 
 city man who is inexperienced in that line soon real- 
 izes that he is at a disadvantage and sometimes at- 
 tempts to offset his limitations by pretending to a 
 knowledge of the subject which he does not possess, 
 but this only makes matters worse, as no attempt could 
 be more hopeless than this and the pretense only 
 invites misinformation. 
 
 Another important feature of the loan A^alue is the 
 actual average income value of the property, and 
 in the case of city property this can usually be de- 
 termined with considerable certainty by the simple 
 method of comparing it with that of like property that 
 is similarly located; but it will be found that by far 
 the greater number of farms are either occupied by 
 the owners or are rented on a share crop basis, and 
 in these cases the inspector must be able, from his own 
 knowledge of the farming business, to make an ap- 
 proximate estimate of their average net earnings. 
 
 These are merely a few examples in a long list that 
 might be given of the special features belonging to 
 each general class of securities, but they should be 
 sufficient to cause the investor to pause before intrust- 
 ing loan valuations to any except those who are
 
 I\IORTGAGE LOAN VALUES 127 
 
 expert judges of the kind of property under con- 
 sideration. 
 
 The inspector's work should always be limited to 
 the class of investigations with which he is most 
 familiar, for in these he will l)e most practical and it 
 is very important that his conclusions should be along 
 practical rather than theoretical lines; and while 
 certain rules as to valuations apjiJy in all cases, each 
 of the two general classes of property has practical 
 features which are j^ecidiar to itself and which must 
 be taken into account in determining their loan 
 values. 
 
 It is sometimes thought that a farm inspector must 
 certainly be competent if he has a theoretical kuoAvl- 
 edge of the modern or what are called "scientific" 
 methods of farming, but, while su(*h knowledge is no 
 doubt an asset, it can by no means be relied upon, 
 because unless he can make his estimates of income on 
 the basis of common ordinary farming methods and 
 not allow potentialities to influence his judgment, he 
 is apt to prove a failure, for the lender can only rely 
 upon the ordinary methods being followed. 
 
 It will also be apparent that the same princijile 
 applies to city loans, and that while it is desirable that 
 the investigator should have a l)road enough vision 
 to see the future possibilities of the property and the 
 locality, he should estimate the value of this feature 
 as appreciating or depreciating the moral hazard 
 only, and confine his estimates to actual values as he 
 finds them to be based upon the current facts.
 
 XXII 
 
 BUILDING COST ESTIMATES 
 
 It is not to be expected, nor is it necessary, that the 
 inspector who deterjnines the loan valne to be placed 
 upon a building should have as exact knowledge of 
 the cost of its construction as would be expected of a 
 builder or contractor who might be asked to estimate 
 the cost of its duplication. 
 
 It is quite important, however, for the inspector to 
 be able to estimate its ai)proximate cost with reason- 
 able certainty, for such cost very frequently affects 
 and sometimes go^ferns the price for whicli the prop- 
 erty can be sold, although so many other elements 
 enter into the question of its loan value that the 
 amount of its original cost less its physical deprecia- 
 tion may mean either much or little to the investor. 
 
 ExpensiA^e construction and a good state of preser- 
 vation, for example, may be offset by conditions that 
 interfere with the salability of the property at a price 
 which its cost might otherwise seem to justify, and 
 the main question for the inspector to decide is not 
 upon its physical value as based upon its original cost 
 less its physical depreciation, but it is upon the loan 
 value shown by its present market value as justified 
 by the stability of that value. 
 
 This is, of course, always the main question. It is 
 true, however, that its consideration also usually 
 
 128
 
 MORTGAGE LOAN VALUES 129 
 
 involves that of the cost of the building and the char- 
 acter of its construction, and that in tliose eases 
 where the proper equilibrium has been maintained 
 between its cost and the market demand, such cost 
 less the physical depreciation is usually balanced with 
 its value for loan purposes, except in special purpose 
 properties and those which conform to temporary 
 "fads" in style or construction. 
 
 A good class of material and workmanship in a 
 building will go far towards indicating its greater 
 ability to withstand depreciation from age and it thus 
 enters into the moral hazard even when its additional 
 cost does not warrant a corresponding increase in 
 the loan value, and a ' ' cheapened ' ' building, although 
 of good style and good present salability, must be 
 discounted because of this fact. 
 
 It is evident then that the inspector should not de- 
 pend wholly upon what he may be able to learn as 
 to the market value of the property but should have 
 a good working knowledge of the approximate cost of 
 the various kinds and classes of material and construc- 
 tion, their average yearly per cent of depreciation 
 from age and the ordinary cost of their maintenance. 
 He should be able to recognize the different grades 
 of material and workmanship and to detect any signs 
 of cheapened construction and should be able to tell 
 whether or not a proper equilibrium has been main- 
 tained between the "show" parts and the less prom- 
 inent parts of the building as well as between its entire 
 cost and the value of the ground. 
 
 Such knowledge can only be acquired by consider- 
 able study and experience, for costs of material and
 
 130 MORTGAGE LOAN VALUES 
 
 labor vary at different times and at different i)laees. 
 and sueh 1 kings as foundations, inside finisli and 
 bnilt-in equipment in the way of elevators, healino; 
 plants, etc., will considerably alter the cost of build- 
 ings which have very much the same general appear- 
 ance. 
 
 If the inspector learns these things and k'>eps them 
 in mind the following tables of approximate and rela- 
 tive values, etc., may sometimes be of service to him, 
 but he must learn to use them only in the way of 
 general information, for this is their only dei^endable 
 use. 
 
 It is evident that tAvo buildings of the sam(> general 
 style, construction and finish will, if built under the 
 same labor and material conditions, cost about the 
 same per cubic foot, notwithstanding the fact that 
 they may differ somewhat in size and shape, and the 
 following tables have been based upon what are l)e- 
 lieved to be the average prices and average condi- 
 tions and reasonably free from the abnormalities of 
 unsettled times. 
 
 It will be noted that there is considerable variation 
 between the minimum and maximum estimates given 
 in each case, and this makes the use of such tables 
 impractical except for the purpose of showing the 
 general facts; such variation, however, is unavoidable 
 in tables which do not contemplate the exact duplica- 
 tion of every detail. 
 
 In these estimates calculations have been made from 
 the floor of the cellar or basement to the roof in 
 those cases where the roof is a flat one, and that
 
 MORTGAGE LOAN VALUES 131 
 
 part above the eaves in which there is head room, in 
 other cases. 
 
 Open porches are not included in these figures and 
 perhaps they can be brsl estimated upon a square 
 foot basis which in frame construction will be about 
 one dollar for vei-y plain ones and from two to two 
 and one-half dollars for more substantial ones. Brick 
 or masonry construction will add about 30% to these 
 figures. 
 
 Cubic Foot Estimates on City and Town Property. 
 
 (Add %c for slate or metal roofs) 
 
 Dwellings — Frame, hardwood floors and fin- 
 ish bath, furnace, laundry, good plumb- 
 ing, 1st class throughout 13 to 15c 
 
 Dwellings — Frame, part hardwood floors 
 and finish, bath and furnace, good but 
 inferior to above, 10 to 12c 
 
 Dwellings — Frame, plain but good, pine 
 
 floors and finish, no bath or furnace,. ... 8 to 9c 
 
 Dwellings — Brick, 1st class, 14 to 16e 
 
 Dwellings — Brick, 2nd class, 11 to 13c 
 
 Dwellings — Brick, 3rd class, 10 to 12c 
 
 Large Brick or Stone Mansions — 
 
 1st class, good and substantial, 40 to 53c 
 
 Additions to same, 22 to 27c 
 
 2nd class, less costly but good, 29 to 40c 
 
 Additions to same, 20 to 27c 
 
 Flats — Brick, stone or ornamental l)rick 
 fronts, fire-proof throughout, with eleva- 
 tors and all modern equipment, elabor- 
 ately finished, 55 to 60c
 
 132 IMORTGAGE LOAN VALUES 
 
 Flats — Brick, some ovnanKMitatioii, well fin- 
 islu'd, witli elevators, fire resisting floors, 
 etc., good class, 37 to 48c 
 
 Flats — Brick, ordinary class, plain but good, 
 
 with elevators, 28 to36c 
 
 Flats — Brick, cheap class, no elevators, 20 to 27c 
 
 Store Buildings — 2 to 4 stories, ordinary 
 brick and timber, plain finish, no ele- 
 vators, 1 2 to loe 
 
 Store and Office Buildings — Non-fireproof, 
 complete with elevators and all necessary 
 machinery, 23 to 31c 
 
 Office Buildings — Fire-proof, complete in all 
 respects, good but with plain finish, with 
 elevators and heating plants, 32 to 55c 
 
 Office Buildings — Fire-proof, steel frames, 
 extra finish in all respects, cut granite 
 in steel frames, etc., with elevators and 
 
 heating plants, 55 to 80c 
 
 (Office buildings have a wide range of cost 
 owing chiefly to ornamentation and the 
 elaborateness of finish, etc.) 
 
 Warehouses — 4 to 7 stories, mill construction, 
 
 brick walls, freight elevators, 13 to 16c 
 
 "Warehouses — 4 to 7 stories, fire-proof, extra 
 heavy construction, elevators, brick walls, 
 plain finish with good front, 20 to 25c 
 
 Estimates for Buildings on Farms or in 
 Small Villages. 
 
 (A very great variation will also be found in the 
 practical application of these estimates, chiefly be-
 
 MORTGAGE LOAN VALUES 133 
 
 cause of the difference in the cost of pla'.'injr the 
 
 material npon the ground.) 
 
 Dwellings — Frame, 1st class, good eonstrnc- 
 
 tion and finish, 1 to 12c 
 
 Dwellings — Frame, 2ud class, plain, painted. 
 
 small cornice, good fonndation, 7i/i> to Oc 
 
 Dwellings — Frame, 3rd class, box honse, nn- 
 
 painted, no cornice, on blocks or piers, . .41/^ to 6? 
 
 Dwellings — Brick, 1st class (as above), 12 to 14c 
 
 Dwellings — Brick, 2nd class (as above), 10 to 12c 
 
 Barns — Frame, 1st class, well finished, good 
 
 foundation, painted, complete, 6 to 9c 
 
 Barns^Frame, 2nd class but good con- 
 struction, good foundation, painted, . . . 3i/2 to 5c 
 
 Barns — Frame, 3rd class, cheap, unpainted. 
 
 on blocks or piers, 2 to 3i/^c 
 
 Country Stores — Frame, ordinary, plain fin- 
 ished, painted, good foundation 7 to 9c 
 
 Country Stores — Brick, well finished, paint- 
 ed, good foundation, 11 to 13c 
 
 The following table showing the depreciation of 
 frame and brick buildings is said to be used ])y the 
 United States Government : 
 
 Table 
 Brick when occupied by owner, 1 to 114% per year 
 Brick Avhen occupied by tenant, I14 ^0 lMi% P^"!" year 
 Frame when occupied by owner, 2 to 2^/^% per year 
 Frame when occupied by tenant, 2i/2 to 3 % per year 
 
 This rule contemplates a good grade of buildings 
 on which ordinary repairs have been made, and it
 
 134 ]\rORTGAGE LOAN VALUES 
 
 should 1)(' varied as repairs have been more or less than 
 ordinary. 
 
 Tlie pliysical depreciation aeeordino; to 
 
 other authorities is for cheap frame 
 
 buildings, 10 to 1 5 years 
 
 Ordinary frame residences, 20 to 30 years 
 
 Good class frame residences, 35 to 50 years 
 
 Cheap brick buildings, 25 to 30 years 
 
 Ordinary brick or stone buildings, 35 to 50 years 
 
 Good brick or stone buildings, 50 to 75 years 
 
 Best brick or stone buildings, 75 to 100 years 
 
 The life of steel and concrete buildings is unknown. 
 
 Such tables are of little value, however, for they 
 are intended to show only the average phvsical depre- 
 ciation of various classes of construction and there 
 are many other causes for loss of value, some of 
 which are almost if not quite as relentless as time. 
 For example, the physical loss may be very low and 
 the building may have had the best of care and there- 
 fore may be especially well preserved, but the style of 
 its architecture or of its inside arrangement or fit- 
 tings may lose their popularity in a short time as 
 they most certainly will do eventually, and when they 
 do so the former sale values will no longer exist. 
 
 In reaching conclusions as to the market value of 
 a building the inspector will also find that the rela- 
 tion which its physical value bears to the value of 
 the ground upon which it stands is an important 
 feature. 
 
 As a general rule, he will find that, in order to be 
 well balanced, ordinary residence and business prop-
 
 MORTGAGE LOAN A'ALU?]S 135 
 
 eiiies should not li;ivo ;in initial cost of less than the 
 value of the gronnd noi- should they exceed three 
 times this amount. Otliei- pi-operties, however, such 
 as apartments, warehouses. hos]iitals, etc., which 
 require rather expensive eonstruction hut do not need 
 expensive locations, may exceed tliis and sometimes 
 are not out of halance at five to six times the gronnd 
 value, provided that they are also well suited to 
 their location in otlier respects. 
 
 This rule presupposes that in estimatinp: city loan 
 values only a suitable and necessary amount of ground 
 Avill be considered; for instance, a house which would 
 be suitably located on fifty feet frontage of laud must 
 not be balanced against the 1.10 or 200 on which it 
 may stand, the va-ant ground in such cases being very 
 generally u.n productive. 
 
 Th'^ sam" principle ap|ilies to farm buildings, but 
 the question here is on their suitability and physical 
 value measured by the needs of the whole farm, for in 
 this case it is tlie productiveness of the soil that gives 
 to the whole property its income A'alue and in the 
 other it is the housing needs of the people which makes 
 the building itself do this. 
 
 Another very important mattei* for the inspector of 
 city buildings to consider is the cost of maintenance 
 of various classes of property. This is necessary in 
 order that he may be able to reach safe conclusions as 
 to the net earnings upon which the loan value of any 
 particular property should be based. 
 
 This cost of maintenance will vary greatly, owing 
 to the character, location and uses of the property,
 
 136 MORTGAGE LOAN VALUES 
 
 but will probably follow a rule somewhat as indicatod 
 by the following: 
 
 Table 
 
 Ordinary store buildings about 10 to 15% of gross rent 
 Cheap residences without 
 
 plumbing 15 to 20% of gross rent 
 
 Good residences 20 to 30% of gross rent 
 
 Ordinary office buildings 25 to 35%of gross rent 
 
 High class office buildings . . .40 to 60% of gross rent 
 
 Flats without elevators 35 to 45% of gross rent 
 
 Flats with elevators 40 to 50% of gross rent 
 
 Service costs will be found to make up a large part 
 of the difference between the higher and the lower 
 class properties above listed. 
 
 It will also be seen that the maintenance cost is 
 proportionately less in the less expensive buildings, 
 and if the gross rental affords the same interests rate 
 in each case, the net interest earnings are less in the 
 more expensive ones, and their owners must look to 
 the enhancement of ground values and the longer life 
 of the buildings, or, in other words, to more indirect 
 results for their profits.
 
 XXIII 
 
 PHYSICAL AND MORAL VALUES OF REAL ESTATE 
 SECURITIES 
 
 Ascertaining the market value of Real Estate is 
 not always as simple a matter as many persons be- 
 lieve it to be, although when the market for Keal 
 property in the neighborhood has been fairly bnt not 
 nndnly active upon ordinary cash terms, there Avill 
 always be a basis for jirompt conclusions. 
 
 Any variation from these conditions will present 
 problems which should be referred to no one except 
 an expert for solution. The local Real Estate market 
 for some reason may have been unduly active and 
 may have shown recent rapid advances, on the otlier 
 hand, its market may have been stagnated or sales 
 made at falling prices, or what is more common, ask- 
 ing prices may have been maintained but transfers 
 only made under especially easy terms of payment or 
 by exchanges of other property, and in any such cases 
 its true value may be very difficult to determine. 
 
 It has been held that the price for which Real 
 Estate is sold without distress and bought without 
 necessity fixes its value, but tins, of course, presup- 
 poses the price paid to be in cash or its equivalent. 
 Theoretically this is a sound rule and one that should 
 alwaj'S be kept in mind and applied whenever pos- 
 sible, for no other one fact will point so strongly to 
 
 137
 
 IN THE NORTHWEST 
 
 138
 
 MORTGAGE LOAN VALUES 139 
 
 the true value, but in attempting its practical appli- 
 cation to mortgage loan valuations, difficulties will 
 often be encountered, because of the fact that in a 
 majority of cases it will be found that neither the 
 property offered nor any similar nearby properties 
 have been recently bought and sold under those con- 
 ditions. 
 
 Where sales have been made without apparent dis- 
 tress upon one hand or necessity upon the other, it 
 will often be found that the seller has had su'-h profit- 
 able and immediate use for ready cash or the buyer 
 such special use or fancy for the property as to induce 
 the sale at either less or more than its real value, or 
 it may be that the buyer's ignorance of real values, 
 or his optimistic ideas of their future appreciation, or 
 the exchange price of other property, or the ad- 
 vantage of a small initial payment or of a long time 
 granted upon deferred payments have entered into 
 the transactions and thus affected the price. 
 
 Evidences of the market value of property should 
 first be sought by inquiries concerning recent trans- 
 fers in that neighborhood and the conditions under 
 which such transfers were made. Then, by reducing 
 these conditions to a cash basis and comparing the 
 marketable qualities of the property which has been 
 sold with those of the property which is under investi- 
 gation, the inspector may reach approximately true 
 conclusions, provided that the local Real Estate mar- 
 ket is a normal one. 
 
 In cases where it is found that no nearby property 
 has been recently sold inquiry should be made as to 
 what offers, if any, have been made and refused, and
 
 140 MORTGAGE LOAN VALUES 
 
 if no offers have been made, then it should l)e ascer- 
 tained what price, in the opinion of nearby owners or 
 agents, could be secured and upon what terms; and 
 these figures should then be checked against the pres- 
 ent and potential income value of Ih'^ property for 
 ordinary and legitimate uses, taking into account its 
 present condition and state of repair. 
 
 Efforts are often made to induce an inspector to 
 give weight to very insufficient arguments and incon- 
 clusive facts. It is sometimes the foolisli practice of 
 agents and owTiers in those sections where tliere has 
 been little activity in Real Estate to avoid the prac- 
 tical question of the price at which l)uyers for the 
 property could be procured, and to seek to convey the 
 information wanted by stating a price at which in 
 their opinion neighboring properties could not be 
 bought, which is no answer to the question at issue and 
 imposes on none except the inexperienced. Assess- 
 ments for taxation are so different in different places 
 and under different systems that they are of little 
 value except as they may put the investor on inqnirj' 
 in those cases where they seem to be unreasonable ; 
 rumored sale prices and even considerations recited 
 in deeds should always be accepted with caution and 
 large gross incomes should never blind the inspector 
 to the fact that it is only the net income which counts. 
 
 Arriving at safe conclusions in the matter of the 
 moral hazard is sometimes difficult, more often and 
 more especially so in the case of city loans, for these 
 are much more dependent upon changing conditions 
 than are farm loans; in these offerings the city itself 
 must be first considered, its size and location, its
 
 MORTGAGE LOAN VALUES 141 
 
 transportation facilities, the character and diversity 
 of the indnstries from which it draws its support, its 
 nearby rivals, and its general prosperity. 
 
 The general location of the property in the city 
 mnst then be considered, whether or not such loca- 
 tion is within the lines of the city's advancement and 
 well within the limits of established values, its liability 
 to heavy assessments for special improvements, its 
 vacancies and their causes, and, in fact, all of the sur- 
 rounding conditions which may indicate the probable 
 permanency of the present market values, this being 
 an essential feature of the loan value sought to be 
 ascertained. 
 
 When the property itself is reached in this investi- 
 gation, it must be measured by the requirements of 
 its surroundings, it must be found to fit its location 
 and uses, its style and construction should be such 
 that it will not greatly depreciate during the life of 
 the proposed loan, and, except when the money is 
 borrowed for the purpose of its improvement, its 
 present condition must be good. 
 
 The value of the ground should be in a fair pro- 
 portion to the value of the entire property, its rental 
 value for ordinary and lawful purposes should justify 
 its loan valuation, and, if the improvements are 
 designed for special uses, they should also be available 
 for other purposes, unless the ground value alone will 
 fully warrant the loan. 
 
 As to the stability attending farm values the situa- 
 tion is not nearly so complicated, and when the value 
 of the buildings does not exceed the amount w^hieli is 
 necessary to its proper equipment, the salability of
 
 142 MORTGAGE LOAN VALUES 
 
 the fai-iu is not so likely to be endangered during the 
 life of an oi-dinai-y loan, except in those cases where 
 the land is especially liable to overflows or erosions 
 or the failure of irrigation systems or destruction of 
 fences, nor is its salability likely to be affected by 
 neighborhood changes, which may easily be the case 
 with city property. 
 
 Occasionally a section will be found where the 
 "bear" element seems to prevail in Real Estate mat- 
 ters, and its actual selling value is found to be below 
 its ostensible , value. Whenever this situation exists 
 it should be accepted by the investor at its full face 
 value, for whether it is well grounded or not, nothing 
 will tend more to depress prices than will pessimistic 
 views on the part of those persons who might be buy- 
 ers or from whom prospective buyers will get informa- 
 tion. 
 
 Nor, on the other hand, should optimistic views, 
 which are much more common, ever be accepted at 
 their face value, for it is probably true that no large 
 number of loans, however poor, was ever made by any 
 honest lender that was not warranted by the local 
 ideas of conditions and prices at the time when they 
 were made. 
 
 All matters which may affect the stability of values 
 should, therefore, be closely investigated in the inter- 
 est of the investor, and this should be done, if possible, 
 by some one whose experience covers a wider field 
 than the local one, and who knows better what may 
 happen, the measure of its probability, and the meas- 
 ure of its damage to values if it does happen, than he 
 who has only the local view to guide his judgment.
 
 XXIV 
 
 ABSTRACTS OF THE RECORD TITLES 
 
 The abstract of title to Real Estate purports to 
 sliow, and should sliow, the exact condition of the 
 record title to the property up to the date when it 
 is last certified. It is a most important loan paper, 
 for the title in the borrower and his right to alienate 
 the property are essential in every loan transaction 
 and must be fully and definit(4y determined. 
 
 It sometimes happens that tlie record titles in a 
 certain territory are not very generally satisfactory, 
 but the reason for this is not so apt to be that the 
 titles therein are bad as that there is insufficient evi- 
 dence of good ones. 
 
 In a section where such a condition exists as to all 
 Real Estate it has usually been brought about by the 
 destruction of the public records. Other causes, how- 
 ever, such as the mistakes of incompetent convey- 
 ancers, the omissions of careless recorders or the indif- 
 ference or carelessness of former OA\aiers who have 
 neglected to have their evidences of title recorded, 
 have contributed to a bad condition of tho records of a 
 large proportion of the Real Estate holdings in many 
 localities, and such errors are found most frequently 
 perhaps in some of the older sections of the Southern 
 States. 
 
 AVhenever these conditions exist to any considerable 
 143
 
 144 MORTGAGE LOAN VALUES 
 
 extent it is a source of groat annoyance and somotimes 
 even of danger to the investor, because it creates a 
 situation that must be met, as well as may be, by 
 suits to quiet titles, statutes of limitation, or special 
 legislative enactments, nojie of wliicli is, niub-i- all cir- 
 cumstances, satisfactory or con-lnsive, alt hough in 
 any territory they sometimes affoid the only depend- 
 ence of the title. 
 
 There are few perfect titles, and all manner of 
 faults may, of course, be found in the individual ones 
 in any territory, especially in the older sections, but 
 these can usually be cured, in a practical way at 
 least, and marketable titles shoAvn ; and it is only when 
 defects in the records are found to be very common 
 and very serious that the investor is justified in avoid- 
 ing the territory for this reason. 
 
 There is no other requirement of the mortgage loan 
 business that is of more importance than that the 
 abstract of the title record should be a true one. and 
 yet it seems to be a very common practice among 
 lenders and investors to accept at its face value any 
 document which purports to be an abstract of the 
 title to the property offered as security. They very 
 properly rest upon the opinions of their attorneys 
 but apparently fail to realize that the evil, if any 
 exists, lies back of that and that all that such attor- 
 neys can do and all that they ever attempt to do is 
 to pass upon the title as shown by the abstract which 
 has been furnished them for examination and to 
 recommend an additional showing of facts if it should 
 be incomplete; their opinions never are and never can
 
 MORTGAGE LOAN VALUES 145 
 
 I 
 
 be flatly on the actual title nor on the truth of tlie 
 abstract. 
 
 Sometimes apparently complete abstracts are fur- 
 nished and acted upon that are afterward found to 
 be imperfect in some important respect, and for this 
 reason it would seem to be a wise rule that none 
 should be accepted without some evidence as to the 
 equipment, reputation and responsibility of the ab- 
 stractor who prepared it. 
 
 It is very well known that in many sections of the 
 country there are persons or firms to be found in 
 almost every county seat who are regularly engaged 
 in this business, persons who are equipped with copies 
 of the public records, which they keep up to date, of 
 every transaction recorded therein affecting the title 
 to each piece of Real Estate located in the district in 
 which they operate. 
 
 It is possibly not so well known, however, that in 
 many places where a considerable Real Estate and 
 mortgage loan business is done there is no one wlio is 
 regularly engaged in the Inisiness of abstracting the 
 records, this work being attended to in each case 
 as it comes up by some person, usually an attorney 
 who is interested in the matter and to whom the work 
 is an avocation instead of a vocation. 
 
 The abstractor who makes a regular business of tlie 
 work has an advantage over otliers in the opportunity 
 that it affords him for a more intimate knowledge 
 of the history of all of the land titles in his territor}' 
 and many incidental matters which indirectly affect 
 them ; and with such knowledge he is often better able 
 than others to supply collateral evidence which will
 
 146 MORTGAGE LOAN VALUES 
 
 serve to illuminate ohscui-e jilaces in record titles that 
 might otherwise seem to be sei-ionsly defective. 
 
 Under ordinary eirenmstanees it is often found to 
 be sufficient in "perfecting" record titles, that is, in 
 making tliem good and marketal)]e, llinl ((uit-claira 
 deeds or disclaimers of rights oi' iulei-csts sluiU be 
 executed by those persons in whom there may be 
 riglits or interests which would cloud the title in the 
 applicant, or that affidavits shall be procured from 
 snch reputable persons as may have a prol)able knowl- 
 edge of the facts when they are found to be necessary 
 in order to establish such things as the dates of deaths 
 or marriages or the identity of persons whose names 
 appear differently in the records. 
 
 These are, of course, matters for the investor's at- 
 torney to pass upon, but the well equipped and com- 
 petent abstractor can and does aid him in this work. 
 
 When the record of a title is abstracted by a person 
 who is not regularly engaged in the business, he may 
 do the work as thoroughly and make as true and com- 
 plete an abstract as any, and this is perhaps generally 
 the case, but persons sometimes undertake the work 
 who are incompetent, careless, and irresponsible, and 
 the greater number of these will doubtless be found 
 among those who are not regularly engaged in the 
 business. 
 
 The alleged abstracts made by such persons are 
 often based upon indexes only; wills, deeds, mort- 
 gages, releases, etc., being simply cited as such in the 
 abstract, notwithstanding the fact that by the exact 
 terms of these documents, the maker of the will may 
 not have legally and unconditionally devised the prop-
 
 MORTGAGE LOAN VALUES 147 
 
 erty in (jucstio]! to I he person who is supposed to have 
 inlierited under it, nor tlie deed have conveyed an 
 indefeasil)le title to it in fee simple to the grantee, 
 nor the release have fully released it from all claims 
 under the mortgage. 
 
 It is true that the abstractor certifies the abstrai^t 
 and that in many instances he is a person of financial 
 responsibility or that he is bonded (which is a require- 
 ment of the law in certain States), but these' safe- 
 guards only cover the fact that the various records 
 have been examined by him and nothing found therein 
 that is not shown by th^;" al)stract, and neither his 
 personal responsibility nor his bond may be adequate 
 to cover losses that Avould be possible because of 
 serious mistakes or oversights on his part. 
 
 Although no ultimate loss may occur, carelessly 
 made abstracts sIioav many titles to be seriously de- 
 fective when such is not really the case; on the other 
 hand, tliey often fail to show existing incumbrances 
 and title complications. 
 
 In order to avoid "unnecessary" work such ab- 
 stractors sometimes use "copies" of abstracts into 
 which many errors may have found their way, and 
 for the same reason they are careless in the matter of 
 affidavits, for it is little trouble to procure these, and 
 many which are wholly unreliable are used for the 
 purpose of curing the defects which their "abstracts" 
 may show. 
 
 Occasionally a dishonest abstractor, having an inter- 
 est in shoAving a good title, has been known to deliber- 
 ately make such a showing des;)i1(» the records by sup- 
 plying the missing links in n broken chain of title by
 
 148 MORTGAGE LOAN VALUES 
 
 ])ui-e iuvciilion, or by purposely omitting items which 
 Mould show a state of facts other than the desired 
 one. 
 
 Two plans are used to overcome such record-title 
 difficulties as are herein mentioned, but each is used 
 in a very limited area ; one is the introduction of the 
 Torrens system of title records, and the other is the 
 establishment of Title Guarantee CV:)mpanies. LTnder 
 the first plan the title is guaranteed by the State or 
 County after it has been tried by a constituted author- 
 ity and adjudged to be good; under the second it is 
 guaranteed by the title company after they have 
 examined it and have decided that it is insurable. 
 Each plan involves some expense to the property 
 owner, but each seems to afford some protection to 
 the lender provided that the lial)ility is clearly de- 
 fined, that the financial responsibility is ample and 
 that relief is apt to be reasonably prompt if needed. 
 
 Whatever advantage these plans may present, how- 
 ever, their operation fails to extend to the greater part 
 of the best loan territory, while the guaranty that is 
 afforded the mortgagee by the work of fully com- 
 petent and ]-esponsil)le alistraetors and title attorneys 
 can be had in almost any good territory and is in fact 
 an exceM|ngly strong guaranty and one upon whjLch 
 he may rely "wi thereat confidence^
 
 XXV 
 
 THE ACTUAL TITLE IN THE APPLICANT 
 
 There is, however, another feature of the question 
 of titles which must not be overlooked in this con- 
 nection; it is the condition of the actual title in re- 
 spect to those things which may affect the mortg'aijee's 
 interests, for it should be noted that this condition 
 may or may not be shown ]:)y the record title — for 
 instance, the record does not, and cannot, shoAV who 
 is in personal possession of the property, but the fact 
 of possession, if under color of title, may determine a 
 .better title than the one of record althougli tliat one 
 may be complete. 
 
 An easement ma,y also become a definite riglit in 
 persons who do not hold the fee, although it has never 
 been made a matter of record; or rights of recovery 
 from the property may accrue under mechanics and 
 material-men's lien laws, which claim, when filed of 
 record, may take precedence over the rights of a 
 lender, although his mortgage may have been executed 
 before the actual filing of such lien, or a homestead 
 right in the borrower that would prevent a recovery 
 by the lender, may exist without being shown either 
 of record or by any visible possession of the property, 
 or transfers may have been made for the pui-pose of 
 evading a law enacted for the protection of the wife's 
 interest. 
 
 149
 
 150 .MOKTOAeiE LOAN VALUES 
 
 Examples miji-lit l)e iiiiiltiplicd, l)iit under a careful 
 system of examiualion \hc dauji'ei- of loss to the in- 
 vestor is extremely small for the probahle existence of 
 such defects is nearly always indicated in some man- 
 ner by the statements oi- by the absence of certain 
 statements in either tlie ap|)li('ation or the abstract 
 and also in many cas; s ai-e suggested by the sui'round- 
 ing circumstances Avhich come under the supervision 
 of the inspector, who should be fully awake and 
 watchful along these lines. 
 
 For instance, if the application states that the prop- 
 erty is occupied by a tenant and the occupant is 
 found to be a person of the name given and appar- 
 ently one of the tenant class, whose answers to rpies- 
 tions as to the terms of his tenancy go to support such 
 statement, the danger of his having any claim to own-' 
 ership may be considered negligible, especially as it is 
 a trait of human nature for him to claim everything to 
 which he thinks he is entitled. 
 
 On the other hand, if the occnpant is evidently not 
 of the tenant class, or if he is a near relative such as 
 a son or daughter of the applicant, a more careful 
 investigation should be made, and unless this is fully 
 convincing, due caution will suggest that the occupant 
 should be required to make a Avritten disclaimer. 
 
 Easements are not ordinarily of a very serious 
 character from a loan point of view, but they may, of 
 course, be such as to depreciate the value or salability 
 of the property, and, if they exist, their terms should 
 be know^n to the mortgagees. The signs of their prob- 
 able existence and importance will be noted by the 
 expert inspector, for they Avill usually be indicated by
 
 MORTGAGE LOAN VALUES 151 
 
 paths, roadways, stairways, irri«;ati()n ditches, etc., 
 used by persons other tliaii the owikm's oi- occupants 
 of the ]iroperty, or tlicy may be shown l)y Ihc en- 
 croaclinients of (he fences or l)\iihliii<i'S of th" adjoin- 
 ing' pi-opei'lies. 
 
 Tlie pr()l)al)ility of tlie i-iglif to a lien against the 
 property having aecnied for labor or bnilding ma- 
 terial, is also usually sliown u]:»on the surface the 
 application should contain a statement covering this 
 point, but notwithstanding any such statement, if the 
 property has been very recently built or repaired, or 
 if there is any evidence of work having lieen com- 
 menced or material furnished for new buildings on 
 the ground included in the application, the borrower 
 should be recjuired to execute a bond for the protection 
 of the mortgagee. 
 
 The homestead and exemption laws of the various 
 States are not generally such as to demand more than 
 the ordinary attention of the investor, but this rule is 
 not universal, for in at least one instance, they are 
 of very grave importance indeed, the rights under 
 them being great and being based wholly upon the 
 question of fact, which is made sus.'eptible of proof 
 in court, and if proved will be so held to be, although 
 the borrower may/ have made contrary declarations 
 under oath for the purpose of procuring the loan. It 
 behooves the inspector then, in casrs where this ques- 
 tion is involved, to discover the facts, and he should 
 examine, not only the property offered as security, 
 but also the declared homestead, in order that he may 
 know it to be clearly defined and actually the home 
 stead of the applicant, and he sliould also make
 
 152 M0RTC4AGE LOAN VALUES 
 
 jiidieioiis inquiries as to tliese inattors of persons 
 who have a probable knowledge of the faets, as the 
 answers to such inquiries will often show whether or 
 not there is any danger of an jilteniplcd ('\'asi()n of 
 this law. 
 
 Tliere is another matter whicli is of the same general 
 class as the title complications referred to and wliich 
 may be mentioned in this connection; this is the (pies- 
 tion of identity, the identity of the property examined 
 by the inspector with tliat described in the legal 
 description in the application, and the identity of the 
 person who executes the mortgage and receives thi> 
 proceeds of the loan with the person who owns the 
 property. 
 
 This is so vital to any loan value, and the loss, if 
 any is suffered, is so apt to l)e a serious one, that it 
 Avould seem to be unlikeh^ that any investor or lender 
 would neglect to have the facts fully determined, but 
 loss and trouble because of mistaken identity occur so 
 infrequently that they seem never to be expected nor 
 regarded as a present danger. 
 
 There is, hoAvever, a great deal of carelessness in this 
 respect on the part of botli lenders and inspectors, 
 who seem inclined to accept statements as to identity 
 at their face value without verifying them, often ex- 
 amining and passing upon the physical value of any 
 property which is found to bear the proper street 
 number, or which may be pointed out to them as the 
 property offered in tlie application, and accepting as 
 such, any person who may introduce himself or be 
 introduced under the name of the owner. 
 
 This statement may appear to be rather an extreme
 
 153
 
 154 .M()RT(;A(!E loan VALUES 
 
 one so far as the practice of a niajoi-il y of lenders is 
 concerned, l)ut the fact llinl Ili"i-e is a great deal of 
 carelessness in such iiiatlers is attested hy the snccess 
 of such mortgage h)an s\\indh>rs as liave used false 
 descriptions and false personifications to accomplish 
 their purposes; nearly all hmd and loan swindles 
 being based npon insufficient investigations along this 
 line, for this is believed to be and probably is the most 
 vnlnerable point in the armor of the intended vic- 
 tims. 
 
 An}- of the matters that may require a jiersonal 
 investigation in order to determine whether unfavor- 
 able facts exist which are sugg sted bnt are not clearly 
 shown will be open to one sonrce of information which 
 should not be overlooked. This may be called the 
 "neighborhood knoAvlcdge." This is especially avail- 
 able in country districts, where it usually reaches 
 much further into details than does the same kind of 
 information obtained in city investigations, and while 
 it may not always be dependable it should not be 
 ignored, for it is almost sure to contain some kernels 
 of fact and some suggestions as to the lines of inquiry 
 which may be pursued with profit by the lender. 
 
 This "neighborhood knowledge" very often goes 
 into the bona fides of the transaction; it may show 
 that mis-statements may have been made, such for 
 instance as that the proceeds of the loan are not likely 
 to be used for the purpose stated in the application, 
 or that the stated cash purchase price was, in fact, an 
 exchange of overvalued properties, or it may develop 
 certain adverse matters which have not been pre- 
 viously considered, such as that of the notary having
 
 MORTGAGE LOAN VALUES 155 
 
 an interest in the transaction that might invalidate it, 
 or of tlie total cost to the borrower being- an anionnt 
 which wonld constitute usury under the laws of the 
 State in which the loan is to be made, or that the loan 
 has been rejected for cause by other investors. 
 
 Any small bits of information along these or similar 
 lines which serve to cast a doubt upon the safety or 
 entire desirability of the loan will be notice to fully 
 competent and expert attoi-neys and inspectors which 
 they will not neglect to observe if they are well fitted 
 for such employment, and the danger to the- investor 
 from such complications is thus reduced to a mini- 
 mum.
 
 XXVI 
 
 THE PERSONAL HAZARD OF THE BORROWER 
 
 What has been spoken of in these eommenls as the 
 personal hazard of a loan goes to the disposition and 
 ability of the borrower to take proper care of his obli- 
 gations and of the mortgaged property dm-ing the life 
 of the loan, and to repay the principal when the loan 
 matures. 
 
 Some investors and lenders do not attach any great 
 value to this hazard ; they hold to the opinion that 
 only the marketable value of the property and its title 
 can be depended upon to make the loan a safe one. 
 They also hold that changes of ownership are so fre- 
 quent and so uncertain that a good personal hazard 
 of today may be a poor one tomorrow, and, strictly 
 speaking, in both of these contentions they are right. 
 
 This view, however, omits the consideration of cer- 
 tain practical and human features of the business and 
 seems to be rather in line with the ancient idea, which 
 is a wrong one but which still lodges in the minds of 
 a few persons, that the interests of those who borro\A' 
 and those who lend money are conflicting ones. Nor 
 do these contentions, although technically right, dis- 
 pose of the very practical fact that less trouble is 
 actually experienced by the investor with the average 
 loan that starts with a good personal hazard than with 
 the average one which does not have that advantage. 
 
 156
 
 MORTGAGE LOAN VALUES 157 
 
 A more eomprehonsive view, perhaps, is one which 
 recognizes the fact that the relations of the lender 
 and borrower may be, and should be, both liusinesslike 
 and friendly ; that the terms of the contract should 
 be observed and enforced, but that this rule is a gen- 
 eral one, and that there may sometimes be occasions 
 when its strict enforcement would work an unneces- 
 sary hardship, and occasions when its liberal inter- 
 pretation might encourage and enable an unfortunate 
 borrower to meet his obligations, and thus prove to be 
 the most satisfactory policy for both parties. 
 
 This last view regards a good personal hazard as 
 having a very distinct value — not exactly as being a 
 necessary part of the security itself, but rather as 
 being something which is added to it, and which will 
 go to make an otherwise safe loan a more desirable 
 one. In other words it is a promise, the lack of which 
 may be taken as a warning of possible defaults in 
 interest, taxes, and insurance, or of a neglect of the 
 propert}" itself which might result in a depreciation 
 of its value. 
 
 It also recognizes the fact that there is seldom or 
 never any desire on the part of the lender to need- 
 lessly distress the borrower, but that unfortunately 
 there is a class of borrowers who are disposed to take 
 advantage of this fact, and who will neglect their obli- 
 gations to such an extent that many investors and 
 lenders regard their connection as undesirable, 
 although their business may appear to be safe. 
 
 It is true that the actual value of the security must 
 be ample and that the title must be a good one, but 
 these things alone do not insure the specific perform-
 
 158 MORTGAGE LOAN VALUES 
 
 ance of the contract and the avoidance of foreclosure; 
 nor, for that matter, does a good personal hazard do 
 this, but it does add something to the ])i'()S]>e('l of the 
 loan's record proving to be a satisfactory one. 
 
 At the outset a good personal hazard lias a decided 
 advantage, for, while transfers will, be luoi-c frequent 
 under some conditions and less so under others, it is 
 estimated that, under the average conditions of Real 
 Estate market activities, approximately eighty-five 
 per cent of the ordinary classes of mortgaged proper- 
 ties have no change of ownership during the life time 
 of an ordinary five year loan ; this leaves only fifteen 
 per cent in which there are such changes, and although 
 there is no rule that either good or bad personal haz- 
 ards in these cases will follow those which are of the 
 same character, they undoubtedly do have a tendency 
 in that direction, for the reason that men deal more 
 often than otherwise with those persons who belong 
 to the same class with which they themselves asso- 
 ciate, and the property of one of these persons is more 
 apt to be known to and to appeal to another of the 
 same class, just as the well kept property of one who 
 is thrifty is more likelj' to attract and create a desire 
 for ownership in the mind of another thrifty person 
 than it does in that of one who is himself careless and 
 who is indifferent to its well kept condition. 
 
 The condition in which the applicant keeps his 
 property and the reputation he has achieved among 
 those who know him and have dealt with him, for 
 the payment of his obligations without resorting to 
 unreasonable delays or contentions, may be accepted 
 by the lender as strong evidence of the habits and
 
 :\rORTGAGE LOAN VALUES 159 
 
 priiicii)h's, Avliicli will probably dominate his future 
 actions. 
 
 Aside from the fact that good personal hazards are 
 more apt to be found in those sections where good 
 physical hazards are the rule, social distinctions or 
 rules -which apply to classes are of little value, for in 
 considering this feature of the loan each case is neces- 
 sarily an individual one, and the poor negro cotton 
 farmer may be found to be a better personal risk than 
 may the man of much greater wealth and standing 
 who relies upon his position in life to excuse his lack 
 of prompt performance ; or the same applicant may 
 prove to be a better risk in a case where he has an 
 interest in the property over and above his financial 
 interest, even if his holdings are small, than in a case 
 where he has no such additional interest in the prop- 
 erty although its money value is much greater. 
 V.For example, he who is the owner of rental property 
 may be indifferent as to its upkeep and at a pinch 
 may risk its sacrifice, but the prap-erty which is his 
 and his family's home usually has for that I'cason an 
 added value in his eyes which disposes liim to make 
 extra exertions, if necessary, to protect it. 
 
 As to the question of the borrower's ability to take 
 care of his obligations and to protect his interests, 
 there are many facts which will serve to point with 
 reasonable certainty to correct conclusions; for 
 instance, if his chief dependence is upon his personal 
 skill and ability, either physical or mental, these 
 should not be found to fall below par as compared 
 with the magnitude of his undertakings, and in sucli 
 cases his age, equipment, industry and economy, his
 
 160 ]\IORTGAGE LOAN VALUES 
 
 success or failure in l)usiii('ss matters and also any 
 financial Ijiirdcns A\lii(-li he may carry, such as expen- 
 sive liabils or the support of extravagant and non- 
 producing dependents, should be taken into considera- 
 tion. 
 
 The applicant ma'y, however, and often does, have 
 resources and property holdings in addition to the 
 property offered as security, and if these are substan- 
 tial in character and sufficient in value above his 
 indebtedness that fact may in some degree lessen the 
 importance which might attach to a personal hazard 
 which is without such material helps. But it should 
 be remembered, when considering this feature, that 
 character is a more dependable possession than wealth, 
 and that the owner's property holdings may easily 
 exceed his ability to manage them profitably. 
 
 Careful inquiries and, when possible, personal 
 observations should always be made to determine the 
 personal risk that may go with each loan ; and if 
 direct knowledge is not obtainable and answers to 
 inquiries only must be depended upon, it must be 
 remembered that such answers should come from the 
 best and most disinterested sources which may be 
 available, and that conclusions should be drawn, if 
 possible, from a concensus of opinions rather than 
 from that of any individual, for neighborliness or 
 other interest in the applicant's success in getting a 
 loan often unduly colors such answers and opinions. 
 The investigator should also be fully aware of the 
 fact that he must not expect to get any answers that 
 may be inimical to the interests of the applicant if 
 the applicant or his agent is present at tlie time.
 
 MORTGAGE LOAN VALUES 161 
 
 In the case of farm loans a direct knowledg'e of 
 the facts is more avaihil)le, and the inspector, in addi- 
 tion to making judicious iiuiuiries, ahvays can and 
 shouki report upon tlie personal hazard which is 
 shown by the condition and care of the buildings, 
 fences, implements, live stock, etc., and the general 
 state of cultivation of the land itself, for from such 
 observations very dependable conclusions may be 
 drawn. 
 
 All of these matters should be kept in mind, but 
 among the various things that go to indicate the haz- 
 ard, perhaps the most important one is the purpose 
 for which the proceeds of the loan are to be used. 
 
 A very common use for the money is as a part of 
 the purchase price of the property offered as security, 
 and in many cases this use is very favorable to the 
 hazard; another very common use is the making of 
 betterments to the property mortgaged, and this is 
 also favorable if the loan asked for is upon tlie basis 
 of the value of the property before the betterments 
 are made. 
 
 Other good uses for the proceeds of a loan may be 
 the purchase of other real or personal property which 
 will add an amount to the borrower's net income in 
 excess of any interest he has to pay for the use of the 
 money; or the money may be needed for the purpose 
 of prosecuting or enlarging an already successful 
 business, or for the refunding of other debts, when at 
 the same time the borrower is reducing his total 
 indebtedness. On the other hand, there are many 
 purposes for which money is sought to be borrowed 
 which should cause the lender and investor to hesitate.
 
 162 MORTGAGE LOAN VALUES 
 
 for they may cither indicate a bad business manage- 
 ment of the applicant's affairs in the past, or con- 
 tcm])latc investments which are more in the nature of 
 new li;il)ilities tlum of additional assets.
 
 XXVII 
 
 IRRIGATED LAND 
 
 Another matter to which special attention should 
 be called is that of irrig-ation, for the business of lend- 
 ing money npon the socnrity of mortgag; s upon irri- 
 gated lands is one which is seldom fully nnderstood 
 by those who have confined their operations to those 
 sections in which the rainfall alone is depended npon 
 to supply the agricultural needs. 
 
 While no very comprehensive discussion of this 
 subject is possible here, the mention of a few of the 
 more important conditions which are peculiar to such 
 lands and to land loans in cases where the value of 
 the land depends largely upon its artificial irrigation, 
 may give the miinfornied person a clearer idea of the 
 subject and a l)etter knowledge of the lines along 
 which investigations should be made when this class 
 of securities is to be considered. As these matters are 
 not always understood, the following facts are given 
 as affording some basis for their study. 
 
 Large sections of our country are either arid or 
 semi-arid and, in others the rainfall, while sufficient 
 in quantity, is not well distributed for agricultural 
 purposes. In much of this territory, however, the 
 land is so rich in all of the other necessary con- 
 stituents for the production of crops that by the 
 
 163
 
 IRRIGATION CANAL 
 
 164
 
 MORTGAGE LOAN VALUES IG-l 
 
 addition of the needed amcMint of water it can be 
 made to yield most abnndantly. 
 
 Experience has shown that. one of the most impor 
 tant factors in the fertility of the soil is that of the 
 proper content of water and that in many eases it is 
 possible to control this excess or defect in moistnre by 
 drainage when it is excessive and by diverting; water 
 from streams or pnmping it from beneath the snrface 
 onto the land when it is lacking. 
 
 The agricnltnral valne of irrigation has long passed 
 the experimental stage and while mnch may yet be 
 learned as to the Ix-st methods of nsing it, the general 
 benefit to be gained by its nse when needed is no 
 longer a matter of any doubt nor is there any question 
 but that intelligently made loans upon irrigated lands 
 are as satisfactory to the investor as any oHiers. 
 
 The fact is well recognized, however, by those who 
 are experienced in this class of secnritirs that their 
 proper selection requires a fair general knowledge of 
 the subject of irrigation insofar as it may affect such 
 loans or the territory under consider'ation, for lend- 
 ing upon these securities has certain peculiar fea- 
 tures, and losses may easily result from the lender 
 acting upon an insufficient knowledge of the subject. 
 
 For instance, the land and water together ma>- be 
 ample security for the proposed loan, althougli the 
 land alone may be wholly inadequate security, but 
 mortgages are made upon the lands only and this in- 
 troduces a complication, for while the title to these 
 includes the buildings and other improvements 
 thereon together with the irrigation ditches, etc., Ihe 
 title to the water, if it is from a floAving strfVTm, is a
 
 IGfi MORTGAGE LOAN VALUES 
 
 separate tiling, and its nse in eonneetion with the land 
 is subject to certain rules and conditions foi- "water 
 flowing: upon the surface of the earth is neither land 
 nor Icnement" and is not susceptible of absolute 
 owiieisliip and the mortgagor can only assign sudi 
 rights as he may have in it as collateral security. 
 
 But notwithstanding these facts, the availability of 
 irrigation Avater to l)e had u.pon satisfactory and de- 
 pendable conditions enhances the actual value of the 
 land upon Avhich it can be used with profit, just as 
 the nearness of markets, good roads, and neighbor- 
 hood development generally may add very materially 
 to its value although the title to the land does not 
 carry with it any enforcible claim of title in them. 
 
 Flowing water is the property of the owners 
 through or between whose land it flows, subject, how- 
 ever, to the rights of other riparian proprietors above 
 or below, although when separated from the body of 
 which it constituted a part, it may be bought and sold 
 like other commodities. 
 
 The waters of a stream flowing through the public 
 lands are a part of the public domain but after the 
 general government has parted with the title to the 
 soil the right to control the use of such waters passes 
 to the State Avhere they flow and various acts of Con- 
 gress and the statutes of various States bear upon this 
 subject, with the main object, it would seem, of the 
 establishment and definition of what are known as 
 priority rights. 
 
 As this doctrine of prior rights grew out of the 
 local rules and customs of miners and was based upon 
 the wants of the community and the peculiar social
 
 MORTGAGE LOAN VALUES 167 
 
 and industrial conditions lof-ally prevailing to wlii 'li 
 the rules of the coninion law were at first considered 
 inapplicable, the interpretation of the acts and 
 statutes governing thrs? mattors have necessarily 
 required many decisions from tlie courts in determin- 
 ing the rights under the law of the claimants to tlie 
 use of water. 
 
 This question of the priority of the water right goes 
 further, however, than simply to its legal status and 
 extends to the amount of water available under any 
 such right as may exist, compared with tlie amount 
 needed for practical purposes by the irrigation system 
 which it is expected to supply. 
 
 The first right to the use of water may be a perma- 
 nent one, held absolutely, or it may be subject to cer- 
 tain conditions, restrictions, and reservations but in 
 anv case it takes precedence of all subsequent appro- 
 priations, for these secondary rights must not inter- 
 fere with the right of a prior taker to have the full 
 benefit of his appropriation, and one who goes upon a 
 stream and diverts the water from it is bound to take 
 notice of all prior appropriations. 
 
 It is not the intention, however, to go into a dis- 
 cussion of the legal features of irrigation projects and 
 mention has only been made of the above facts in 
 order to show that the right to take and use water for 
 this purpose involves legal questions which should not 
 be carelessly passed upon but which should be sub- 
 mitted to the judgment of a competent local attornc}'. 
 
 Preliminary to even the most superficial knowledge 
 of the subject of irrigation the investigator must, of 
 course, understand the meaning of the terms which
 
 168 :\IORTGAGE LOAN VALUES 
 
 are comiudiily iisj'd in discussinf; it, <m(l ;if first lie 
 may be somowluH confused hy the fad 1li;i1 different 
 measurements are used to indicate tlic anioiuit of 
 water that is used or is available— these are niiu'i-'s 
 inches, second feet, and acre feet, and ni;iy be defined 
 as follows : 
 
 A Miner's Inch is the flow of water throuu'h a liole 
 one inch square with a four incli head — it is nicasui-ed 
 by placing a lioard, in which there is a hole one inch 
 sqnare across a stream so tliat it will "backup" and 
 maintain a depth of four inches of water above the 
 hole. Neither the factor of time nor of amount of 
 water enter into this measurement, for it was origi- 
 nally designed solely for the use of miners \\\\o were 
 only concerned with the size of the stream and the 
 force of the flow. 
 
 In applying the measure to the flow of water for 
 irrigation purposes, however, the factor of time is 
 introduced, and it has been found that the miner's 
 inch flow per niinnte of reasonably clear water Avill 
 be approximately nine gallons. 
 
 A Second Foot is a cubic foot of water passing a 
 given point in one second of time — it is equivalent to 
 50 miner's inches and is calculated to give a result of 
 450 gallons per minute ; it is used in measuring the 
 flow of larger streams as the miner's inch is used for 
 the smaller ones. The second foot flow of a stream is 
 usually measured from a weir or dam. 
 
 An Acre Foot is 43,560 cubic feet or about 325,829 
 gallons and is equivalent to a twelve inch rainfall over 
 an acre of ground. In point of time the acre foot is
 
 MORTGAGE LOAN VALUES 169 
 
 usually calculated as an annual distribution and cal- 
 culated by weight will exceed 1,300 tons. 
 
 One gallon contains 231 cubic inches, one cubic foot 
 contains 1,728 cubic inches or 7.48 gallons, one acre 
 contains 43,560 superficial feet or 6,272,640 square 
 inches and the following calculations will show 
 (theoretically) the results to be obtained in the dis- 
 tribution according to its measurements of water on 
 the land. 
 
 One miner's inch in a 24 hour run over one acre is 
 equal to .471 inches of rainfall, 2.1 miner's inches 
 being equal to a one inch rainfall, and 25.2 miner's 
 inches equal to twelve inches of rainfall. One miner's 
 inch flowing continuously for one year will afford 
 water sufficient to cover one acre of ground to a depth 
 of 14.1 feet. One second foot or fifty miner's inches in 
 a 24 hour run per acre would equal 23.89 inches of 
 rainfall and one second foot in constant flow and 
 evenly distributed over 160 acres would equal 54 
 inches of rainfall, but these calculations are all 
 theoretical and fail to take into account certain prac- 
 tical facts which very materially reduce the amounts 
 actually obtained at the points of contact with the 
 roots of the plants for whose benefit it is intended. 
 
 The reductions which must be made from the above 
 estimates are due to many causes and often amount 
 to as much as 50% of the measured flow. First, 
 nearly all water taken from streams carries silt and 
 other foreign substances which greatly retards its 
 flow; second, the loss owing to evaporation is very 
 great, especially in the hot and dry climates where 
 irrigation is chiefly used ; third, there is much loss
 
 170 IMORTGAGE LOAN VALUES 
 
 from S(M']);i<i:(', ospocially in llic use of eartli conduits; 
 fourtli, tlicro is waste from saturation at points of 
 distribution. 
 
 Tn many instances Avater is immix'd from wells oi- 
 under<i'i'ound sujjplies (unless flowing wells may be 
 had) and sometimes from iionds, lakes or artificial 
 reservoirs. This adds to tlie cost of irrigation the 
 expense of using artificial power instead of gravit}' 
 but it usually has the advantage of the supply having 
 a greater head and being nearer to the point of dis- 
 tribution and also of clearer water (it also avoids the 
 danger from the seeds of noxious weeds which are apt 
 to be carried by the open stream). 
 
 A larger head and volume will overcome some of 
 the losses above noted and 100 inches of water will be 
 more effective on 100 acres than will 50 inches on 50 
 acres. At the point of distribution onto the land a 
 tight soil will absorb less water than will a loose soil 
 and cement flumes or pipes are sometimes used for 
 mains with metal or canvas pipes or hose to convey 
 the water over the land. All of these things result in 
 economy in the use of water and sometimes bring the 
 efficiency of the water supply up to nearly its meas- 
 urement capacity. 
 
 The investigator should also have some knowledge 
 of Avhat is called the "duty of water." He should 
 understand, however, that this term does not indicate 
 that any given results can be expected from the appli- 
 cation of a certain amount of water to a certain quan- 
 tity of land, otherwise he may make the mistake of 
 adopting arbitrary rules in this matter, for in prac- 
 tice it will be found that the kind and texture of the
 
 MORTGAGE LOAN VALUES 171 
 
 soil and sub-soil will affect the proportion of effi- 
 ciency between equal supplies of w^ater and also that 
 the relative amounts needed for the various crops 
 differ greatly, and that the amount which is found to 
 be ample in some cases will fall far short of the neces- 
 sary amount in other cases (where either the texture 
 of the land or the crop to be irrigated is different) ; 
 but the "duty of water" as it may be affected by 
 existing conditions should be understood by him in 
 order that he may be able to judge as to whether or 
 not the supply is sufficient for general agricultural 
 uses on the kind of land irrigated, or whether it is 
 limited to the amount necessary for special purposes 
 only.
 
 XXVIII 
 
 DRAINAGE 
 
 It is the intention of these eommeiits lo discuss 
 briefly the more general matters and the more per- 
 tinent questions which may arise from a consideration 
 of the subject that is indicated by the sub-title. In 
 this case tlie subject of drainage is of importance to 
 mortgage loan values and gains interest because it is 
 in many features the converse of the preceding com- 
 ment on irrigation. 
 
 A more comprehensive view of this can probably 
 be had if the question is regarded as being more truly 
 upon the subject of providing farm land with the 
 proper content of water, whether the desirable con- 
 tent is in excess or in deficiency of what it should be 
 in order to insure a potentiality in crop producing 
 that would not otherwise exist. This subject then 
 may properly be considered as pertinent to either, or 
 rather to both comments. 
 
 Land which in its normal state may be arid or semi- 
 arid and also be in a sense, unproductive of profit- 
 able crops, may, under favorable conditions be re- 
 deemed by irrigation. This matter has been touched 
 upon in the preceding comment. An excessive oppo- 
 site condition is often found in other considerable 
 areas where drainage is required, and which for this 
 reason may be as wholly unproductive of ordinary 
 
 172
 
 MORTGAGE LOAN VALUES 173 
 
 agricultural crops as are the arid aud semi-arid lands, 
 when witliout the aid of irrigation. 
 
 In many parts of the country, then, large sections 
 of land exist where the character of the surroundings 
 and the low elevation are such as to hold for extended 
 periods of time, the water which collects and impreg- 
 nates the land that it covers. The total area of such 
 land is estimated to be approximately 155,000 square 
 miles, about one-third of which is only periodically 
 overflowed. All of such lands, however, are generally 
 classed as swamp lands and are often reclaimed by 
 the building of gravity drainage canals or the dredg- 
 ing of their natural outlets which were originally 
 supplied by streams. The large excess of water usu- 
 ally found in swamp or bog lands is generally caused 
 by precipitation or by the supply which is collected 
 there from streams or springs which have no suffi- 
 cient outlet, or from the overflow of nearby swamps 
 and from percolation from adjacent wet lands. 
 
 The necessity for the drainage of any land whether 
 by natural or by artificial means extends to the area 
 covered by the limits of all agricultural lands and 
 affects a vastly larger area than does swamp land 
 drainage or its converse, irrigation. 
 
 In this comment the consideration of this matter 
 lias dealt chiefly with the two extremes in water con- 
 ditions and has kept in mind the larger areas which 
 have been so affected. The total area of agricultural 
 lands which, in their normal state, are either too wet 
 or too dry for profitable farming although redeem- 
 able, is much less than is the area of the lands where
 
 174 IMORTGAGP] LOAN VALUES 
 
 a (Icpcndcncc is placed upon a sufficient average rain- 
 faill. 
 
 The average annual rainfall in any })articu]ar sec- 
 tion is in a degree dependable foi- calculation, but to 
 hope that it will be distributed in a desirable way is 
 to hope for a great uncertainty. In almost every sec- 
 tion and in almost everj^ year there may be found dis- 
 tricts and seasons, where the rainfall may have been 
 undesirably heavy or undesirably light as measured 
 by the requirements of the crops. The only relief 
 from this condition seems to be by drainage and 
 farmers in many of those sections where the threat 
 of the season 's uncertainty is not imminent, adopt 
 the plan of open ditches. This plan often gives them 
 some relief and recommends itself to many, for its 
 original cost is so much less, although its upkeep is 
 greater than tile drainage as it requires more frequent 
 attention. 
 
 The unqualified success, of any irrigation or drain- 
 age plan rests upon the presence of sufficient crop 
 producing elements, and upon the lack of any in- 
 jurious elements such as the acids and alkalies. With 
 an underground drainage, however, even these defects 
 may be cured. 
 
 The need of artificial drainage to supply the re- 
 quirements of natural conditions extends to all parts 
 of this important area and the character and amount 
 of such drainage varies w^ith the different conditions 
 of elevation, climate, topography, rainfall, character 
 of soil, sub-soil, etc. A discussion of drainage would 
 ■ be a Useless undertaking were it made in the hope of
 
 MORTGAGE LOAN VALUES 175 
 
 mentioning all the conditions tliat mip'lit arise even 
 in a limited territory. 
 
 It is almost nniversally Icnown that tlie removal of 
 the excess water from agricultnral lands is desirable 
 and that the fundamental requirements for its re- 
 moval are both simple and easily understood. There- 
 fore, no discussion of the subject seems profitable 
 except to mention the fact that, while surface drain- 
 age is sometimes the only drainage that is practical, 
 it is never quite as satisfactory or effective as is the 
 plan of underground drainage which can almost al- 
 ways be used in supplying the local and lateral needs. 
 This plan of underground drainage has many ad- 
 vantages; it is more effective in collecting and car- 
 rying the water, it does not interfere with the plow- 
 ing and cultivating of the land, and its use also leaves 
 the sub-soil in a more friable and, hence, more pro- 
 ductive condition. 
 
 This last change does not occur quickly but it is 
 gradually accomplished by the water percolating 
 through the ground to the tile and thus it often makes 
 the higher land softer and better su]>plied with the 
 necessary quantity of moisture than are the lower ly- 
 ing and naturally wetter lands. 
 
 A tendency to surface erosion can also be relieved 
 and sometimes entirely overcome by supplying the 
 land with sufficient underground drainage, as this 
 will relieve the surface from a heavy accumulation of 
 water and provide for its passing away below instead 
 of upon the surface of the land. Lands that are 
 eroded will always be injured and their loan value 
 may be wholly destroyed by continued erosion. It is
 
 176 :\IORTGAGE LOAN VALUES 
 
 therefore evident that no subject is of more impor- 
 tance than is the one of proper drainage: — this is 
 true "whether it be the drainage of city pi-oix-rty, or 
 the drainage of agricultural sections. 
 
 The application of some knowledge of this subject 
 is also of use in considering mortgage loan values, for 
 proper drainage is always conducive to better health 
 and to better living conditions, for the occupants of 
 either class of property as Avell as to greater produc- 
 tiveness of the soil.
 
 The Public Domain 
 
 The English System and 
 
 Measuies. 
 Other Measurements. 
 The Spanish-French Land 
 
 Measures. 
 Metric System Land Meas- 
 ures, 
 Spanish- Mexican Land 
 
 Measures. 
 Texas Land Measures. 
 State and Congressional 
 
 Surveys. 
 Subdivisions. 
 Fradional and Irregular 
 
 Divisions. 
 Illustrations of Land 
 
 Divisions. 
 
 177
 
 XXIX 
 
 THE PUBLIC DOMAIN 
 
 The importance to llie iiivestov of accurate legal 
 (les'-riptions cannot be over-estimated, for the title to 
 land carries witli it the title to the buildings and all 
 else wliich nuiy belong to it ; and its legal description 
 thus definilely fixes the location of the entire security. 
 
 Although the physical value of the ground may only 
 constitute a small part of the total value of the whole 
 property, in every instance it is, in a sense, the most 
 important part of the security offered. Each separ- 
 ate parcel of land has, or should have, a legal descrip- 
 tion -which will clearly and positively identify it and 
 set it apart from all other lands, and which, in con- 
 nection with tlie general surveys, will show, at least 
 approximately, its shape and area. This is usually 
 the case, but in practice it is found that absolute 
 accuracy in these matters is not always possible except 
 by re-survej's and under certain circumstances is 
 not possible even b.y this means. 
 
 It is very important then that those persons who 
 are concerned with the selection of Real Estate secu- 
 rities should be fully able to understand land descrip- 
 tions, although it is unfortunately true that to many 
 persons such descriptions are practically meaningless, 
 and that attorneys who profess to examine titles some- 
 times take it for granted that the description recited 
 
 178
 
 MORTGAGE LOAN VALUES 179 
 
 ill the absli-act pi-opcrly locates and deseril)es the land 
 intended to be eonveyed or mortgaged, when a careful 
 examination of the deseri])tioii might show it to be a 
 seriously faulty one. 
 
 Differences in land divisions, descriptions and 
 measurements will be encountered in various sections 
 of the countrj^ differences that are largely due to 
 the fact that various parts of what is now the United 
 States were originally under the sovereignty of dif- 
 ferent states and countries which were rather liberal 
 in the matter of land grants and whose systems of 
 land measurements and divisions Avere very dissimilar. 
 
 When these titles go back to the original grants, the 
 differences in them often prove to be somewhat con- 
 fusing to those persons whose experience has been 
 confined to the land descriptions in use in a different 
 part of the country. If the investor's business is con- 
 fined to a particular locality it is perhaps sufficient 
 for his needs that his kllo^^iedge of land descriptions 
 should also be confined to that locality. It is not 
 intended, however, that these comments shall be 
 limited to aaiy single section of territory but that they 
 shall be of use, if possible, to investors in any section, 
 and an effort will be made to outline the principal 
 facts, for unless such facts concerning any land under 
 consideration are known and understood neither its 
 area nor its location can be positively determined nor 
 can its title be properly examined. A general knowl- 
 edge of the public divisions of lands, of the surveys 
 by which their location has been (established, of the 
 measurement by which their dimensions are known 
 and also of the variations and exceptions to general
 
 180 MORTGAGE LOAN VALUES 
 
 miles which ai-c likclx- lo he rdiiiul in the territory 
 under consideration, is always necessaiw to good work 
 on the part of cither the inspector or the title attor- 
 ney ; and for this reason a l)rief outline of the history 
 of these matters, together with the tal)les which show 
 the various measurements used, maj' perhaps afford 
 the best foundation for a discussion of the subject. 
 
 In an early day Florida was a Spanish possession ; 
 England held dominion over the territory to the north 
 of Florida as far west as the IMississippi River, north 
 to the Ohio and then east of the Alleghanies to the 
 French settlements on the St. Lawrence. France laid 
 claim to Louisiana (except during the interval be- 
 tw^een 1760 and 1800 when it was under the dominion 
 of Spain). This was then a great fan-shaped terri- 
 tory, broadening to the north and extending from the 
 settlements at the mouth of the Mississippi and cov- 
 ering about one and a quarter millions of square miles 
 of the area now within the boundaries of the United 
 States. At this time another vast territory in the 
 southwest, covering nearly a million square miles, 
 including Texas, belonging to Spain and afterwards 
 to Mexico, while to the north of this and west of the 
 Rocky Llountains yet another quarter of a million 
 square miles, which was known as the Oregon terri- 
 tory, was in dispute between Russia, France and 
 England, and later between England and the LTnited 
 States. 
 
 By the Revolutionary War the Colonies gained pos- 
 session of the territory then held l)y England east of 
 the Mississippi River and south of the present bound- 
 ary between Canada and the United States; this also
 
 MORTGAGE LOAN VALUES 181 
 
 included what was at that time called tJie "Territory 
 Northwest of the Ohio" which England liad pre- 
 viously gained from France. 
 
 The territorial lands thus gained by the Colonies 
 from England were not at first held in common by 
 them, but certain portions were claimed by the various 
 Colonies by reason of the military services of their 
 colonial troops, Virginia and New York each claim- 
 ing the whole, and Massachusetts and Connecticut 
 parts of the territory northwest of the Ohio ; Massa- 
 chusetts laid claim to that territory which is now 
 the State of Maine, Georgia to that lying to the west 
 of it as far as the Mississippi River, South Carolina 
 to a strip to the north of this, and New York and New 
 Hampshire claimed what is now the State of Ver- 
 mont. Tennessee was a part of the original State of 
 North Carolina, and West Virginia and Kentucky 
 were parts of the original State of Virginia. 
 
 In the year 1803 the United States purchased the 
 Louisiana territory from France ; in 1819 it purchased 
 Florida from Spain ; in 1835 Texas achieved her inde- 
 pendence from Mexico, and in 1845 was annexed to 
 the United States; in 1846 England finally gave up 
 her claims to the Oregon territory lying south of the 
 49th degree of latitude (the present international 
 boundary), and by the treaty of Guadalupe Hidalgo 
 in 1848 and the Gadsden purchase in 1854, Mexico 
 ceded to the United States the territory embraced 
 within the present limits of California, Arizona, 
 Nevada and Utah and parts of New Mexico, Colorado 
 and Wyoming; and thus the present boundaries of 
 the United States were formed.
 
 182 MORTGAGE LOAN X'ALUES 
 
 Meanwhile, soon after tlie foi'niation of our general 
 government, the Colonies wliich came into the Union 
 as landed proprietoi-s liad ('('(hMl llicii- oiilsidc holdings 
 (except about six thousand siiuacc miU's chuiued by 
 Connecticut in what is now the northeastern part of 
 Ohio and which has since been known as the Western 
 Reserve) to the General Government, and in 1784 a 
 system of Square Survey, which had been invented 
 by Thomas Jefferson, was favorably reported to the 
 Congress and was adopted and put into use but was 
 not finally perfected until about the year 1820. 
 
 This system has since been used in the public divis- 
 ions of all of the lands belonging to the United States 
 which had not been previously surveyed according to 
 some other plan, but as it has always been the policy 
 of governments to reward their soldiers by land 
 grants and to encoiu-age settlements in their domin- 
 ions, especially at those places which for commercial 
 or defensive reasons were regarded as important, and 
 as lands were sold and assigned to many persons and 
 in many places in pursuance of this policy, it has fol- 
 lowed that such land ownerships not only cover the 
 territory embraced in the original States but that 
 they also exist in many other different and widely 
 separated parts of the country, and the title to these 
 lands having emanated from the then existing govern- 
 ment under whose dominion they lay, they were 
 marked out and described according to the s^^stems of 
 survey and measurement then in use liy that govern- 
 ment. The present system of government surveys has 
 not been made to apply to these lands except as to 
 some small portions and to Indian Grants where it
 
 MORTGAGE LOAN VALUES 183 
 
 has sometimes been made to overlay the original sur- 
 veys, but the Government recognizes and protects tlr,^ 
 titles which have come through other sovereignties, 
 although many of such lands are illy defined and 
 bounded only by natural objects. These land divi- 
 sions are very generally of irregular shapes and at 
 best very little preference seems to have been given to 
 the cardinal points of the compass in establishing their 
 lines. Among the States, however, Georgia was an 
 exception to tliis rule, for in portions of this State a 
 system of square land divisions had been in use for 
 about fifty years prior to the adoption by the general 
 government of what we call the "Congressional Sur- 
 vey," the entire State being finally covered by such 
 State Surveys except in the territory lying to the east 
 of the Oconee River where the lands were mostly 
 deeded in regular shaped headriglits and Military 
 Grants. 
 
 Texas may also be mentioned as an exception inas- 
 much as immense tracts which had been granted to 
 railroads and many large private claims were sur- 
 veyed by the State in mile square sections, corre- 
 sponding to that extent to the Government plan ; they 
 were not based upon the township and range plan, 
 however, and are described bj^ number in blocks. 
 
 The above historical outline is, of course, a very 
 meager one, but it should be sufficient to indicate to 
 the investigator the differences which may exist in 
 different sections and the importance of a thorough 
 examination into such matters in any territory with 
 which he is not already familiar, for as pointed out in 
 Warvelle on Abstracts : ' ' Upon confirmation it is
 
 184 MORTGAGE LOAN VALUES 
 
 necessary to have these titk's traced out and fixed by 
 survey or re-survey, according to the peculiarities of 
 the system of the government from which they orig- 
 inated, and incidentally they must frequently be 
 referred to in subsequent conveyances and subdi- 
 visions. ' '
 
 XXX 
 
 THE ENGLISH SYSTEM AND MEASURES 
 
 The linear measures which are in by far the most 
 general use in the United States conform to the stand- 
 ard established by the English government. In fact, 
 this system is the one which has been used over ap- 
 proximately nine-tenths of the total area of the coun- 
 try, although Texas with its two hundred and sixty- 
 five thousand square miles of territory and also many 
 other comparatively small allotments and grants 
 located at various places from the eastern coast of 
 Florida to the western coast of California are meas- 
 ured according to the Spanish-Mexican system, and 
 many others scattered over the territory which was 
 once under the dominion of France are measured ac- 
 cording to the old French system. 
 
 It is evident then that he who is charged with the 
 investigation of lands or land titles may, if his terri- 
 tory is extensive, be brought into contact with the 
 peculiarities of systems other than that of England 
 and the United States. 
 
 An understanding of the system of measurements 
 by which any lands have been surveyed or set apart 
 is, of course, absolutely necessary as a basis for any 
 intelligent idea of such divisions, and a ready famil- 
 iarity wnth the measures of extension and land sur- 
 faces in use in the territory where loans are to be 
 
 185
 
 186 MORTGAGE LOAN VALUES 
 
 considered is llierefore a matter of primary import- 
 ance. 
 
 In measuriiijj: lines and tlistanccs, surveycn's nse 
 what is known as a Gunter's chain; this consists of a 
 metal chain four )-ods or sixty-six feet in length, made 
 up of one hundred links, each of which is seven and 
 ninet3'-two hundredths inches in length. 
 
 Superficial or square measui-es have naturally de- 
 veloped from these measures of extension, and as they 
 serve the purpose of defining the areas and contents 
 of land without the necessity of making calculations 
 to determine them, a knowledge of superficial meas- 
 ures is of at least as much importance and is perhaps 
 more frequently of service in land investigations than 
 is the knowledge of the linear measurements upon 
 which they are based. 
 
 NOTE 
 
 Although the fact may be of little or no practical 
 use to the investigator of lands or land titles, it is 
 nevertheless of interest to know that while measure- 
 ments were anciently based upon such indefinite 
 things as hand-breadths, spans and paces, they have 
 since been very generally standardized upon what are 
 believed to be definite and unchangeable facts. 
 
 For instance, the French meter, which is the unit ()f 
 the present French system and equals 39.37 English 
 inches, is supposed to be one ten-millionth part of the 
 distance from the equator to either pole, and the nauti- 
 cal mile, which contains 6086.07 feet and equals 
 1.152664 English miles, is based upon one minute of 
 longitude at the equator. 
 
 The English standard, which has been adopted by 
 Parliament and is recognized by law in the United
 
 MORTGAGE LOAN VALUES 187 
 
 States, is based upon the length of a pendulum which 
 will oscillate once in each exact second of time by 
 reason of the attraction of gravitation, which is con- 
 stant. 
 
 A brass pendulum at 621/0 degrees temperature 
 which will do this was found to measure 39.1393 
 inches by the inch measurement then in use (which is 
 said to have been anciently based upon the length of 
 three barley-corns placed end to end) and this pendu- 
 lum was adopted as the standard of measurements, 
 twelve of these 39.1393 parts being declared to be one 
 foot and thirty-six of them to be an imperial yard. 
 
 In practice it is becoming more common to reduce 
 all linear land measurements to feet and inches and 
 all superficial land measures to square feet and inches 
 in city lots and to acres and hundredths in rural prop- 
 erty, by the following tables of English linear and 
 square measures which are still in general use in de- 
 fining distances and in computing the area and con- 
 tents of land :
 
 188 
 
 MORTGAGE LOAN VALUES 
 
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 MORTGAGE LOAN VALUES 
 
 189 
 
 
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 190 
 
 MORTGAGE LOAN VALUES 
 
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 XXXI 
 
 OTHER MEASUREMENTS 
 
 SPANISH-FRENCH LAND MEASURES. 
 
 (Facts and Tables taken from Warvelle on Abstracts). 
 
 During tlie administration of the Spanish-French 
 governors, in tlie pi'ovince of Lonislana, the granting 
 power of the royal domain was freely exercised, and 
 the grants so made lie at the foundation of most of 
 the early titles in the States subsequently formed 
 from that province. 
 
 The surveys of these grants are found in many 
 places wrought in with our public surveys, present- 
 ing, as it were, curious mosaic irregularities in strik- 
 ing contrast with the simple rectangular system 
 adopted by the national government. They illustrate, 
 in a forcible manner, the peculiar agrarian systems of 
 the governments which preceded us, in the diversified, 
 irregular forms of grants, from urban in-lots. and 
 out-lots, rural tracts of inconsiderable dimensions, and 
 from thence increasing in extent to 7,056 arpents or a 
 league square, the "arpent'' of Paris being the stand- 
 ard of provincial measurement. 
 
 The following is a comparative statement adopted 
 by the surveyor general's office at St. Louis, Mo., of 
 the land measures of the L^'nited States, and the 
 French measures formerly used in the province of 
 Louisiana : 
 
 191
 
 192 MORTGAGE LOAN VALUES 
 
 OLD FRENCH LINEAR MEASURE 
 
 French United States 
 
 Chains. Links. 
 
 1 perche equals 0. 29.166 
 
 10 perche equals one arpent lineal or. 2. 91.666 
 
 10 arpents " 29. 16.666 
 
 100 " " 291. 66.666 
 
 1000 " " 2916. 66.666 
 
 The side of a league square equals 84 arpents equal 
 245 chains. The side of a mile square equals 27 ar- 
 pents equal 80 chains. 
 
 1 perche=about 1 rd. 4.166 links or 19.25 ft. 
 1 arpent=about 11 rd. 16.66 links or 192.5 ft. 
 
 OLD FRENCH SUPERFICIAL MEASURE 
 
 French Ignited States 
 
 Arpents. Acres. 
 
 1 equivalent to 0.85 07 
 
 2 1.70 14 
 
 3 2.55 21 
 
 4 3.40 28 
 
 5 4,25 35 
 
 6 5.10 42 
 
 7 5.95 49 
 
 8 6.80 56 
 
 9 7.65 63 
 
 10 8.50 69 
 
 100 85.06 94 
 
 i;000 850.69 44 
 
 10,000 8,506.94 44
 
 MORTGAGE LOAN VALUES 193 
 
 OLD FRENCH SUPERFICIAL MEASURE 
 
 (Continued). 
 
 Arpents. Perches. Acres. 
 
 1 and 17.551 equal 1. 
 
 2 35.102 2. 
 
 3 52.653 3 
 
 4 70.204 4. 
 
 5 87.755 5. 
 
 7 05.306 6. 
 
 8 22.857 7. 
 
 9 40.804 8. 
 
 10 57.959 ■ 9. 
 
 11 75.510 10. 
 
 117 55.102 100. 
 
 1,175 51.020 1,000. 
 
 11,755 10.204 10,000. 
 
 A square league contains 7,056 arpents or 6,002.50 
 
 acres. 
 A square mile contains 725 arpents 32.64 perches 
 
 or 640 A. 
 
 THE METRIC SYSTEM OF LAND MEASURES. 
 
 Consideration of the metric system (sometimes 
 called the French system) is not strictly applicable 
 to this discussion, for the reason that it was not in 
 use prior to the time when the United States acquired 
 sovereignty over the lands formerl}^ owned by Fi-ance, 
 but tables of it are entered here for purposes of com-, 
 parison and for the reason that its use was legalized 
 by act of Congress in 1866 and that it is actually in
 
 194 MORTCJAdE LOAN VALUES 
 
 use l)y the United States coast survey and ^vill i)r()l)a- 
 l)ly 1)(' more extensively used for other pui-poses in 
 llie future than it is at present. 
 
 The meter is sup])()sed to be one ten-millioiilh i)art 
 of the distance fi-om the equator to cillicr i)ok', 
 measured on tlie earth's surface at sea level. It is 
 about 39.37 inches and is the pi-imary iiiiil of length. 
 
 The square meter is the unit of surface measures 
 and is called a centidrc; it is about 10% square feet, 
 or 1 1/5 square yards. 
 
 The Are (Ar) is a square, each of whose sides is 
 ten meters in length and is the unit of land measures. 
 
 TABLE OF LINEAR MEASUREMENTS. 
 
 10 millimeters^ 1 centimeter^O.3937 inches. 
 
 10 centimeters=l decimeter=3.937 inches. 
 
 10 decimeters=l Meter^S ft. 3.37 inches. 
 
 10 meters=l dekameter=32 ft. 7.7 in., or nearly 2 
 
 rods. 
 10 dekameters^l hectometer=328 ft. 1 in. or nearly 
 
 20 rods. 
 10 hectometers=l kilometer=0. 62137 miles. 
 10 kilometers^l m3'riameter=6.2137 miles. 
 
 TABLE OF SQUARE SURFACE MEASURES 
 
 100 square millimeters=l sq. eentimeter=:0.155 sq. 
 inches. 
 
 100 square centimeters^ 1 sq. decimeter ==15.5 sq. 
 
 inches. 
 100 square deeimeters=l sq. meter or centiare.
 
 MORTGAGE LOAN VALUES 195 
 
 1 ('entiare=15r)0 scj. in.~"ab()ut IQi/^ sq. ft.=: 
 
 1.196 sq. yds. 
 100 centiai*es=:l are (ar) =119.6 sq. yds.=:nearly 4 
 
 sq. rds. 
 100 ares=l heetare^2.471 acres. 
 
 SPANISH-MEXICAN LAND MEASURES 
 
 Scattered over tliis district (formerly belonging to 
 Mexico) there exist many ancient Spanish-Mexican 
 titles, mnnicipal and rural, which, under the terms of 
 the treaties, are recognized and protected by the gov 
 ernment. These claims and grants were made for 
 agricnlture, mining, stock-raising, and colonization, 
 and in all sizes from a village lot to a million-acre 
 tract. 
 
 The Surveyor General of California, in a report 
 made in 1851, states that all grants in California, 
 made either by the Spanish government, or that of 
 Mexico, refer to the "vara" of Mexico as the measure 
 of length, and that by common consent, in California, 
 that measure is considered as exactly equivalent to 
 thirty-three American inches. It would seem that 
 another length is given to the "vara" by ]\Ir. Alexan- 
 der, who states its length to be equal to 92.741 per cent 
 of the American yard (this being the approximate 
 length of the Texan vara, or 33 1/3 inches). In prac- 
 tice, however, the General Land Office has sanctioned 
 the recognition, in California, of the Mexican vara as 
 being equivalent to thirty-three American inches. 
 
 The Mexican vara is the unit of all the measures of 
 length, the pattern and size of which are taken from
 
 196 MORTGAGE LOAN VALUES 
 
 the Castiliau vara of the mark of Burgos, and is the 
 legal vara used in the IMexiean republic. P"'ifty Mexi- 
 can varas make a measure which is called cordel, Avhich 
 instrument is used in measuring lands. 
 
 The legal league contains 100 cordels, or 5,000 
 varas, which is found by mulitiplying by 100 the 50 
 varas contained in a cordel. The league is divided 
 into two halves and four quarters, this lieing the only 
 division made of it. Half a league contains 2,500 
 varas, and a quarter of a league 1,250 varas. 
 Anciently, the Mexican league was divided into three 
 miles, the mile into a thousand paces of Solomon, and 
 one of these paces into five-thirds of a Mexican vara, 
 consequently the league had 3,000 paces of Solomon. 
 This division is recognized in legal affairs, but has 
 been a very long time in disuse — the same as the pace 
 of Solomon, which in those days was called vara, and 
 was used for measuring lands. The mark was equival- 
 ent to two varas and seven-eighths — that is, eight 
 marks containing twenty-three varas — and was used 
 for measuring lands. 
 
 It will be observed that the Texan vara is slightly 
 longer than the standard recognized in California and 
 adopted by the General Land Office. 
 
 The following is a list of land measures adopted by 
 the IMexican government (with free translation and 
 approximate equivalents in hektares and acres) : 
 
 1 caballeria^about 42.8 hektares or 107.94 acres. 
 1 hektare=2.47 acres. 
 Hacienda (plantation), 25,000 by 5,000 varas or
 
 MORTGAGE LOAN VALUES 107 
 
 125,000,000 sq. vrs.=8778+ liektaresz=205.1+ 
 caballerias=abont 22,000 acres. 
 
 Sitio de ganado mayor (or league) (cow ranch, pas- 
 ture land), 5,000 by 5,000 varas or 25,000,000 sq. 
 vrs.=l,755.61+ liektares=41-|- caballerias=: 
 4,428.4+ acres. 
 
 Sitio de ganado menor (sheep ranch), 3,333 1/3 by 
 3,333 1/3 varas or 11,111,111 1/9 sq. vrs.=^ 
 780.27+ hektares= 18.23+ caballerias=l,9fi8+ 
 acres. 
 
 Criadero de ganado mayor (cattle breeding ranch), 
 2,500 by 2.500 varas or 6,250,000 sq. vrs.=448 
 hektares=10.25+ caballerias^l,107+ acres. 
 
 Criadero de ganado menor (sheep breeding ranch), 
 1,666 2/3 by 1,666 2/3 varas or 2,777,777 4/9 
 sq. vrs.^l99.13+ hektares=4.55+ caballerias=:r 
 492+ acres. 
 
 Labor (field, arable land), 1,000 by 1.000 varas or 
 1,000,000 sq. vrs.=70.22+ hektares=1.64+ 
 caballerias= 177% acres. 
 
 Fundo legal para pueblo (legal town site), 1,200 bv 
 1,200 varas or 1,440,000 sq. v,s.=101.12+ 
 hektares=2.36+ caballerias=255+ a?res. 
 
 Caballeria de tierra (knighthold of land), 1.104 by 
 552 varas or 609,408 sq. vrs.=43.7+ hektares= 
 1 caballeria = 107.94+ acres. 
 
 Media caballeria (half a knighthold of land), 552 bv 
 552 varas or 304,704 sq. vrs.=21.8+ hektares= 
 .5 caballerias=r53.97+acres.
 
 198 MORTGAGE LOAN VALUES 
 
 Cuarto (•al)alloria or suerte de tierra (quarter of a 
 knighthold of land), 552 by 276 varas or 152,532 
 sq. vrs.=10.9+ liektares=.25 caballerias:^: 
 
 26.98+ acres. 
 
 Fanega .senibradura de maiz (sowing ground for one 
 fanega of corn), 276 by 184 varas or 50,784 sq. 
 vrs.=3.65-[- hektares==.08 1/3 caballerias^^9 
 acres. 
 
 Solar para casa, moulin o venta (site for house, mill, 
 or inn), 50 by 50 varas or 2,500 ^q. vrs.=. 175561 
 liektares;=.004 caballerias=:.44 acres.
 
 MORTGAGE LOAN VALUES 199 
 
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 HHH r^
 
 XXXII 
 
 STATE AND CONGRESSIONAL SURVEYS 
 
 The United States contains something more than 
 three million square miles of territory ; roughly speak- 
 ing, thirteen and one-half per cent of this consists of 
 grants, donations, head-rights, and private claims 
 derived from the sovereignty of England, or from the 
 various States. These parcels of land are principally 
 confined within the limits of the original States and 
 are of little uniformity either in size or shape, and 
 their boundaries are usually' defined by natural ob- 
 jects or by "neighborhood" descriptions. 
 
 Ten per cent of the total area consists of lands, the 
 divisions and legal descriptions of which are either 
 wholly or in part those of the Spanish-French or 
 Spanish-Mexican territory to which they originally 
 belonged. These lands are found in many States and, 
 as previously stated, in widely separated localities, 
 although by far the greater portion are in one body 
 which covers the entire State of Texas. 
 
 This State, which was formerly a part of Mexico, 
 has adopted a plan of rectangular surveys for some 
 of its western and northwestern territory. It has. 
 however, retained the Spanish system of measurements 
 by varas instead of adopting the English system which 
 has been adopted by all of the other States and by 
 the United States government. Under this plan the 
 
 200
 
 MORTGAGE LOAN VALUES 201 
 
 lands are divided into what are called sections and 
 these are grouped into blocks. These sections con- 
 tain 3,612,800 sqnare varas each (640 acres) and are 
 usually square in form, each side being 1900.8 varas 
 (one mile) in length and lying square with the 
 cardinal points of the compass. 
 
 About one and one-half per cent of the total area 
 of the United States is included in the State surveys 
 of Georgia, which are regular in form although not 
 uniform in size, and cover the entire State with the 
 exception of the lands lying north of the Altamaha 
 River and east of the Oconee River, which lands are 
 included in the above mentioned thirteen and one- 
 half per cent in which no regular State or Government 
 surveys have been made. In this State soon after the 
 3*ear 1733 something near 220,000 acres were divided 
 int) regularly shaped tracts of 50 acres each and 
 as this was the earliest regular division of land by 
 public authority, the Georgia state surveys are en- 
 titled to especial mention as probably having first 
 called attention to the advantages of some such sys- 
 tem and led eventually to the adoption of our present 
 congressional survey. There are now five different 
 plans of divisions by public survey in this State and 
 in each of these sections the land is divided into dis- 
 tricts w^hich have designations by numbers as Land 
 or Militia districts. Each of these districts is again 
 divided into lots which are numl^ered with uniformity 
 as to that district but with little uniformity as be- 
 tween the different districts — that is to say, that the 
 lots ma}' be numbered from north to sonth in one dis- 
 trict and from east to west in an adjoining district.
 
 202 MORT(JAr;E LOAN VALUES 
 
 Across tlie north (Mid of the Stale thei-e are several 
 counties comprising wliat was i'oi-iiicrly known as the 
 Cherokee Strip wliere tlie survey has been made of 
 lots lying square N\ith tlie compass and measuring 160 
 rods on each side; they contain 160 acres each; and 
 in a few counties in this district (chiefly in Bartow 
 County), where there were supposed to be gold de- 
 posits, lands were surveyed into lots lying square with 
 the compass and measuring 80 rods on each side; they 
 contain 40 acres each. 
 
 Extending westward from the Oconee River to the 
 Ocmulgee River and in some places to the Flint 
 River the land has been surveyed into lots lying with 
 their corners to the cardinal points of the compass 
 and measuring 180 rods on each side; they contain 
 2021/t acres each. 
 
 The southern portion of the State is surveyed into 
 lots lying square with the compass and measuring 280 
 rods on each side ; they contain 490 acres each. 
 Scale 1/16 in.=10 rds.
 
 MORTGAGE LOAN VALUES 
 
 203 
 
 The remainder of the State has been surveyed into 
 lots lying square with the compass and measuring 200 
 rods on each side; they contain 250 acres each. 
 
 380 RD5. 
 
 ^SOA. 
 
 Approximately seventy per cent of the entire area 
 of the United States has been surveyed according to 
 the government system of rectangular surveys, and 
 
 N. 
 
 200 ROS. 
 
 5CALt '46 in. » 10 RDS. 
 
 an additional five per cent is embraced within the 
 limits of the territory that is subject to this survey,
 
 204 MORTGACIE LOAN VALUES 
 
 but Avhicli lies chiefly in the iiUMiiilaiiioMs i-('<>:i()ns of 
 the West and has not been surveyed. 
 
 This government system of public land s uvcxs, to 
 which seventy-five per cent of the total ai-ea is sub- 
 ject, contemplates square divisions of six miles on each 
 side called townships, each of which contains as nearly 
 as may be 23,040 acres. These to^vnships are usually 
 spoken of as ''congressional townships" to distinguish 
 them from the Civil townships into whi'-h the counties 
 of many of the States are divided for the purpose of 
 local government, and are divided into 3(5 sections, 
 each supposed to be one mile square and to contain 
 640 acres. 
 
 The Section is the unit of this system and, although 
 its subdivision is contemplated, such sulxli vision by 
 actual survey and monuments is not always required 
 by law as a part of the government system. 
 
 The framework of this system consists of base lines 
 which are run on true parallels of latitude, and longi- 
 tudinal lines which are called principal meridians, 
 each of which is designated by a name oi" number. 
 Parallel to the base lines (of which there are twenty- 
 three) other lines are run which are called standard 
 parallels and correction lines, and lines are also run 
 parallel to the principal meridians (of which there 
 are thirty). These are called guide meridians or 
 auxiliary meridians. These lines are necessarily of 
 more frequent occurrence in mountainous than in 
 more level country, but always, of course, they form 
 squares or parallelograms which are then surveyed 
 into townships. These townships are designated by 
 numbers north or south from the base line as "town-
 
 MORTGAGE LOAN VALUES 
 
 205 
 
 ships," and by numbers east or west from the eon- 
 trolling meridian line as "ranges." 
 
 The following diagram will show this system of 
 numbering and identifying townships: 
 
 
 ■i 
 
 OP 
 
 1 
 
 5 
 
 
 UJ 
 
 z 
 a: 
 
 ui 
 
 a 
 
 Z 
 
 lU 
 
 (J 
 
 Z 
 
 1 
 
 
 
 
 
 
 
 
 
 
 
 TVWP. J N. 
 
 
 
 
 
 
 
 
 
 TVYP. aN. 
 
 
 «A«E. 
 
 LINE 
 
 
 
 m 
 
 
 
 TWP. IN. 
 
 
 
 
 
 
 
 
 
 TYtP. 
 
 IS. 
 
 3. 5. 
 
 
 i^^ 
 
 M 
 
 
 
 
 
 
 
 TYirP. 
 
 
 
 
 
 
 
 
 
 TVf R 3 S. 
 
 
 
 
 
 
 
 
 
 TWP. 
 
 M.S. 
 
 
 
 
 < 
 o 
 
 
 
 ^ 
 
 > 
 
 1. 
 
 
 
 
 1 2 
 
 i 
 
 z 
 
 
 DCALE »/ib IN.' 80CH, ^ 
 
 ^
 
 206 
 
 MORTGAGE LOxVN VALUES 
 
 Any number of contiguous townships lying to the 
 oast or west of one anotlier are given "townsliip" 
 nunil)ers, ami any nuni])er of contiguous townships 
 lying to the north or south of one another are given 
 "range" numbers — to illustrate, the shaded township 
 marked "A" would be designated as Township One 
 North, Range Two p]ast, and the shaded township 
 marked "B" would be designated as Township Two 
 South, Range Three AVest. By this system any dupli- 
 cation is imp()ssil)le if the names or inuiibers of the 
 controlling base and meridian lines are also given. 
 
 The sections into which each congressioual township 
 
 
 <i 
 
 i 
 
 
 
 5 
 
 H 
 
 3 
 
 1 
 
 1 
 
 7 
 
 d 
 
 9 
 
 10 
 
 w 
 
 12 
 
 15 
 
 n 
 
 16 
 
 15 
 
 m 
 
 13 
 
 19 
 
 20 
 
 ai 
 
 22 
 
 23 
 
 2^ 
 
 50 
 
 ;i9 
 
 2$ 
 
 ^1 
 
 2b 
 
 25 
 
 :>\ 
 
 52 
 
 Z>5 
 
 :>H 
 
 d5 
 
 :>& 
 
 5CALe 'Ai IN.' I M.
 
 :\[ORTGAGE LOAN VALUES 
 
 207 
 
 is divided are, with a feAV exceptions, nuiul)ered from 
 one to thirty-six, commencing with tlie one in the 
 northeast angle of the township and extending west 
 and east alternately to section thirty-six in the south- 
 There are numerous exceptions to this rule, how- 
 ever, some of which are due to the impossilnlity of 
 always making the rule conform to the conditions and 
 others to the fact that some of the surveys were made 
 before the system Avas perfected; an important 
 example of the latter class of exceptions occurs in the 
 territory east of the Great Miami River and west of 
 east angle as shown bv the foregoing diagram : 
 
 N. 
 
 3b 
 
 30 
 
 2^ 
 
 n 
 
 12 
 
 b 
 
 35 
 
 39 
 
 23 
 
 n 
 
 II 
 
 5 
 
 Jf 
 
 ^^ 
 
 01 
 
 16 
 
 10 
 
 M 
 
 33 
 
 27 
 
 21 
 
 \5 
 
 9 
 
 ^ 
 
 31 
 
 ;b 
 
 20 
 
 /M 
 
 ? 
 
 1 
 
 31 
 
 25 
 
 W 
 
 13 
 
 7 
 
 1 
 
 5CALt '/a m. » LM.
 
 208 MORTGAGE LOAN VALUES 
 
 the military grants and head-i-iglils jjrcvioiisly sur- 
 veyed in what is now the State of Oliio ; in this district 
 the townships are laid out and their locations desig- 
 nated as controlled by certain base and meridian lines, 
 but the sections are numbered ns follows, beginning 
 at the southeast corner of the township : 
 
 A knowledge of such variations from the general 
 rules which may prevail in the territory where his 
 loans are to be made is of importance to the investor, 
 for without it he may find himself at a loss when 
 investigating lands or land titles; for example — Sec- 
 tions 11, 21, and 31 are the only sections whose loca- 
 tion in the township is the same under either of the 
 above systems of numbering, while Section 36 is in 
 the southeast angle in one case and in the northwest 
 angle in the other, and a description of the southeast 
 quarter of Section One and the northeast quarter of 
 Section twelve in a given township in a district where 
 the regular system of numbering had been used would 
 show contiguous quarter sections, while the same sec- 
 tional description in the district where this exception 
 exists would show two separate quarter sections 
 located six miles from one another. 
 
 Another matter which may be mentioned in this con- 
 nection, which is a rule however instead of an excep- 
 tion, is that of "School Lands"; since as early as the 
 year 1785 it has been the fixed policy of the govern- 
 ment to set apart certain lands for the support and 
 encouragement of education, and it has been its prac- 
 tice to select one or two sections in each township for 
 this purpose (usually Section 10 in the States east of 
 the Missouri River and Sections 16 and 36 in the
 
 MORTGAGE LOAN VALUES 209 
 
 newer States lying west of these), and it has been 
 made a part of the agreement of each State on its 
 admission into the Union tliat tlie proceeds of these 
 sections or other lands known as "lieu" lands shall 
 be devoted to the support of the public schools.
 
 XXXI II 
 
 SUB-DIVISIONS 
 
 Under onr government system of piil)lic surveys 
 certain subdivisions of sections are defined by law, 
 l)ut. so far as the actual government survey is applied 
 to su])divisions of (luarter sections, they are desig- 
 nated l)y imaginary lines only; the shape and area of 
 these sul)divisions (when i-egular) are shown by the 
 folloAving diagram : 
 
 N.W. V4 
 
 H-t.'M 
 
 Nl VX 
 
 HXt. 'N 
 
 ME.'/M. 
 
 N.E '/4 
 
 ijOA. 
 
 ^oA. 
 
 SOA. 
 
 S.ry V^ 
 
 Sf..'M 
 
 5 '/a 
 
 HW V^ 
 
 N.T/ Vw 
 
 N.E Va 
 
 40 A. 
 
 WOA, 
 
 SOA. 
 
 
 YiVn 
 
 E V^ 
 
 5.W. '/^ 
 
 5.E 1/4 
 
 It^H 
 
 IbO A. 
 
 «0A. 
 
 80 A. 
 
 5CALE 5 IN.« SOCtt. 
 
 210
 
 MORTGAGE LOAN VALUES 211 
 
 It will be apparent that any rectangular system of 
 survey will lend itself readily to a similar system of 
 subdivision and that if the original survey is a public 
 one of record, liie legal descriptions of the subdivi- 
 sions of the various tracts of which it is composed will 
 be simplified and each will indicate on its face the 
 approximate shape and contents of the sul)division. 
 The above plan of subdivision is therefore very gener- 
 ally used in all such cases, whether the survey is a 
 public or a private one. (In cases where the sides of 
 the tracts do not conform to the cardinal points of the 
 compass there is naturally a variation in the descrip- 
 tion used from that of the one used in the govern- 
 mental plan — for instance, the halves and quarters of 
 the 2021/^ acre lots of central Georgia are described as 
 the northwest one-half of the east quarter, etc., of the 
 particular lot in which it is located.) 
 
 There are, however, seldom any other public sub- 
 divisions made of farming lands except those which 
 are made of the mile square survey above shown. In 
 cities and towns it is of course necessary that much 
 smaller divisions of the lands should be made and 
 these are known as "additions," "divisions," "sub- 
 divisions," "blocks" and "lots," which are projected 
 upon a "plat" and are identified by names and num- 
 bers; the plats of these additions with their minute 
 subdivisions when accepted and recorded under the 
 laws of the State where they are located become a 
 legal record, showing the identity of the property in 
 question, its location, shape and dimensions, and the 
 former description by section and township is then
 
 212 MORTGAGE LOAN VALUES 
 
 seldom used except for the purpose of additional cer- 
 tainty in locating the property. 
 
 It is evident, therefore, that in city investigations 
 the local official plat is of primary importance for, 
 although there is usually a much greater regularity 
 and uniformity of detail in the plat of a city or town 
 which has been established subsequent to a more gen- 
 eral public survey of the lands upon which it is 
 located, than there is in that of one which had its be- 
 ginnings along the windings of a water course or at 
 a crossing of trails, there are in no case any general 
 rules which are of much value in such investigations, 
 for State laws and City ordinances govern these mat- 
 ters and often leave much to the decision of the per- 
 son who submits the plat of the proposed addition or 
 subdivision. 
 
 The use of official township or district plats is also 
 often quite important in rui-al investigations, and this 
 is the case even in those districts which have been 
 surveyed according to some regular plan, for there 
 are certain unavoidable conditions that necessarily 
 result in numerous variations from the calculated 
 results of any system. 
 
 For instance, the contents of each of the several 
 tracts which result from the subdivision of a "con- 
 gressional" township is presumably of the acreage 
 named on the above diagram, but natural obstacles, 
 such as navigable lakes and rivers, are frequently en- 
 countered in these surveys and this results in certain 
 tracts failing to conform in size or shape to the regu- 
 lar plan; such parts of the survey are known as 
 "fractional" sections or quarter sections. The
 
 MORTGAGE LOAN VALUES 
 
 213 
 
 smaller of these tracts within the boinidarics of a 
 section are usually called "lots," but tlise and also 
 those which have been formed by throwing together 
 fragmentary parts of different sections are some- 
 times called "plats." All of these are described as 
 fractional parts and ar(> numbered in a consecutive 
 order, usually as nearly as may be in the order in 
 which sections are numbered. 
 
 The rule which is followed in such cases is illus- 
 trated by the following diagram : 
 
 
 
 
 
 N. 5 
 
 NV> 
 
 
 
 ^ o 
 
 "« N.W. V4 
 
 
 
 
 ao A 
 
 
 N.t.'/a 
 
 . I^.Tl A 
 
 al.7*< A 
 
 -^r^ »uor u 
 
 
 160 A. 
 
 U I 
 
 
 
 CH O • 
 
 t *: 
 
 zd^ 57 
 
 7 ^^ A 
 
 
 ^^^ 
 
 
 
 
 N^^'==^^'°'' 
 
 
 
 
 ; LOT 3 
 
 
 
 
 f 
 
 lifc.SJ A 
 
 M.IOA. 
 
 
 IbO A. 
 
 
 »'/a. 
 
 « 
 
 » 
 
 80 A 
 
 
 
 5CAtt 3»f1. • SO CM- 
 
 Such a tract of land is, of course, liable to changes 
 by reason of accretions or reductions along its shore 
 line, but "meander lines" are generally run which
 
 214 MORTGAGE LOAN VALUES 
 
 practically conform to the sinuosities of the shore and 
 these enable the original contents of the tract to be 
 calculated, although such surveys do not always serve 
 to establish its boundaries (wliich may be the actual 
 shore line) ; this estimate of its contents, however, 
 should always be made a part of the description of 
 the land; for example, a proper description of the 
 northwest quarter of the above plat would be the Ni^ 
 of the NW14 tii^d Lots 1 and 2 of Fractional Section 
 
 , To^\aiship , Range , containing in all 
 
 116.46 acres, for without this last clause there would 
 be no indication of its acreage except that it is a less 
 or greater amount than 160 acres and there would be 
 no way of determining the facts except by an examina- 
 tion of the government plats or by a re-survey of the 
 land. 
 
 Another insurmountable obstacle to the uniform 
 and regular division and subdivision of lands accord- 
 ing to our sj'stem of government survey lies in the 
 impossibility of fitting a scpiare plat to a convex 
 surface and this fact is also responsible for many of 
 the fractional sections and quarter sections that are 
 found in all square surveys of large areas. 
 
 All initial lines are run by surveys to the north and 
 south, and in the northern hemisphere any extensions 
 of these lines necessarily converge toward the pole 
 and diverge toward the equator ; although the effect 
 of this variation from an exact parallel is of slight 
 importance in limited areas and especially in the 
 minute subdivisions of cities and towns (for at the 
 fortieth parallel it only amounts to about ten inches 
 in the mile) when the survey is projected over a large
 
 MORTGAGE LOAN VALUES 215 
 
 territory the fact beeonics of considerable importance 
 and therefore "correction'' lines are run parallel to 
 the base lines and usually at distances of 24 miles 
 apart for the purpose of checking the growth of 
 these inaccuracies before they have become too great 
 and of making a new starting point for the one mile 
 divisions between the north and south lines of the 
 sections. 
 
 Owing to this convergence the north line of each 
 township will measure five feet less in length than 
 its south line, but under the rules governing our con- 
 gressional surveys each section is made to conform as 
 nearly as may be to its proper shape and size, com- 
 mencing with the southeast section, and the excesses 
 or deficiencies are worked into the northern and 
 western tiers of sections in the township and when 
 possilile into the northern or western subdivisions of 
 these fractional sections, thus making Section 6 of 
 each township the one most affected. 
 
 As surveyor's lines are preferably' run to the north 
 they are less often extended for great distances to the 
 south than to the north of a base line, and variations 
 from the regulation size of townships which are due 
 to the convergence of lines are more often in the form 
 of deficiencies than of excesses. Sometimes these de- 
 fects are very considerable, but the contents of all 
 fractional sections or lots are always stated in the 
 original field notes. These fractions, when extended 
 into the quarter sections, are usually called "lots" and 
 are numl)ered from the uortheasternmost one in the 
 order shown in the following plat :
 
 216 
 
 MORTGAGE LOAN VALUES 
 
 LOT M 
 
 LOT i 
 
 LOT 1 
 
 LOT 1 
 
 22V«A 
 
 30 A 
 
 3ft A 
 
 3oA. 
 
 LOT 5 
 
 S.E V^ 
 
 5.W. Vu 
 
 it %. 
 
 
 r(h. '"4 
 
 N.E.y* 
 
 ME '/* 
 
 >0 A. 
 
 ""'• 5fa 
 
 i'/^.a'''^ 
 
 Ho A. 
 
 LOT b 
 
 N.E74 
 
 
 
 6.V^'/4 
 
 5t Vq 
 
 30A. 
 
 UOA. 
 
 l&O A 
 
 LOT 7 
 
 S.E Vm 
 
 
 S.V/ Vu 
 
 
 30 A. 
 
 HO A. 
 
 
 « 75 CH > 
 
 SCALE 3 IN. * ao cn. 
 
 The above diagram is intended to show the ordinary 
 subdivisions of the north and west tier of sections into 
 which tlie excess or defect of the township, caused by 
 the convergence of meridian lines, etc., has been run, 
 but there are other causes for the existence of frac- 
 tional sections and many will be found in other loca- 
 tions in the townships, and these are apt to vary even 
 more than the ones above mentioned both in size and 
 angles. These fractions are made by the interference 
 of State boundaries or other lines which have been 
 established prior to the Congressional Survey or by 
 the projection of a survey in one direction meeting 
 the projection in an opposite direction of a survey
 
 MORTGAGE LOAN VALUES 
 
 217 
 
 made from a different initial line. 
 
 In all siieh eases, however, the government survey 
 and field notes should be referred to, for the terms by 
 which any such "fractionals" are known reveal very 
 little either as to their shape or the quantity of land 
 which they maj" contain. 
 
 The following diagram illustrates this feature by 
 showing how the lines of the Congressional Survey 
 meet the lots at the north point of the previously made 
 grant by the government to George Rogers Clark at 
 the "Falls of the Ohio." 
 
 TffP > N. 
 
 CLARK'5 CHAHT. 
 
 SCAUE 9/^ IN.' f Mi
 
 XXXIV 
 
 FRACTIONAL AND IRREGULAR DIVISIONS 
 
 The congressional survey of our public domain, 
 together with certain other surveys made by the 
 authority of this government and that of other orig- 
 inal owners, has covered the greater portion of the 
 entire country Avith a network of established and 
 recorded lines which form a dependable basis for the 
 legal descriptions in all of the local sulxlivisions of 
 land in that territory. 
 
 The comments already made will perhaps give a 
 fair general idea of these surveys, but there is also a 
 considerable extent of territory, chiefly located in the 
 older States, in which there has been no such system 
 used and in which both public and private subdivi- 
 sions have been very generally made in irregular 
 shaped tracts, and some additional comment may 
 serve to point out tlie difficulties which attend upon 
 this lack of system and the resultant faults which fre- 
 quently occur in the land descriptions in these sec- 
 tions. 
 
 During the time when a very large amount of the 
 land in this section of the country was vacant, many 
 grants were made which did not specify the particular 
 location nor the shape of the tract granted, but only 
 the number of acres and the general location of the 
 same; it was, of course, natural for the grantee to 
 
 218
 
 MORTGAGE LOAN VALUES 219 
 
 select the best unappropriated land in such section 
 and if the value of an irregular shaped tract or of a 
 spring or Avater course or other thing was greater to 
 him than was the value of a regular shape to his 
 land, he would often extend his lines to include the 
 desired location. 
 
 At a later date when a considerable portion of the 
 vacant laud had I)een appropriated, more specific 
 locations were uanu'd in the grants and they were fre- 
 quently bounded in part by the lands of John Doe and 
 Richard Roe and in part l)y vacant land. 
 
 At a still later date the more desirable lands were 
 very generally taken up except that the lines of the 
 various surveys often failed to include all of the land 
 and the remaining unsold portion was generally of a 
 very irregular shape owing to the fact that the sur- 
 rounding lines of the tracts did not conform to one 
 anotlier. 
 
 These matters are well illustrated by the foUoAving 
 copies from the State official records which have been 
 furnished by iMajor Loring Lee of Sumter, S. C. 
 
 The first of these, which is a Lords Proprietors 
 Grant, appears to be slightly defective both as to 
 stated consideration and the date, but has been copied 
 as found of record. 
 
 Vol. 38 (Proprietor's Grants No. 1) page 175, 
 Office of Secretary of State for State of South Caro- 
 lina. 
 
 "By virtue of the Power unto me given by the 
 Right Honble the Lords Proprietors I hereby acknowl- 
 edge to have sold unto John Seabrooke Four hundred
 
 220 MORTGAGE LOAN VALUES 
 
 acres of land at the rate of Six pci- acre for wliicli 
 said land I have i-eceived the sum of Ten Pounds 
 Curt money of Carolina reserving to be paid to the 
 Lords Proprietors their heirs and assigns the sum of 
 twelve pence out of each hundred acres as an acknowl- 
 edgement or Chief rent on the 29th day of September 
 yearly and every year the said John Sealirooke may 
 make choice of the said Four hundred acres of land 
 where the Lords rent is not yet paid nor no Grant 
 passed for the same and where no person hath pos- 
 sessed claimed or Inhabited the same. Always pro- 
 vided that what rent or arrears of rent is due from 
 the land or any part thereof is hereby reserved and 
 must be paid to the Lords or their assigns by such 
 person or persons that did formerly record possess or 
 make use of the same or any Timber thereon. I say 
 sold & received the purchase money aforesaid. Wit- 
 ness my hand this thirtieth day of January 1695/6. 
 
 John Archdale 
 Registered this thirtieth day of January 1695/6 
 
 Henry Wigington Dy Reg" 
 
 The second paper shows a Royal Grant by Geo. II 
 to Christopher Singleton of a specific tract of land, 
 a part of the adjoining lands being occupied and a 
 part vacant. 
 
 "SOUTH — CAROLINA. 
 
 GEORGE the Second, by the Grace of God. of Great- 
 Britain, France and Ireland, KING, Defender of the 
 Faith, and fo forth, To All To Whom THESE PRES- 
 ENTS Shall Come Greeting: KNOW YE, THAT
 
 MORTGAGE LOAN VALUES 221 
 
 WE of our fpecial Grace, certain Knowledge and 
 mere Motion, have given and granted, and by tliefe 
 Prefents, for us, our heirs and su;'ceffors, DO GIVE 
 AND GRANT unto 
 
 Christopher Singleton his 
 
 heirs and affigns, a plantation or tract of Three 
 Hundred Acres of Land in Craven County at the 
 high Hills of Wateree River bounded to the North 
 West on Land laid out for Porche to the North East 
 and North West on Land laid out for Matthew 
 Singleton and on all other fides on Vacant Land 
 And hath fuch fhape, form and marks, as appears by 
 a plat thereof, hereunto annexed: Together with all 
 woods, miderwoods, timber and timber-trees, lakes, 
 ponds, fifhings, waters, water-courfes, profits^ com- 
 modities, appurtenances and hereditaments whatfo- 
 ever, thereunto belonging or in anywife appertaining : 
 Together with pi-ivilege of hunting, hawking and fowl- 
 ing in and upon the fame, and all mines and minerals 
 whatfoever; faving and referving, neverthelefs to us, 
 our heirs, and succeffors, all white pine-trees, if any 
 there fhould be found growing thereon : And alfo 
 faving and referving, to us, our heirs and succeffors, 
 one tenth-part of mines of filver and gold only • TO 
 HAVE AND TO HOLD, the faid tract of Tlirce Hun- 
 dred acres of land and all and fingular other the 
 premifes hereby granted, with the apurteuances. unto 
 the faid 
 
 Christopher Singleton his 
 
 heirs and affigns for ever, in free and common foe- 
 cage, he the faid Christopher Singleton his heirs or 
 affigns yielding and paying tlierefore, unto us. our 
 heirs and succeffors, or to our Receiver-General for 
 the time being, or to his Deputy or Deputies for the
 
 222 MORTGxVGE LOAN VALUES 
 
 time being, yearly, Ihat is to fay, on cvci-y Iwciity- 
 fifth day of ]\larc'ii, at tlic rate of three fliillings 
 fterling, or four fhillings proelamation money, for 
 every hundred aeres, and fo in proportion a -cording 
 to the qnantity of acres, contained liei-ein ; the same 
 to grow due and be accounted for from the date 
 hereof. Provided, always, and this prefent (J rant is 
 upon conditions, neverlheless, tluit the fa id 
 
 Christopher Singleton his 
 
 heirs and affigus fhall and do within three years next 
 after the date of thefe prefents, clear and cultivate at 
 the rate of three acres for every hundred acres of 
 land, and fo in proportion according to the quantity 
 of acres contained, or build a dwelling houfe thereon, 
 and keep a ftock of five head of cattle for every five 
 hundred acres, upon the fame, and in proportion for 
 a greater or leffer quantity: And upon condition, 
 that if the faid rent, hereby referved, fhall happen 
 to be in arrear and unpaid for the fpace of three years 
 from the time it became due, and no diftrefs can be 
 found on the faid lands, tenements and hereditaments 
 hereby granted, that then and in fuch cafe, the faid 
 lands, tenements and hereditaments hereby granted, 
 and every part and parcl thereof, fhall revert to us, 
 our heirs and fucceffors, as fully and absolutely, as 
 if the same had never been granted. Provided also, 
 if the faid lands hereby mentioned to be granted, 
 fhall happen to be within the bounds or limits of 
 any of the town f hips, or of the lands referved for the 
 life of the townships now laid out in our said Province, 
 in purfuance of our Royal Instructions, that then this 
 Grant shall be void, anything herein to the contrary 
 conlainrd notwithstanding. 
 
 Given under the Great Seal of our faid Province. 
 WITNESS William Henry Lyttelton Esquire 
 our Captain General
 
 224 MORTGAGE LOAN VALUES 
 
 Governor and Cojiiniaiidcr in chief in and over onr 
 faid Province of South-Carolina, this Eighth Day of 
 May Anno Dom. 1758 in the Thirty Second Year of 
 our Reign. 
 
 William Henry (L. M. S.) Lyttelton 
 Signed by his Excellency the Governor in Conncil 
 And hath hereunto a plat William Simpson C. C. 
 thereof annexed, repre- 
 fenting the fame, certified by 
 Egerton Leigh Esqr 
 Surveyor-General. ' ' 
 
 The third paper is a copy of a grant to General 
 Thomas Sumter by the State of South Carolina of a 
 tract of land which had been previously completely 
 surrounded by other claims, and serves to show the 
 very irregular forms which resulted from this system 
 of land division. 
 
 "STATE OF SOUTH CAROLINA 
 
 To all to whom thefe Prefents fhall come. Greeting : 
 KNOW YE, That for and in confideration of Seventy 
 two Pounds 6/8 d sterling money, paid by 
 
 Thomas Sumter Esquire 
 into the treafury for the ufe of this ftate. We have 
 granted, and by thefe prefents do grant unto the faid 
 
 Thomas Sumter his heirs and affigns, a plantation 
 or tract of land, containing Three thousand One hun- 
 dred acres Situate in the district of Camden, near 
 the High Hills of Santee 
 
 having fuch fhape, form and marks as are reprefented 
 by a plat hereunto annexed, together with all Avoods, 
 trees, waters, water courfes, profits, commodities,
 
 
 (Sxv-at-ii/^ !&i2 
 
 6> AAlOx^ynJ' '^^h.ZsAjUt, 
 

 
 MORTGAGE LOAN VALUES 225 
 
 appurtenances and hereditaments whatfoever there- 
 unto belonging, TO HAVE AND TO HOLD the faid 
 tract of three thousand one hundred acres of land, 
 and all and fingular other the premifes hereby 
 granted unto the faid Thomas Sumter his heirs and 
 affigns, forever, in free and common focage. 
 
 GIVEN UNDER THE GREAT SEAL OF THE 
 STATE 
 
 WITNESS his Excellency Thomas Pinckney 
 Efquire, Governor and Commander in Chief in and 
 over the faid State, at Charlefton, this fifth Day of 
 March Anno Domini one thoufand feven liundred 
 and Eiglity Seven and in the Eleventh year of the 
 Independence of the United States of America. 
 
 Thomas (L. M. S.) Pinclmey 
 And hath thereunto a Plat thereof annexed reprefent- 
 ing the fame, certified by 
 
 F. Bremar Pro 
 
 Surveyor-General 
 27th Decem 1786 ' ' 
 
 Throughout all of this territory there are, of course, 
 numerous monuments, the location of which are mat- 
 ters of public record, and these, when they have been 
 set by proper authority, are held in law to govern the 
 distances and directions recited in the deed or other 
 papers in which they are used as "calls." These 
 monuments, however, have not been set with reference 
 to anj'^ general plan or system but only according to 
 the exigencies of the particular survey then being
 
 226 MORTGAGE LOAN VALUES 
 
 made of certain tracts of land, and because many of 
 these monuments were of an unsubstantial character 
 it often becomes difficult in after years for a surveyor 
 to find a definite starting point for his work. There 
 were also many errors in the earlier surveys, for the 
 reason that the obstacles and hindrances to good work 
 and the difficulty of getting true measurements were 
 greater before the forests were cut or the swamp lands 
 drained. 
 
 In the time when the earlier divisions of the lands 
 were made in these districts they were often regarded 
 as being of comparatively little value, and errors in 
 their survey which would now be thought serious 
 were then regarded as unimportant and many ' * begin- 
 nings" and "calls" were very indefinitely described, 
 — for instance, the title to certain Indiana farm lands 
 goes back to a description reading "beginning at a 
 sycamore tree on the north bank of the Ohio River 
 about one and one-half miles south of Six Mile 
 Island ' ' ; and valuable property in the city of Dallas,. 
 Texas, is a part of a tract of land once transferred as 
 "beginning at the northeast corner of my cabbage 
 patch. ' ' This last example is perhaps rather an un- 
 usual one but the first belongs to a class which is not 
 at all uncommon, for in earlier times many divisions 
 and transfers were made in the more unsettled dis- 
 tricts of land which were never surveyed by any sur- 
 veyor but were described in deeds according to the 
 rough measurements and estimated directions of lines 
 which were supposed to enclose a certain quantity of 
 land. Streams which have since changed their course 
 were frequently made a part of the boundaries, and
 
 MORTGAGE LOAN VALUES 227 
 
 sometimes the property was simply described as being 
 surrounded by the lands of other (named) owners, 
 which ownership has since greatly changed, and the 
 deeds to which may in themselves be defective. 
 
 In a majority of such cases, however, the universal 
 recognition for many years of certain land marks and 
 lines has probably served to establish their location 
 with such certainty as to enable a competent surveyor 
 to plat the land and measure its contents with suffi- 
 cient accuracy for practical purposes, but in com- 
 paratively few cases can either of these things be even 
 approximated except by such a survey for the reason 
 that directions and distances must always yield to 
 monuments. 
 
 When these surveys are made they often reveal an 
 overlapping of the lines given in the recorded descrip- 
 tions and show differences from the stated acreage 
 which have been unsuspected for years and which 
 would probably never be discovered by the office 
 work of platting the lands, which is quite a different 
 matter from their actual survey in the field. 
 
 To illustrate this fact, suppose certain property is 
 described as being bounded by certain other tracts of 
 Real Estate, each of which has been separately sur- 
 veyed but at different times, and suppose that the 
 description to which the office man has access gives all 
 of the distances, directions and "calls" of these 
 various surveys but fails to give the variation of the 
 magnetic needle at the particular time and place when 
 each survey was made (or the dates of such surveys, 
 which to the surveyor is practically the same informa- 
 tion), in such a case, and it is a very usual one, it is
 
 228 MORTGAGE LOAN VALUES 
 
 only by going upon the ground and finding one or 
 more of the monuments and making a survey from 
 them that the missing information necessary to a cor- 
 rect survey-can be gained. 
 
 To the uninformed this lacking information may 
 seem to be a mere technical matter, but its very prac- 
 tical nature will be understood when two of the funda- 
 mental facts connected with the science of surveying 
 are taken into account. The first of these is that 
 within much less time tlian that in which lands have 
 been surveyed in this country the magnetic needle has 
 marked both extremes of its known variation, which 
 is not uniform and is different at different places but 
 which at the supposed location of this illustration 
 (near the 2ud principal meridian and the Ohio River) 
 amounts to about six and one-half degrees on each 
 side of the true north, or a total variation of about 
 thirteen degrees; and the second fact is that each 
 variation of one degree amounts to a divergence of 
 90 feet in each extension of one mile. 
 
 The following diagram will show the relative loca- 
 tion of two surveys made fi-om the same initial point 
 and according to the same statement of angles but at 
 the times of the greatest variation of the needle and 
 without reference to such variations, and incidentally 
 it will show that great discrepancies in descriptions 
 may come to exist from this cause, and that a descrip- 
 tion which mathematically proves to itself to be cor- 
 rect cannot always be taken as absolutelj' correct, for 
 the reason that it may not physically fit the land 
 intended to be described.
 
 MORTGAGE LOAN VALUES 
 
 229 
 N. 
 
 wno 
 
 INITfAL POINT 
 
 SCALt 9 IN. ' so CM. 
 
 It is very evident then that when any undated 
 survey is made a part of a land description it is open 
 to the above objection and that when land is entirely 
 described by the lines of the surrounding lands a 
 "desk" examination is especially liable to error not 
 only from this cause but also for the reason that the 
 danger of mistakes having been made in measure- 
 ments is greatly increased, and cases might be cited 
 where a survey has demonstrated the fact that no
 
 230 MORTGAGE LOAN VALUES 
 
 land actually existed to which the given description 
 would apply even inferentially. 
 
 The following description is a very fair example of 
 a large class which will be found in this territory 
 and is one that also shows the necessity of an actual 
 survej' of the land. The description may be found in 
 the McLean County, Kentucky, records: 
 
 "Beginning at a cottonwood and ash on Green 
 River; thence North % of a degree West 349 poles; 
 thence North 70 West 16 poles to Buck Creek ; thence 
 down Buck Creek to Green River, and thence up the 
 River to the beginning; excepting, however, there- 
 from 50 acres sold to T. L. and W. G. Atchisson 
 bounded as follows : Beginning at a sycamore on 
 Green River, running North 11 East 172 poles; thence 
 North 49 West 471/2 poles to a water beech on Buck 
 Creek; thence down Buck Creek to its mouth; thence 
 up Green River to the place of beginning. ' ' 
 
 The only thing which may be definitely determined 
 by a "desk" examination of this description is the 
 fact that the lines along Buck Creek and Green River 
 when taken together are at least equal in length to the 
 hypothenuse of the angle shown by the surveyed lines 
 and, except for the fact that the original tract was 
 supposed to contain the ' ' excepted ' ' 50 acres, this does 
 not warrant the conclusion that the contents are 
 necessarily as much as would be included by the line 
 of the hypothenuse.
 
 XXXV 
 
 ILLUSTRATIONS OF LAND DIVISIONS 
 
 The object of these comments on the division and 
 measurement of land has not been either to mention 
 or to disenss them fnlly (and this has not been at- 
 tempted), but it has only been to make sufficient 
 explanation of such general facts as may serve to 
 emphasize the importance which attaches to a practi- 
 cal knowledge of these matters on the part of the 
 person who investigates Real Estate mortgage secu- 
 rities, and the following illustrations have been added 
 in order to show more clearly the differences which 
 will be found in descriptions made under different 
 systems of divisions and measures : 
 
 The simplicity which is very common in those that 
 are based upon a system of regular public survey is 
 sho^^^l in the following two examples, one from the 
 government and one from a State survey. 
 
 N.C. Vm 
 
 160 A. 
 
 N. 
 
 CtMTfR Of 5Ca»0M 
 
 y.AUL Vi4 IN. • K3 IU>». 
 
 231
 
 232 MORTGAGE LOAN VALUES 
 
 "The NEi^ of Sec. 10, Tw]). G N., 
 R. 13 W. of Indian Meridian, Caddo County, 
 Oklahoma. 160 acres." 
 
 5CALE yii IM.« (0 RDs. 
 
 "The SEi/o of Lot #122 of the 
 17th land district in Laurens County, 
 Georgia. IOI14 acres." 
 
 The more complicated nature of a description by 
 metes and bounds of an irregular survey is shown 
 by the following rather simple description and sur- 
 veyor's certificate and map; although it is simple, 
 this description has been somewhat lengthened by the 
 meander lines along Duck River and it will be noticed 
 that in the description distances are named in terms 
 of "poles" while the surveyor has calculated them in 
 ' ' chains. ' ' 
 
 Description 
 
 "Beginning in the Center of Duck River, the north- 
 east corner of the Allison tract, two small sycamores 
 on the East Bank ; thence east to a stake between said 
 sycamores and continuing in the same course on the 
 line known as the Pratt-Holcomb division line 142.6
 
 MORTGAGE LOAN VALUES 233 
 
 I)oles to a stake; tlienee north 3 degrees ?Ii minutes 
 east 45.5 poles to a stake; thence east 25 poh'S to a 
 stake, the southwest corner of a 20 acre tract con- 
 veyed by Arch Coldwell to his wife Tennie G. Cold- 
 well; thence north 3 degrees east along the west line 
 of said 20 acre tract, 92.4 poles to a stake on the 
 north side of the road known as "The Sims' Ford 
 Road, ' ' and crossing Duck River at the steel bridge ; 
 thence south 841/4 degrees west 15.9 poles to a black 
 oak on the south side of said road; thence north 77 
 degrees 10 minutes west 25.75 poles to a beech on the 
 south side of said road ; thence north 48 degrees west 
 16 poles to a stake, beech pointers ; north llVo degrees 
 east 2 poles; thence west 16 poles to a low water 
 mark, and continuing in all 22.1 poles to the center 
 of Dtick River; thence up the River with its center 
 south 361/2 degrees west 7 poles; south 29 degrees 
 west 12 poles; south 37 degrees west 16 poles; south 
 321/2 degrees west 20 poles; south 181/4 degrees west 
 4 poles; south 35 degrees west 8 poles; south 49 
 degrees west 8 poles; south 551/0 degrees west 14.4 
 poles; south 60 degrees west 16 poles; south 62 degrees 
 west 16 poles; south 71 1/2 degrees west 12 poles; 
 south 69 degrees west 12 poles ; south 41 degrees west 
 16 poles; south 12% degrees west 12 poles; south 5% 
 degrees west 8 poles; south 2I14 degrees WTst 12 
 poles; south 6% degrees west 17.92 poles to the begin- 
 ning in the center of the river west of a stake between 
 two small sycamores on the bank, containing 112.91 
 acres, more or less."
 
 234 
 
 MORTGAGE LOAN VALUES 
 
 9- 
 I 
 
 Scfift^¥t Kt. - 10 ch. 
 
 ^ 
 
 
 
 
 •♦th. 
 
 LANd of A. Coldwe)! 
 113:41 ACRe» 
 
 
 •ScA 
 
 a 
 
 "•"» 
 
 ?;''"^^ 
 
 •?""<. Aiy 
 
 
 E. 35.65 cii. 
 
 UiM» kHovgH M Piw.-tt-HetcoNb divnio^ li»*«.. 
 
 County of Bedford 
 State of Tennessee 
 
 The above is a plat of land sold by J. T. Allison to 
 Arch Coldwell lying in the seventh civil district of 
 Bedford County, Tennessee. Surveyed September 
 1st., 1900. 
 
 (Signed) J. L. Hutson, 
 
 Survevor.
 
 MORTGAGE LOAN VALUES 235 
 
 The following description from a deed (with a 
 sketch of the land) will give an idea of the old French 
 land divisions and measurements; it also illustrates 
 the fact that water frontage was considered by the 
 early settlers to be of greater importance than was a 
 more convenient width of the tract of land, this tract 
 being only one arpent or 192.5 feet in width and 
 nearly sixty-eight arpents or more than thirteen thou- 
 sand feet in length : 
 
 "Vetalle Bouchez and 
 wife, Marie Odelle 
 
 to 
 Amable Bouchez. 
 Warranty Deed, $150.00, 
 Dated August 5, 1823, 
 Recorded September 5, 
 
 1823, 
 Book "C," Page 210, 
 Knox County Records. 
 Conveys : All that certain tract, tenement or parcel 
 of land containing one (1) arpent, French measure, in 
 front on the River Wabash and extending back the 
 same width to the Cathlenette swamp, bounding on 
 the eastward lands now or late of the heirs of 
 Francois Languedoc and on the westward lands now 
 or late of Louis and Charles Languedoc, situate in 
 the Prairie de Grand Morals, below Vincennes, con- 
 taining 67.63 arpents (57.53 acres)." 
 
 In this particular case the French grant was over- 
 laid by the Congressional Survey as is shown below by 
 dotted lines, together with the field notes of the 
 United States Government Surveyor, locating the
 
 236 MORTGAGE LOAN VALUES 
 
 entire lot of which the above described arpent (shown 
 in black) is the west half, 
 
 CLAIM No. 43 
 
 "Re-surveyed for Francois Languedoc 115.08 acres 
 of land situated in Township 2 and 3 North, Range 11 
 West, Southwest of Vincennes in the Prairie : 
 
 ''Began at the corner of No. 42 on the bank of the 
 River, thence South 51 "West 6.47 down the River to 
 a black oak 4 inches in diameter, the corner, thence 
 South 14 East 197.71 to a post at the edge of the 
 Prairie, thence North 351/^ East 7.66 to the corner of 
 No. 42, thence North 14 West 197.08 to the place of 
 beginning. ' ' 
 
 Claim No. 44 
 
 "Re-surveyed for Charles Languedoc 116.13 acres 
 of land situated in the Prairie Southwest of Vin- 
 cennes in Townships 2 and 3 North, Range 11 West : 
 
 "Began at the corner of No. 43 on the bank of the- 
 River, thence down the same South 481/2 West 6.58 
 to a sycamore 10 inches in diameter, the corner, thence 
 South 14 East 200.67 to post on the Cathlenette 
 Pond in Township 2, Range 11, thence North 3OI/4 
 East 8.35 to the corner of No. 43, thence North 111 
 West 197.71 to the place of beginning." 
 
 Each of the above original tracts, containing 115.08 
 and 116.13 acres, or approximately 135.28 and 136.51 
 arpents, respectively, were only two arpents or 385 
 feet in width and about two and one-half miles in 
 length.
 
 7. aN. «. u w. 
 
 5EC. X 
 
 SEC- I 
 
 SC«CE FRENCn '/ifclN'l ARPENlV 
 
 237 
 
 eATHLENtnt 3WAMP
 
 238 
 
 MORTGAGE LOAN VALUES 
 
 The following sketch is typical of Spanish-Mexican 
 land divisions — it outlines the John Turner league 
 and labor of hind which is located on the P>io River 
 in Live Oak County, Texas:
 
 MORTGAGE LOAN VALUES 239 
 
 Whenever possible these grants were located on 
 streams with such water frontage as could be obtained 
 and running back therefrom (usually between parallel 
 lines) to contain the intended amount of land (as is 
 shown in the above sketch by the line "A.A. "). 
 
 In deeds made by tenants in common for the pur- 
 pose of dividing the above land into two equal parts 
 (as shown by the line "B.B."), the portion marked 
 **C" is described in one deed simply as "the upper 
 one-half of said John Turner League and Labor" and 
 in the other deed the portion marked "D" is more 
 fully described as "the lower one-half of a League 
 and Labor of land on the right bank of the Frio River 
 in Live Oak County, Texas, originally granted to 
 John Turner and known as Abstract No. 38." 
 
 "The portion of said League and Labor hereby 
 conveyed being the eastern or lower equal one-half of 
 said League and Labor. The division line to lie run 
 from the Frio River to the South or back line of said 
 Turner tract cutting said League and Labor in two 
 equal portions." 
 
 To quote from a letter from Graham Dowdell of 
 San Antonio, who examined the abstract of title to 
 this land: "This grant. was made on July 15th, 1833 
 by the Government of Mexico to a colonist, brought 
 into Texas by one of the empresarios engaged in colon- 
 izing before the Texas Revolution; in this particular 
 case the entire grant was sold for $30.00 for the 
 League of pasture land and twenty reales or $2.50 for 
 the Labor or 177% acres of arable land. 
 
 "In order to make the description in the first deed 
 intelligible anyone examining the title would have to
 
 240 MORTGAGE LOAN VALUES 
 
 know the meaning of the words ' ' upper ' ' and ' ' lower ' ' 
 as affecting Mexican land grants; they have nothing 
 to do with the direction indicated by the compass, nor 
 do they indicate valley as distinguished from "up- 
 land." They relate to the direction in which the 
 stream flows on which the land abuts, consequently, 
 when the "upper half" is conveyed it means the half 
 of the grant lying up-stream. 
 
 "In the early days these people, especially Mexi- 
 cans or Spaniards, rarely left written wills when 
 they died. It was equally rare for the heirs to resort 
 to administration proceedings upon the estate of the 
 deceased. Upon the death of the original grantee, 
 the heirs usually made a parole partition of the grant, 
 dividing it into equal portions each having an equal 
 frontage on the river, base line width, running back 
 between parallel lines to the back line of the grant 
 and in one Spanish land grant on the Rio Grande this 
 method of partition has resulted in one of the remote 
 heirs of the original grantee owning a strip of land 
 which is only twenty-five varas, or approximately 
 seventy feet, in width fronting on the river and run- 
 ning back betw^een parallel lines for a distance of fif- 
 teen miles. ' ' 
 
 In the old times immense tracts of land were some- 
 times granted by the Mexican Government to "em- 
 presarios" who were engaged in colonizing that terri- 
 tory which afterward became a part of the United 
 States and the beginnings and lines of these grants 
 were often somewhat indefinite. 
 
 The record describing the boundaries of one of these 
 grants made in 1826 (Burnet's Colony) is as follows:
 
 MORTGAGE LOAN VALUES 241 
 
 "Beginning at the town of Nacogdoches; thence on 
 a North course, the distance of fifteen leagues, to a 
 point clear of the twenty boundary leagues parallel 
 with the river Sabine, Avhere a land mark shall be 
 made; and thence on a line run west to Navasota 
 Creek; thence down said creek with its meanderings, 
 by its left bank, to the place where it is crossed by 
 the road leading from Bexar to Nacogdoches; thence 
 with said road to fork of the Bull's Hill (Lomo del 
 Toro) road, before arriving at the military post of the 
 Trinity, with said road to its junction with the old 
 road; and with said old road to the town of Nacog- 
 doches and place of beginning. ' '
 
 XXXVI 
 
 CONCLUSION 
 
 Various matters have been mentioned in the fore- 
 going pages but not very fully commented upon at the 
 time, for the reason that this would have made neces- 
 sary the introduction of certain collateral and even 
 of seemingly extraneous matters at places where their 
 consideration might have been more confusing than 
 otherwise. 
 
 Several of these matters are of a character that 
 would, no doubt, warrant some additional comment 
 and it is believed that they might be more clearly pre- 
 sented and the relation that they bear to the main 
 subject made more apparent by treating them in 
 greater detail and as separate parts of the subject, 
 but it is also believed that such mention of these mat- 
 ters as has been made will serve the interests of thrfse 
 who are engaged in the business, and incidentally the 
 general interests by inducing a closer study of the 
 best practices and policies to be followed. 
 
 To persons who are familiar with the business of 
 making or buying mortgage loans, it may seem super- 
 fluous to state that it is important for those who 
 engage in it to be well equipped in Imowleclge and 
 suited in temperament for the work; nevertheless it 
 is true that many persons who are ill fitted in either 
 or both respects, consider themselves capable and, 
 
 242
 
 MORTGAGE LOAN VALUES 243 
 
 entering the mortgage loan field, act with confidence, 
 in matters wherein the more experienced lender or 
 investor uses much greater caution. 
 
 There is probably no other important line of busi- 
 ness for which so many persons of limited experience 
 therein consider themselves to be fitted; persons who 
 for years, perhaps, have been absorbed in other af- 
 fairs, become favorably impressed with the Real 
 Estate mortgage business, and, believing the invest- 
 ment of money in such securities to be a compara- 
 tively simple matter, enter this field and undertake 
 the work themselves, or employ other equally inexpe- 
 rienced persons to do it for them. 
 
 These are often persons who are, in a general way, 
 well informed, and if they have made a few loans with 
 which they have had a favorable experience — loans, 
 for example, upon which the interest has been 
 promptly paid, and the principal, when due, has been 
 either paid or renewed, their confidence in their 
 knowledge of the business is sustained, and they at- 
 tribute their good fortune to their possession of a 
 skillfulness which they are convinced will be suffi- 
 cient to insure an equal measure of success with a 
 large number of loans, with loans on various classes 
 of property, and with loans in divers locations, when 
 as a matter of fact they are often wholly ignorant of 
 many of the conditions precedent to good lending as 
 a business and of those rules which are of especial 
 force and effect when the investor engages in exten- 
 sive operations. 
 
 In this, perhaps as much as in any other undertak- 
 ing, it is tru ; that ' ' a little knowledge is a dangerous
 
 244 MORTGAGE LOAN VALUES 
 
 thing," and if the lender or investor expects to reach 
 
 safe conelnsions in all of the various questions which 
 ■will arise, it is important that he should know the 
 laws of conservative lending', have all of the facts 
 before him in each ease and fully understand their 
 relative values and applieability to the matter in 
 hand. 
 
 His temperament should be such that the task of 
 assembling, investigating and judging the facts will 
 be attractive rather than irksome to him; he should 
 be able to see beneath the surface of favorable repre- 
 sentations, and beyond the limit of present favorable 
 conditions; he should be able to decide each case 
 solely upon its own merits, uninfluenced by any out- 
 side conditions, no matter how attractive they may 
 be, and should know independently of the opinion of 
 others, why in any given case certain loan values do, 
 or do not, exist. 
 
 It is not intended to say that if wholly favorable 
 conditions do not exist losses will be frequent, for if 
 ordinary caution is used this is not apt to be the case, 
 but in this business when losses do occur they are 
 often serious ones, and only a careful observance of 
 all safeguards (which should be intrusted to a skilled 
 lender) should be depended upon, and this will make 
 negligible any danger of loss that might otherwise 
 exist and give an additional value to any loan or col- 
 lection of loans. 
 
 Unless the investor himself has a good working 
 knowledge of the necessary requirements for good 
 loans and good loan territory, he will be more or less 
 at the mercy of borrowers or their agents, and these
 
 MORTGAGE LOAN VALUES 245 
 
 persons are always interested parties who often have 
 a very poor knowledge of what constitutes good mort- 
 gage loan security and who are sometimes unscrupul- 
 ous although they will be able in almost every instance 
 to present good credentials and will frequently l)e 
 fluent and, to the investor, convincing talkers. 
 
 If unfitted for the Avork himself, he will be unal^le 
 to pass upon the reports of his assistants with any 
 degree of certainty as to the value of their work, and 
 he will himself make many mistakes, the most com- 
 mon of which perhaps will be that of magnifying the 
 importance of some of the minor rules of the business 
 and applying them in cases where, under the circum- 
 stances, they are of no real force. At best he will 
 be constantly in danger on the one hand of refusing 
 meritorious offerings, and, on the other, of making a 
 useless expenditure of time and money in further 
 investigations of offerings which, if more expert, he 
 would have condemned on the showing of preliminary 
 reports. 
 
 Such a person may succeed in avoiding the serious 
 mistakes that will result in an ultimate loss of capital 
 but if he is in charge of trust funds and is con- 
 scientiously endeavoring to obtain only high class se- 
 curities, the work will soon prove to be a burden 
 which will increase as his realization of his own limita- 
 tions increases. 
 
 For various reasons many poor loans are paid ; 
 sometimes this is because of the borrower's belief, or 
 even because of his hope, that an equity which is 
 worth protecting remains in the property; sometimes 
 the loan is protected by the personal responsibility
 
 246 
 
 MORTGAGE LOAN VALUES
 
 MORTGAGE LOAN VALUES 247 
 
 of the borrower outside of his interest in the property 
 mortgaged, and it also very often happens that a loan 
 is bettered because there is an appreciation in the 
 value of the security after the loan is made. 
 
 Of course it would be very poor business sense for 
 the mortgagee to depend upon any such help to make 
 his security good, but it is true that such help often 
 does come to his aid, and therefore losses are seldom 
 so frequent as would seem to be unavoidable to one 
 wlio contemplates the unseen dangers which lie in the 
 path of the inexperienced investor, and it may be 
 added here, that this fact argues very strongly indeed 
 in favor of the entirely dependable character of such 
 Real Estate mortgages as have been selectd or made 
 by persons who are fully competent to do so. 
 
 In concluding these comments it may not be super- 
 fluous to say that while there is no reason to suppose 
 that the desirability of city loans Avill be greatly dif- 
 ferent in the future from what it has been in the past, 
 the investor in farm loans may congratulate himself 
 upon the fact that as a class such securities are grow- 
 ing better — not greatly perhaps in many sections, not 
 rapidly perhaps in every section, but growing steadily 
 and generally better — a condition that has been 
 brought al)out by a wide-spread and intelligent effort 
 to make improvements in farming methods, in live 
 stock and farm equipment, in better drainage and bet- 
 ter roads and in everything else that goes to make 
 farm life more pleasant and the business of farming 
 more profitable ; and this effort is being materially 
 aided and encouraged by a vast number of organiza-
 
 248 MORTGAGE LOAN VALUES 
 
 tions for that purpose, from the Agricultural Depart- 
 ment of the United States to the local corn clubs of 
 the boys, but chiefly by the fact that the farmers 
 themselves have very generally awakened to their 
 opportunities and to the value of improvements along 
 these lines; and the borrower on farm securities in 
 sections where high interest rates prevail may congrat- 
 ulate himself upon tlie fact that with a betterment of 
 general conditions in his section he may look forward 
 with confidence to a betterment to him of rates and 
 terms. 
 
 With a fuller knowledge of the subject he realizes 
 that it has been the conditions surrounding his secu- 
 rity and not the conspiracy of money lenders (for 
 there has been none) that have "held him up"; he 
 realizes that if one section enjoys better rates and 
 terms than another it is because of good and suffi- 
 cient and material reasons and he has more faith in 
 the efficacy of common sense improvements to bettter 
 his condition and less in such methods as the destruc- 
 tion of surplus crops, in organized efforts to arbitrar- 
 ily govern production and prices, or in the passage of 
 laws intended to limit and control the operation of 
 more powerful laws. The investor in farm loans may 
 also congratulate himself upon the fact that in no 
 other line of investment is the prospect of the future 
 demand for money so promising. Enormous areas are 
 as yet agriculturally undeveloped except in the most 
 elementary Avay, in very few places indeed has any 
 approach to full development been made and in no 
 other field is the demand for development more insist- 
 ent or better grounded.
 
 UNIVERSITY OF CALIFORNIA AT LOS ANGELES 
 
 THE UNIVERSITY LIBRARY 
 This book is DUE on the last date stamped below 
 
 0£C 2 3 1953 
 g£C 2 3 RECO 
 
 ■JAN 19^954' 
 
 JUn 3 1954 
 
 f ^-' 6/3 
 
 Mia I S RECD 
 
 DEgS 19SB 
 OCT 2 1961 
 
 % 
 
 
 Form L-9 
 20m-l,'42(8519) 
 
 1 / 
 
 UNIVERSITY OF CALIFORNIA 
 AT 
 
 LOS ANGELES
 
 Iiri\ JMlllinill'^.'°^'^L LIBRARY FACILITY 
 
 rT AA 000 977 892'