Section 346. Study, first, Section 93 to 108, inclusive, and accompanying forms, pages 75 to 95, inclusive, of Text Book; also Section 123, pages 102 to 105, inclusive.
Sec. 347. Loans are of two kinds, flat and installment. A flat loan is made for a certain term with the entire principal repayable in one sum. Installment loans are payable at a certain sum per month or quarter, both principal and interest, for a certain time which will discharge both principal and interest. Installment loans are an accommodation to borrowers with limited but regular salaries, and to whom the accumulation of a large sum to pay a flat loan at maturity would be out of the question. Interest on installment payments may be figured in several ways, and the two following examples illustrate the yearly, and the monthly, method.
(a) Yearly Method. A house and lot are sold for say $4,500. with a cash payment of $450. (10%), the remainder of $4,050 to be paid at the rate of $45 per month, aggregating $540 per annum. The interest on $4,050 at 6% amounts to $243 per year, and this, deducted from the payment of $540, leaves $297 to be applied on the principal, which is thereby reduced to $3,753, and this amount constitutes the principal on which interest is figured for the second year, and so on.
(b) Monthly Method. House and lot are sold for $4,500, as above, with a cash payment of $450, leaving a balance of $4,050. Monthly payments, $45 each; interest at 6% for one month on $4,050 amounts to $20.25; this latter deducted from the monthly payment, leaves $24.75 to be applied to reducing the principal, leaving $4,025.25 as the principal for the next month; interest on same for one month at 6% equals $20.13; this latter, deducted from $45, leaves $24.87 to be applied to reduction of principal, and so on. The latter plan is more in favor of the purchaser than the yearly method, as, by the monthly method, he receives full benefit of interest upon his monthly installments as paid, and, where the installments cover a number of years, the saving in interest by the monthly-credit method is considerable. Persons or corporations doing an extensive installment business should be provided with tables of compound interest and annuities, and in some instances it is necessary to resort to the use of logarithms, in order to work a ready solution of problems relating to the number of equal monthly installments necessary to liquidate a given principal, with interest credited at stated intervals, and excess interest applied to reduction of principal, as above set forth.
Sec. 348. Where the rebate agreement is given in connection with a flat loan, as explained in Section 123, the borrower pays the interest at the net rate; thus, if the rate in the note calls for 9 per cent, and rebate agreement is given for 3 per cent, the borrower calculates and pays his interest at 6 per cent, and pays the taxes on the equity of both mortgagor and mortgagee. The laws of California are peculiar in this regard.
Sec. 349. In every community there are people who have mortgages soon to mature, or who wish to negotiate loans for erecting buildings and other purposes, and they naturally go to the real estate broker to assist them in obtaining money. The man who wants a loan generally is in urgent need of it, and no great effort is required in order to do business with him. Brokers who make a business of obtaining loans extensively have printed application blanks similar to Form No. 27, and all savings banks and building and loan associations have such blanks. These blanks place the matter of the loan before the lender in shape to enable him to act upon it intelligently. In Sections 96 and 97 of the Text Book the procedure in obtaining a loan from a savings bank or building and loan association is outlined, and the real estate broker should follow a similar course in obtaining a loan from a private individual, and he should particularly protect the lender in the matter of seeing that all of the papers (mortgage, promissory note, or trust deed and promissory note, and abstract of title or certificate of title) are in proper legal form and sufficient in every respect.
Sec. 350. The best plan in every instance, even in the case of individuals, is for the broker to have the money passed through an escrow, either with a title company or with a bank. The lender deposits his money with the escrow-holder, with instructions that it be paid over to the borrower after the mortgage has been executed and filed for record, and after the certificate has been brought down, showing the title to the premises vested in the borrower, free and clear of incumbrances, except the mortgage and possibly taxes assessed but not paid. The lender and the broker, or the broker in behalf of the lender, examine the papers and see that everything is in proper shape before the money is paid to the borrower.
Sec. 351. The loans made by savings banks and building and loan associations are, as a rule, first liens on the premises, and the broker should have it distinctly understood by all the parties, in the case of individuals, that the loan is to be a first lien, unless, as sometimes happens, a second mortgage is what is to be given. Where a party accepts a second mortgage, he generally intends to hold it, as there is difficulty in negotiating it.
Sec. 352. When an application for a loan is presented, the broker should examine the property, unless he is already familiar with it, and pass judgment upon it. If there is anything connected with the transaction that, in the opinion of the broker, would cause the application for a loan to be rejected, the broker will do well to dismiss the matter entirely, as if he presented such an application to the lender, particularly if it be a bank, the lender may form an unfavorable opinion of his business ability and it will be more difficult for him to obtain other loans which are desirable. The broker should ascertain from an applicant for a loan whether or not such applicant has already applied to a bank or elsewhere for the loan; as otherwise, the broker may be wasting energy in going over the same ground. The broker's commission for obtaining a loan is usually I per cent of the amount of the loan, payable at the time the loan is granted,
Sec. 353. If the broker wishes to ascertain who has money, be should advertise in the "Want" columns of the newspapers, and he can do so at first from a box number, as some people who have money will not answer advertisements by brokers new to the business. After the broker has become well established and has built up a reputation for clear-cut and reliable business methods, he can advertise directly from his office with good effect.
Sec. 354. Oftentimes a broker can facilitate a sale by securing a loan on either real property or personal property for one or the other of the parties to the deal.
Sec. 355. Loans on personal property are secured by chattel mortgages (form No. 141). The property remains in the possession of the mortgagor. In some cases, where the personal property, such as jewelry, typewriters, etc., are loaned on, the property is given into the possession of the lender, and an agreement of conditional sale is used (Form No. 92). Any personal property which is capable of being sold or assigned, may be mortgaged, even if such property has only a prospective existence, such as a growing crop. The foregoing is the general rule, but in California the personal property which can be mortgaged is enumerated in Section 2955 of the Civil Code.
Sec. 356. A mortgage of a vessel flying the United States flag must be recorded in the office of the Collector of Customs where such vessel is registered or enrolled.
Sec. 357. See (6) page 80 of Text Book, as to execution of personal property mortgages in California.
Sec. 358. A mortgagee of personal property, when the debt to secure which the mortgage was executed becomes due, may foreclose the mortgagor's right of redemption by a sale of the property in the manner and upon giving the notice required by law.
Sec. 359. Personal property which is mortgaged may be attached, in California, at a suit of the creditor of the mortgagor, but before taking the property the officer must tender to the mortgagee the amount of the mortgage debt and interest, or must deposit the amount thereof with the County Clerk or Treasurer, payable to the order of the mortgagee.
Study Sections 22 to 34, inclusive, of Text Book, pages 11 to 14, inclusive.