The making and selling of one's paper in the market, outside of one's bank, and free from the wholesome restraint which a bank exercises upon the inclination of a class of depositors to borrow beyond their proper limit, is a method of business which is fraught with danger and liable to abuses. In prosperous times it is apt to lead to over trading or to speculation. Funds obtained in this way can be 'used for any purpose, and are often applied to other uses than the discounting of merchandise bills.

Dangers of the System

As a rule note brokers merely transfer the paper without guaranteeing its payment by endorsement. While the broker is not legally liable in case the maker fails to pay, yet his business success depends upon the manner in which the notes are paid, and he is, therefore, exceedingly anxious that they should be paid promptly at maturity. He is considered a guarantor that the notes are all right in every respect, except as to whether they will be paid or not, and of that the bank or buyer is presumed to be equally capable of judging. The note broker must make no misrepresentations in order to sell his paper. His dealings with the buyer of his paper require the utmost good faith on his part. He sends a printed list containing a description of perhaps a hundred notes to the bank. Each note is numbered and if the bank wishes to see any of the paper, it is sent upon application. Or a broker or an agent for him may visit a bank personally and exhibit a list of the notes and acceptances which he wishes to negotiate.

Loans on real estate security are considered a desirable class, where the intention is to put out the money for a long time. The lender usually does not aim to loan a larger amount than one-half or two-thirds the value of the property, leaving a good margin as an inducement to the debtor to repay the loan, rather than default. Loans on real estate are evidenced by a special form of note, and secured by either a mortgage or trust deed. A mortgage is a conveyance of the property to the creditor with the condition that if the debt is paid the conveyance becomes void. It is similar in many respects to a deed, with a conditional clause. A trust deed is a conveyance of the property to some third party called a trustee in trust as security for the debt. When the debt is paid, the trustee executes a release of the conveyance; that is, deeds the property back to the owner. Before loaning money on real estate security, the lender must satisfy himself not only as to the value of the property and its desirability as security for the proposed loan, but he should have the title examined by a competent attorney. An abstract of title containing a history of the conveyances through which the title has passed will be furnished by an abstract company.* Having found the title clear and satisfactory and no judgment against the mortgagor, the mortgage or trust deed may be executed and the loan made, but no time must be lost in getting the mortgage on record in the office of the recorder of deeds of the county where the property is situated.+ The object of recording is to give notice of the existence of the "mortgage to any one who might wish to purchase the property or take a mortgage upon it. There may be several mortgages on the same property, the first being entitled to priority of payment, then the second, and so on. In case the debt is not paid at maturity the holder of the mortgage has a right to foreclose and have the property sold at judicial sale, the residue, if any, after paying the debt, interest and costs, to be returned to the mortgagor. After sale, the mortgagor has a period in which he is allowed to redeem the property (usually about fifteen months) by paying up the debt and all costs, etc., but failing in this the sale becomes absolute. As to the special provisions of the law in regard to mortgages or trust deeds, their foreclosure, etc., the statutes of the state should be consulted. In case the security for a loan consists of both land and buildings it is usual for the mortgagor to have the latter insured for the benefit of the mortgagee.

•We now have title guaranty companies who guarantee or insure the mortgagee against loss by any defect of title in the property. They are a species of insurance company, and their guaranty policies are extensively accepted.

+The best method is to execute the mortgage or trust deed and place it upon record before the abstract of title is brought down to date. Then when the abstract is continued it will contain the mortgage or trust deed and show the continuity of title up to the moment of the loan.