signing of a document not fully understood by the person signing or the effect of which has been misrepresented by a real-estate broker or salesman, may result in a loss of many thousands of dollars by an innocent person. The law reports of every jurisdiction embrace thousands of cases resulting from incompetence, fraud, deception, or other illegitimate practice in connection with real-estate transactions.

As a result of this condition, the majority of States have enacted laws for the public protection against incompetent or unscrupulous real-estate operators. Such laws are, in their essence, akin to the laws of practically all States requiring the examination and licensing of doctors, dentists, lawyers, architects, electricians, accountants, and others whose incompetence or dishonesty in the conduct of their profession or business would result in public injury.

The bill hereby reported is similar to laws now in force in 27 States, including Alabama, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Iowa, Louisiana, Michigan, Montana, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Utah, Virginia, Washington, Wisconsin, Wyoming.

In drafting the bill the laws of the several States were studied and considered and adaptation made to conform with conditions in the District of Columbia.

GENERAL FEATURES OF BILL

The bill is not complex either in its general principle or administrative provisions.

Its essential feature is provision for the licensing of all real-estate brokers and salesmen in the District of Columbia, by a disinterested real estate commission. The commission is vested with authority to revoke licenses upon proof, in a public hearing, of fraudulent or other conduct prejudicial to the public interest.

The bill has been so drawn that no one who is competent and honest will be denied the right to engage in the real-estate business. On the other hand, if any of those licensed or applying for licenses have been guilty of improper practices, contrary to the public welfare, their further operation can be prevented without awaiting the slow process of indictment and conviction in the courts for criminal acts. Nevertheless, those who are denied a license or whose licenses are revoked, will have, under the express terms of the bill, the right of appeal to the Supreme Court of the District of Columbia, as well as review by the court of appeals.

SAFEGUARD AGAINST FRAUD

In its report No. 530 (68th Cong., 2d sess.) the Senate District Committee revealed in detail a practice prevalent in the District of Columbia involving the execution and recording of fictitious deeds and deeds of trust on large apartment houses and other real estate, the purpose of which was to establish, for the deception of innocent. purchasers, values far above actual costs or the real values of such properties. The result of the practices, as disclosed by recent grand jury investigations, has been the issuance and sale to many persons

throughout the country of bonds and other securities having a real value far below the price paid by such persons.

To meet this situation, in part, your committee has incorporated in the bill hereby reported a provision (sec. 14) making it unlawful, under penalty of fine and imprisonment

(a) To execute a deed conveying real property in the District of Columbia that is not a bona fide sale but is instead a simulated sale of such property, executed for the purpose and with the intent of misleading others as to the value of such property and which in fact does so mislead and/or defraud others, to their detriment; or (b) to execute a mortgage or deed of trust upon real property situated in the District of Columbia that does not in fact represent security for a bona fide indebtedness, but which is in reality a simulated transaction, executed for the purpose and with the intent of misleading or deceiving others as to the value of the property and which does mislead, deceive, or defraud others to their detriment.

It is the opinion of the committee that these provisions will do much to prevent fraud upon purchasers of real-estate mortgages and bonds by stopping the establishment of high and purely fictitious "values" through straw-man deeds and deeds of trust intended to deceive purchasers of real estate and of securities based on real estate.

Other provision against fraud has been incorporated in a bill now under consideration by your committee, dealing particularly with the issuance and sale of securities.

OTHER PROVISIONS OF BILL

The proposed legislation provides that after 90 days from its enactment it shall be unlawful for any person, firm, etc., to act as real-estate broker or salesman unless licensed by the real-estate commission of the District of Columbia.

It should be understood that such commission has nothing to do with the private organization known as the Real Estate Board of Washington.

The commission, under the terms of the bill, will consist of the District assessor (acting ex-officio and without additional salary) and two other members to be appointed by the District Commissioners. Not more than one of such commissioners shall have been actively engaged in or closely connected with the real-estate business within five years prior to his appointment. The salaries of the two paid commissioners are not to exceed $2,000 a year each.

The bill exempts from its provisions and the need for licenses, executors and guardians, public officers, attorneys at law in the ordinary practice of their profession, and others acting in a judicial or official capacity.

It provides for employment of necessary clerical and other assistance by the commission. It is anticipated that the fees derived from licenses will largely cover the cost of salaries and administration.

The members of the real-estate commission may be removed by the District Commissioners at any time, for cause.

The commission, in issuing licenses, is empowered to require proof of good character, reliability, and competency. Applicants for licenses are required to furnish bond in the sum of $1,000 to which persons defrauded or otherwise damaged or injured will have recourse for reimbursement of loss.

Brokers are required to pay a $15 annual license fee; real-estate salesmen a $5 annual license fee. The present real-estate broker's fee in the District of Columbia is $50; but inasmuch as most realestate firms will require several broker's licenses under the new law, as well as a number of salesmen's licenses, it has been thought equitable to fix the broker's license fee at $15. It is not believed that this will result in the loss of revenue to the District.

The licenses issued will expire yearly, but will be subject to revocation at any time. Revocation can be made, however, only after presentation of charges, and a public hearing granted the licensee. The grounds for revocation are stated in the bill and include substantial misrepresentation by the broker or salesman, false or fraudulent promises, acting for more than one party in a transaction without the knowledge of all, failure to account for money or property, incompetency endangering the public interests, dishonest conduct.

Nonresidents may be licensed upon substantially the same terms as residents of the District, but must file a consent to service so that they may be sued within the District of Columbia by service upon the secretary of the real-estate commission.

The bill will help to end present usurious practices of certain money lenders, who while now licensed as real-estate brokers are subject to no regulation or supervision whatever. The bill, if enacted, will place under supervision those who lend money on second and third trusts on real estate; make it possible to discover by means of examination of books, records, etc., whether usurious rates of interest, commissions, etc., are being exacted, whether foreclosures are being made without adequate notice, and make possible revocation of licenses for improper conduct of such persons.

VALIDITY OF LAW

The courts of many States, and the United States Supreme Court, have upheld the validity of laws similar to the bill hereby reported. At hearings upon the bill, both by the Senate and House District Committees, there was no opposition, except an individual protest against the provision relating to fictitious sales and loans. Enactment of such a bill is urged by the District attorney, Real Estate Board, Better Business Bureau, and others interested in the prevention of fraud.

While fraud can now be punished and redress obtained through the processes of the civil and criminal laws, such processes are slow and uncertain. The transactions complained of are often intricate and obscure; the District attorney's office is overcrowded with other and more important matters; and during the long period of time required to bring to justice those guilty of dishonest conduct in connection with real estate transactions, they can continue to operate and to defraud others. The bill hereby reported is intended, therefore, to prevent as well as to punish fraud.

A bill practically identical in its provisions (H. R. 10476) has been favorably reported by the House District Committee, and is now on the calendar of the House of Representatives.

The penalties provided by the bill, in addition to denial of or revocation of licenses, are a fine of not more than $500, imprison

ment of not more than six months (or both) and loss of commission on sales or leases negotiated.

Your committee is of the opinion that there is real need for a law to protect the people of the District of Columbia from fraudulent and dishonest conduct in the real estate business, and that the bill reported will be effective for the public protection.

[Senate Resolution No. 58, Seventy-first Congress, first session/

Whereas it is alleged that many millions of dollars of real-estate mortgage notes and bonds, secured by trust deed or otherwise, on real estate within the District of Columbia, have been issued, in excess of the value of the properties so mortgaged, and which securities have been sold throughout the United States through alleged questionable means and methods, to innocent purchasers, and that purchasers of homes and other real estate are denied their day in court in default of their payment of principal or interest; and

Whereas the laws for the District of Columbia are either absent or ineffective for the protection of innocent purchasers of such securities and homes and real estate, in the following particulars, namely:

(a) No adequate law relating to the issuance and sale of stocks, bonds, and mortgages, and other securities, as affecting real estate or otherwise;

(b) No law inhibiting unethical, unfair, and unscrupulous real-estate and finance operators; and

(c) No law providing for an orderly foreclosure of trust deeds, mortgages, or contracts relating to the purchase and sale of real estate, through court procedure: Therefore be it

Resolved, That the Committee on the District of Columbia, or a duly authorized subcommittee thereof, is hereby authorized and directed to make a full and complete investigation in respect to the several matters hereinbefore set forth, including the issuance and methods of sale of stocks, bonds, or other securities of a different character than heretofore stated, and other relative or similar matters, and to report to the Senate as soon as practicable the result of its investigations, together with its recommendations, if any, for necessary legislation. For the purposes of this resolution the committee, or any duly authorized subcommittee thereof, is authorized to hold hearings, to sit and act at such times and places during the sessions and recesses of the Senate in the Seventy-first Congress until the final report is submitted, to employ such clerical and other assistants, to require by subpoena or otherwise the attendance of such witnesses and the production of such books, papers, and documents, to administer such oaths, and to take such testimony and make such expenditures as it deems advisable. The cost of stenographic services to report such hearings shall not be in excess of 25 cents per hundred words. The expenses of the committee, which shall not exceed $2,500, shall be paid from the contingent fund of the Senate upon vouchers approved by the chairman.

SENATE

71ST CONGRESS 2d Session

}

{

REPORT No. 676

DESTRUCTION OF DUPLICATE ACCOUNTS IN OFFICES OF CLERKS OF UNITED STATES DISTRICT COURTS

MAY 19, 1930.-Ordered to be printed

Mr. WATERMAN, from the Committee on the Judiciary, submitted the

following

REPORT

[To accompany H. R. 5261]

The Committee on the Judiciary, having had under consideration the bill (H. R. 5261) to authorize the destruction of duplicate accounts and other papers filed in the offices of clerks of the United States district courts, reports the same favorably to the Senate and recommends that the bill do pass with the following amendment:

On page 2, line 7, after the words, "ten years", insert the words "after final disposition of such proceedings".

The committee considers this amendment necessary as a precaution against the premature destruction of papers in those cases where final disposition has been delayed to an unusual extent.

Reasons in support of this legislation are given in the following excerpt from the House report on this measure:

This bill will merely authorize the destruction of duplicate accounts, not in cases, which have been on file for 10 years or more, the further retention of which will serve no useful purpose, to be destroyed upon the recommendation of the clerk of the district court and with the approval of the senior district judge of the district and the Attorney General. The bill will afford more ample filing space for the clerks of the courts by permitting the elimination of large quantities of useless duplicate papers relating to the accounts of United States marshals, attorneys, clerks, and commissioners. The bill is recommended by the Federal Clerks' Association and by the Attorney General.

Section 2 of the bill provides for a similar procedure for the destruction of proofs of claims filed in bankruptcy cases which have remained on file for a period of 10 years.