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As the result of a recent study of this situation, it develops that the most inexpensive method to stop the erosion would be to construct a riprap revetment near the high-water line along 2,400 feet of the shore line, at an estimated cost of $25,000. It is believed that this method will prove satisfactory and economical both in first cost and maintenance.

The War Department favors the passage of the bill provided it is amended so as to authorize the construction or a stone revetment 2,400 feet long. Sincerely yours,

PATRICK J. HURLEY,

Secretary of War. O

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SENATE

71st CONGRESS

2d Session

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REPORT No. 669

REGULATION OF REAL ESTATE BROKERS AND SALESMEN

IN THE DISTRICT OF COLUMBIA

May 19, 1930.-Ordered to be printed

Mr. BLAINE, from the Committee on the District of Columbia,

submitted the following

REPORT

(To accompany S. 3490)

The Committee on the District of Columbia, to whom was referred the bill (S. 3490) to define, regulate, and license real-estate brokers and real-estate salesmen; to create a real-estate commission in the District of Columbia; to protect the public against fraud in real estate transactions, and for other purposes, having considered the same, reports favorably thereon, with the recommendation that the bill do pass, with the following amendments:

On page 1, line 4, strike out the word "sixty" and insert in lieu thereof the word "ninety".

On page 1, line 5, after the word "unlawful”, insert the words "in the District of Columbia".

On page 2, line 2, strike out the word “article” and insert in lieu thereof the word "Act".

On page 2, following line 23, insert the following:

Persons employed by a licensed real-estate broker in a clerical capacity, as collectors, or in similar subordinate and administrative positions, shall not be required to obtain licenses. The real-estate commission created under this act shall have power to make rules and regulations governing this exemption.

Page 3, line 18, strike out “three" and insert in lieu thereof the word "two".

Page 3, line 19, strike out “two" and insert in lieu thereof the word

Page 3, line 22, strike out the words “the enactment of this actand insert the word "appointment”.

Page 4, lines 4 and 5, strike out the semicolon and the words “one member for a term of three years".

Page 5, strike out all of lines 22 to 25, both inclusive.

"one,

Page 6, strike out all of lines 1 to 6, both inclusive and insert in lieu thereof the following:

All fees, chorges, fines, and penalties collected by the commission under the provisions of this act shall be paid at least weekly to the collector of taxes for the District of Columbia for deposit in the Treasury of the United States to the credit of the District of Columbia: Provided, That the commission may refund any such fees or charges erroneously collected out of any undeposited collections in its possession.

The annual estimates of appropriations for the government of the District of Columbia for the fiscal year 1931 and succeeding fiscal years shall include estimates of appropriations for the operation and maintenance of such offices.

Page 6, line 22, strike out the word "chapter" and insert in lieu thereof the following:

Act. Such proof of competency to act as broker shall not be required of any applicant who shall furnish proof of two years' experience as real-estate broker, real-estate salesman, or two years' employment in connection with the realestate business in the District of Columbia.

Page 7, line 21, strike out "applicant” and insert in lieu thereof "application".

Page 7, line 24, strike out the word “in”.
Page 12, line 21, after the word "out" insert the word "a".
Page 14, line 7, strike out the word "in".

Page 26, line 7, strike out the word “described" and insert in lieu thereof "prescribed."

HISTORY OF PROPOSED LEGISLATION

On June 4, 1929, the Senate by its Resolution 58 directed the Committee on the District of Columbia, or a subcommittee thereof, to make an investigation and report relative to the real estate, mortgage, and securities situation in the District. The adoption of the resolution followed public disclosure of practices in connection with real estate mortgage bond issues that have resulted in a number of grand-jury indictments. The resolution is set out in full as a part of this report.

In accordance with the resolution of the Senate, the committee, through a subcommittee, has made investigation pertaining to the real estate and securities situation in the District of Columbia. The bill hereby reported is designed to remedy certain existing evils in the conduct of the real-estate business. Other bills, it is anticipated, will be reported later dealing specifically with mortgage foreclosures and the issuance and sale of securities.

NEED FOR REGULATION

The need for regulation of the conduct of the real-estate business has been recognized generally throughout the country. Many instances of abuse and fraud in connection with real-estate transactions in the District of Columbia have been brought to your committee's attention. In addition, the Better Business Bureau of Washington hus stated that during the past year it has investigated 214 complaints arising out of real-estate transactions.

The possibilities for fraud and other misconduct in the sale and management of real estate are almost unlimited. The amounts involved in real-estate transactions are usually substantial; the mere 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.

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