TO DEFINE, REGULATE, AND LICENSE REAL-ESTATE BROKERS AND REAL-ESTATE SALESMEN; TO CREATE A REAL-ESTATE COMMISSION IN THE DISTRICT OF COLUMBIA; AND TO PROTECT THE PUBLIC AGAINST FRAUD IN REAL-ESTATE TRANSACTIONS MARCH 21, 1930.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed Mr. MCLEOD, from the Committee on the District of Columbia, submitted the following REPORT [To accompany H. R. 10476] The Committee on the District of Columbia, to whom was referred the bill (H. R. 10476) 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, report favorably thereon, with the recommendation that the legislation do pass with the following amendments: Page 1, line 4, strike out "sixty" and insert in lieu thereof the word "ninety". Page 1, line 5, after the word "unlawful" insert the words "in the District of Columbia". Page 2, line 2, strike out the word "article" and insert in lieu thereof the word "Act". 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 "one". Page 3, line 22, strike out the words "the enactment of this Act" and 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 6, line 22, strike out the word "chapter" and insert in lieu thereof "Act". 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 26, line 7, strike out the word "described" and insert in lieu thereof "prescribed". The bill, while necessarily somewhat lengthy, is in reality simple in its terms and general principle. It provides, in brief, for the licensing of all real-estate brokers and salesmen in the District of Columbia, by a disinterested real estate commission which is vested with power to revoke licenses upon proof, in a public hearing, of fraudulent conduct contrary to the public interests. The proposed legislation is similar to laws now in force in 27 States, including New York, Pennsylvania, Wisconsin, Ohio, Oregon, North Carolina, Virginia, Iowa, Illinois, Florida, and Michigan. The validity of such legislation has been upheld by the highest courts of many of the States, and by the United States Supreme Court. In practically all States, and in most nations, the public is protected against fraud, incompetence, and misconduct of doctors, dentists, lawyers, architects, etc., by licensing laws. Furthermore, under State laws and municipal ordinances, licenses are required of plumbers, electricians, steam engineers, and others engaged in occupations the improper practice of which would involve danger to the public. This principle has been extended in more than two score States to the licensing of real-estate brokers and salesmen, because of the demonstrated need for such protection to the public. 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. In every jurisdiction there are thousands of reported law cases resulting from incompetence, fraud, or illegitimate practice in the course of real-estate transactions. For the protection of the public, therefore, most of the States have enacted laws providing for the licensing of real-estate brokers and salesmen. These laws generally provide for the issuance of licenses upon proof of good character, examination as to fitness for the occupation, and for revocation of such licenses upon proof of unreliability, fraud, or perpetration of crime connected with the business transactions of the licensee. The bill hereby reported is, in its general principles, the same as laws in effective, practical, and beneficial operation in many States. The amendments recommended are for the most part designed to remedy typographical errors or minor defects of draftsmanship. For a number of years, the real-estate board of Washington, a private organization made up of persons and firms engaged in the real-estate business in the District of Columbia, has urged enactment of a license law. The committee has considered the bill proposed by that organization (H. R. 4950), but in lieu thereof recommends for enactment the bill H. R. 10476, hereby reported, which it is believed will better safeguard the public interests. SUMMARY OF PROVISIONS The bill, as reported, provides that after 90 days from its enactment it shall be unlawful for any person, firm, etc., to act as realestate broker or salesman unless licensed by the real-estate commission of the District of Columbia. Such commission, under the terms of the bill as amended, 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 whom 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 licensed executors, 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. The fees derived from licenses will, it is anticipated, largely cover the cost of administration, salaries, etc. The bill provides that the members of the real estate commission may be removed by the District Commissioners at any time, for cause. In issuing licenses, the commission is empowered to require proof of good character, reliability, and competency. Applicants are required to furnish bond in the sum of $1,000 (by surety company or otherwise), to which persons defrauded or otherwise damaged or injured will have recourse for reimbursement of loss. The fees provided in the bill are $15 annually for each broker and $5 for each salesman. The present real estate broker's fee in the District of Columbia is $50; but inasmuch as most real-estate firms and companies will require several broker's licenses, for partners and officers, 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 there will be any loss of revenue to the District as a result. The licenses issued will expire each year, 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. From the act of refusal or revocation of a license, the licensee will have the right of appeal to the Supreme Court of the District of Columbia, as well as the court of appeals. The bill permits the licensing of nonresidents upon substantially the same terms as residents of the District, but protects the public by requiring a consent to service by such nonresident licensees so that they may be sued in the District by service upon the secretary of the commission. PROVISION AGAINST FRAUD In addition to the usual safeguards against fraudulent operations, the bill contains provisions in section 14, making it unlawful for any person, firm, or corporation to perpetrate a fraud on others by means of simulated sales or pretended mortgages of property. Not only in the District, but elsewhere throughout the country, there have been many instances of loss to investors in real estate who have been misled as to the real value of property purchased by reason of prior transfers by the owner or agent, at a grossly inflated price, or by mortgages far in excess of the entire value, to pretended purchasers or mortgagees who are mere "straw men" having no real interest in the property. By the terms of the bill, such fraudulent transfers are made illegal. The effect will be not only to protect individual buyers of property against fraud, but also purchasers of bonds and other securities based on mortgages of real property. The bill also protects small home owners by reason of the fact that it requires persons who negotiate loans on real estate for others to secure a license. At present, many of those who are engaged in loaning money on second and third trusts, at usurious and unconscionable rates, making foreclosures without adequate notice, and similar practices, are licensed as real-estate brokers and are subject to no supervision whatever. Passage of the bill hereby reported will subject such persons to proper supervision for the protection of the public. During the hearings on the bill, instances of abuses and frauds in connection with real estate transactions were brought to the committee's attention. The Better Business Bureau reported to your committee that during the past year it has investigated 214 complaints arising out of real-estate transactions. This is an indication of the need for the bill. It is true that under present laws prosecutions can be instituted against those who perpetrate fraud in real-estate transactions. However, the district attorney's office is already overburdened with work; such cases are often intricate and involved and require much preparation for presentation to the grand jury, and during the time of investigation, after indictment, and pending trial-often a period of more than a year-those who are guilty of illegal and fraudulent acts can continue to operate practically unhampered. The proposed legislation will prevent men of questionable business integrity from engaging in the real-estate business; and if fraudulent practices are engaged in by those licensed, the operations can be ended promptly through revocation of licenses. The bill, therefore, seeks to prevent as well as to punish fraud. It is similar in its purpose to "blue sky" acts effective in many States to prevent sale of fraudulent securities. The penalties for the bill, in addition to denial of or revocation of licenses, are a fine of not more than $500, imprisonment of not more than six months (or both), and loss of commission on sales or leases negotiated. The bill or its purposes were indorsed by practically all who appeared before the committee and subcommittee at the various hearings held. Your committee believes the bill will be of substantial public benefit and protection and that it covers a need long existent in the District of Columbia. О |