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SENATE

74TH CONGRESS

1st Session

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REPORT
No. 92

REGULATION OF REAL-ESTATE BROKERS AND SALES

MEN IN THE DISTRICT OF COLUMBIA

FEBRUARY 7 (calendar day, FEBRUARY 8), 1935.-Ordered to be printed

Mr. King, from the Committee on the District of Columbia, sub

mitted the following

REPORT

[To accompany S. 1019)

The Committee on the District of Columbia, to whom was referred the bill (S. 1019) 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 and recommend that the bill do pass with the following amendments:

On page 2, line 8, strike out the word "attempt” and insert in lieu thereof the word "attempts".

On page 6, line 13, strike out “1932” and insert in lieu thereof “1936”.

On page 10, line 24 strike out "$5,000" and insert in lieu thereof “$2,500".

On page 10, line 25, strike out “$2,000” and insert in lieu thereof "$1,000”.

On page 14, line 24, strike out “$15" and insert “$25. On page 15, line 11, strike out "1933" and insert "1936". On page 25, lines 4 and 5, strike out "copartnership” and insert “firm”.

On page 25, line 5, insert the word "partnership" after “association".

HISTORY OF PROPOSED LEGISLATION Pursuant to a Senate resolution (S. Res. 58) of the Seventy-first Congress, the subcommittee on insurance and banks of the Committee on the District of Columbia conducted an exhaustive investigation of the real estate, mortgage, and securities situations in the District.

In the course of its investigation, the subcommittee found that the lack of regulatory laws governing real-estate brokers and salesmen in the District rendered the public practically helpless to obtain adequate redress against fraud and misrepresentation in real-estate transactions.

Accepting the recommendations of the subcommittee, the committee reported favorably to the Senate a bill (S. 3490) practically identical to the present proposed legislation. The bill was passed by the Senate on May 22, 1930. The bill was introduced in the Seventythird Congress (S. 867) which received favorable consideration by the committee and was passed by the Senate on May 10, 1934.

The need for regulation of the conduct of the real-estate business has been recognized generally throughout the country. Instances of abuse and fraud in connection with real-estate transactions in the District of Columbia have been brought to the committee's attention.

The need for a real-estate license law has been recognized by the Board of Commissioners of the District of Columbia who have repeatedly endorsed similar measures. The principles covered by the proposed legislation have been endorsed by the Federation of Citizens Associations, the Better Business Bureau of Washington, and the publishers of several Washington newspapers. Recognition of the principles embodied in the bill has been accorded by the National Recovery Administration, by virtue of its approval of the Code of Fair Competition for the Real Estate Brokerage Industry on April 19, 1934. However, the real-estate code is an emergency measure and may be terminated by Executive order. Therefore, permanent legislation is needed to provide adequate protection to the public from the acts of unethical brokers and to provide the Commissioners of the District of Columbia with the machinery to furnish such protection.

The possibilities for fraud and other misconduct in the sale and management of real estate in the District are almost unlimited. The amounts of money involved in realty transactions are usually substantial; the mere signing of a document not fully understood by the signer, 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 dealings.

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, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Utah, Vermont, Virginia, Washington, Wisconsin, and Wyoming.

In drafting the bill, the laws of the several States were studied and considered, and adaptation was made to conform to 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, by a disinterested real-estate commission. The commission is vested with authority to revoke licenses on 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 person licensed or applying for license has 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 an earlier report on real-estate conditions in the District (S. Rept. No. 530, 68th Cong., 2d sess.), the Senate District Committee revealed in detail a practice prevalent in the District involving the execution and recording of fictitious deeds and deeds of trust on large apartment houses and other real estate, the purpose of which practice was to establish, for the deception of innocent purchasers, values far above actual cost or the real values of such properties.

The result of such actions, 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 prices paid by such persons.

OTHER PROVISIONS OF BILL

The bill also provides for creation of the real-estate commission of the District of Columbia, to consist of the District assessor (serving ex officio and without additional salary) and two other members to be appointed by the District Commissioners. Not more than one of the appointees shall have been engaged in or closely connected with the real-estate business within 5 years prior to his appointment. The salaries of the two paid commissioners are not to exceed $2,000 a

year each.

It should be understood that the proposed commission is not to be confused with the private organization known as the “Real Estate Board of Washington."

The bill exempts from its provisions and the requirement for licenses receivers, referees, administrators, executors, guardians, or other persons appointed or acting under the judgment or order of any court;

public officers while performing their official duty, and lawyers in the ordinary practice of their profession.

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

The commission is empowered to inquire into the character, reliability, and competency of applicants for licenses. Each such applicant must furnish a bond in the sum of $2,500 in the case of a broker and $1,000 in the case of a salesman, to which persons defrauded or otherwise damaged or injured will have recourse for reimbursement.

Brokers are required to pay a $25 annual license fee, while a $5 annual license fee must be paid by salesmen.

License will expire yearly, but will be subject to revocation at any time. Presentation of charges and a public hearing must precede such revocation.

Grounds for revocation, as stated in the bill, include substantial misrepresentation, false promises, acting for more than one party in a transaction without the knowledge of all, failure to account for money or property belonging to others, incompetency and dishonest conduct.

Nonresidents of the District may be licensed on 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 by service on the secretary of the commission.

The bill will help to end present usurious practices of certain money lenders in the District, who, while now licensed as real-estate brokers, are subject to no regulation or supervision.

The bill would place under supervision those who lend money on second and third trusts on real estate; make possible the discovery by examination of records whether usurious rates of interest, commissions, etc., are being charged; whether foreclosures are being made without adequate notice; and would make possible also the revocation of licenses of such persons for improper conduct.

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 on the bill both by the Senate and House District Committees in 1930, no opposition to its favorable consideration was registered, except an individual protest against the provision relating to fictitious sales and loans. Enactment of such a bill is urged by the United States attorney, the Real Estate Board, the 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 office of the United States attorney is overcrowded with other and more important matters. During the long period required to bring offenders to justice, those guilty of dishonest conduct in the real-estate business can continue to operate and to defraud others. This bill is intended, therefore, to prevent as well as to punish fraud.

The penalties provided by the bill, in addition to denial of or revocation of licenses, are a fine of not more than $500, or imprisonment for not more than 6 months, or both, in the case of an individual. For a corporation, a fine of not more than $1,000 is provided, with individual penalties for officers, agents, or employees of such corporation.

The committee feels strongly that there is real need for a law to protect the people of the District from fraudulent and dishonest practices in the real-estate business, and that the bill reported will be effective for the public protection.

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