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The bill referred to, drafted by the real-estate organization, and introduced at their request, is generally similar to the laws now in force in many States, as previously mentioned.

In some respects, howevver, the bill differs from laws which have been in successful operation. Furthermore, the bill is technically or legally defective in some respects.

I have deemed it advisable, therefore, to draft another bill, a copy of which is attached to and made a part of this report. The bill drafted is in its general purposes and principles the same as the bill presented by the local real-estate organization and similar to the laws effective in the various States. However, changes have been necessary to bring the bill into accord with the peculiar form of government of the District of Columbia, and to meet specific conditions which have been shown to prevail here detrimental to the public interest.

The basic principle of all the State laws I have examined, the bill sponsored by the local real estate organization, and the bill I have drafted, is the regulation in the public interest of real-estate brokers and real-estate salesmen by a licensing system, with provision for withholding or revocation of licenses upon proof of dishonest or fraudulent conduct, with the right of appeal to the court. În some States provision is made for a test of the competency of the applicant for a license to handle transactions involving other peoples' property and money.

For the convenience of the subcommittee in comparing the bill I have drafted with that sponsored by the local real estate organization (S. 1716) I now detail the principal changes and differences.

S. 1716 made the act effective July 1, 1930. There can be no certainty, of course, when the bill shall pass Congress and be approved by the President; furthermore, the inclusion of a specific date may not give the real estate commission set up by the bill sufficient time to prepare rules, regulations, forms, etc. Furthermore, it is not to be expected that the commission can begin to issue licenses the very day the act takes effect; and, under the bill as drawn, there would necessarily be many technical violations of the law before the commission could begin to function, such violation resulting in loss of compensation under the last paragraph on page 14 of the bill as drafted by the real estate organization.

In the draft bill the acts prohibited are made unlawful 60 days from the date of approval of the act. Under the bill, as I have drafted it, the real estate commission must be appointed within 30 days after approval of the act, and therefore it will have a period of at least 30 days in which to organize, issue the original licenses, etc.

The bill, S. 1716, section 2 defines the term real-estate broker and real-estate salesman and excepted from the provisions of the act persons, firms, corporations, etc., who sold, rented, leased property, when such property was owned by the person performing the act, or the person was acting under power of attorney from the owner.

I believe that these exceptions would have largely destroyed the value of the act. There are many firms and corporations owning houses, apartments, and other real estate in the District of Columbia, who employ a sales manager and a staff of salesmen or rental agents, and who would have been exempted by the provisions of S. 1716. Such employees of the owner, not being under license, could make false representation, or do any of the other things prohibited by the law, without fear of prosecution or the loss of license. Furthermore, the “power of attorney” clause would have afforded a loophole for evasion of the law.

To overcome these defects, I have used in the draft bill the definition of realestate broker and salesman found in the New York State law and which has withstood tests in the courts.

Similarly, there have been incorporated in the draft bill the exemption of the New York law, so that the provisions of the bill will not apply to receivers, referees, administrators, executors, guardians, or other persons appointed by or acting under the judgment or order of any court, or public officers while performing their official duties, or attorneys at law in the ordinary course of their practice. An added exemption has also been made for trustees and auctioneers disposing of property under power of sale contained in a mortgage or deed of trust.

The result is that any ordinary owner of real estate may sell or offer it for sale, or rent, lease, or exchange; but if he employs others to do those things for him, such others must be licensed as real-estate brokers or salesmen.

A builder, for instance, who owns a number of houses can secure a broker's license for his sales manager and salesmen's license for those in subordinate selling positions.

ADMINISTRATION OF ACT

S. 1716 places administration in a real-estate commission consisting of three persons appointed by the Commissioners of the District of Columbia "whose vocation for a period of at least 10 years prior to the date of their appointment shall have been that of a real-estate broker or a real-estate salesman within the District of Columiba.

In a number of States, administration is placed in existing State departments, not composed of real-estate men; while other States have provisions similar to that quoted.

Because there is, without doubt, a feeling of distrust in the minds of many people in the District of Columbia concerning the local real-estate dealers' organization which has often been denominated as a “real-estate trust” and a feeling even in some official circles that the act might be used to limit competition, changes of importance have been made in the draft bill as to the personnel of the commission.

The draft bill provides that not more than two of the three commissioners shall have been actively engaged in or closely connected with the business or vocation of real-estate brokers or real-estate salesmen within five years prior to the enactment of this act.”

The result is that there will be at least one “lay" member of the board, and, in addition, the District assessor will serve as a member of the board, ex officio, and without additional compensation. Furthermore, I have included in the draft bill this provision: “The Commissioners of the District of Columbia may remove members of the real-estate commission at any time, for cause. There was no such provision in S. 1716.

S. 1716 provided that “each member of the commission shall receive as full compensation for each day actually spent on the work of said commission the sum of $10.'

This, of course, provided no limitation, practically, on the compensation. Each member of the commission might have spent 365 days a year on its work, or might have been required to spend an entire day on the work before being entitled to compensation to the amount of $10.

If men of ability are to serve on the board without too great a sacrifice they should be paid more than $10 a day. The draft bill provides that each member shall receive as full compensation for each day the greater part of which is actually devoted to work of said commission, the sum of $15; but no member shall receive in any one year a greater sum than $2,000. If each of the commissioners devotes two full days a week to the work of the commission, his compensation in a year's time will not exceed the limitation imposed. The work of the commission should not require more than two or three days a week, and perhaps, one full day a week will suffice, inasmuch as the secretary of the commission will handle details and a clerical staff is also provided.

Instead of giving the commission authority to obtain office space, furniture, etc., as provided in S. 1716, the District Commissioners are required to furnish what is necessary.

S. 1716 provided that all expenses incurred by the commission shall be paid out of the funds created by license fees and charges and “that the total expenses for every purpose incurred shall not exceed the total fees and charges collected.

This is believed to be an unwise provision, as it makes the work of the commission more or less dependent upon the sufficiency of the fees received. The work of the commission might be seriously hampered by such a provision. The draft bill, therefore, makes available for the needs of the commission the fund created by collection of fees and also such additional appropriation as may be made by Congress.

LICENSES

Section 4 of S. 1716 provided that no license as a real-estate broker or salesman should be issued to a person who can not read or write or can not understand the English language, nor until the applicant has given proof that he is “trust-worthy and competent” in such a manner as to safeguard the interest of the public.

This provision has been retained in the draft bill with the addition of a requirement in the Wisconsin and New York laws as follows:

“In determining competency, the commission shall require proof that the applicant for a broker's license has a fair understanding of the general purpose

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and general legal effect of deeds, mortgages, land contracts of sale, and leases, a general and fair understanding of the obligations between principal and agent, as well as of the provisions of this act.”

It is not believed that this requirement is too restrictive in view of the respon. sibility of the work of a broker. The requirement last mentioned does not apply to an applicant for a salesman's license.

By the first paragraph on page 7 of S. 1716, license was denied to any firm, person, and so forth, whose application has been rejected in the District or any State within six months previously, or whose license has been revoked within two years previously. In the draft bill these periods have been cut down to three months and one year, so that there may be no charge of harshness or severity, or undue restriction of licenses.

Section 7 (pp. 12 and 13) of S. 1716 has been changed in the draft bill by the elimination of the requirement for a “pocket card” to be carried by brokers and salesmen. It is not unlikely that such card might do more harm than good by giving a standing with customers which might not be deserved by some of the possessors of the cards, including mere finders of a card. Furthermore, the pocket card feature involves "bookkeeping” which serves no really useful purpose.

S. 1716 provided a fee of $10 for a real-estate broker's license. This is in accordance with the laws of some States, but the New York fee of $15 for cities of the second class does not seem exorbitant or prohibitive in the case of a realestate broker, particularly as the prtsent license fee in the District is now $50 a year.

No change has been made in the fee for salesman's license, amounting to $5 a year, which corresponds with the fee in other States.

It seems likely that under the provisions of the bill, S. 1716, a real-estate salesman would have to pay for a new license each time he changed employers. In the draft bill the following provision has been incorporated:

“There shall be no additional fee for the reissuance of a salesman's license necessitated by the change of employers, nor shall such change work a revocation or require a renewal of the salesman's bonds.”

The causes for suspension or revocation of license incorporated in the hill, $. 1716, correspond with those in the laws of other States and only slight changes have been made in the wording of most of them in the interest of clarity.

In the cause for suspension or revocation, designated “J," the word “improper" has been eliminated in its reference to dealing so that the clause in the draft bill reads:

“(J) been guilty of any other conduct whether of the same or different character from that hereinbefore specified, which constitutes fraudulent or dishonest dealing.”

It is believed that “improper dealing" would be too broad a ground for the denial of the right to engage in the real estate business; it might be used as a means of arbitrary or unwarranted action on the part of the commission, to satisfy personal animosity, etc.

Three provisions, or paragraphs, appear on pages 18 and 19 of the bill, S. 1716, the effect of which is to relieve real estate brokers, members of real estate firms, corporations, etc., from revocation or suspension of their own licenses or the licenses of their firm or company unless "it shall appear to the satisfaction of the commission that such brokers, members, or officers had guilty knowledge” of the violation.

These are unusual provisions, not found in the laws of the great majority of States having a real estate licensing act. They have been eliminated from the draft bill, because they are, in fact, an invitation to perpetrate fraud by indirect means, without liability.

In section 9 of the bill S. 1716 provision is made for a hearing before denial of an application for license or before suspension or revocation of a license. In the draft bill, this provision has been amended by providing that the hearing shall be public. It is believed that this will not only serve as a deterrent to conduct which might result in a hearing and unprofitable publicity for violators of the law but deter the commission from taking any unwarranted or unjust action.

The enforcement section of the draft bill has been materially strengthened, as compared with the bill S. 1716 by empowering the commission to require the production of books, records, and documents, and giving the Supreme Court of the District power to punish for contempt if a subpæna of the commission is disregarded.

In the draft bill, as a protection to dealers and salesmen, provision has been made that will allow appeal to the Supreme Court of the District for a review or other relief if the commission fails to take action within 60 days after formal request by an applicant or licensee. It might be possible for the commission, by mere failure to act, to do a great injustice.

Provision has also been made in the draft bill for an appeal from the Supreme Court of the District to the Court of Appeals.

The provision as to nonresident brokers and salesmen is especially important in the District of Columbia because of the close proximity of Maryland and Virginia. Thousands of people who do business in the District of Columbia daily live in the adjoining States. In the draft bill a change has been made so that it is not necessary for a nonresident applicant for a license to have the recommendation of District property owners, provided he has the recommendation of property owners in his own State; nor is it necessary for a broker from another State to maintain an active place of business in that State.

Section 11 of S. 1716 has been modified in the draft bill so that the commission will not have blanket authority to public "such other information relative to the enforcement of the provisions of this act as it may deem of interest to the public." Instead the draft bill provides for the publication of a succinct report yearly, Inasmuch as the commission's records are published, the provision of S. 1716 that a list of licensees and those whose licenses have been suspended or revoked, shall be filed with the Supreme Court of the District of Columbia and held there as a public record, is useless. In the draft bill this provision has been eliminated.

The draft bill includes a provision empowering the commission to administer oaths to witnesses. This, of course, would make the witnesses subject to the penalty of perjury.

The draft bill, Iike the Wisconsin law, exempts from licensing provision “any bank, trust company, building and loan association, or any land mortgage or farm loan association organized under the laws of the United States, when engaged in the transaction of business within the scope of its corporate powers provided by law.

Certain provisions of the Pennsylvania law have been incorporated in the draft bill. These provide for revocation forth with of the licenses of persons convicted in the courts of forgery, embezzlement, and so forth; the suspension of a license in the discretion of the commission in the case of licensees indicted for similar crime; the revocation of a partnership or corporation license in the event of revocation or suspension of the license of an officer or member unless such officer's or member's connection with the business be severed; and a specific prohibition against issuance of a license to any person who at any time within five years has been convicted of forgery, embezzlement, or a similar crime, or to any association or corporation with which such person may be connected in a controlling way.

To meet the situation, which has become public scandal in the District of Columbia during recent years, a provision has been incorporated in the draft bill making it unlawful for any person, firm, or corporation to execute deeds or deeds of trust of exaggerated amounts not representing the value of the property or the amount of an actual loan, where such instruments are executed for the purpose of misleading and defrauding others, and results in the detriment of others.

The need for such a provision was fully demonstrated in Senate Report 530, Sixty-eighth Congress. It has been further demonstrated in the investigation by the grand jury of the operation of the Smith Co., now under indictment, and specific facts to prove the need are given in section 1 of this report, pertaining to the sale of securities in the District of Columbia.

There has also been considerable complaint in the District of Columbia concerning what are known as “straw man” contracts but I believe that existing laws are sufficient for protection in this respect if the person who deals with a broker or salesman uses ordinarily good business judgment.

In the draft bill the words “director and employee” have been added to the penalty section as compared with the bill, S. 1716, so that not only an officer or agent of a corporation or member or agent of a firm participating in a violation of the act, but the others designated also, shall be subject to the penalties prescribed.

The provision of S. 1716 stating, the penalties “shall insure to the real estate commission” has been eliminated from the draft bill.

S. 1716 provides, “this act shall not be construed to release any person from civil liability or criminal prosecution under the general laws of the District of Columbia.”

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In the draft bill the provision has been made to apply also to partnerships, associations, or corporations. From a technical standpoint, there are no laws of the District of Columbia,” but only laws of the United States applying to the District of Columbia. Changes have been made accordingly in the draft bill.

S. 1716 provides in section 12 that "the corporation counsel of the District of Columbia

shall advise the commission and at its request attend any and all hearings which it may hold.” The corporation counsel has a multitude of other duties and the draft bill is worded so that his assistants may advise and attend hearings in his stead.

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CONCLUSION

There is admitted and demonstrated the need for licensing of real-estate brokers and salesmen to protect the public from fraud, misrepresentation, and dishonest practices generally. The draft bill herewith submitted and hereby recommended to the consideration of the subcommittee is in general accord with laws which have been in effect in various states for a number of years, whose constitutionality has been upheld by the United States Supreme Court as well as State Supreme Courts, which have fulfilled their purpose of public protection, and which have not imposed any real hardships on those legitimately engaged in the realestate business.

The bill will not prevent or correct all abuses or wrongs arising in the course of or out of real-estate transactions, but it will serve a very useful purpose. In a separate and supplementary communication to the chairman of the subcommittee I have recommended action on a certain phase of the situation which it is not necessary or advisable to discuss in this section of the report.

Additional information on the several matters discussed in this section of the report is available. Respectfully submitted.

O. H. BRINKMAX. Senator BLAINE. Now I would like to hear from the local representative of the real estate brokers' board, Mr. Petty.

STATEMENT OF JOHN A. PETTY, EXECUTIVE SECRETARY

WASHINGTON REAL ESTATE BOARD

Mr. Petty. Mr. Chairman, I care to make only a very brief statement. The bill introduced by Senator Capper was introduced at my request and it followed the provision of the model license act that was prepared by the general counsel of the National Association of Real Estate Boards about 10 years ago. In its general principles,

. the bill follows similar laws that now exist in 25 States, those States being the following: Arkansas, Colorado, Florida, Idaho, Iowa, Montana, New Jersey, North Carolina, Pennsylvania, Virginia, Wisconsin, Alabama, Illinois, Louisiana, Ohio, Michigan, Arizona, Georgia, New York, California, Delaware, Washington, l'tah, Wyoming, and Oregon.

When the matter came up in the House committee, a similar bill had been introduced at our request. Mr. Brinkman appeared before the committee and presented your bill, which Mr. McLeod introduced. Then we had several hearings on it and the amendments that Mr. Brinkman and I worked out clarified some of the points.

There was some difference between the bill that Mr. Brinkman prepared and the one that we offered, but they were more or less minor, with the exception of one section, to which the board offers no objection. I refer to the section with respect to simulated loans and simulated sales.

The Washington Real Estate Board indorses this resolution and has accepted the Blaine bill, known as the McLeod bill in the House,

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