22. Usury laws.—In many states there is a legal rate of interest and any interest charge above such rate is usury. Economically all usury laws are fal lacious, and what is more they fail to protect the bor-. rower. A needy borrower will obtain money on a mortgage and will pay extra interest for the loan in the *ay of fees and commissions in spite of the usury laws. Extra compensation is paid by borrowers not only to pay for the lender's financial risk, but also on account of the risk the lender takes in breaking the law. If there were no usury laws more money would be attracted to the mortgage market for investment, and the added supply of funds would naturally tend to reduce the rate of interest. Of course, there is usually an ample supply of money for conservative first mortgages, and such loans, as a. rule, can be ob tained at the legal rate of interest or less.
The State of New York charges a recording tax of one-half of one per cent on mortgages. This tax is usually paid by the borrower, and such payment does not make the mortgage usurious, even tho the mortgage itself bears interest at six per cent, the legal rate in New York. Payment of the recording tax makes the mortgage exempt from other taxation in the state.
23. Methods of foreclosing are two methods of foreclosure. One is known as a foreclosure by advertisement. It is the more simple but the less used method. It is not an action- at law, but merely the execution of the power of sale granted in the mortgage instrument. The law regulates the power to sell by requiring that notice be given to the owner, if he can be found, the posting of notices in public places, and a sale by public auction at a public place. The disadvantage of the method is that it may be difficult to get possession of the property after the sale. Since the rights of the parties have not been passed on by a court, it may be necessary to resort to a long and expensive ejectment proceeding in order to get possession.
The second method of foreclosure is by an action at law. It is an action whereby the rights of the par
ties are adjudicated by the court, a judgment entered and a sale held under the court's direction. The pur chaser at such a sale is entitled to the assistance of the sheriff in obtaining possession, if this is necessary.
The first steps in a legal foreclosure are an inspec tion of the premises - and a search of the records to get the names of all who have or claim to have in terests in the property inferior to the mortgage. Such persons are made defendants to the action. A summons and complaint is drawn. A notice of the impending action (lis pendens) and a copy of the summons and complaint is filed in the County Clerk's office. A copy of the summons and complaint is served on each defendant, and opportunity is given to them to answer. If no answer is put in, a judgment of foreclosure and sale is obtained as a matter of course. If there is an answer, the issue is tried out. The court appoints a referee to compute the amount due and also to sell the property at public auction. The sale is advertised twice a week for three weeks. The referee employs an auctioneer and sells the prop erty to the highest bidder on the day specified. The purchaser usually pays ten per cent of the amount bid at the sale and twenty days later he pays the bal ance, at which time he gets a deed from the referee and is entitled to possession of the property. The proceeds of the sale are used to pay (1) taxes, as sessments and water rates, liens on the property sold; (2) costs of the action, referee's fees and ad vertising; (3) amount due mortgagee. The balance, if any, is paid into court and is then paid over to those claiming it according to legal priority as if their claims were against the land.
When the property falls into natural divisions, the court may order the parcels to be sold separately and only so much sold as will satisfy the claim of the mort gagee, plus expenses.