to insert in the second mortgage directly after the recital a clause similar to the one in the deed form set out in Par. 53 (consult also form, Par. 261) as follows:

Under and subject nevertheless to the payment of a certain mortgage debt or principal sum of $3,500.00 with interest thereon as the same may become due and payable.

There is, however, one very important exception to the rule just stated, and that is where the second mortgage is given by the vendee at the same time he is taking title and executing a first mortgage, the law may imply both mortgages to be purchase money mortgages, and as such equal liens if recorded at any time within sixty days after execution. To guard against *his possibility the second mortgage should expressly stipulate that it is not a purchase money mortgage and is to be a second lien. The following clause is generally used for this purpose and is known as the second mortgage clause.

"Being the same premises which Andrew Black by indenture dated the 12th day of January, A. D. 1911, and intended to be recorded, granted and conveyed to the said mortgagor in fee. And it is hereby expressly certified and declared that it is not a purchase money mortgage and that it is subject both in lien and payment to a certain mortgage to secure the payment of ($3500.00) given by said mortgagor to Isaac Thomas, dated January 12, A. D. 1911, and intended to be recorded; and that the lien of said mortgage shall not be affected or impaired by a judicial sale under a judgment recovered upon this present indenture or upon the bond secured hereby; but any such sale shall be expressly advertised and made subject to the lien of the said mortgage."

This clause is inserted as the recital in the conveyance part of the mortgage, see form Building and Loan Association Mortgage, page 123, and following the habendum is inserted this clause:

"Under and subject both in lien and payment to a certain mortgage to secure the payment of $3,500.00 given by the mortgagor to Isaac Thomas, dated January 12th as above fully set forth."

These clauses must always be inserted in the second mortgage where title is passing and two mortgages are given. The second mortgage must then be dated and recorded subsequent to the first mortgage. It will be seen that the effect of this clause is to

expressly disavow the implication that it is a purchase money mortgage and to declare it to be subject both in lien and payment to the designated first mortgage.

93. Building Association Mortgages. Building Associations.

Individuals rarely care to and financial institutions will not loan money on second mortgages, hence arose the need of an institution to which a frugal man of small means could turn to borrow sufficient money to build a home or buy one. From this need developed that splendid institution of saving known as the Building Association. Pennsylvania is the home of building and loan associations, and Philadelphia county is the birthplace. The first building and loan association was organized in Frankford, Philadelphia county, now part of the city, in 1831. They have since spread all over the country and have developed differently in different states. However, the Pennsylvania plan is still regarded as the more conservative and success full and will here be briefly explained.

The fundamental principle upon which this institution rests is co-operation. It was designed to meet the needs of men whose savings were too small to be put to any substantial use alone. But by combining the savings of a number of persons into into an association these small individual savings formed an effective bulk sufficient to purchase a home for one member, then another and so on until the object for which the association was formed was accomplished. In the beginning these associations actually purchased the land and then erected houses which were divided among the members. Later, this practice fell into disuse and the members bought their own land and built thereon a house, borrowing the money from the association and securing the association by a mortgage. Nowadays, when property is built so much more cheaply by an operating builder, the building associations mostly confine themselves to the loaning of money on mortgages to enable the member to purchase a house. But the fundamental purpose remains the same, to wit: the aiding of men of small means to become home owners.

According to the Pennsylvania plan, the building association is a corporation capitalized at usually one million ($1,000,000.00) dollars, which is divided into 5,000 shares of $200.00 each. These shares are paid in on installments of one dollar per month per share and the money so received is loaned out to the various

members at 6 per cent. interest. The payment of these dues or installments are continued until the amount of the installments paid in, together with the earnings of the association, equals $200.00 per share. The stock is then said to have matured and the amount of $200.00 per share is then credited to the shareholders by being paid in cash to those shareholders who have not borrowed from the association and by cancelling the debt and satisfying the mortgage of those who have. The time in which the stock of a building and loan association will mature depends, of course, upon the economy with which the society. is conducted, the security of loans and the absence of losses. The salaries are generally very small and only the secretary and treasurer receive salaries out of the association funds. A conservatively managed association should mature its stock in twelve years, i. e., after 144 installments of $1.00 per share have been paid in. The balance between the amount so paid in, viz: $144.00 and $200.00, to wit: $56.00, represents the accumulated earnings of the association during the twelve years; this is at the rate of about 6 per cent. compounded. Some associations have matured their stock in nine, ten and eleven years and the earnings in such cases are proportionately larger.

The loans of building associations are made in the following manner: Application is made for a loan on a mortgage against the premises set forth (see Form of Application, page 119). The premises are examined by a visiting committee, who report to the board of directors. If the board approves the loan, it is granted. Should more than one application be approved and there is not enough money in the treasury to cover all, the applicants may bid for the preference of receiving the loan by offering to pay a premium of 5, 10 or 15 per cent. in addition to the usual interest. Thus a person borrowing $1,000.00 would have to pay interest at the rate of $6 per cent., or $60.00, or $5.00 per month; a premium of 10 per cent. bid would require him to pay $5.50 per month instead of $5.00; 15 per cent., $5.75, etc. In some associations the whole premium is deducted at the beginning. These premiums, while in the nature of usurious interest are expressly permitted and declared legal by law; but they must result from competitive bidding, otherwise they are usurious and may be recovered back (Stiles' Appeal, 95 Pa. 122). A by-law stipulating a fixed premium is illegal (Land Title & Trust Co. v.

Fulmer, 24 Pa. S. C. 265; see also Roeser v. German Nat. B. & L. Assn., 32 Pa. S. C. 100).

FORM OF BUILDING AND LOAN ASSOCIATION APPLICATION.*

PHILADELPHIA, Oct. 1, 1912.

To the President and Directors of the

X. Y. BUILDING AND LOAN ASSOCIATION.

Application is hereby made for a loan of $800.00, to be secured by the assignment of four shares of the stock of this association and by a second mortgage for $800.00, subject to all rules, regulations, constitution and by-laws of said association, upon property consisting of a lot of ground situate 525 "F" Street, in the Fiftieth Ward of the City of Philadelphia.

The size thereof is 16 feet 3 inches front, by 65 feet deep.
On which is erected a two-story brick dwelling.

The size of which is 16 feet by 45 feet.

How occupied? By owner.

If rented, what rent? $20.00.

Value, $3,000.00. Purchase price, $3,000.00.

Assessed value, $2,800.00.

What fire insurance, and where? Satisfactory.

Is title insured and where? Satisfactory.

Name of mortgagor, Allen Green.

Name of present owner, Allen Green.

What incumbrance against the property? First mortgage,

$1,200.00.

How long have buildings been completed? Two years.

What repairs have been made within 6 months? None.

What street improvements within 6 months? None.

By whom is property occupied? Owner.

Remarks,

A committee fee of $1.50 accompanies this application.

Address,

Allen Green, 525 "F" Street.

94. Building Association Mortgages (Continued).

Forms.

A building association mortgage differs from an ordinary straight mortgage in that they are given to secure the monthly payments of dues, interest, etc., for such length of time as may be required for the stock to mature. Mr. Justice Fell, of the

*This is the regular printed form of application. The words in italics show how it is to be filled in. Most building and loan associations have their own forms, which the secretary or solicitor will supply upon application.

Pennsylvania Supreme Court, says (Freemansburg B. & L. Ass'n v. Watts, 199 Pa. 221): "In carrying out the plan on which building associations are organized and conducted, it is not intended or required that a stockholder who borrows from the association will discharge the debt he incurs by direct payments on account of it. He pays at stated periods dues on his stock, the interest on the money borrowed and when the premium bid for the loan has not been deducted, the installments on it. When by the receipt of dues, interest, premium and fines for non-payment of dues, all the stock of the association or of the series to which the borrowed stock belongs becomes full paid or matured, the value of his stock equals the amount of his debt, and the transaction is ended by the surrender of the stock by him and the cancellation of his obligation to the association." By consulting the form of a building and loan association and bond and warrant the explanation of the transaction by Justice Fell becomes exceedingly simple to understand. The borrower may borrow $200.00 for each share of stock he holds. Thus, to borrow $1,000.00 he must have five shares of stock, so that at maturity the amount of his stock equals the loan. The stock so subscribed for is assigned as collateral security, together with a mortgage on the property to the association.

These mortgages are usually made out for one year but this is a mere form and they cannot be foreclosed at the expiration of one year or at any time before maturity of the stock unless the borrower is more than six months in the arrears in the payments of his dues, interest, &c. (Act of April 10, 1879, P. L. 16, Sec. 5).* But while the association cannot compel the repayment of the principal sum loaned to a borrower who keep in good standing, the borrower has the privilege at any time of paying off the

*The only decision on this exact point is Mt. Vernon Building and Loan Association v. Brown et al., an unreported case decided by C. P. 1 Philadelphia County, as of Dec. Term 1909, No. 2723, in which the court, in discharging the plaintiff's rule for judgment for want of a sufficient affidavit of defence, filed the following brief opinion, to wit: "We think that the language of the mortgage indicated it was to run for more than one year. Rule discharged." The mortgage in question contained the same provision as to the time of payment of the principal as appears in the usual form of B. & L. Ass'n mortgages (see form, page 121) viz: "at any time within one year from the date thereof." See also on this point the communication of Geo. A. Drovin, Esq., published in 67 Leg. Intell. 672. Also the suggestions of Arthur Boswell, 68 Leg. Intell. 20.