The San Francisco call., 1906-06-09
THE MORTGAGE TAX.

The Assembly, by a large affirmative vote has
adopted amendment to the constitution doing
away with the obligation imposed upon lenders to
pay taxes their mortgage interest in the property
pledged The clause. the appeal of which is thus
attempted, inserted IN the constitution the
theory that it would protect borrowers. 1t was
held that inaSmuch as a lender had a real interest
In pledged property. which took precedence over
all claims against il. he should be made to pay
the taxes so far as his interest appeared. In APP
plication however, the provision has failed to work
The lender has merely added the maximum tax
rate Of the community in which the pledged prop
erty was located to the ruling market rate of in
terest and the borrower has paid the taxes as
interest.
Throughout the State practical illustration of
this be wherever the tax rates of two neigh
boring communities differ For example taxes are
higher in the cities and towns than in the country
districts for the municipal tax is added to the tax
OF State and county. If the market rate of interest
Is per cent the State and county tax the equiva-
lent Of , per cent and the total tax in the
municipality per cent the prevailing rate of in
terest charged borrowers who pledge municipal
property will be per cent while beyond the city
limits the rate viii be only per cent. The differ
is the difference in the tax charge of the two
communities
While the mortgage tax clause in our State con-
stitution has failed in its purpose inasmuch as it
does not relieve the borrower of the necessity of
paving the taxes that part of his property repre-
sented by the mortgage interest it has added
meusly TO the labor and expense of assessing prop
erty and collecting taxes. Under the system, the
Assessor must deduct from each piece of mOrtgaged
property the amount of the mortgage interest, and
the tax charge must be made against both mort
gagee and mortgagor The Tax Collector must
make two collections against the same piece of
property, necesstating close attention to mass of
detail which IN the total makes large amount of
work and accompanying cost to the taxpayers.
Then, too, the system leads to confusion and
equal assessments that In the end often prove cost
ly to the borrower. In the majority of country
districts for example, assessments are not usually
greater than 30 per cent Of the actual value Of
the property But it often happens that lenders
will loan money considerably in excess of half the
prOpertys market value A man with piece of
property worth $4,000 can borrow $4,000 on it. but
unincumbered the assessment would not be more
than $500. There can be, however, no scaling of
the mortgage interest, and the property is actually
assessed for $4,000, the amount of the mortgage
The borrower pays this tax. as has been shown. He
thus pays taxes on $500 more than, as other prop
erty of the district is assessed it is just that he
should pay.
In spite Of the failure of the system to work to
the benefit of the borrower the effect Of the pro
vision at the money centers Of the East has been
TO create the impression that the mortgage laws of
California are unjust to the lender While this may
not have worked to the serious Disadvantage of the
State IN the past, that she must become a bor-
rover on large scale 1T time to do away
with a misleading, labor-creating and Ineffective
provision of the constitution. Those who are en-
gagged in meeting conditions growing out of the
greatest disaster of modern times should not be
forced to 60 to their work needlessly handicapped