Untitled Texas Attorney General Opinion ( 1972 )

THE AYTCBRNEY GENERAL
OF-XAS
Honorable Robert E. Stewart Opinion No. M-1203
Commissioner
Department of Banking Re: Whether certain described
John H. Reagan Office Bldg. secured real estate loans are
Austin, Texas 78701 eligible for qualification as
7C% loans under Article 4,
Subsection 2, Chapter V of
the Banking Code, and related
Dear Mr. Stewart: question?
You have requested an opinion from this office which reads as
follows:
“Article 4, subsection 2, chapter V of the
Texas Banking Code reads in part: I. . . no
state bank shall make a loan upon the security
of real estate D . . unless:
I1 ‘2. The total net balance owing upon the
indebtedness secured by such lien:
” ‘(a) does not exceed sixty percent (6C93
of the appraised value of such real estate:
” ‘(b) does not exceed seventy percent (70%)
of the appraised value of such real estate and
such loan or obligation provides for uniform
monthly, quarterly, semi-annual or annual
reductions of principal in such amounts as to
retire the entire indebtedness within one hundred
and eighty (180) months from the date of the
bank’s loan or investment, ’
“One of our state banks has made a real estate
loan under the above articles of the Banking
Code in the original principal amount of $200,000
repayable as follows:
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.
Honorable Robert E. Stewart, page 2 (M-1203)
“The principal of this note is payable in two’
installments as follows: The sum of $8,000.00
plus accrued interest shall be due and payable
on or before six (6) months after date; and the
unpaid principal balance of $192,000.00 plus
accrued interest due thereon shall be due and
payable on or before one (1) year after date hereof,
“The bank has made an additional loan to another
borrower in the original principal amount of
$214,000 repayable as follows:
“The principal of this note is payable in two
installments as follows: One installment of
$8,560.00 plus accrued interest being due and
payable on or before six months after date hereof,
and the unpaid principal balance of $205,440.00
plus accrued interest thereon shall be due and
payable on or before one year after date hereof.
“The funds advanced in each case are in excess
of 6v0 but less than 7C% of the appraised value
of the property securing the note. In an examina-
tion of the bank, the loans were criticized by the
examiners as ‘Loans made in excess of the
percentage of appraised value as prescribed in
subsection 2, article 4, chapter V, Texas Banking
Code of 1943 . . ~ ’ The examiners’ position is
that the mode of repayment above quoted does
not provide for ‘uniform monthly, quarterly,
semi-annual or annual reductions of principal
. ~ . ’ as required by subsection 2, and that the
loans are consequently ineligible for qualification
as 7(% loans. . . .”
It can be seen that a literal interpretation of the provision of Section
2(b) of Article 342-504 under consideration would require that every real
estate loan made by a state bank under this provision must provide for
uniform monthly, quarterly, semi-annual or annual reductions of principal
in such an amount as to retire the entire indebtedness within one hundred
and eighty (180) months from the date of the bank’s loan or investment.
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Honorable Robert E. Stewart, page 3 (M-1203)
However, we must construe Article 342-504 in pari materia with Article
342-511, infra, which provides for an exception to the provisions of Article
342-504, 53 Tex. Jur. 2d 280, Statutes, Sec. 186.
Article 342-511, Revised Civil Statutes of Texas, provides:
“Any provision of this Code to the contrary
notwithstanding, any state bank may make-any
loan or investment which such bank could make
were it operating as a national bank, and the
making of such loan or investment shall not
constitute a violation of any penal provision
of the statutes of the State. ” (Emphasis added)
Under the interpretive rulings on loans secured by real estate for
national banks, for one year real estate loans, (Comptroller’s ManuaI for
National Banks) it is stated:
“A real estate loan of not more than one year
meets the amortization requirements of 12
U.S. C. 371 although no reduction of principal
is required before maturity. Any renewal
must qualify with the amortization requirements
set forth above. ”
It therefore appears that a national bank can make a real estate loan
for a term of one year, with or without a reduction of principal before
maturity,
We are of the opinion that if a real estate loan or investment is made
for a period not exceeding one year, and the note provides for a payment on
or before 6 months from date of a specified sum, plus accrued interest,
with the unpaid principal balance plus accrued interest due and payable on
or before one (1) year after date, that such loan would not violate the pro-
visions of Section 2(b) of Article 342-504, Revised Civil Statutes. However,
any renewal of such loan must require uniform monthly, quarterly, semi-
annual or annual payments, as such loan would then become an installment
loan.
In reaching this conclusion, we have harmonized the statutes so as to
carry out the full legislative intent. Trinity Universal Ins. Co. vs.
McLaughlin, 373 S.W.2d 66, 69 (Tex. Civ. App. 1963, error ref. n.r. e.)
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Honorable Robert E. Stewart, page 4 (M-1203)
This conforms with the interpretive rulings on loans secured by real
estate for national banks for a period of time of one (1) year or less and
Article 342-511, supra.
SUMMARY
Under the provisions of Article 342-511, Revised
Civil Statutes of Texas and the Comptroller’s In-
terpretive Rulings on one (1) year real estate loans,
a one (1) year real estate loan providing for an
interim payment on or before 6 months from date
of a specified sum, plus accrued interest, with
the unpaid principal balance, due and payable on or
before one (1) year after date, meets the require-
ments of Section 2(b) of Article 342-504, Revised
Civil Statutes of Texas. However, any renewal
of such loan must require uniform monthly,
quarterly, semi-annual or annual payments.
Yours very truly,
/9
,
da-
ORD C. MARTIN
neral of Texas
Prepared by John H. Banks
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Kerns Taylor, Chairman
W. E. Allen. Co-Chairman
Bill Flanary
Fisher Tyler
2. T. Fortescue
Ben Harrison
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Honorable Robert E. Stewart, page 5 (M-l LO3)
SAMUEL D. MCDANIEL
Staff Legal Assistant
ALFRED WALKER
Executive Assistant
NOLA WHITE
First Assistant
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