Untitled Texas Attorney General Opinion ( 1976 )

The Honorable Henry Wade Opinion NO. k- a82
Criminal District Attorney
Dallas Government Center Re: Whether the housing
Dallas, Texas 75202 authority may finance a
housing project by means
of a deed of trust note
bearing interest in excess
of as per annum.
Dear Mr. Wade:
You ask whether the Housing Authority of the City of
Dallas, created pursuant to the Housing Authorities Law,
article 1269k, V.T.C.S., may finance a housing project by
means of a deed of trust note bearing interest in excess of
8% per annum. The Housing Authority proposes to finance
the construction loan and the permanent mortgage loan with
the assistance of mortgage insurance issued by the Secretary
of Housing and Urban Development (hereinafter HUD/FHA),
acting by and through the Federal Housing Commission pursuant
to section 231 of the National Housing Act (codified at 12
U.S.C.A. 1715~ [Supp. 19761). The current permissible
interest rate for HUD/FHA insured mortgage loans under
section 231 is 9% per annum. The note would be repaid out
of revenue generated from the project and housing assistance
payments from HUD/FHA. There would be no bond underwriting
or sale in this transaction.
Section 3 of article 1269k defines bond as follows:
[Ulnless a different meaning clearly
appears from the context . . .
(k) 'Bonds' shall mean any bonds,
notes, interim certificates, debentures,
or other obligations issued by the
authority pursuant to this Act.
p. 3715
The Honorable Henry Wade - page 2 (H-992)
Section 15, as amended by Acts 1971, 62nd Leg., ch. 416,
P. 1555, provides for the sale of bonds:
Bonds of an authority shall be authorized
by its resolution and may be issued in one
or more series and shall bear such date
or dates, mature at such time or times,
bear interest at such rate or rates, not
exceeding eight (9) per centum per annum,
be in such denomination or denominations,
be in such form, either coupon or registered,
carry such conversion or registration privileges,
have such rank or priority, be executed in
such manner, be payable in such medium of
payment, at such place or places, and be
subject to such terms of redemption (with or
without premium) as such resolution, its
trust indenture or mortgage may provide.
The bonds may be sold at not less than
par at public sale held after notice
published once at least five (5) days prior
to such sale in a newspaper having a general
circulation in the city or the county and in
a financial newspaper published in the City of
New York, New York, provided, however, that
such bonds may be sold at not less than par to
the Federal Government at private sale without
any public advertisement. . . .
The "bonds" governed by section 15 do not include every
kind of obligation listed in the section 3 definition. A
different meaning appears from the context of section 15,
which refers to par value instruments issued in such numbers
that a public sale is the usual method of distributing them.
We believe that section 15, with its 9% interest ceiling
would be held not to apply to the note proposed in this
financing scheme.
Moreover, section 21 gives the housing authority
additional powers to exercise to the end of securing federal
assistance:
p. 3716
The Honorable Henry Wade - page 3 (H-882)
In addition to the powers conferred upon
an authority by other provisions of this
Act, an authority is empowered to borrow
money or accept grants or other financial
assistance from the Federal Government for
or in aid of any housing project within its
area of operation, to take over or lease or
manage any housing project or undertaking
constructed or owned by the Federal Govern-
ment, and to these ends, to comply with
such conditions and enter into such mortgages,
trust indentures, leases, or agreements as
may be necessary, convenient or desirable.
It is the purpose and intent of this Act
to authorize every authority to do any and
all things necessary or desirable to secure
the financial aid or cooperation of the
Federal Government in the undertaking,
construction, maintenance, or operation of
any housing project by such authority.
This section does not limit the interest that may be paid as
a condition to securing federal assistance and it expresses
the intent to authorize compliance with such conditions. This
expression of intent further supports our conclusion that
section 15 does not apply to the proposed note, which the
housing authority wishes to execute as a condition to securing
federal assistance in the form of HUD/FHA mortgage insurance.
SUMMARY
The Housing Authority of the City of Dallas
may finance a project with a note bearing
interest in excess of 8% per annum.
,Very truly yours,
JOHN L. HILL
// Attorney General of Texas
p. 3717
The Honorable Henry Wade - page 4 (H-882)
APPROVED
Opinion Committee