# The Attorney General of Texas

December 22, 1982
MARK WHITE Attorney General

Supreme Court Building P. 0. BOX 12546 Austin. TX. 76711.2546 512/475-2501 Telex 910/674-1367 Telecopier 512/475-0266

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An Equal Opportunity1 Affirmative Action Employer HonorableCharles Evans,Chairman GovernmentOrganization Committee Texas House of Representatives P. 0. Box 2910 Austin, Texas 78769 opinionRo. m-522
Iie: Whether school district may purchase property subject to lien without election pursuant to section 20.04 of the EducationCode

Dear RepresentativeEvans:

After providinguswith the followingfacts:

The Fort Worth Independent School District is interested in obtaining a piece of property in east Fort Worth commonly referred to as the 'OakbrookMall.' Suchproperty is currentlyowned by a Florida corporation called Senior Corporation. Senior Corporation has assumed an existingnote, subject to a deed of trust lien, on the property in the amount of $1,100,000.00. This note is currently being paid by proceeds from a lease on a portion of the property to Montgomery Wards, such proceeds being assigned to the noteholder to further securepayment of thenote.

The district is attempting to negotiate with the owner a purchase of the owner's interest in theproperty subject to the existing $1,100,000.00 note. Under this proposal, Senior Corporation would remain personally liable on the note, the deed of trust lienwould remain to secure thenote
as well as the assignment of the Montgomery Ward leaseproceeds,and the districtwould receive the property in fee simple subject to the lien for the payment of thatnote.[,]

you pose the followingquestion:

Does the FortWorth IndependentSchoolDistrict have legal authority to purchase a piece of real property subject to an existing lien, where the

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schooldistrictdoes not expresslyassume thenote securedby the lien, andwhere the schooldistrict is therefore not liable on such note, without obtaining the approval of a majority vote of the electors of thedistrict in themanner providedby in section 20.04 of the Texas Education Code, or would such action violate either section 20.48 of the Texas EducationCode or article 3, section 52, of the constitutionof the state of Texas?
Section 23.26 of the Education Code specifies that the trustees of independent school districts "may acquire and hold real and personal property" in the name of the district. Such language containsno restrictionsand is very broad, but for reasons explained below we are of the opinion that it will not extend so far as to authorize theproposed transaction,absentvoter approval.
Subsection (a) of section 20.48 of the Education Code provides that "[t]he public free school funds shall not be expended except as provided in this section." Subsection (d) addresses school districts of a description that includes the Fort Worth Independent School District,we understand. It specifies that they:

shall, in addition to the powers now possessedby them for the use and expenditure of local school funds and for the issuance of school bonds, be expressly authorized and empowered,at the option of the governingbody of any such schooldistrict, in the buying of school sites and/or additions to school sites and in thebuilding of schoolhouses, to issue and delivernotes of the schooldistrict, negotiableor non-negotiablein form, representing all or a part of thepurchaseprice or cost to the school district of the land and/or building so purchased or built, and to secure such notes by a vendor's lien and/or deed of trust lien against such land and/or building, and, by resolution or order of the governingbody of the schooldistrict made at or before the delivery of such notes, to set aside and appropriateas a trust fund, and the sole and only fund, for the payment of the principal of and interest on such notes such part and portion of the local school funds, levied and collected by the school district in that year and/or subsequentyears, as the governingbody of the school district may determine, provided that in no event shall the aggregate amount of local school funds set aside in or for any subsequent year for the retirement of such notes exceed, in

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any one such subsequent year, 10 percent of the local school funds collected during such year. The districtmay issue the notes only if approved by majority vote of the resident, qualified electors voting in an election conducted in the
manner providedby Section 20.04 of this code for approval of bonds. (Emphasisadded).

The foregoing is the only provision of the statute expressly authorizinga school district to place a lien against its property in order to secure payment of an obligation. Cf. Educ. Code §§20.43 (timewarrants), 20.49 (maintenancetaxnotes).

A purchaser who takes mortgaged property without assuming the mortgage debt is not personally liable for the debt (in the sense of being responsiblefor any deficiencybeyond thevalue of themortgaged p=op==ty), but the property continues as the primary source for payment of the obligation. See Kansas City Life InsuranceCompanyv. Hudson, 71 S.W.2d 574 (Tex>iv. App. - Waco 1934, writ ref'd); Fidelity Union Fire Insurance Company v. Cain, 28 S.W.2d 833 (Tex. Civ.App. - Dallas 1930,no writ); 39 Tex. Jur. 2dMortgagesand Trust Deeds, 5597, 98, at 122.

In other words, if the district purchased title to the property while the property remained subject to an outstandingmortgage or deed of trust lien, the interest of the district thereinwould be subject to defeasance should the district'sgrantee default in payment of the underlying obligation secured. The fact that the district had not assumed the obligation so as to make itself directly liable on the outstanding note would not in itself prevent the loss of the district's investment.

In effect, the property interest of the district would be mortgaged to secure the repayment of the outstanding indebtedness against the property -- that is, the debt of a third party. We need not consider the possibleapplicationof article III, section 52(a) of the Texas Constitution (precluding the lending of credit by a political subdivision to any individual,associationor corporation),
or examine the doctrine that prevents a political subdivisionof the state from entering agreements that would potentially control or embarrass it in the exercise of governmentalpowers. See Clear Lake City Water Authority v. Clear Lake Utilities Company, 549 S.W.2d 385 (Tex. 1977). In our opinion, section 20.48 provides a statutorybar to the proposed transaction unless the procedural requirements of subsection (d) thereofaremet.
Section 20.48 of the Education Code was derived from former article 2827, V.T.C.S., the provisions of which were interpreted as showing the general policy of the legislature with respect to the

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expenditure of funds belonging to a school district. See Flatonia Independent School District v. Broesche, 176 S.W.2d 223(Tex. Civ. APP. - Austin 1943,writ ref'd). Cf. McKinneyv. Chambers, 347 S.W.2d 30 (Tex.Civ.App. - Texarkana 196cwrit ref'd). In our opinion, the provisions of subsection (d) expresslydetailing the conditionsunder which school sites and school buildings may be subjected to liens indicates the policy of the legislaturewith respect to the purchase with school funds of propertywhich will thereafterbecome or remain encumbered. That policy requires approval of the voters of the district.

We conclude that a purchaseby the Fort Worth IndependentSchool District of real property subject to a continuing lien without obtaining voter approval in the manner required by section 20.48 of theTexas EducationCodewould constitutea violation of that statute.

SUMMARY

A purchaseby the FortWorth IndependentSchool District of reals

property subject to a continuing lien without obtaining voter approval in the
manner required by section 20.48 of the Texas Education Code would constitute a violation of that statute.

z*

MARK WHITE Attorney General of Texas

JOHN W. FAINTER,JR. FirstAssistantAttorney General

RICHARD E. GRAY III ExecutiveAssistantAttorneyGeneral
Preparedby BruceYoungblood AssistantAttorney General

APPROVED: OPINION COMMITTEE

SusanL. Garrison,Chairman Jon Bible Rick Gilpin PatriciaHinojosa Jim Moellinger BruceYoungblood

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