OF)rlCEOFTHEA~ORNEY GENERALOFTEXAS AUSTIN

Ronorable 0. P. Lockhsrt, Chairman Board of InsuranceComnlsaionera Austin, Texas

Dear 81rr opinion Llo.

### o-3924 Rez Investment8 of 

### a general oawalty iwuranae oompany.
This departmenthas reoeivedyour requert for an opinion. Ue net outbelov the pertinent part of ~rourletter aud the enolo8ureacontainedtherein.

"Pleaseadv%se if a general oa8ualtP lnauranoe oompany such a8 the Employer8 Oarualty Company of Dallar, Tex68, operatingunder the provlslons of Chapter 

### 18, Title 

### 78 of the Revised Olrll Btatutes of fexab, aud governed in it8 iavedment polioy by Articles 

### lr705-6, and 4993, may make the lessor a loan and aooept a8 8eourlng therefor a mortgage note on the leesor' interest under the lease and asalgnment ot rental8 due, under what the Federel HOU8ing **Act** delsrlgnates a8 Gla88 

### 3 108118."

The enolosureread8 **aa** follov8:

**“ As** you lmov the @over of this oompany to Invert funds **OOU8titUting 8**  **p8X ’** **t Of**  **it8 OEipit~~**  **md 8**  i8 regulatedby the provision8 of **Art8.** 4705, 68 ?&id 4993 of the Texas **8tatUte8** a8 amended. hll three of the8e articlea,

### aa now amended, authorice investments in firstmortgagee or lime upon real eatate under oertatiexpressed condltlonrs.
"UnderTitle 1 of the Federal Rouelng **Act** (8eotiona 1702-1705IJ8 C **A),** the Federal Houaing **Admln** 18trator La Fpauringwhat L8 knovn as Claaa 

### 3 loans. Such a loan ismade to the lessee of umimproved real eetateunder 

### a form of lease presorlbed by the **Fllk.**

## I‘;

ganorable0. P. WA&art, Chalraan, Page 2

Such lease le for a term of not 1~8s than 31 year8, prOVide8 iOr an arm-1 rental of 80 mtmh per **year** peyabls to the ou'Z&er Of the **property and**  **pl ’** **OVidk38** that the lessee shallhave the option of purcha8Ing the property at -'time for 

### a givea aum. The optlon price 18 the 

### fairvalue of the -tiproved property aa detennInedby the FE& and the annual rental **18 fixed**  OXl**a b88iS**  t0 yield the le88Or a 6$ retUrn en that valuation. The leare olao provided that If the lerree default8 In the payment of the annual rental, or **fat18** to perform any Of the other oovonents oontalned **In the**  **l-80,** and rails **to oure**  **ths default**  ulthln **90** days, the learrevlll terminate and the lerrror

can re-enterand takepo88e86lon of the tit, togethervith all Improvement8vhloh have been ereated thereonby the 1088ee.

"%-IO le8888 in tUlll

bOa'XOlf8

a lUffiOi8Xlt

8m Of SlM8y toll

th8 -08e Of 8lWOttng illQXWVOllt8~t8 00 the pl'O~l'ty,

Md t0 8OOW th8 lO&ll,8XbQUt88 to the lendsr **a** mOrtgage en the **learehold** 88tate a8 well 

### as all other wt.8 

### l **oquired** by him under the lease. The fO'orm

Of thf8mortgage or deed Of trp8t I8 pre**8Orib8d** by the FE& and &mOn$ other tbing8, %t provides that themortgagsevill oolleot the gmtmd rental from the lerre6 and pay It to the lelaor, aad.that In the‘event the 18888e **fail8** to #ay the rental, the mortgage8may do 60 and the uwuut 80 **advenoed** by $he Snortgages

pill be **reoured** by mortgage. Loans of thl8 type 88Ouredby a mrtgage on the lea8ehOld estate qualify folrinsuranoeunder fltle 1 of the Fedora EOtI8i43

Act, whbre nOt in 8x0088 Of **)2500.00.**

"Underthe foregoing **arrangement** the lessor 8tlll holds title to the plVfElf888, 8ubj8Ot, Of @OW8e1 t0 the leaee and the option to puroharre therein oonti&lned. Uhen Improvementshave been ereoted on the p-888, the lensorls seeuwity lr not only the lot,but **also** the zlmprovemente

paid for by the FHILloan. Vnder FBA requirement8the 

### valueof the lot **a8** fIxed in the option to purchasepriae vi11 not exoeed approximately 25% of the total value of the lot and iprpPovement8.

"!Fhe question in whloh ve 

### are intweeted is whether or not the lessor undelrthe **above** mentioned arrangement, following the completion of the lmprove-&norable 0. p. Lockhart, Chairman, Page 3

ments erected on the lot and the clortlug of the FIfAloan t0 the 1888ee,ha8 an **intePe8t** In the property of 8uoh charaater that our company aouldmake the lessor a loan, and accept as seourlty therefor a mortgage on the leseorte interest under the lesee and an.aesIgment of the rental due thereuuder. This companyhas had submittedto it several requemta for loana of this type, but before eating upon 8Uoh requests,ve think It neces8aPy to obtain throughyou an opIulon of theAttOrII8y General on the question of vlrether

or not 8Uoh lOan8 aPe Of a type in Vhiah this companymay legklly fZIVeSt it8 fund8. In the **oa8e** of each of these loans the amount of

### moneyvhloh the lesSOr d88ire8 t0 **bOrrOV**IS the tOhI VdUe Of the unimproved lot, this being the value of the lot fixed by FE)&and stated in the lea88 a8 the Option t0 purohaseprice. Tlm8 should the loan be made Ye vould be lendIng 100% of the value whIah the property had prior to the time the Improvements**vere** ereoted by the lessee. Hovever, as above **stated,** at ths.dAte the lee8orhae come to us with his request for a loan the imprOV~nts ereotedby the le8a88 have enhaaoed the value 

### of theproperty to euoh an extent that it8mapket value is considerablymoc8 than 40$ **above** th8 amount of the reqUe8t8d loan, uhIoh ia the requIPement Set out InAPtS. 4705, 4706 and 4993. FUi%h8IlUOZ'Es, the lesbor's Interest In the property whloh vould be mortgaged t0 U8 18 *uninoutubered,' Unb588 th8 FBA mortgage COVePingthe 188~86'8 %tJt8P8@t oanb8 uoneldered **as** an lnoumberanceagainat the 18bsor18 inteP8st.'

APtlcles 4705, 4706 and 4993, Vernon'sAnnotated Civil 8tatUt88,gOVePn the inV88tment8Of a g8n8l'al Oa8llalty

inSUlUnO8 o=pany. Only OePtain tWCtIOn8Of tho88 artiales are applloable to our situationhere. They follow

Article 4705. "The capital stock of any suoh Insurance company,except any vrltIng Life, Health and Aaoldent Insurance, shall oonalstt

"3. In fir& mortgages upon unencumbered real e&ate in this atate l l *."

### %@tlO~b$SO. I', 

### Loo~~E&, Gbalrm~sn, page 4



### Article4706. "Xl0 company,exoept any writ; Ing Wfe, Health andaooldent Insuranoe, 

### organized ImdeP the p~ovl4ions of this Ghapter 4hall Invest Its funds over and above its paid-up capital **rtook** in sny othermanner than as fo11owsr
'(b) In bonds 

### or flrrt liens or unenoumbered real8tate l l 

### l

.î

Artlole 4993 pH4Crib88 the &USOUatOf Capital 8tOck that gM8~:?088Wlt~ CClllp8IliC8 XUSt h&V8 8lldthen add8 a8 fO11OV81
(That) 'Gapital shallbe prrld up or inverted In l l l bond8 

### or fiP4t 1I8rUr Upon M8nCU4ibeP8d l'8al8Stat8 + f*.'

The oonslstentuIIeof the phrase *unenoumbePedreal estate"by the fP8i~CP8 Of the Vapi0~8 8IUiC~entS is t0 be Peadlly n0ted.
The 8upr8me GouPt of Texas In the 0088 of Ttwneb v. Ro88, s3 Tex. 218, 18 8. Y. 578, 15 L.R.A. 262, ably announoedwhat is
nov a well knovn mile 

### of rtatuteryoan8traotlon,to-wit:

'It 18 the duty of a oowt to give~to me **U8.4** in a 8frtUte the m?aDing vith l7hIohit m8 U8Od by the Isgl4latur8, if that oan **be** asoertaInedJ and to do this, if th8 wopd8 used be not euoh **as** have **a** peou.lIar

meaning when applied to 

### an art 0~ trade vlth PefePenoe to vhloh they aP8 used In the statute, they 4houldbe given their 

### ordinarynmanlng,as the Lsgls1atuP8must be pr88rOnedto have used them In that 881188 in vhloh they aP8 ordinrrilytinderrtood." 888 also T. &I**P.** RR Go. v. Railroad GemmI4slo~ of Texas, 150 8.U. 878, 105 Texas 386.

In the 

### oa8eof Thomson v1 lo&e, 1 8. W. 112, 66 Texas 383, the Supreme Court of Texas adopted the follovlng defInltlon of the word "InoxnnbPano~e' or "enoumbranoet'

'In

### a legal sense the voPd ~inourabrancel **mean8**
an estate, Interest or right In land4, dilSln18hing their value to the genera1 OVLLer, a paramount 

### right In or weight upon land whlohmrry188Sen its value."Ronorable 0. P. Lookbart, Ghalnsan,Page ~5

**Tiffany** In hi8 treatl8e On Real Propertydefine8 an ~~lLSb~MC8 63s'everyright t0 or interest in the land whioh uy subrist In third person8, to the diminution of the value of the land." **Also:**

"Any right existing in another to use the land, or whereby the **u8e of**  **the** owner 18 restricted, **Is an**  **inounbmnoe vUh3n**  the legalmeaning 

### of the

wo rd. l **Bull Q.**  **Burton, 124**  **111.K**124, 227X.X. 101.

In the 8Ituatlon **before** us, the leaa ha8 a lea88 for
**v8** d M OptfOIl t0 pul'ohr8e

the ;le88Or'8

int;el'eSt

in the pxwpertyatanytlme. Further, In antePIng into the agreement theparties bind their rerpeotlvehelrr, exeoutors,

### admfnirtzutOP8, **811008880~ and**  **assiepla.**

It 14 our opinion that the w 18 23 fact that an estate _. or Jesse **for year8**  outrtan~ in a thl parson la weighted 8g4fWt the les8Or'8 b¶tOXWEt in the land COWtftUtb8 suoh an ensuabranoewithin themeknIng of the term and oont&wy to the prOri81OIl8

Of the 8tatUt88 a8 to pPeV8at the In~tU%Ulo@ OOISpany trots inverting it8 fuuda in the lWwor'8 Interest In the property. **jbrth8rmor8, we**  think the les8eets option to purahase L8 it8elf 

### 8nenomabranoe

within themeaning 

### of the rules above dison88ed.

‘Phrr~ Ye adViS8 you.

**w8. tPUSt**  **that thf8**  **8118V8P8 y0w**  **qu8~tfOn~**

**YOura** very truly

ATTORRRX **GR%ERAL OF**  **TEXAS**