The Honorable Henry Wade

Criminal District Attorney Dallas Government Center Dallas, Texas 75202 Opinion **NO.** k-a82
Re: Whether the housing authority may finance a housing project bymeans of adeed of trust note bearing interest in excess of asper 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 ahousing project by means of adeed of trust note bearing interest in excess of 8%per annum. The Housing Authority proposes to finance the construction loan and thepermanent mortgage loanwith the assistance ofmortgage insurance issued by the Secretary of Housing andUrban Development (hereinafter HUD/FHA), acting by and through the Federal Housing Commission pursuant to section 231 of theNational Housing Act (codifiedat 12 U.S.C.A. 1715~ [Supp. 19761). The current permissible interest rate forHUD/FHA insured mortgage loans under section 231 is 9%per annum. The note would be repaid out of revenue generated from theproject and housing assistance payments from HUD/FHA. There would be no bond underwriting or sale in this transaction. Section 3of article 1269k defines bond as follows: [Ulnlessadifferent meaning clearly appears from the context
. . . (k) 'Bonds' shallmean any bonds, notes, interim certificates, debentures, or other obligations issued by the authority pursuant to thisAct.

p.3715The Honorable Henry Wade -page 2 (H-992)

Section 15, as amended byActs 1971, 62ndLeg., ch. 416, P. 1555, provides for the sale of bonds:

Bonds of an authority shall be authorized by its resolution andmay be issued in one ormore 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 suchmanner, bepayable in suchmedium of payment, at suchplace orplaces, and be subject to such terms of redemption (withor without premium) as such resolution, its trust indenture ormortgage may provide. The bonds may be sold at not less than par atpublic sale held after notice published once at least five (5)days prior to such sale in anewspaper 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 thanpar to the Federal Government atprivate salewithout any public advertisement.

. . . The "bonds" governed by section 15do not include every kind of obligation listed in the section 3definition. A different meaning appears from the context of section 15, which refers topar value instruments issued in such numbers that apublic 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 thenote proposed in this financing scheme. Moreover, section 21gives the housing authority additional powers to exercise to the end of securing federal assistance:

p. 3716The Honorable Henry Wade -page 3 (H-882)

Inaddition to thepowers conferred upon an authority by other provisions of this Act, an authority is empowered toborrow money or accept grants or other financial assistance from the Federal Government for or inaid 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 Government, and to these ends, to comply with such conditions and enter into suchmortgages, trust indentures, leases, or agreements as may be necessary, convenient or desirable. It is thepurpose and intent of thisAct to authorize every authority todo any and all things necessary or desirable to secure the financial aid or cooperation of the Federal Government in theundertaking, construction, maintenance, or operation of any housing project by such authority. This section does not limit the interest thatmay be paid as a condition to securing federal assistance and it expresses the intent toauthorize compliance with such conditions. This expression of intent further supports our conclusion that section 15does not apply to theproposed 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 aproject with anote bearing interest in excess of 8%per annum. ,Verytruly yours,

// JOHN L. HILL Attorney General of Texas

p.3717The Honorable Henry Wade -page 4 (H-882)

APPROVED

Opinion Committee