                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:

                                          -5898-
                                                                                    .




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.


                                         -5899-
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.)

                                          -5900-
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



                                       -5901-
 .     .




Honorable    Robert     E. Stewart,   page 5    (M-l   LO3)




SAMUEL D. MCDANIEL
Staff Legal Assistant

ALFRED      WALKER
Executive   Assistant

NOLA WHITE
First Assistant




                                       -5902-
