       OF)rlCEOFTHEA~ORNEY       GENERALOFTEXAS
                          AUSTIN




Ronorable 0. P. Lockhsrt, Chairman
Board of Insurance Comnlsaionera
Austin, Texas
Dear 81rr                      opinion Llo. o-3924
                               Rez Investment8 of a general
                                    oawalty iwuranae oompany.
          This department has reoeived your requert for an opin-
ion. Ue net out belov the pertinent part of ~rourletter aud the
enolo8urea contained therein.
         "Please adv%se if a general oa8ualtP lnaur-
    anoe oompany such a8 the Employer8 Oarualty Com-
    pany of Dallar, Tex68, operating under the provl-
    slons of Chapter 18, Title 78 of the Revised
    Olrll Btatutes of fexab, aud governed in it8 ia-
    vedment 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 enolosure read8 aa follov8:
          “As you lmov the @over of this oompany to Invert
     funds OOU8titUting 8 p8X’t Of it8 OEipit~~ md 8
     i8 regulated by 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 first mortgagee or lime upon real eatate under
     oertati expressed condltlonrs.
          "Under Title 1 of the Federal Rouelng Act (8eo-
     tiona 1702-1705 IJ8 C A), the Federal Houaing Admln-
     18trator La Fpauring what L8 knovn as Claaa 3 loans.
     Such a loan is made to the lessee of umimproved real
     eetate under a form of lease presorlbed by the Fllk.
I ‘;


       ganorable 0. 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 shall have the option of purcha8Ing
           the property at -'time     for a givea aum. The op-
           tlon price 18 the fair value of the -tiproved prop-
           erty aa detennIned by 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 learre vlll terminate and the
           lerrrorcan re-enter and take po88e86lon of the tit,
           together vith all Improvement8 vhloh have been ereat-
           ed thereon by the 1088ee.
                   "%-IOle8888 in tUlllbOa'XOlf8
                                               a lUffiOi8Xlt8m Of
           SlM8y tollth8 -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      loquired by him under the lease.
           The fO'orm  Of thf8 mortgage or deed Of trp8t I8 pre-
           8Orib8d    by the FE& and &mOn$ other tbing8, %t pro-
           vides that the mortgagsevill oolleot the gmtmd rent-
           al from the lerre6 and pay It to the lelaor, aad.that
           In the‘event the 18888e fail8    to #ay the rental, the
           mortgage8 may do 60 and the uwuut 80 advenoed      by $he
           Snortgagespill be reoured    by mortgage. Loans of thl8
           type 88Oured by a mrtgage on the lea8ehOld estate
           qualify folrinsuranoe under fltle 1 of the Fedora
           EOtI8i43Act, whbre nOt in 8x0088 Of )2500.00.
                "Under the 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 Improvements have been ereoted on the p-888,
           the lensorls seeuwity lr not only the lot, but also
           the zlmprovementepaid for by the FHILloan. Vnder FBA
           requirement8 the value of the lot a8 fIxed in the op-
           tion to purchase priae vi11 not exoeed approximately
           25% of the total value of the lot and iprpPovement8.

                "!Fhequestion 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 clortlugof the
    FIfAloan t0 the 1888ee, ha8 an intePe8t In the prop-
    erty of 8uoh charaater that our company aould make
    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
    company has had submitted to it several requemta for
    loana of this type, but before eating upon 8Uoh re-
    quests, ve think It neces8aPy to obtain through you
    an opIulon of the AttOrII8yGeneral on the question of
    vlretheror not 8Uoh lOan8 aPe Of a type in Vhiah this
    company may legklly fZIVeStit8 fund8. In the oa8e of
    each of these loans the amount of money vhloh 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 pur-
    ohase price. 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
    lee8or hae come to us with his request for a loan the
    imprOV~nts   ereoted by the le8a88 have enhaaoed the
    value of the property to euoh an extent that it8 map-
    ket value is considerably moc8 than 40$ above th8 a-
    mount of the reqUe8t8d loan, uhIoh ia the requIPement
    Set out In APtS. 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 COVePing the 188~86'8 %tJt8P8@toan b8 uon-
    eldered as an lnoumberance againat the 18bsor18 in-
    teP8st.'
          APtlcles 4705, 4706 and 4993, Vernon's Annotated Civil
8tatUt88, gOVePn the inV88tment8 Of a g8n8l'alOa8llaltyinSUlUnO8
o=pany.   Only OePtain tWCtIOn8 Of tho88 artiales are applloable
to our situation here. 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


         Article 4706.  "Xl0company, 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 other manner than as fo11owsr
          '(b) In bonds or flrrt liens or unenoumbered
    r ea l
         l8ta   te l l   l.”
          Artlole 4993 pH4Crib88 the &USOUatOf Capital 8tOck
that gM8~:?088Wlt~    CClllp8IliC8
                                XUSt h&V8 8lldthen add8 a8 fO11OV81
          (That) 'Gapital shall be prrldup or inverted
     In l l l bond8 or fiP4t 1I8rUrUpon M8nCU4ibeP8d
     l'8al8Stat8 + f*.'
          The oonslstent uIIeof the phrase *unenoumbePed real es-
tate" by the fP8i~CP8Of 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 announoed what is
nov a well knovn mile of rtatutery oan8traotlon, to-wit:
         'It 18 the duty of a oowt to give~tome
    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.lIarmeaning when applied to an art 0~ trade vlth
    PefePenoe to vhloh they aP8 used In the statute, they
    4hould be given their ordinarynmanlng, as the Lsgls-
    1atuP8 must be pr88rOnedto have used them In that
    881188in vhloh they aP8 ordinrrily tinderrtood." 888
    also T. &IP. RR Go. v. Railroad GemmI4slo~ of Texas,
    150 8.U. 878, 105 Texas 386.
          In the oa8e of 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 ~inourabrancelmean8
     an estate, Interest or right In land4, dilSln18hing
     their value to the genera1 OVLLer,a paramount right
     In or weight upon land whloh mrry 188Sen its value."
Ronorable 0. P. Lookbart, Ghalnsan, Page ~5


          Tiffany   In hi8 treatl8e On Real Property define8 an
~~lLSb~MC8 63s 'every right 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 legal meaning of the
     wo r d. l  Bull Q. Burton, 124 111.K 124, 227 X.X. 101.

           In the 8Ituatlon before us, the leaa    ha8 a lea88 for
v8    d    M OptfOIlt0 pul'ohr8ethe ;le88Or'8int;el'eSt in the
pxwpertyatanytlme.       Further, In antePIng into the agreement
the parties bind their rerpeotlve helrr, exeoutors, admfnirtzu-
tOP8, 811008880~  and assiepla.

             It 14 our opinion that the w _.18 fact that an estate
or Jesse for year8    outrtan~           23 parson la weighted
                                  in a thl
8g4fWt the les8Or'8 b¶tOXWEt in the land COWtftUtb8 suoh an
ensuabranoe within the meknIng of the term and oont&wy to the
prOri81OIl8Of the 8tatUt88 a8 to pPeV8at the In~tU%Ulo@OOISpany
trotsinverting it8 fuuda in the lWwor'8 Interest In the property.
jbrth8rmor8,    we think the les8eets option to purahase L8 it8elf
8n enomabranoewithin the meaning 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
