The Attorney General of Texas
December 22, 1982
MARK WHITE
Attorney General
Honorable Charles Evans, Chairman opinion Ro. m-522
Supreme Court Building Government Organization Committee
P. 0. BOX 12546
Texas House of Representatives Iie: Whether school district
Austin. TX. 76711.2546
512/475-2501
P. 0. Box 2910 may purchase property subject
Telex 910/674-1367 Austin, Texas 78769 to lien without election
Telecopier 512/475-0266 pursuant to section 20.04 of
the Education Code
1607 Main St., Suite 1400
Dallas. TX. 75201.4709
Dear Representative Evans:
2141742.6944
After providing us with the following facts:
4624 Alberta Ave.. Suite 160
El Paso, TX. 79905-2793
The Fort Worth Independent School District is
915/533-3464 interested in obtaining a piece of property in
east Fort Worth commonly referred to as the
'Oakbrook Mall.' Such property is currently owned
1220 Dallas Ave., Suite 202
by a Florida corporation called Senior
Houston. TX. 77002.6966
7131650.0666
Corporation. Senior Corporation has assumed an
existing note, subject to a deed of trust lien, on
the property in the amount of $1,100,000.00. This
606 Broadway, Suite 312 note is currently being paid by proceeds from a
Lubbock, TX. 79401-3479
lease on a portion of the property to Montgomery
6061747-5236
Wards, such proceeds being assigned to the
noteholder to further secure payment of the note.
4309 N. Tenth, Suite S
McAllen, TX. 76501-1665 The district is attempting to negotiate with
5121662.4547 the owner a purchase of the owner's interest in
the property subject to the existing $1,100,000.00
200 Main Plaza. Suite 400 note. Under this proposal, Senior Corporation
San Antonio, TX. 76205.2797 would remain personally liable on the note, the
5121225~4191 deed of trust lien would remain to secure the note
as well as the assignment of the Montgomery Ward
An Equal Opportunity1
lease proceeds, and the district would receive the
Affirmative Action Employer property in fee simple subject to the lien for the
payment of that note.[,]
you pose the following question:
Does the Fort Worth Independent School District
have legal authority to purchase a piece of real
property subject to an existing lien, where the
p. 1891
Honorable Charles Evans - Page 2 (MW-522)
school district does not expressly assume the note
secured by the lien, and where the school district
is therefore not liable on such note, without
obtaining the approval of a majority vote of the
electors of the district in the manner provided by
in section 20.04 of the Texas Education Code, or
would such action violate either section 20.48 of
the Texas Education Code or article 3, section 52,
of the constitution of 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
contains no restrictions and is very broad, but for reasons explained
below we are of the opinion that it will not extend so far as to
authorize the proposed transaction, absent voter 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 possessed by
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 governing body of any such school district,
in the buying of school sites and/or additions to
school sites and in the building of school houses,
to issue and deliver notes of the school district,
negotiable or non-negotiable in form, representing
all or a part of the purchase price 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 governing body of the school district
made at or before the delivery of such notes, to
set aside and appropriate as 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 subsequent years, as the governing body 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
p. 1892
Honorable Charles Evans - Page 3 (MW-522)
any one such subsequent year, 10 percent of the
local school funds collected during such year.
The district may issue the notes only if approved
by majority vote of the resident, qualified
electors voting in an election conducted in the
manner provided by Section 20.04 of this code for
approval of bonds. (Emphasis added).
The foregoing is the only provision of the statute expressly
authorizing a school district to place a lien against its property in
order to secure payment of an obligation. Cf. Educ. Code §§20.43
(time warrants), 20.49 (maintenance tax notes).
A purchaser who takes mortgaged property without assuming the
mortgage debt is not personally liable for the debt (in the sense of
being responsible for any deficiency beyond the value of the mortgaged
p=op==ty), but the property continues as the primary source for
payment of the obligation. See Kansas City Life Insurance Company v.
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. 2d Mortgages and Trust
Deeds, 5597, 98, at 122.
In other words, if the district purchased title to the property
while the property remained subject to an outstanding mortgage or deed
of trust lien, the interest of the district therein would be subject
to defeasance should the district's grantee 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 possible application of article III, section 52(a) of
the Texas Constitution (precluding the lending of credit by a
political subdivision to any individual, association or corporation),
or examine the doctrine that prevents a political subdivision of the
state from entering agreements that would potentially control or
embarrass it in the exercise of governmental powers. 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 statutory bar
to the proposed transaction unless the procedural requirements of
subsection (d) thereof are met.
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
p. 1893
Honorable Charles Evans - Page 4 (MW-522)
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. McKinney v. Chambers, 347 S.W.2d
30 (Tex. Civ. App. - Texarkana 196cwrit ref'd). In our opinion, the
provisions of subsection (d) expressly detailing the conditions under
which school sites and school buildings may be subjected to liens
indicates the policy of the legislature with respect to the purchase
with school funds of property which will thereafter become or remain
encumbered. That policy requires approval of the voters of the
district.
We conclude that a purchase by the Fort Worth Independent School
District of real 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.
SUMMARY
A purchase by the Fort Worth Independent School
District of realsproperty 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.
First Assistant Attorney General
RICHARD E. GRAY III
Executive Assistant Attorney General
Prepared by Bruce Youngblood
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Susan L. Garrison, Chairman
Jon Bible
Rick Gilpin
Patricia Hinojosa
Jim Moellinger
Bruce Youngblood
p. 1894