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Texas Insurance Code - Section 425.118. Authorized Investments: Obligations Secured By Real Property Loans

Legal Research Home > Texas Lawyer > Insurance Code > Texas Insurance Code - Section 425.118. Authorized Investments: Obligations Secured By Real Property Loans

§ 425.118. AUTHORIZED INVESTMENTS:  OBLIGATIONS SECURED 
BY REAL PROPERTY LOANS.  (a) Subject to this section, an insurance 
company may invest in a note, an evidence of indebtedness, or a 
participation in a note or evidence of indebtedness that is secured 
by a valid first lien on real property or a leasehold estate in real 
property located in the United States.
	(b)  The amount of an obligation secured by a first lien on 
real property or a leasehold estate in real property may exceed 90 
percent of the value of the real property or leasehold estate only 
if:
		(1)  the amount does not exceed 100 percent of the value 
of the real property or leasehold estate and the insurance company 
or one or more wholly owned subsidiaries of the company owns, in the 
aggregate, a 10 percent or greater equity interest in the real 
property or leasehold estate;
		(2)  the amount does not exceed 95 percent of the value 
of the real property or leasehold estate and:
			(A)  the property contains only a dwelling 
designed exclusively for occupancy by not more than four families 
for residential purposes;  and
			(B)  the portion of the unpaid balance of the 
obligation that exceeds 90 percent of the value of the property or 
leasehold estate is guaranteed or insured by a mortgage guaranty 
insurer authorized to engage in business in this state;  or
		(3)  the amount exceeds 90 percent of the value of the 
real property or leasehold estate only to the extent the obligation 
is insured or guaranteed by:
			(A)  the United States;                                                      
			(B)  the Federal Housing Administration under the 
National Housing Act (12 U.S.C. Section 1701 et seq.), as amended;  
or
			(C)  this state.                                                             
	(c)  The term of an obligation secured by a first lien on a 
leasehold estate in real property may not, as of the date the 
obligation is acquired, exceed a period equal to four-fifths of the 
unexpired term of the leasehold estate, and the obligation must 
fully amortize during that period.  The term of the leasehold estate 
may not expire sooner than the 10th anniversary of the expiration 
date of the term of the obligation.
	(d)  An obligation secured by a first lien on a leasehold 
estate in real property must be payable in one or more installments 
of an amount or amounts sufficient to ensure that, at any time after 
the expiration of two-thirds of the original term of the 
obligation, the principal balance on the obligation is not greater 
than the principal balance would have been if the obligation had 
been amortized over the original term of the obligation in equal 
monthly, quarterly, semiannual, or annual payments of principal and 
interest.
	(e)  If any part of the value of buildings is to be included 
in the value of real property or a leasehold estate in real property 
to secure an obligation under this section:
		(1)  the buildings must be covered by adequate property 
insurance, including fire and extended coverage insurance, issued 
by:
			(A)  an insurer authorized to engage in business 
in this state;  or        
			(B)  an insurer recognized as acceptable to issue 
that coverage by the insurance regulatory official of the state in 
which the real property is located;
		(2)  the amount of insurance provided by one or more 
policies may not be less than the lesser of:
			(A)  the unpaid balance of the obligation;  or                               
			(B)  the insurable value of the buildings;  and                              
		(3)  the loss clause under each policy must be payable 
to the insurance company as the company's interest may appear.
	(f)  To the extent that a note, evidence of indebtedness, or 
participation in a note or evidence of indebtedness under this 
section represents an equity interest in the underlying real 
property:
		(1)  the value of that equity interest must be 
determined at the time the note, evidence of indebtedness, or 
participation is executed;  and
		(2)  the portion of the obligation that represents an 
equity interest in the property must be designated as an investment 
subject to Section 425.119(c).
	(g)  An insurance company's investment in a single 
obligation under this section may not exceed 25 percent of the 
company's capital and surplus.
	(h)  An insurance company may purchase a first lien on real 
property after the origination of the lien if:
		(1)  the first lien is insured by a mortgagee's title 
policy issued to the original mortgagee that contains a provision 
that inures the policy to the use and benefit of the owners of the 
evidence of indebtedness indicated in the policy and to any 
subsequent owners of that evidence of indebtedness;  and
		(2)  the company maintains evidence of an assignment or 
other transfer of the first lien on real property to the company.
	(i)  For purposes of Subsection (h)(2), an assignment or 
other transfer to the insurance company that is duly recorded in the 
county in which the real property is located is presumed to create 
legal ownership of the first lien by the company.

Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.           

Last modified: August 11, 2007