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Banking Interpretations

NYSBL 103

May 26, 1970

[ ]

Dear [ ]:

In your letter of April 29, 1970, which was supplemented by your letter of May 1, 1970, you ask what is the maximum amount the trust company may lend to [ ] under the following circumstances.

The lumber company, as seller, has entered into a contract with the City of Hornell Housing Authority, as purchaser, for the conveyance to the purchaser of realty after the seller has constructed thereon a building or buildings containing sixty dwelling units for elderly people. The purchaser holds a contract entered into with the Department of Housing and Urban Development (HUD) whereby the latter is to provide financial assistance to the purchaser to acquire and operate the project. HUD has endorsed its approval on the contract between the seller and the purchaser.

There has been submitted an amendatory agreement dated June 25, 1969 between the United States, acting through HUD, and the purchaser, to amend the Consolidated Annual Contributions Contract entered into by the parties as of March 11, 1969. The latter contract has not been furnished. Based on the amendatory agreement, it seems that the government will take over the contract between the seller and the purchaser, if the latter should default or not perform it. the amendatory agreement provides, in part, as follows:

"The provisions of this paragraph are made with, and for the benefit of, the seller and his assignees who will have been specifically approved by the Government prior to such assignment. To enforce the performance of this provision the seller and such assignees, as well as the Local Authority, shall have the right to proceed against the Government by action at law or suit in equity."

The Banking Law does not contain an exception to the limitation on loans if the borrower will most likely obtain the money to repay the debt from the United States to which he has sold some property. As the right to sue the Government is not collateral within the meaning of section 103(1)(d)(2) of the Banking Law, the maximum loan to [ ] may not exceed 10% of the capital stock, surplus fund and undivided profits of the trust company. This 10% limitation applies even if the borrower should give to the trust company a mortgage on the realty to secure the loan. If the loan is to be made upon the security of real estate the limitations contained in sub- division 4 of said section 103 are also to be observed.

Very truly yours,

Hyman Mark
Associate Attorney

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