B-165538, DECEMBER 12, 1968, 48 COMP. GEN. 407

B-165538: Dec 12, 1968

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- ASSESSED BY A LENDING INSTITUTION IN CONNECTION WITH THE SALE OF A RESIDENCE AT THE OLD DUTY STATION OF A TRANSFERRED EMPLOYEE IS NOT A REIMBURSABLE EXPENSE ABSENT A PROVISION IN THE ORIGINAL CONTRACT OR MORTGAGE INSTRUMENT FOR REIMBURSEMENT AS PRESCRIBED BY SECTION 4.2D. DAY OF EACH MONTH" IS NOT THE EXPRESS PROVISION THAT IMPOSES A PREPAYMENT PENALTY AND. THE EMPLOYEE MAY NOT BE REIMBURSED THE INTEREST CHARGE PAYMENT HE WAS REQUIRED TO MAKE. THE PAPERS ATTACHED TO THE VOUCHER SHOW THE SUM RECLAIMED IS A 90 DAY INTEREST CHARGE. THE ORIGINAL CLAIM FOR SUCH AMOUNT WAS SUSPENDED BECAUSE THE TERMS OF THE MORTGAGE INSTRUMENT AND THE NOTE EXECUTED BY MR. TO SUPPORT HIS CONTENTION THAT THE $334.80 PREPAYMENT PENALTY CHARGE WAS REQUIRED BY THE TERMS OF HIS NOTE.

B-165538, DECEMBER 12, 1968, 48 COMP. GEN. 407

OFFICERS AND EMPLOYEES - TRANSFERS - RELOCATION EXPENSES - HOUSE SALE - MORTGAGE PREPAYMENT CHARGE A 90-DAY INTEREST CHARGE--- PREPAYMENT PENALTY--- ASSESSED BY A LENDING INSTITUTION IN CONNECTION WITH THE SALE OF A RESIDENCE AT THE OLD DUTY STATION OF A TRANSFERRED EMPLOYEE IS NOT A REIMBURSABLE EXPENSE ABSENT A PROVISION IN THE ORIGINAL CONTRACT OR MORTGAGE INSTRUMENT FOR REIMBURSEMENT AS PRESCRIBED BY SECTION 4.2D, BUREAU OF THE BUDGET CIRCULAR NO. A-56. THE LANGUAGE OF THE NOTE COVERING THE LOAN SECURED BY THE EMPLOYEE'S RESIDENCE READING "PAYABLE ON THE ------ DAY OF EACH MONTH" IS NOT THE EXPRESS PROVISION THAT IMPOSES A PREPAYMENT PENALTY AND, THEREFORE, THE EMPLOYEE MAY NOT BE REIMBURSED THE INTEREST CHARGE PAYMENT HE WAS REQUIRED TO MAKE.

TO ROSE M. SPERLING, FEDERAL MEDIATION AND CONCILIATION SERVICE, DECEMBER 12, 1968:

YOUR LETTER OF OCTOBER 29, 1968, SUBMITS A RECLAIM VOUCHER WITH ATTACHMENTS FOR $334.80 FROM MR. GERALD A. ARNOLD, AN EMPLOYEE, IN CONNECTION WITH HIS PERMANENT CHANGE OF STATION AND INVOLVING THE SALE OF HIS RESIDENCE AT THE OLD DUTY STATION. YOU ASK WHETHER THE VOUCHER MAY BE CERTIFIED FOR PAYMENT.

THE PAPERS ATTACHED TO THE VOUCHER SHOW THE SUM RECLAIMED IS A 90 DAY INTEREST CHARGE--- PREPAYMENT PENALTY--- ASSESSED BY THE INSTITUTION MAKING THE LOAN. THE ORIGINAL CLAIM FOR SUCH AMOUNT WAS SUSPENDED BECAUSE THE TERMS OF THE MORTGAGE INSTRUMENT AND THE NOTE EXECUTED BY MR. ARNOLD AND HIS WIFE DID NOT PROVIDE FOR ANY ADDITIONAL COSTS FOR PREPAYMENT OF THE LOAN.

MR. ARNOLD HAS NOW FURNISHED A STATEMENT FROM THE FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION, 312 LOUISIANA STREET, LITTLE ROCK, ARKANSAS, THE LENDING INSTITUTION, TO SUPPORT HIS CONTENTION THAT THE $334.80 PREPAYMENT PENALTY CHARGE WAS REQUIRED BY THE TERMS OF HIS NOTE. THAT STATEMENT READS AS FOLLOWS:

FOLLOWING OUR CONVERSATION THIS MORNING, I AM ENCLOSING A COPY OF OUR NOTE WHICH YOU WILL SEE READS "PAYABLE ON THE ------ DAY OF EACH MONTH" AND DOES NOT SAY "ON OR BEFORE" WHICH IS THE CLAUSE WHICH PERMITS PREPAYMENT WITHOUT PENALTY.

THE PENALTY REGULATION IN THE FEDERAL ASSOCIATION REGULATIONS READS AS FOLLOWS:

"PREPAYMENT PENALTY FOR A LOAN SECURED BY A HOME, OR COMBINATION HOME AND BUSINESS PROPERTY, SHALL NOT BE MORE THAN SIX MONTHS' ADVANCE INTEREST ON THAT PART OF THE AGGREGATE AMOUNT OF ALL PREPAYMENTS MADE ON SUCH LOAN IN ANY TWELVE MONTH PERIOD WHICH EXCEEDS TWENTY PERCENT OF THE ORIGINAL PRINCIPAL AMOUNT OF THE LOAN.'

WE CHARGED THREE MONTH'S INTEREST ON THE UNPAID BALANCE OF $20,597.06 WHICH IS CONSIDERABLY LESS THAN THE SIX MONTHS INTEREST ON $16,506 (THE AMOUNT YOU OWED JANUARY 1, LESS TWENTY PERCENT OF YOUR ORIGINAL $22,000 LOAN). THE REGULATION REFERRED TO THEREIN IS CONTAINED IN 12 CFR 545.6-12 ISSUED EFFECTIVE MAY 25, 1966, BY THE HOME LOAN BANK BOARD, FEDERAL SAVINGS AND LOAN SYSTEM, AND IS APPLICABLE TO FEDERAL SAVINGS AND LOAN ASSOCIATIONS. THE PART THEREOF PERTINENT HERE READS:

* * * BORROWERS FROM FEDERAL ASSOCIATIONS SHALL HAVE THE RIGHT TO REPAY THEIR LOANS WITHOUT PENALTY UNLESS THE LOAN CONTRACT MAKES EXPRESS PROVISION FOR A PREPAYMENT PENALTY. THE PREPAYMENT PENALTY FOR A LOAN SECURED BY A HOME * * * SHALL NOT BE MORE THAN 6 MONTHS' ADVANCE INTEREST ON THAT PART OF THE AGGREGATE AMOUNT OF ALL PREPAYMENTS MADE ON SUCH LOAN IN ANY TWELVE MONTH PERIOD WHICH EXCEEDS TWENTY PERCENT OF THE ORIGINAL PRINCIPAL AMOUNT OF THE LOAN.

SECTION 4.2D, BUREAU OF THE BUDGET CIRCULAR NO. A-56, REVISED OCTOBER 12, 1966, IS IN PERTINENT PART AS FOLLOWS:

FINANCING COSTS. A CHARGE FOR REPAYMENT OF A MORTGAGE IN CONNECTION WITH THE SALE OF A RESIDENCE AT THE OLD OFFICIAL STATION IS REIMBURSABLE IF THE TERMS IN THE ORIGINAL CONTRACT OR MORTGAGE INSTRUMENT PROVIDE FOR SUCH COST, BUT NOT OTHERWISE. * * *

WE DO NOT REGARD THE LANGUAGE OF THE NOTE REFERRED TO IN THE STATEMENT FROM THE BANK PREVIOUSLY QUOTED AS BEING AN EXPRESS PROVISION IMPOSING A PENALTY FOR PREPAYMENT OF THE CLAIMANT'S LOAN IN THIS CASE. NOR DO WE FIND ANY OTHER LANGUAGE IN THE NOTE OR MORTGAGE INSTRUMENTS TO THAT EFFECT. CONSEQUENTLY, WE MUST CONCLUDE THAT REIMBURSEMENT OF THE $334.80CHARGE (PREPAYMENT PENALTY) PAID TO THE LENDING INSTITUTION BY MR. ARNOLD IS NOT AUTHORIZED BY THE PROVISIONS OF SECTION 4.2D ABOVE.

IN VIEW OF THE FOREGOING THE VOUCHER WITH ATTACHMENTS, RETURNED HEREWITH, MAY NOT BE CERTIFIED FOR PAYMENT.