B-165678, FEB. 5, 1969

B-165678: Feb 5, 1969

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PREVETTE WAS REIMBURSED $861.53 ON A PREVIOUS VOUCHER FOR VARIOUS COSTS INCURRED IN CONNECTION WITH THE SALE OF HIS FORMER RESIDENCE AT JOHNSON CITY. WAS DISALLOWED INITS ENTIRETY FOR THE REASON THAT SUCH COSTS WERE NOT ACTUALLY PAID BY HIM AT THE TIME OF SETTLEMENT BUT WERE DEDUCTED FROM THE PRINCIPAL AMOUNT OF THE MORTGAGE. WAS CITED AS THE BASIS FOR DISALLOWANCE OF MR. THE FACTS INVOLVED IN OUR DECISION B-161110 ARE DISSIMILAR FROM THOSE OF THE PRESENT CASE. IN THE CITED DECISION THE EMPLOYEE PURCHASER DID NOT HAVE SUFFICIENT FUNDS TO MEET THE CLOSING COSTS. THE RESULT WAS THAT THE PURCHASER OBTAINED A 30-YEAR LOAN FOR A PURCHASE PRICE WHICH COULD HAVE BEEN REDUCED BY THE AMOUNT OF THE CLOSING COSTS CUSTOMARILY PAID BY THE PURCHASER AT SETTLEMENT.

B-165678, FEB. 5, 1969

TO CAPTAIN J. E. DUNKLEY:

WE REFER TO YOUR LETTER OF NOVEMBER 7, 1968, TRANSMITTED HERE ON NOVEMBER 21, 1968, BY THE CHIEF, ACCOUNTING AND FINANCE DIVISION, OFFICE OF THE COMPTROLLER, DEFENSE SUPPLY AGENCY, WHEREIN YOU REQUEST OUR DECISION AS TO THE PAYMENT OF A VOUCHER IN FAVOR OF MR. LAWRENCE E. PREVETTE COVERING REAL ESTATE EXPENSES INCURRED BY HIM INCIDENT TO A CHANGE OF OFFICIAL STATION FROM BRISTOL, TENNESSEE, TO TAMPA, FLORIDA, EFFECTIVE APRIL 7, 1968.

THE RECORD SHOWS THAT MR. PREVETTE WAS REIMBURSED $861.53 ON A PREVIOUS VOUCHER FOR VARIOUS COSTS INCURRED IN CONNECTION WITH THE SALE OF HIS FORMER RESIDENCE AT JOHNSON CITY, TENNESSEE. HOWEVER, HIS CLAIM FOR REIMBURSEMENT OF THE CLOSING COSTS ASSOCIATED WITH HIS PURCHASE OF A RESIDENCE AT CLEARWATER, FLORIDA, WAS DISALLOWED INITS ENTIRETY FOR THE REASON THAT SUCH COSTS WERE NOT ACTUALLY PAID BY HIM AT THE TIME OF SETTLEMENT BUT WERE DEDUCTED FROM THE PRINCIPAL AMOUNT OF THE MORTGAGE. OUR DECISION B-161110, DATED APRIL 13, 1967, WAS CITED AS THE BASIS FOR DISALLOWANCE OF MR. PREVETTE'S CLAIM.

THE FACTS INVOLVED IN OUR DECISION B-161110 ARE DISSIMILAR FROM THOSE OF THE PRESENT CASE. IN THE CITED DECISION THE EMPLOYEE PURCHASER DID NOT HAVE SUFFICIENT FUNDS TO MEET THE CLOSING COSTS. THEREFORE, THE SELLER ARRANGED TO INCREASE THE SELLING PRICE OF THE HOUSE BY AN AMOUNT WHICH APPROXIMATED THE CLOSING COSTS AND THEN THE SELLER PAID SUCH COSTS. THE RESULT WAS THAT THE PURCHASER OBTAINED A 30-YEAR LOAN FOR A PURCHASE PRICE WHICH COULD HAVE BEEN REDUCED BY THE AMOUNT OF THE CLOSING COSTS CUSTOMARILY PAID BY THE PURCHASER AT SETTLEMENT.

IN THE PRESENT CASE THE RECORD CLEARLY SHOWS THAT THE SELLING PRICE OF THE RESIDENCE ($11,000) DID NOT INCLUDE THE CLOSING COSTS OR OTHER RELATED EXPENSES. MR. PREVETTE APPLIED FOR A LOAN OF $10,650 WHICH, TOGETHER WITH HIS DOWN PAYMENT OF $350, WOULD HAVE BEEN SUFFICIENT TO MEET THE SELLING PRICE OF THE RESIDENCE. HOWEVER, SINCE THE MORTGAGEE DEDUCTED THE CLOSING COSTS AND OTHER RELATED EXPENSES FROM THE PRINCIPAL AMOUNT OF THE MORTGAGE, MR. PREVETTE WAS REQUIRED TO PAY AN ADDITIONAL AMOUNT TO THE SELLER AT FINAL SETTLEMENT TO MEET THE FULL SELLING PRICE OF THE RESIDENCE. THE NET RESULT WAS THAT MR. PREVETTE DID, IN EFFECT, PAY THE CLOSING COSTS AT THE TIME OF SETTLEMENT.

SECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A-56, REVISED OCTOBER 12, 1966, PROVIDES THAT THE TYPES OF COSTS DISCUSSED THEREIN MAY BE REIMBURSED ONLY IF THEY ARE CUSTOMARILY PAID BY THE PURCHASER OR SELLER AS THE CASE MAY BE IN THE LOCATION WHERE THE TRANSACTION TOOK PLACE. WE HAVE HELD THAT THE SAME RESTRICTION IS APPLICABLE TO THE EXPENSES REIMBURSABLE UNDER SECTION 4.2C OF CIRCULAR NO. A-56. SEE B-164604, JULY 29, 1968, COPY HEREWITH.

WE NOTE THAT UNDER THE TERMS OF THE CONTRACT COVERING THE SALE OF HIS FORMER RESIDENCE, MR. PREVETTE WAS REQUIRED TO PAY ALL OF THE CLOSING COSTS, INCLUDING THOSE NORMALLY ASSOCIATED WITH THE BUYER, SUCH AS THE LOAN ORIGINATION FEE. IN THAT REGARD WE HELD IN B-165202, SEPTEMBER 30, 1968 (COPY HEREWITH), AS FOLLOWS:

"NOTWITHSTANDING REAL ESTATE MARKET CONDITIONS MAY RESULT IN THE SELLER ASSUMING THE PURCHASER'S CLOSING COSTS, THE SELLER MAY NOT BE REIMBURSED UNLESS IT APPEARS THAT IT WOULD BE UNUSUAL FOR THE PURCHASER TO PAY HIS OWN CLOSING COSTS. B-164604, JULY 29, 1968. THE FACT THAT THE PRACTICE OF A SELLER ASSUMING THE PURCHASER'S CLOSING COSTS BY CONTRACT IS QUITE COMMON DOES NOT RAISE IT TO THE STATUS OF A CUSTOM. * * *"

WHILE THE PRESENT RECORD CONTAINS NO EVIDENCE AS TO THE CUSTOM PREVAILING IN JOHNSON CITY, TENNESSEE, WE WILL ASSUME, FOR PURPOSES OF THE FOLLOWING DISCUSSION, THAT REIMBURSEMENT OF THE COSTS INCURRED BY MR. PREVETTE IN CONNECTION WITH THE SALE OF HIS FORMER RESIDENCE WAS BASED UPON A DETERMINATION THAT IT IS CUSTOMARY IN THAT AREA FOR THE SELLER OF REAL ESTATE TO ASSUME THE BUYER'S CLOSING COSTS.

SECTIONS 4.2C AND 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A-56 PROVIDE THAT THE VARIOUS COSTS DISCUSSED THEREIN MAY BE REIMBURSED EITHER WITH RESPECT TO SALE OF A RESIDENCE AT THE OLD OFFICIAL STATION OR PURCHASE OF A RESIDENCE AT THE NEW OFFICIAL STATION, BUT THE SAME TYPES OF COSTS SHALL NOT BE PAID AT BOTH LOCATIONS. IN THAT REGARD WE HAVE HELD THAT AN EMPLOYEE MAY BE REIMBURSED THE LARGER AMOUNT OF SIMILAR ITEMS CLAIMED AT BOTH LOCATIONS NOTWITHSTANDING THAT THE SMALLER AMOUNT MAY HAVE BEEN CLAIMED FIRST. B-163690, MARCH 29, 1968. THEREFORE, OF THE VARIOUS CLOSING COSTS CLAIMED BY MR. PREVETTE ON THE PRESENT VOUCHER, THE FOLLOWING AMOUNTS MAY BE ALLOWED, BASED ON THE FOREGOING ASSUMPTION THAT THE PREVIOUS PAYMENT TO MR. PREVETTE WAS PROPER:

AMOUNT AMOUNT

CLAIMED ALLOWABLE

INITIAL SERVICE CHARGE $106.50 $6.50

STAMPS ON MORTGAGE NOTE 16.05 16.05

CREDIT REPORT 17.50 1.00

SURVEY 45.00 20.00

TERMITE INSPECTION 10.00 10.00

WE NOTE THAT MR. PREVETTE WAS REIMBURSED $46.28 FOR RECORDING FEES ON THE VOUCHER COVERING THE SALE OF HIS FORMER RESIDENCE. IF SUCH REIMBURSEMENT WERE PROPER, THE AMOUNT CLAIMED FOR RECORDING FEES ON THE PRESENT VOUCHER ($7.25) MAY NOT BE ALLOWED.

THE CLOSING STATEMENT COVERING MR. PREVETTE'S PURCHASE OF A RESIDENCE REFLECTS A CHARGE OF $25 FOR TITLE INSURANCE. SUCH AMOUNT IS REIMBURSABLE UNDER SECTION 4.2D OF CIRCULAR NO. A-56 PROVIDED THE TITLE INSURANCE WAS PURCHASED FOR THE BENEFIT OF THE MORTGAGEE. HOWEVER, WE NOTE THAT MR. PREVETTE WAS REIMBURSED $25 FOR THE COST OF TITLE GUARANTY INSURANCE IN CONNECTION WITH THE SALE OF HIS FORMER RESIDENCE. IN OUR DECISION 46 COMP. GEN. 884, WE HELD AS FOLLOWS:

"* * * IF THE CUSTOM OF AN AREA IS THAT THE SELLER PURCHASE A TITLE INSURANCE POLICY FOR THE BENEFIT OF THE BUYER IN LIEU OF SHOWING MARKETABLE TITLE BY A TITLE SEARCH, AN ABSTRACT OF TITLE OR A LEGAL OPINION, WE BELIEVE THAT THE COST OF SUCH INSURANCE IS REIMBURSABLE.'

SINCE MR. PREVETTE WAS REIMBURSED $90 FOR A TITLE SEARCH IN CONNECTION WITH THE SALE OF HIS FORMER RESIDENCE, HE SHOULD NOT HAVE BEEN REIMBURSED FOR THE COST OF THE TITLE GUARANTY POLICY. THEREFORE, SUCH AMOUNT ($25) SHOULD BE DEDUCTED FROM THE AMOUNT OTHERWISE DUE HIM ON THE PRESENT VOUCHER.

THE VOUCHER, WHICH IS RETURNED HEREWITH, MAY BE PROCESSED FOR PAYMENT ONLY IN ACCORDANCE WITH THE ABOVE.