B-170495, DEC 18, 1970

B-170495, DEC 18, 1970

TRANSFERS - MORTGAGES - LOAN ASSUMPTION FEE REAFFIRMING PRIOR DECISION DENYING REIMBURSEMENT OF A FEE OF $211.26 PAID BY CLAIMANT IN CONNECTION WITH THE SALE OF HIS HOUSE AT RAPID CITY, SOUTH DAKOTA, REPRESENTING ONE PERCENT OF UNPAID BALANCE OF MORTGAGE. THE CHARGE INVOLVED DOES NOT REPRESENT A FEE FOR PREPAYMENT OF THE ORIGINAL LOAN BUT THE FEE PAID BY SELLER AS A CHARGE FOR ASSUMPTION OF THE MORTGAGE BY PURCHASER AND A RELEASE BY THE MORTGAGEE-SELLER FROM THE ORIGINAL INDEBTEDNESS. SUCH FEE IS A NON-REIMBURSABLE FINANCE CHARGE.

TO MR. JAMES S. ROBERTS:

YOUR LETTER OF JULY 17, 1970, ACKNOWLEDGED JULY 29, REQUESTS RECONSIDERATION OF YOUR CLAIM FOR REIMBURSEMENT OF A FEE OF $211.96 CHARGED YOU BY THE MORTGAGEE IN CONNECTION WITH THE SALE OF YOUR HOUSE AT RAPID CITY, SOUTH DAKOTA, REPRESENTING ONE PERCENT OF THE UNPAID BALANCE OF YOUR MORTGAGE AT THE TIME OF THE SALE THEREOF ON JULY 31, 1969.

WE DISALLOWED YOUR CLAIM ON JULY 13, 1970, FOR THE REASONS SET OUT THEREIN WHICH WILL NOT BE REPEATED HERE. YOUR BASIS FOR RECONSIDERATION IS THAT YOUR ORIGINAL CONTRACT PROVIDED FOR PREPAYMENT OF THE MORTGAGE FOR WHICH THE HOLDER THEREOF COULD CHARGE AN ADJUSTED PREMIUM OF ONE PERCENT OF THE ORIGINAL AMOUNT THEREOF AND THAT SECTION 4.2D, BUREAU OF THE BUDGET CIRCULAR NO. A-56, AUTHORIZED REIMBURSEMENT FOR SUCH A CHARGE.

WE ADVISED YOU UNDER DATE OF OCTOBER 28, 1970, THAT WE HAD WRITTEN THE FEDERAL HOUSING ADMINISTRATION CONCERNING THE MATTER. WE HAVE RECEIVED A REPORT WHICH POINTS OUT THAT IT IS COMMON PRACTICE IN THE MORTGAGE INDUSTRY FOR A LENDER TO CHARGE A FEE FOR CERTAIN TRANSACTIONS WHICH OCCUR SUBSEQUENT TO THE CLOSING OF A LOAN. ONE OF THESE SERVICES THE FEDERAL HOUSING ADMINISTRATION POINTS OUT IS WHERE THE ORIGINAL BORROWER SELLS THE PROPERTY TO AN INDIVIDUAL WHO TAKES SUBJECT TO, OR ASSUMES WITH A RELEASE OF LIABILITY, THE EXISTING MORTGAGE. THE REPORT FURTHER POINTS OUT THAT FHA PERMITS AN APPROVED MORTGAGEE TO CHARGE A FEE FOR THESE SERVICES WHERE IT IS CUSTOMARY IN THE JURISDICTION AND THE AMOUNT CHARGED IS FOUND TO BE REASONABLE BY THE DIRECTOR OF THE HOUSING AND URBAN DEVELOPMENT AREA OFFICE OR THE FHA INSURING OFFICE HAVING JURISDICTION. IT IS STATED THAT THE AMOUNT OF $211.96 CLAIMED APPEARS TO BE EXCESSIVE AND THAT THE FHA DOES NOT RELEASE A BORROWER FROM LIABILITY SINCE IT IS NOT A PARTY TO THE NOTE OR SECURITY INSTRUMENT INVOLVED; FURTHER THAT THE ONLY ACTION TAKEN BY FHA IS TO APPROVE THE CREDIT OF THE ASSUMPTOR AND ADVISE THE MORTGAGEE IT WILL ACQUIESCE IN THE MORTGAGEE'S DECISION TO RELEASE THE ORIGINAL BORROWER FROM LIABILITY.

IN OTHER CASES WHERE THE PURCHASER HAS ASSUMED THE ORIGINAL INDEBTEDNESS AND WAS CHARGED A PERCENTAGE OF THE UNPAID OUTSTANDING LOAN BY THE MORTGAGEE (SUCH A FEE BEING REFERRED TO AS A "LOAN ASSUMPTION FEE", A "LOAN ORIGINATION FEE" OR A "LOAN TRANSFER FEE") WE HAVE REGARDED SUCH A FEE AS A FINANCE CHARGE UNDER REGULATION Z OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (12 CFR, PART 226) PUBLISHED FEBRUARY 11, 1969, 34 F. R. 2002 ET SEQ. EFFECTIVE JULY 1, 1969, IMPLEMENTING THE TRUTH IN LENDING ACT. SEE B-168359, JANUARY 2, 1970, B-168870, FEBRUARY 13, 1970, AND B-169158, APRIL 15, 1970, COPIES ENCLOSED. OUR VIEW IN YOUR CASE IS THAT THE CHARGE INVOLVED DOES NOT REPRESENT A FEE FOR PREPAYMENT OF YOUR ORIGINAL LOAN, THERE BEING NO EVIDENCE THAT YOU PAID OFF SUCH LOAN, BUT THAT THE FEE PAID BY YOU AS SELLER ACTUALLY REPRESENTS A CHARGE FOR "ASSUMPTION" OF THE MORTGAGE BY THE PURCHASER AND APPARENTLY A RELEASE BY THE MORTGAGEE OF YOU - THE SELLER - FROM THE ORIGINAL INDEBTEDNESS. SINCE, AS INDICATED IN OUR DECISIONS ABOVE, AN ASSUMPTION FEE IS A FINANCE CHARGE NO BASIS EXISTS FOR REIMBURSEMENT OF THE $211.96 CLAIMED AND OUR DISALLOWANCE OF JULY 13, 1970, MUST BE SUSTAINED.