B-170661, SEP. 16, 1970

B-170661, SEP. 16, 1970

REAL ESTATE EXPENSES - CLOSING COST DECISION TO CERTIFYING OFFICER ADVISING THAT CERTIFICATION OF A VOUCHER FOR CERTAIN CLOSING COST EXPENSES INCURRED BY EMPLOYEE IN PURCHASING A RESIDENCE IN CONNECTION WITH TRANSFER OF STATION, MAY BE AUTHORIZED IF PROPER. EMPLOYEE, WHO INCIDENT TO TRANSFER AND PURCHASE OF A HOUSE AT NEW STATION MADE CASH PAYMENT AT OR PRIOR TO SALE CLOSING THAT WAS USED TO PAY THE REALTY COMPANY AND THE SELLER THE BALANCE DUE THE NET RESULT WAS THAT THE PURCHASER PAID THE CLOSING COSTS AND THEREFORE SUCH COSTS ARE REIMBURSEABLE.

TO MR. E. W. MILOT:

THIS IS IN REPLY TO YOUR LETTER OF AUGUST 10, 1970, REFERENCE 6540, REQUESTING OUR DECISION AS TO THE ALLOWABILITY OF A VOUCHER FOR $1,197.25 IN FAVOR OF MR. THEODORE V. RUSSELL, AN EMPLOYEE OF YOUR AGENCY, REPRESENTING CLOSING EXPENSES INCURRED IN PURCHASING A RESIDENCE IN CONNECTION WITH A TRANSFER OF STATION.

YOU STATE THAT MR. RUSSELL ACTUALLY PAID $4,825.34 IN CASH AT OR PRIOR TO CLOSING BUT THE CASH PAYMENT WAS USED TO PAY THE REALTY COMPANY AND THE BALANCE DUE THE SELLER. YOU REQUEST OUR DECISION SINCE THE CLOSING COSTS WERE DEDUCTED FROM THE LOAN PROCEEDS AND WERE NOT PAID DIRECTLY BY MR. RUSSELL.

THE STATEMENT OF FINANCE CHARGES UNDER FEDERAL RESERVE REGULATION Z AND THE SALE CLOSING STATEMENT INDICATE THAT THE PURCHASE PRICE OF MR. RUSSELL'S RESIDENCE WAS $31,500 AND THE AMOUNT OF THE LOAN WAS $28,000. THE DIFFERENCE OF $3,500 BETWEEN THE PURCHASE PRICE AND THE AMOUNT OF THE LOAN APPEARS TO BE THE DOWN PAYMENT REQUIRED FOR THE PURCHASE OF THE HOUSE. INASMUCH AS YOU INDICATE MR. RUSSELL PAID $4,825.34 IN CASH AND THE STATEMENTS CITED ABOVE SHOW INTEREST AND TAX ADJUSTMENTS OF $176.94 AND $17.10, RESPECTIVELY, IT APPEARS THAT $1,165.50 OF HIS TOTAL CASH PAYMENT WAS APPLIED INDIRECTLY TO CLOSING COSTS AS FOLLOWS:

TOTAL CASH PAYMENT $4,825.34

LESS APPARENT DOWN PAYMENT 3,500.00

1,325.34

LESS LOAN INTEREST FROM JUNE 5 TO 30, 1970 176.94

1,148.40

SELLER'S CREDIT FOR TAX 17.10

APPLIED TO CLOSING COSTS $1,165.50

THE DIFFERENCE OF $31.75 BETWEEN THE ABOVE AMOUNT AND $1,197.25 APPEARS TO CONSIST OF A STATE TRANSFER TAX OF $31.50 AND A RECORDING FEE OF $0.25 WHICH APPARENTLY WERE PAID BY THE SELLER.

THE CIRCUMSTANCES IN THE INSTANT CASE APPEAR TO BE SIMILAR TO THOSE IN OUR DECISION B-165678, FEBRUARY 5, 1969, COPY ENCLOSED. IN THAT DECISION WE HELD THAT WHERE CLOSING COSTS WERE DEDUCTED FROM THE LOAN PROCEEDS AND THE PURCHASER WAS REQUIRED TO PAY AN ADDITIONAL AMOUNT TO THE SELLER AT THE TIME OF SETTLEMENT TO MEET THE FULL SELLING PRICE OF THE RESIDENCE, THE NET RESULT WAS THAT THE PURCHASER DID, IN EFFECT, PAY THE CLOSING COSTS AT THE TIME OF SETTLEMENT. ACCORDINGLY, SINCE IT APPEARS THAT MR. RUSSELL PAID CLOSING COSTS OF $1,165.50 AT THE TIME OF SETTLEMENT, HE MAY BE REIMBURSED TO THE EXTENT PERMITTED BY PERTINENT LAW AND REGULATIONS.

SECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A-56, AS AMENDED BY TRANSMITTAL MEMORANDUM NO. 5, JUNE 26, 1969, PROVIDES IN PERTINENT PART AS FOLLOWS:

" *** NO FEE, COST, CHARGE, OR EXPENSE IS REIMBURSABLE WHICH IS DETERMINED TO BE A PART OF THE FINANCE CHARGE UNDER THE TRUTH IN LENDING ACT, TITLE I, PUBLIC LAW 90-321, AND REGULATION Z ISSUED PURSUANT THERETO BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM. *** " MR. RUSSELL CLAIMS REIMBURSEMENT FOR A SERVICE CHARGE OF $425, WHICH IS INCOME TO THE LENDER TO OFFSET OVERHEAD EXPENSES IN OPERATING A MORTGAGE LENDING SERVICE TO ITS CUSTOMERS, AND AN APPLICATION FEE OF $50. SINCE THE ITEMS ARE CLEARLY LISTED AS FINANCE CHARGES ON THE STATEMENT OF FINANCE CHARGES UNDER FEDERAL RESERVE REGULATION Z, THEY ARE NOT REIMBURSABLE. WE AGREE WITH YOUR CONCLUSION THAT THE LOAN ORIGINATION FEE OF $280 IS NOT REIMBURSABLE. AS NOTED ABOVE, A STATE TRANSFER TAX OF $31.50 AND A RECORDING FEE OF $0.25 WERE APPARENTLY PAID BY THE SELLER. THESE ITEMS SHOULD ALSO BE DEDUCTED FROM THE AMOUNT TO BE CERTIFIED.

THE VOUCHER WHICH IS RETURNED HEREWITH MAY BE CERTIFIED ONLY IN ACCORDANCE WITH THE ABOVE.