B-171098, JAN 28, 1971

B-171098, JAN 28, 1971

TRANSFERS - INCIDENTAL EXPENSES CERTIFYING, IN PART, PAYMENT OF A RECLAIM VOUCHER SUBMITTED BY GERALD C. HARRINGTON FOR EXPENSES INCURRED INCIDENT TO HIS TRANSFER OF OFFICIAL STATION FROM LOS ANGELES, CALIFORNIA, TO OMAHA, NEBRASKA. AMOUNTS PAID FOR THE SERVICES OF AN ESCROW AGENT AND FOR DRAFTING A PURCHASE AGREEMENT ARE SPECIFICALLY ALLOWABLE UNDER THE REGULATIONS AND DECISIONS OF THE GAO; HOWEVER, A LOAN ASSUMPTION FEE MUST BE CONSIDERED A FINANCE CHARGE WITHIN THE MEANING OF REGULATION Z (12 CFR, PART 226) AND AS SUCH IS NOT REIMBURSABLE AS A REAL ESTATE TRANSACTION EXPENSE INCIDENT TO TRANSFER OF OFFICIAL STATION.

TO MRS. DOLORES T. HODGES:

THIS WILL REFER TO YOUR LETTER OF OCTOBER 20, 1970, REQUESTING OUR DECISION AS TO THE PROPRIETY OF CERTIFICATION FOR PAYMENT OF A RECLAIM VOUCHER SUBMITTED BY MR. GERALD C. HARRINGTON FOR EXPENSES INCURRED INCIDENT TO HIS TRANSFER OF OFFICIAL STATION FROM LOS ANGELES, CALIFORNIA, TO OMAHA, NEBRASKA, EFFECTIVE AUGUST 24, 1970. THE EXPENDITURES IN QUESTION INCLUDE FOUR ITEMS INCURRED IN CONNECTION WITH THE SALE OF HIS FORMER RESIDENCE IN CALIFORNIA AND PURCHASE OF A NEW RESIDENCE IN NEBRASKA AND AN ADDITIONAL CLAIM FOR EXPENSES OF OCCUPANCY OF TEMPORARY QUARTERS AT THE OLD DUTY STATION PRIOR TO DEPARTURE.

THE REAL ESTATE TRANSACTION EXPENSES ADMINISTRATIVELY DISALLOWED ARE THE FOLLOWING:

LOAN ASSUMPTION FEE IN CONNECTION WITH PURCHASE

OF NEW RESIDENCE $50.00

LOAN COMPANY SERVICE CHARGE INCLUDED IN

CLOSING OF SALE OF OLD RESIDENCE 5.00

(ALTHOUGH THE ADMINISTRATIVE DIFFERENCE

STATEMENT STATES THIS AS $5, IT IS NOTED

THAT THE AMOUNT APPEARS AS $12.50 ON THE

CLOSING STATEMENT.)

DRAFTING OF PURCHASE AGREEMENT IN CONNECTION

WITH PURCHASE OF NEW RESIDENCE 37.50

HANDLING OF BENEFICIARY PAPERS IN CONNECTION

WITH SALE OF OLD RESIDENCE 12.50

(THIS ITEM LISTED AS $12.50 ON THE ADMINISTRATIVE

DIFFERENCE STATEMENT APPEARS AS $5 ON THE CLOSING

STATEMENT.)

WITH RESPECT TO THE LOAN ASSUMPTION FEE, MR. HARRINGTON ASSERTS THAT IT WAS NOT A FINANCE CHARGE BY THE LENDER BUT A FEE THE LENDER CHARGES FOR TRANSFERRING OWNERSHIP RECORDS TO THE NAME OF THE NEW PURCHASER.

SUBSECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A-56, AS REVISED EFFECTIVE JUNE 26, 1969, PROVIDES, IN PERTINENT PART,

" *** NOTWITHSTANDING THE ABOVE, 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. *** "

SUBSECTION 226.4 OF REGULATION Z (12 CFR, PART 226) PROVIDES IN PERTINENT PART AS FOLLOWS:

SEC 226.4 DETERMINATION OF FINANCE CHARGE.

"(A) GENERAL RULE. EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, THE AMOUNT OF THE FINANCE CHARGE IN CONNECTION WITH ANY TRANSACTION SHALL BE DETERMINED AS THE SUM OF ALL CHARGES, PAYABLE DIRECTLY OR INDIRECTLY BY THE CUSTOMER, AND IMPOSED DIRECTLY OR INDIRECTLY BY THE CREDITOR AS AN INCIDENT TO OR AS A CONDITION OF THE EXTENSION OF CREDIT, WHETHER PAID OR PAYABLE BY THE CUSTOMER, THE SELLER, OR ANY OTHER PERSON ON BEHALF OF THE CUSTOMER TO THE CREDITOR OR TO A THIRD PARTY, INCLUDING ANY OF THE FOLLOWING TYPES OF CHARGES:

"(1) INTEREST, TIME PRICE DIFFERENTIAL, AND ANY AMOUNT PAYABLE UNDER A DISCOUNT OR OTHER SYSTEM OF ADDITIONAL CHARGES.

"(2) SERVICE, TRANSACTION, ACTIVITY, OR CARRYING CHARGE.

"(3) LOAN FEE, POINTS, FINDER'S FEE, OR SIMILAR CHARGE.

"(4) FEE FOR AN APPRAISAL, INVESTIGATION, OR CREDIT REPORT.

"(8) ANY CHARGE IMPOSED BY A CREDITOR UPON ANOTHER CREDITOR FOR PURCHASING OR ACCEPTING AN OBLIGATION OF A CUSTOMER IF THE CUSTOMER IS REQUIRED TO PAY ANY PART OF THAT CHARGE IN CASH, AS AN ADDITION TO THE OBLIGATION, OR AS A DEDUCTION FROM THE PROCEEDS OF THE OBLIGATION."

FOLLOWING THE JUNE 26, 1969 REVISION OF BUREAU OF THE BUDGET CIRCULAR NO. A-56, DECISIONS OF THIS OFFICE HAVE HELD CONSISTENTLY THAT A LOAN TRANSFER OR ASSUMPTION FEE OF THE TYPE PAID BY MR. HARRINGTON IS A FINANCE CHARGE WITHIN THE MEANING OF REGULATION Z. THEREFORE, IN ACCORDANCE WITH SUBSECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A 56 QUOTED ABOVE, SUCH A CHARGE IS NOT REIMBURSABLE AS A REAL ESTATE TRANSACTION EXPENSE INCIDENT TO TRANSFER OF OFFICIAL STATION. SEE B 168359, JANUARY 2, 1970; B-168870, FEBRUARY 13, 1970; B-169158, APRIL 15, 1970; B-170787, NOVEMBER 17, 1970; B-170967, NOVEMBER 17, 1970, COPIES ENCLOSED.

LIKEWISE, THE LOAN COMPANY SERVICE CHARGE IS CLEARLY WITHIN THE DEFINITION OF FINANCE CHARGES OF REGULATION Z AND, THEREFORE, NOT ALLOWABLE FOR REIMBURSEMENT.

WITH RESPECT TO THE CHARGE FOR "DRAFTING OF PURCHASE AGREEMENT," ADMINISTRATIVELY DISALLOWED, MR. HARRINGTON DESCRIBES THE SERVICE PERFORMED AS FOLLOWS:

"DRAFT OF PURCHASE AGREEMENT: THE HOUSE I PURCHASED IN OMAHA WAS PURCHASED FROM THE OWNER AND NOT THROUGH ANY REALTOR OR ESCROW COMPANY. WE CONTACTED A LAWYER TO ACT AS AN ESCROW AGENT AS IT WAS A CHEAPER ROUTE THAN GOING TO AN ESCROW COMPANY. THEREFORE, THE LEGAL SERVICES WERE NOT ADVISORY IN NATURE AS HE ACTED AS THE ESCROW AGENT FOR THE TRANSACTION. THIS INCLUDED HOLDING THE DOWNPAYMENT AND DRAWING UP ALL THE EXHIBITS NECESSARY FOR COMPLETION OF THE TRANSACTION."

THE BILL SUBMITTED BY THE ATTORNEY WHO PROVIDED THE SERVICE DESCRIBES IT AS FOLLOWS:

"SERVICES WITH RESPECT TO DRAFTING OF PURCHASE AGREEMENT AND CONFERENCE WITH BUYER AND SELLER WITH RESPECT TO VARIOUS TERMS TO BE INCLUDED THEREIN, AND SERVICES AT CLOSING (1/2 OF $75.00 TOTAL) $37.50"

SUBSECTION 4.2C OF BUREAU OF THE BUDGET CIRCULAR NO. A-56 DESCRIBES COSTS OF LEGAL AND RELATED SERVICES INCIDENT TO REAL ESTATE TRANSACTIONS WHICH MAY BE CONSIDERED FOR REIMBURSEMENT AS FOLLOWS:

" *** COSTS OF (1) SEARCHING TITLE, PREPARING ABSTRACT, AND LEGAL FEES FOR A TITLE OPINION *** COSTS OF PREPARING CONVEYANCES, OTHER INSTRUMENTS, AND CONTRACTS *** "

DECISIONS OF THIS OFFICE HAVE HELD THAT ESCROW FEES, WHEN PAID IN ACCORDANCE WITH THE CUSTOM OF THE AREA, ARE REIMBURSABLE TO THE PURCHASER OF A RESIDENCE. SEE B-162511, OCTOBER 13, 1967; B-162738, JANUARY 10, 1968; B-170007, JULY 13, 1970, COPIES ENCLOSED.

ACCORDINGLY, SINCE THE SERVICES OF AN ESCROW AGENT AND DRAFTING A PURCHASE AGREEMENT ARE AMONG THOSE SPECIFICALLY ALLOWABLE UNDER THE REGULATIONS AND DECISIONS OF THIS OFFICE, THE ITEM OF $37.50 MAY BE ALLOWED.

THE FOURTH ITEM INCIDENT TO REAL ESTATE TRANSACTION EXPENSE CLAIMED BY MR. HARRINGTON IS DESCRIBED ON THE ESCROW STATEMENT FOR THE SALE OF HIS OLD RESIDENCE IN LONG BEACH, CALIFORNIA, AS "HANDLING OF BENEFICIARY PAPERS" AND IS FURTHER EXPLAINED BY MR. HARRINGTON AS BEING "A STATE REQUIREMENT FOR LEGAL REASONS AND NOT A FINANCE CHARGE."

SECTION 10240 OF DEERING'S CALIFORNIA CODES, BUSINESS AND PROFESSIONS, DIVISION IV, REAL ESTATE, PART 1, CHAPTER 3, ARTICLE 7, REAL PROPERTY LOANS, REQUIRES A REAL ESTATE LICENSEE WHO NEGOTIATES A LOAN TO BE SECURED BY A LIEN ON REAL PROPERTY TO SUPPLY THE BORROWER WITH A STATEMENT, THE CONTENTS OF WHICH ARE DESCRIBED SPECIFICALLY IN SECTION 10241. AMONG NUMEROUS ITEMS TO BE SET FORTH SEPARATELY ARE:

"(D) THE ESTIMATED AMOUNTS TO BE PAID ON THE ORDER OF THE BORROWER, AS DISCLOSED BY THE BORROWER, INCLUDING BUT NOT LIMITED TO:

"(4) ASSUMPTION, TRANSFER, FORWARDING AND BENEFICIARY STATEMENT FEES."

PRESUMABLY, THIS IS THE FEE WHICH MR. HARRINGTON, AS MORTGAGOR OF THE PROPERTY TO BE SOLD, WAS REQUIRED TO PAY. IN OUR DECISION B-169860, JUNE 30, 1970, COPY ENCLOSED, WE HELD THAT SUCH A FEE MAY BE REIMBURSED AS IT DOES NOT APPEAR TO BE A FINANCE CHARGE AS DEFINED IN REGULATION Z.

SUBSECTION 4.2D PROVIDES THAT REIMBURSABLE COSTS OF REAL ESTATE SALES MAY BE PAID " *** IF THEY ARE CUSTOMARILY PAID BY THE SELLER OF A RESIDENCE AT THE OLD OFFICIAL STATION *** ." ACCORDINGLY, IF IN LOS ANGELES COUNTY, THE LOCATION OF THE HOUSE SOLD, IT IS CUSTOMARY FOR THE SELLER OF A RESIDENCE TO PAY THE BENEFICIARY STATEMENT FEE, THIS EXPENSE MAY BE ALLOWED.

THE CLAIM FOR REIMBURSEMENT OF ACTUAL EXPENSES FOR OCCUPATION OF TEMPORARY QUARTERS BY MR. HARRINGTON, HIS WIFE, AND SIX CHILDREN DURING THE PERIOD AUGUST 12 THROUGH AUGUST 14, 1970, WAS ADMINISTRATIVELY SUSPENDED PENDING SUBMISSION OF RECEIPTS FOR LODGING AS REQUIRED BY SUBSECTION 2.5D(1) OF BUREAU OF THE BUDGET CIRCULAR NO. A-56. MR. HARRINGTON HAS NOW SUBMITTED A COPY OF A RECEIPT FOR LODGING FOR HIMSELF AND HIS WIFE DURING THE PERIOD IN AN AMOUNT OF $49.25. HE STATES THAT A TOTAL OF $95 WAS PAID TO THREE FAMILIES FOR OVERNIGHT CARE OF THE SIX CHILDREN DURING THE TIME IN QUESTION. HE CLAIMS, IN ADDITION, $125 FOR MEALS AND $5 FOR LAUNDRY FOR THE PERIOD.

ALTHOUGH RECEIPTS ARE NOT SUPPLIED FOR THE CHILDREN'S LODGING AS NORMALLY REQUIRED FOR COMPLIANCE WITH SUBSECTION 2.5D(1), MR. HARRINGTON HAS SUPPLIED THE NAMES OF THE PERSONS WHO WERE COMPENSATED FOR CARE OF THE CHILDREN, AND SINCE THE AMOUNT INVOLVED APPEARS REASONABLE, WE WOULD NOT BE REQUIRED TO OBJECT TO ALLOWANCE OF THE AMOUNTS CLAIMED FOR LODGING. ALSO, WHILE AVERAGE ESTIMATES OF COSTS OF MEALS ARE NOT GENERALLY ACCEPTABLE, WE HAVE NOT REQUIRED FURTHER ITEMIZATION WHERE SUCH ESTIMATES ARE REASONABLE AND REPRESENT ACTUAL EXPENDITURES. B-169923, AUGUST 14, 1970; B-166238, MARCH 27, 1969; B 169204, JUNE 2, 1970. THEREFORE, SINCE THE ACTUAL EXPENSES INCURRED FOR OCCUPANCY OF TEMPORARY QUARTERS ARE STATED TO BE LESS THAN THE TOTAL AMOUNT ALLOWABLE IF COMPUTED ACCORDING TO THE FORMULA IN SUBSECTION 2.5D(2) OF CIRCULAR NO. A-56, THE CLAIM FOR TEMPORARY QUARTERS ALLOWANCE MAY BE ALLOWED.

THE VOUCHER AND ATTACHMENTS ENCLOSED WITH YOUR LETTER ARE RETURNED FOR HANDLING IN ACCORDANCE WITH THE FOREGOING.