B-173045, JUN 23, 1971

B-173045: Jun 23, 1971

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WAS NOT ENTITLED TO REIMBURSEMENT OF THE "MORTGAGE ASSUMPTION FEE. UNDER THE "TRUTH IN LENDING ACT" THE FEE WAS A FINANCE CHARGE EXPRESSLY NOT REIMBURSABLE UNDER CIRCULAR NO. THE 3 PERCENT FEE WAS CHARACTERIZED ON THE ORIGINAL VOUCHER SUBMITTED BY MR. THE FEE WAS CHARACTERIZED AS A "MORTGAGE ASSUMPTION FEE" AS DESIGNATED ON THE SETTLEMENT STATEMENT. FROM THE FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF HARRISBURG STATES THE BASIS FOR THEIR ASSESSMENT OF THE FEE AS FOLLOWS: "THE CHARGE OF $582.00 WAS THE COST. REIMBURSEMENT WAS AGAIN DENIED ON THE BASIS THAT THE CHARGE INVOLVED WAS IN FACT PART A "FINANCE CHARGE" AS THAT TERM IS USED IN THE TRUTH IN LENDING ACT. IN ADDITION TO POINTING OUT THAT THE CHARGE FOR WHICH REIMBURSEMENT IS SOUGHT IS REASONABLE AND IS CUSTOMARILY PAID BY THE SELLER IN PENNSYLVANIA.

B-173045, JUN 23, 1971

CIVILIAN EMPLOYEE - CHANGE OF STATIONS - REIMBURSABLE EXPENSES DECISION REAFFIRMING RULING OF DEPARTMENT OF TRANSPORTATION THAT MR. HENRY T. ANDERSON, EMPLOYEE OF THE DEPARTMENT, WAS NOT ENTITLED TO REIMBURSEMENT OF THE "MORTGAGE ASSUMPTION FEE," PAID BY EMPLOYEE IN THE SALE OF HIS HOME AT HIS FORMER DUTY STATION TO HIS MORTGAGEE FOR ALLOWING PURCHASER TO ASSUME HIS LOAN. UNDER THE "TRUTH IN LENDING ACT" THE FEE WAS A FINANCE CHARGE EXPRESSLY NOT REIMBURSABLE UNDER CIRCULAR NO. A-56, OFFICE OF MANAGEMENT AND BUDGET.

TO MR. W. E. ALLEN:

WE REFER TO YOUR LETTER OF MAY 18, 1971, AND ENCLOSURES, IN WHICH YOU REQUEST AN ADVANCE DECISION WHETHER REIMBURSEMENT MAY BE MADE TO MR. HENRY T. ANDERSON, AN EMPLOYEE OF YOUR DEPARTMENT, FOR A MORTGAGE ASSUMPTION FEE PAID BY HIM IN CONNECTION WITH THE SALE OF HIS FORMER RESIDENCE INCIDENT TO A CHANGE IN HIS PERMANENT DUTY STATION FROM HARRISBURG, PENNSYLVANIA, TO HELENA, MONTANA.

THE RECORD INDICATES THAT THE PURCHASER OF THE FORMER RESIDENCE ASSUMED MR. ANDERSON'S LOAN AND THAT TO PERMIT THAT ASSUMPTION THE MORTGAGEE CHARGED MR. ANDERSON A FEE OF 3 PERCENT AND THE PURCHASER A FEE OF 1 PERCENT OF THE UNPAID BALANCE ON THE MORTGAGE. THE 3 PERCENT FEE WAS CHARACTERIZED ON THE ORIGINAL VOUCHER SUBMITTED BY MR. ANDERSON ON NOVEMBER 27, 1970, AS A "MORTGAGE PLACEMENT FEE." ON THE RECLAIM VOUCHER SUBMITTED BY MR. ANDERSON ON FEBRUARY 1, 1971, AFTER THE DISALLOWANCE OF HIS ORIGINAL CLAIM BY YOUR OFFICE, THE FEE WAS CHARACTERIZED AS A "MORTGAGE ASSUMPTION FEE" AS DESIGNATED ON THE SETTLEMENT STATEMENT. LETTER OF JANUARY 26, 1971, FROM THE FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF HARRISBURG STATES THE BASIS FOR THEIR ASSESSMENT OF THE FEE AS FOLLOWS:

"THE CHARGE OF $582.00 WAS THE COST, TO YOU, FOR US TO PERMIT THE ASSUMPTION OF YOUR MORTGAGE AND TO ALLOW THE PURCHASER OF YOUR PROPERTY TO ASSUME YOUR MORTGAGE AT ITS PRESENT INTEREST RATE FOR WHICH HE PAID A FEE OF $194.00. THIS AMOUNT REPRESENTED 1% OF THE BALANCE OF YOUR MORTGAGE AND YOUR FEE REPRESENTED 3% OF THE BALANCE OF YOUR MORTGAGE."

REIMBURSEMENT WAS AGAIN DENIED ON THE BASIS THAT THE CHARGE INVOLVED WAS IN FACT PART A "FINANCE CHARGE" AS THAT TERM IS USED IN THE TRUTH IN LENDING ACT, TITLE I, PUBLIC LAW 90-321, 82 STAT. 148.

BY HIS MEMORANDUM DATED MARCH 5, 1971, MR. ANDERSON HAS REQUESTED OUR DECISION AS TO THE ALLOWABILITY OF THE CHARGE INVOLVED. IN ADDITION TO POINTING OUT THAT THE CHARGE FOR WHICH REIMBURSEMENT IS SOUGHT IS REASONABLE AND IS CUSTOMARILY PAID BY THE SELLER IN PENNSYLVANIA, HE STATES THAT THE FACT THAT THE CHARGE WAS COMPUTED AS A PERCENTAGE OF THE UNPAID LOAN VALUE DOES NOT NECESSARILY MEAN THAT IT IS IN THE CATEGORY OF A "POINT SYSTEM" AS WAS INDICATED IN YOUR MEMORANDUM OF FEBRUARY 24, 1971.

THE REGULATIONS GOVERNING PAYMENT OF TRAVEL AND TRANSPORTATION EXPENSES OF CIVILIAN OFFICERS AND EMPLOYEES OF THE UNITED STATES, OFFICE OF MANAGEMENT AND BUDGET CIRCULAR NO. A-56, REVISED JUNE 26, 1969, PROVIDE IN PART AT SUBSECTION 4.2D WITH REGARD TO MISCELLANEOUS COSTS INCURRED IN THE PURCHASE OR SALE OF A RESIDENCE AS FOLLOWS:

" *** 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. *** "

SECTION 226.4 OF REGULATION Z (12 CFR, PART 226) WHICH SUPPLEMENTS SECTION 106 OF THE TRUTH IN LENDING ACT PROVIDES IN 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:

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

"(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."

SECTION 226.8 PROVIDES MORE SPECIFICALLY WITH REGARD TO THE ASSUMPTION OF A MORTGAGE OR OTHER SUCH OBLIGATION AS FOLLOWS:

"(K) ASSUMPTION OF AN OBLIGATION. ANY CREDITOR WHO ACCEPTS A SUBSEQUENT CUSTOMER AS AN OBLIGOR UNDER AN EXISTING OBLIGATION SHALL MAKE THE DISCLOSURES REQUIRED BY THIS PART TO THAT CUSTOMER BEFORE HE BECOMES SO OBLIGATED. IF THE OBLIGATION SO ASSUMED IS SECURED BY A FIRST LIEN OR EQUIVALENT SECURITY INTEREST ON A DWELLING, AND THE ASSUMPTION IS MADE FOR THE SUBSEQUENT CUSTOMER TO ACQUIRE THAT DWELLING, THAT OBLIGATION SHALL BE CONSIDERED A LOAN MADE TO FINANCE THE PURCHASE OF THAT DWELLING."

SINCE AN "ASSUMPTION FEE" - OR A LOAN TRANSFER FEE - IS CLEARLY A FINANCE CHARGE UNDER THE PROVISIONS OF REGULATION Z QUOTED ABOVE, IT IS WITHIN THE ABOVE-QUOTED EXCLUSIONARY LANGUAGE OF SUBSECTION 4.2D OF CIRCULAR NO. A-56 AND REIMBURSEMENT WAS THEREFORE PROPERLY DENIED. THE RECLAIM VOUCHER WITH ATTACHMENTS IS RETURNED AND MAY NOT BE CERTIFIED FOR PAYMENT.

WE NOTE THAT MR. ANDERSON'S MEMORANDUM OF MARCH 5, 1971, ALLUDES TO THE ASSUMPTION FEE AS POSSIBLY BEING AN ILLEGAL CHARGE UNDER THE TRUTH IN LENDING ACT. WE WOULD POINT OUT THAT THE FUNCTION OF THE TRUTH IN LENDING ACT IS NOT TO MAKE SUCH CHARGES ILLEGAL BUT TO IMPOSE UPON THOSE WHO EXTEND CREDIT AN OBLIGATION TO FULLY DISCLOSE THE TERMS OF THE CREDIT SO THAT THE CONSUMER WILL BE ABLE TO COMPARE MORE READILY THE VARIOUS CREDIT ALTERNATIVES AVAILABLE AND TO AVOID THE UNINFORMED USE OF CREDIT.