B-181074, AUG 27, 1974

B-181074: Aug 27, 1974

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HE OBTAINED MORTAGE FOR 95 PERCENT OF VALUE OF HOUSE AND WAS REQUIRED BY LENDING INSTITUTION TO PURCHASE TITLE INSURANCE AND MORTGAGE GUARANTEE INSURANCE (MGIC). EMPLOYEE MAY BE REIMBURSED $170 SINCE MORTGAGE INSURANCE POLICY IS ALLOWABLE UNDER FEDERAL PROPERTY MANAGEMENT REGULATIONS (FPMR) 101-7. SECTION 2 6.2D AND SUCH A POLCY WOULD HAVE COST THAT AMOUNT. MGIC IS NOT REIMBURSABLE SINCE IT IS SPECIFICALLY EXCLUDED UNDER FPMR 101-7. HARRIS - REIMBURSEMENT OF REAL ESTATE EXPENSES: THIS MATTER IS BEFORE US BASED UPON A REQUEST FOR AN ADVANCE DECISION SUBMITTED BY AN AUTHORIZED CERTIFYING OFFICER. INCIDENT THERETO A STATEMENT WAS PREPARED BY THE LENDER WHICH WAS TITLED: "NOTICE TO CUSTOMERS REQUIRED BY FEDERAL LAW FEDERAL RESERVE REGULATION Z "REAL PROPERTY TRANSACTION-PURCHASE LOAN SECURED BY FIRST LIEN ON A DWELLING.".

B-181074, AUG 27, 1974

TRANSFERRED EMPLOYEE SEEKS REIMBURSEMENT OF REAL ESTATE EXPENSES INCURRED INCIDENT TO PURCHASE OF HOME. HE OBTAINED MORTAGE FOR 95 PERCENT OF VALUE OF HOUSE AND WAS REQUIRED BY LENDING INSTITUTION TO PURCHASE TITLE INSURANCE AND MORTGAGE GUARANTEE INSURANCE (MGIC). BANK, WITHOUT INFORMING HIM OF OPTIONS, CHARGED HIM $190, $175 FOR OWNERS INSURED TITLE AND $15 FOR MORTGAGEE'S INSURED TITLE. EMPLOYEE MAY BE REIMBURSED $170 SINCE MORTGAGE INSURANCE POLICY IS ALLOWABLE UNDER FEDERAL PROPERTY MANAGEMENT REGULATIONS (FPMR) 101-7, SECTION 2 6.2D AND SUCH A POLCY WOULD HAVE COST THAT AMOUNT. HOWEVER, MGIC IS NOT REIMBURSABLE SINCE IT IS SPECIFICALLY EXCLUDED UNDER FPMR 101-7, SECTION 2-6.2D.

WILLIAM E. HARRIS - REIMBURSEMENT OF REAL ESTATE EXPENSES:

THIS MATTER IS BEFORE US BASED UPON A REQUEST FOR AN ADVANCE DECISION SUBMITTED BY AN AUTHORIZED CERTIFYING OFFICER, UNITED STATES DEPARTMENT OF AGRICULTURE, NATIONAL FINANCE CENTER (NFC), NEW ORLEANS, LOUISIANA, CONCERNING THE AUTHORITY TO REIMBURSE MR. WILLIAM E. HARRIS FOR CERTAIN EXPENSES HE INCURRED WHEN HE PURCHASED A RESIDENCE INCIDENT TO A TRANSFER.

IN ACCORDANCE WITH TRAVEL AUTHORIZATION NO. 16483388, DATED MARCH 16, 1973, MR. HARRIS, A DISTRICT CONSERVATIONIST WITH THE SOIL CONSERVATION SERVICE, TRANSFERRED FROM FROST, TEXAS, TO JASPER, TEXAS. INCIDENT TO THIS TRANSFER, MR. HARRIS PURCHASED A HOME IN JASPER AND OBTAINED A MORTGAGE FROM THE JASPER FEDERAL SAVINGS AND LOAN ASSOCATION. THE CLOSING APPARENTLY TOOK PLACE ON JUNE 26, 1973, INCIDENT THERETO A STATEMENT WAS PREPARED BY THE LENDER WHICH WAS TITLED:

"NOTICE TO CUSTOMERS

REQUIRED BY FEDERAL LAW

FEDERAL RESERVE REGULATION Z

"REAL PROPERTY TRANSACTION-PURCHASE LOAN SECURED BY FIRST LIEN ON A DWELLING."

INCLUDED IN THE ITEMS LISTED UNDER THE HEADING, "THERE IS A PREPAID FINANCE CHARGE ON THIS TRANSACTION WHICH INCLUDES," WERE:

LOAN FEE $233.70

OWNER'S INSURED TITLE 175.00

MORTGAGEE'S INSURED TITLE 15.00

MGIC (MORTAGE GUARANTEE INSURANCE) 253.70

WHEN MR. HARRIS SUBMITTED HIS CLAIM FOR THE REIMBURSEMENT OF REAL ESTATE EXPENSES, THE ABOVE ITEMS, EXCEPT THE "MORTAGEE'S INSURED TITLE" AND THE "MGIC" CHARGE WERE INCLUDED. ON SEPTEMBER 6, 1973, MR. HARRIS WAS ADVISED THAT REIMBURSEMENT FOR THE LOAN FEE OF $233.70 WAS DISALLOWED IN ACCORD WITH FEDERAL TRAVEL REGULATIONS, FPMR 101-7, SECTION 2-6.2D, SINCE IT WAS PART OF A FINANCE CHARGE UNDER REGULATION Z. SUBSEQUENTLY, UPON RE- EXAMINATION OF THE VOUCHER, THE $175 CHARGE FOR "OWNER'S INSURED TITLE," WAS ALSO DISALLOWED.

MR. HARRIS CONTENDS THAT THE "LOAN FEE" AND THE "OWNER'S INSURED TITLE" ARE BOTH REIMBURSABLE. IN ADDITION, HE HAS ASSERTED THAT THE $253.70 FEE FOR MGIC, WHICH WAS NOT INITIALLY CLAIMED, SHOULD ALSO BE ALLOWED. APPARENTLY, MR. HARRIS AND THE NFC HAVE REACHED AGREEMENT ON ALL OF THE OTHER PORTIONS OF HIS CLAIM, AND WE DO NOT QUESTION THEIR CONCLUSIONS.

AT THE TIME MR. HARRIS PURCHASED HIS HOME, REIMBURSEMENT OF REAL ESTATE EXPENSES WAS GOVERNED BY THE FEDERAL TRAVEL REGULATIONS, FPMR 101-7, MAY 1973, SECTION 2-6.2D PROVIDES, IN PERTINENT PART:

"*** THE COST OF A MORTGAGE TITLE POLICY PAID FOR BY THE EMPLOYEE ON A RESIDENCE PURCHASED BY HIM IS REIMBURSABLE BUT COSTS OF OTHER TYPES OF INSURANCE PAID FOR BY HIM, SUCH AS AN OWNER'S TITLE POLICY, A 'RECORD TITLE' POLICY, MORTGAGE INSURANCE, AND INSURANCE AGAINST DAMAGE OR LOSS OF PROPERTY, ARE NOT REIMBURSABLE ITEMS OF EXPENSE. *** 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. PROPERTY TAXES AND OPERATING OR MAINTENANCE COSTS ALSO ARE NOT REIMBURSABLE. ***"

REGULATION Z IS PUBLISHED AS 12 CFR PART 226. THE STANDARDS FOR DETERMINING WHAT IS PART OF A FINANCE CHARGE ARE FOUND AT 12 CFR 226.4, WHICH PROVIDES, IN PERTINENT PART:

"(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:

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

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

"(E) EXCLUDABLE CHARGES, REAL PROPERTY TRANSACTIONS. THE FOLLOWING CHARGES IN CONNECTION WITH ANY REAL PROPERTY TRANSACTION, PROVIDED THEY ARE BONA FIDE, REASONABLE IN AMOUNT, AND NOT FOR THE PURPOSE OF CIRCUMVENTION OR EVASION OF THIS PART, SHALL NOT BE INCLUDED IN THE FINANCE CHARGE WITH RESPECT TO THAT TRANSACTION:

"(1) FEES OR PREMIUMS FOR TITLE EXAMINATION, ABSTRACT OF TITLE, TITLE INSURANCE, OR SIMILAR PURPOSES AND FOR REQUIRED RELATED PROPERTY SURVEYS.

"(2) FEES FOR PREPARATION OF DEEDS, SETTLEMENT STATEMENTS, OR OTHER DOCUMENTS.

"(3) AMOUNTS REQUIRED TO BE PLACED OR PAID INTO AN ESCROW OR TRUSTEE ACCOUNT FOR FUTURE PAYMENTS OF TAXES, INSURANCE, AND WATER, SEWER, AND LAND RENTS.

"(4) FEES FOR NOTARIZING DEEDS AND OTHER DOCUMENTS.

"(5) APPRAISAL FEES.

"(6) CREDIT REPORTS."

THE $233.70 LOAN FEE IS SPECIFICALLY LISTED ON THE STATEMENT SIGNED JUNE 26, 1970 (WHICH IS STATED TO BE REQUIRED BY FEDERAL LAW), AS A PART OF THE FINANCE CHARGE UNDER REGULATION Z. IT ALSO FITS WITHIN THE CLASSIFICATION SET OUT ABOVE AS A "SERVICE, TRANSACTION, OR CARRYING CHARGE" OR AS A "LOAN FEE." IT IS NOT INCLUDED WITHIN THE ENUMERATED EXCEPTIONS. CLEARLY, THE LOAN FEE OF $233.70 IS PART OF THE FINANCE CHARGE WITHIN THE CONTEMPLATION OF REGULATION Z AND MR. HARRIS MAY NOT BE REIMBURSED FOR THAT AMOUNT. SEE B-177632, MAY 18, 1973; B-177306, JANUARY 2, 1973; B- 175889, JUNE 19, 1972; AND B-178454, JUNE 19, 1973.

MR. HARRIS HAS ALSO ASSERTED THAT HE SHOULD BE REIMBURSED FOR THE MGIC CHARGE OF $253.70. BY LETTER OF MARCH 1, 1974, NFC WAS ADVISED BY THE JASPER FEDERAL SAVINGS AND LOAN ASSOCIATION THAT MR. HARRIS' MORTGAGE WAS FOR 95 PERCENT OF THE APPRAISED VALUE, AND THAT, IN ALL CASES WHERE THE MORTGAGE EXCEEDED 80 PERCENT, THE MORTGAGORS WERE REQUIRED TO PURCHASE MGIC AND PAY PREMIUMS ON IT UNTIL SUCH TIME AS THE MORTGAGE IS REDUCED TO THE 80 PERCENT LEVEL. IT IS OUR UNDERSTANDING THAT MGIC INSURES THE MORTGAGEE AGAINST THE DEFAULT ON THE PART OF THE MORTGAGOR. FPMR 101-7, SECTION 2-6.2D SPECIFICALLY STATES THAT AN EMPLOYEE MAY NOT BE REIMBURSED FOR THE COST OF MORTGAGE INSURANCE. MGIC IS MORTGAGE INSURANCE, AND MR. HARRIS MAY NOT BE REIMBURSED FOR ITS COST. SEE B-170571, NOVEMBER 16, 1971, AND B-169204, DECEMBER 9, 1971.

MR. HARRIS HAS INSISTED THAT HE SHOULD BE REIMBURSED FOR THE COST OF THE "OWNERS INSURED TITLE." IN THAT CONNECTION, THE MARCH 1, 1974 LETTER FROM THE JASPER FEDERAL SAVINGS AND LOAN ASSOCIATION STATES:

"REGARDING THE TITLE INSURANCE, THIS IS REQUIRED ON ALL OF OUR LOANS. THE CHARGE FOR MORTGAGEE'S TITLE INSURANCE WOULD HAVE BEEN $170.00, COVERING ONLY THE AMOUNT OF OUR LOAN, HOWEVER SINCE MR. HARRIS'S LOAN WAS A 95% LOAN AND IT WOULD ONLY COST $20.00 MORE FOR OWNER'S TITLE INSURANCE WHICH WOULD ALSO COVER HIS EQUITY IN THE PROPERTY, WE CHARGED HIM WITH AN OWNER'S INSURED TITLED OF $175.00, PLUS $15.00 FOR THE MORTGAGEE'S TITLE."

ADDITIONALLY, IN A LETTER TO MR. HARRIS, DATED MARCH 12, 1974, FROM THE CERTIFYING OFFICER, IT IS STATED THAT A REPRESENTATIVE OF THE LENDER ADMITTED THAT THE LENDER PROBABLY HAD NOT INFORMED MR. HARRIS THAT HE HAD A CHOICE AS TO WHAT TYPE OF TITLE INSURANCE HE COULD PURCHASE.

FPMR 101-7, SECTION 2-6.2D, STATES THAT AN EMPLOYEE MAY BE REIMBURSED FOR THE COST OF A MORTGAGE TITLE POLICY. IF MR. HARRIS HAD CHOSEN TO PURCHASE THE MORTGAGEE'S POLICY FOR $170, THERE WOULD BE NO QUESTION CONCERNING HIS RIGHT TO REIMBURSEMENT. HOWEVER, HE WAS NOT GIVEN THAT CHOICE. ALTHOUGH THE TITLE POLICY MR. HARRIS PURCHASED WAS DESIGNATED AN OWNER'S TITLE POLICY AND PROTECTED HIS INTEREST AS WELL AS THE MORTGAGEE, IT WAS REQUIRED BY THE LENDING INSTITUTION IN ORDER TO PROTECT ITS INTEREST. ACCORDINGLY, MR. HARRIS SHOULD BE REIMBURSED FOR THE AMOUNT THAT CAN BE ALLOCATED TO THE COST OF THE MORTGAGEE'S PROTECTION, NO MATTER WHAT THE POLICY IS CALLED. SEE B-176663, FEBRUARY 20, 1973, AND B-176531, NOVEMBER 29, 1973. THEREFORE, MR. HARRIS SHOULD BE REIMBURSED A TOTAL OF $170 FOR THE PURCHASE TITLE INSURANCE SINCE THIS IS THE AMOUNT THE MORTGAGEE'S POLICY WOULD HAVE COST IF MR. HARRIS HAD BEEN GIVEN THE OPTION TO PURCHASE IT SEPARATELY. SEE B-175716, JULY 5, 1972.