B-206618, MAR 8, 1983

B-206618: Mar 8, 1983

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TRANSACTION TO PRIMARILY OBTAIN FUNDS TO MAKE DOWNPAYMENT WAS NOT AN "INTERIM PERSONAL FINANCING LOAN" BUT A LOAN SECURED BY EMPLOYEE'S INTEREST IN OLD RESIDENCE. EXPENSES OF MORTGAGE DETERMINED BY AGENCY TO BE REASONABLE AND CUSTOMARY ARE REIMBURSABLE. ALLERTON - REAL ESTATE EXPENSES - MORTGAGE ON OLD RESIDENCE: THIS ACTION IS IN RESPONSE TO A REQUEST FOR AN ADVANCE DECISION BY MR. ALLERTON WERE PARTIALLY USED TO PAY OFF THE EXISTING MORTGAGE ON HIS OLD RESIDENCE. THE BALANCE WAS USED AS PART OF THE DOWNPAYMENT REQUIRED TO PURCHASE A RESIDENCE AT HIS NEW OFFICIAL DUTY STATION. THE KERNS RULE IS APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THIS CASE. ALLERTON WAS OFFICIALLY TRANSFERRED FROM VANCOUVER.

B-206618, MAR 8, 1983

DIGEST: TRANSFERRED EMPLOYEE OBTAINED MONEY FROM A NEW MORTGAGE ON HIS OLD RESIDENCE TO MAKE DOWNPAYMENT ON PURCHASE OF RESIDENCE AT NEW OFFICIAL STATION. BUYERS OF OLD RESIDENCE ASSUMED THE NEW MORTGAGE, AND EMPLOYEE USED PROCEEDS TO PAY OFF EXISTING LAND CONTRACT, PAY CLOSING COSTS, AND MAKE DOWNPAYMENT ON RESIDENCE PURCHASED AT NEW DUTY STATION. TRANSACTION TO PRIMARILY OBTAIN FUNDS TO MAKE DOWNPAYMENT WAS NOT AN "INTERIM PERSONAL FINANCING LOAN" BUT A LOAN SECURED BY EMPLOYEE'S INTEREST IN OLD RESIDENCE, AND PART OF TOTAL FINANCIAL PACKAGE FOR PURCHASE OF NEW RESIDENCE. HENCE, EXPENSES OF MORTGAGE DETERMINED BY AGENCY TO BE REASONABLE AND CUSTOMARY ARE REIMBURSABLE.

JAMES R. ALLERTON - REAL ESTATE EXPENSES - MORTGAGE ON OLD RESIDENCE:

THIS ACTION IS IN RESPONSE TO A REQUEST FOR AN ADVANCE DECISION BY MR. RONALD J. BOOMER, AN AUTHORIZED CERTIFYING OFFICER, UNITED STATES GENERAL SERVICES ADMINISTRATION (GSA), AS TO WHETHER HE MAY CERTIFY FOR PAYMENT A RECLAIM VOUCHER FOR COSTS TOTALING $708.18 INCURRED BY MR. JAMES R. ALLERTON, AN EMPLOYEE OF THE AGENCY, IN OBTAINING A MORTGAGE ON HIS FORMER RESIDENCE. THE VOUCHER ALSO CONTAINS OTHER COSTS IN THE AMOUNT OF $775.35 WHICH THE CERTIFYING OFFICER HAS DETERMINED NOT TO BE REIMBURSABLE UNDER ANY CIRCUMSTANCES. THE FUNDS OBTAINED BY MR. ALLERTON WERE PARTIALLY USED TO PAY OFF THE EXISTING MORTGAGE ON HIS OLD RESIDENCE, AND THE BALANCE WAS USED AS PART OF THE DOWNPAYMENT REQUIRED TO PURCHASE A RESIDENCE AT HIS NEW OFFICIAL DUTY STATION.

THE CERTIFYING OFFICER SPECIFICALLY ASKS WHETHER THE FACTS AND CIRCUMSTANCES INVOLVED HERE COME WITHIN THE AMBIT OF THE RULE ENUNCIATED IN OUR DECISION ARTHUR J. KERNS, JR., 60 COMP.GEN. 650 (1981). FOR THE REASONS HEREAFTER STATED, THE KERNS RULE IS APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THIS CASE, AND THE COSTS IN THE SUM OF $708.18, DETERMINED BY THE AGENCY TO BE REASONABLE AND CUSTOMARY, MAY BE CERTIFIED FOR PAYMENT.

THE RECORD DISCLOSES THAT BY TRAVEL AUTHORIZATION DATED JUNE 3, 1980, MR. ALLERTON WAS OFFICIALLY TRANSFERRED FROM VANCOUVER, WASHINGTON, TO AUBURN, WASHINGTON. THE EMPLOYEE STATES THAT HE COMMENCED EFFORTS TO SELL HIS VANCOUVER RESIDENCE IN MAY 1980. DUE TO THE TIGHT MONEY MARKET AND HIGH INTEREST RATES IN THE HOUSING MARKET, 14 MONTHS WERE REQUIRED TO FIND A PURCHASER FOR HIS RESIDENCE. HE REPORTS THAT A MARKET ANALYSIS OF THE PROPERTY BY A BROKER PRICED IT AT $87,500; THE ASSESSED VALUE FOR TAX PURPOSES WAS $82,000; IT WAS ORIGINALLY PRICED TO SELL FOR $89,950; AND WAS ACTUALLY SOLD FOR $65,000. THE PROSPECTIVE BUYERS OF THE RESIDENCE WERE UNABLE TO QUALIFY FOR A FEDERAL HOUSING ADMINISTRATION (FHA) LOAN DUE TO THE PREVAILING INTEREST RATE OF 18 PERCENT. IN ORDER TO RETAIN THE BUYERS, MR. ALLERTON OBTAINED AN FHA INSURED LOAN FOR $40,000 TO PAY OFF THE EXISTING LAND CONTRACT. THE TWO BUYERS THEN ASSUMED THE $40,000 FHA MORTGAGE LOAN, A PROCEDURE WHICH HAD PREVIOUSLY BEEN AGREED TO BY THE FHA. HOWEVER, THE PURPOSE OF THE MORTGAGE LOAN WAS MAINLY TO OBTAIN SUFFICIENT FUNDS TO USE AS THE DOWNPAYMENT ON THE RESIDENCE THE EMPLOYEE PURCHASED IN PUYALLUP, WASHINGTON.

THE FOLLOWING RECONSTRUCTION OF THE THREE TRANSACTIONS, NAMELY, THE FHA LOAN ON THE VANCOUVER RESIDENCE, SALE OF THE VANCOUVER RESIDENCE, AND PURCHASE OF THE PUYALLUP RESIDENCE, HAS BEEN PRESENTED BY THE EMPLOYEE. HE OBTAINED AN FHA MORTGAGE LOAN FOR $40,000 ON THE VANCOUVER RESIDENCE AND PAID OFF THE EXISTING LAND CONTRACT ON THE RESIDENCE IN THE SUM OF $26,568.59. CLOSING COSTS WERE $2,858.80 AND 1981 TAXES TOTALED $302.25. THE EMPLOYEE WAS REIMBURSED $150 WHICH HE HAD PREVIOUSLY PAID TO THE TITLE COMPANY TO PROCESS THE LOAN. AT THIS POINT, MR. ALLERTON HAD THE SUM OF $10,420.26. HE RECEIVED A DOWNPAYMENT OF $8,000 FROM THE TWO BUYERS OF THE VANCOUVER HOUSE, MINUS CLOSING COSTS OF $4,766.52, LEAVING A NET SUM RECEIVED OF $3,233.48. THE EMPLOYEE THEN POSSESSED A NET TOTAL OF $13,653.74 DERIVED FROM THE SALE OF THE VANCOUVER PROPERTY. TO THIS AMOUNT HE ADDED PERSONAL SAVINGS OF $2,000 WHICH HE USED TO MAKE THE DOWNPAYMENT OF $15,653.74 ON THE PUYALLUP RESIDENCE.

THE STATUTORY AND REGULATORY AUTHORITY FOR REIMBURSEMENT OF REAL ESTATE EXPENSES INCURRED BY A FEDERAL CIVILIAN EMPLOYEE UPON TRANSFER OF OFFICIAL STATION IS CONTAINED IN SECTION 5724AA)(4), TITLE 5, U.S.C. (1976), AND CHAPTER 2, PART 6, OF THE FEDERAL TRAVEL REGULATIONS, FPMR 101-7, (MAY 1973). THIS OFFICE HAS HELD THAT EXPENSES INCURRED IN CONNECTION WITH THE NEGOTIATION OF A SECOND MORTGAGE, IF OTHERWISE PROPER, ARE REIMBURSABLE TO THE SAME EXTENT AS EXPENSES INCURRED IN CONNECTION WITH FIRST MORTGAGES, PROVIDED SUCH CHARGES DO NOT EXCEED THE CUSTOMARY COSTS THEREFOR IN THE LOCALITY INVOLVED, ARE REASONABLE IN AMOUNT, AND DO NOT COMPENSATE THE LENDER FOR THE HIGH RISK INVOLVED. JAMES J. BEIRS, B-184703, APRIL 30, 1976; CHARLES L. PUTNAM AND BILLIE L. VERBLE, B-183251, MAY 29, 1975; B-167605, AUGUST 21, 1969; AND B-166698, MAY 27, 1969.

IN KERNS, THE SECOND MORTGAGE OBTAINED BY THE EMPLOYEE WAS NOT ON THE RESIDENCE WHICH HE WAS PURCHASING, BUT WAS ON HIS OLD RESIDENCE WHICH HE WAS UNABLE TO SELL. THE PURPOSE OF THE SECOND MORTGAGE TRANSACTION BY MR. KERNS WAS TO OBTAIN FUNDS TO MAKE THE DOWNPAYMENT ON THE RESIDENCE AT HIS NEW DUTY STATION. THERE WE RECOGNIZED THE THEN EXISTING REAL ESTATE CLIMATE, I.E., HIGH INTEREST RATES, LOW AVAILABILITY OF MORTGAGE MONEY, AND HIGH REAL ESTATE PRICES, AND CONCLUDED THAT, IN THE CIRCUMSTANCES, THE OBTAINING OF A SECOND MORTGAGE ON THE OLD RESIDENCE IN ORDER TO OBTAIN FUNDS TO MAKE THE DOWNPAYMENT ON THE NEW RESIDENCE WAS NOT EXTRAORDINARY OR UNUSUAL. WE VIEWED THE SECOND MORTGAGE TRANSACTION ON THE OLD RESIDENCE AS BEING A PART OF THE "TOTAL FINANCIAL PACKAGE," AND ESSENTIAL TO THE PURCHASE OF THE NEW RESIDENCE. WE ALLOWED CERTIFICATION FOR PAYMENT OF THE CLAIMED REAL ESTATE EXPENSES, IF PAYMENT WAS OTHERWISE PROPER.

IN THIS CASE, THE FINANCING INVOLVED WAS NOT A SECOND MORTGAGE BUT A NEW MORTGAGE ON THE EMPLOYEE'S OLD RESIDENCE. IT, NEVERTHELESS, SERVED A VERY SIMILAR PURPOSE. SIMILAR TO THE SECOND MORTGAGE IN KERNS, THE PURPOSE OF THE FINANCING TRANSACTION HERE WAS FOR THE EMPLOYEE TO RETAIN THE PROSPECTIVE BUYERS, SELL HIS OLD RESIDENCE, AND OBTAIN SUFFICIENT FUNDS TO USE AS THE DOWNPAYMENT TO PURCHASE THE RESIDENCE AT HIS NEW OFFICIAL STATION. THE MORTGAGES IN BOTH KERNS AND THE INSTANT CASE WERE SECURED BY THE EMPLOYEES' INTEREST IN THEIR OLD RESIDENCES. THUS, AS IN KERNS, THE MORTGAGE LOAN OBTAINED BY MR. ALLERTON WAS NOT AN "INTERIM PERSONAL FINANCING LOAN," BUT A LOAN MADE TO THE EMPLOYEE, SECURED BY AN INTEREST IN HIS OLD RESIDENCE, PRIMARILY TO ENABLE HIM TO MAKE THE DOWNPAYMENT ON THE RESIDENCE BEING PURCHASED AT HIS NEW POST OF DUTY, INCIDENT TO HIS TRANSFER OF OFFICIAL STATION.

CONSEQUENTLY, WE DO NOT CONSIDER THE OBTAINING OF A NEW MORTGAGE BY MR. ALLERTON ON HIS OLD RESIDENCE AS BEING EXTRAORDINARY OR UNUSUAL IN LIGHT OF THE THEN-PREVAILING REAL ESTATE MARKET SO AS TO PRECLUDE REIMBURSEMENT UNDER THE FEDERAL TRAVEL REGULATIONS. WHILE WE REALIZE THAT A SUBSTANTIAL PORTION OF THE $40,000 RECEIVED BY MR. ALLERTON FROM THE FHA MORTGAGE LOAN WAS USED TO PAY OFF THE EXISTING LAND CONTRACT ON THE VANCOUVER RESIDENCE, THE PRIMARY PURPOSE, THAT IS, THE "BOTTOM LINE," OF THE LOAN WAS TO OBTAIN ADEQUATE FUNDS TO MAKE THE DOWNPAYMENT ON THE PUYALLUP RESIDENCE. ADDITIONALLY, IT MUST BE REMEMBERED THAT THE PURCHASERS OF MR. ALLERTON'S OLD RESIDENCE ASSUMED RESPONSIBILITY FOR THE FHA LOAN. WE VIEW MR. ALLERTON'S OBTAINING OF A MORTGAGE LOAN ON HIS OLD RESIDENCE AS AN INTERGAL PART OF THE TOTAL FINANCIAL PACKAGE INVOLVED IN AND ESSENTIAL TO THE PURCHASE OF THE RESIDENCE AT HIS NEW DUTY STATION. SEE LELAND D. PEMBERTON, B-200167, SEPTEMBER 21, 1982, 61 COMP.GEN. .

THE GSA HAS REPORTED THAT THE COSTS RELATED TO THE MORTGAGE ON THE FORMER RESIDENCE, I.E., CLOSING FEE, TITLE INSURANCE, APPRAISAL FEE, WELL TEST, ETC., ARE REASONABLE IN AMOUNT AND CUSTOMARY FOR THE AREA. FURTHER, THE EVIDENCE PRESENTED DOES NOT INDICATE THAT MR. ALLERTON OBTAINED THE MONEY FROM THE MORTGAGE ON THE VANCOUVER RESIDENCE TO COMPENSATE THE LENDER FOR ANY HIGH RISK INVOLVED IN PURCHASING THE PUYALLUP PROPERTY.

ACCORDINGLY, IN LINE WITH THE RULE ENUNCIATED IN KERNS, THE CLAIMED REAL ESTATE EXPENSES TOTALING $708.18, INCURRED BY MR. ALLERTON IN OBTAINING A MORTGAGE ON HIS VANCOUVER, WASHINGTON, RESIDENCE MAY BE CERTIFIED FOR PAYMENT.