B-217666, JUL 12, 1985, 64 COMP.GEN. 674

B-217666: Jul 12, 1985

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OFFICERS AND EMPLOYEES - TRANSFERS - TEMPORARY QUARTERS - PERMANENT DWELLING OCCUPANCY EMPLOYEE OF THE INTERNAL REVENUE SERVICE (IRS) IS NOT ENTITLED TO TEMPORARY QUARTERS SUBSISTENCE EXPENSES WHILE RENTING AND OCCUPYING THE HOUSE HE PURCHASED AS HIS FAMILY'S RESIDENCE AT HIS NEW DUTY STATION. HIS INTENT DURING THE PERIOD FOR WHICH HE CLAIMS TEMPORARY QUARTERS SUBSISTENCE EXPENSES WAS TO OCCUPY THE HOUSE PERMANENTLY. THE FACT THAT ITS PURCHASE WAS SUBJECT TO APPROVAL OF FINANCING AND SATISFACTION OF OUTSTANDING LIENS DOES NOT CHANGE ITS CHARACTER AS THE EMPLOYEE'S PERMANENT QUARTERS. OFFICERS AND EMPLOYEES - TRANSFERS - REAL ESTATE EXPENSES - TITLE INSURANCE POLICY EMPLOYEE OF THE IRS WAS DENIED REIMBURSEMENT FOR OWNER'S TITLE INSURANCE IN CONNECTION WITH PURCHASE OF RESIDENCE AT HIS NEW DUTY STATION.

B-217666, JUL 12, 1985, 64 COMP.GEN. 674

OFFICERS AND EMPLOYEES - TRANSFERS - TEMPORARY QUARTERS - PERMANENT DWELLING OCCUPANCY EMPLOYEE OF THE INTERNAL REVENUE SERVICE (IRS) IS NOT ENTITLED TO TEMPORARY QUARTERS SUBSISTENCE EXPENSES WHILE RENTING AND OCCUPYING THE HOUSE HE PURCHASED AS HIS FAMILY'S RESIDENCE AT HIS NEW DUTY STATION. HIS INTENT DURING THE PERIOD FOR WHICH HE CLAIMS TEMPORARY QUARTERS SUBSISTENCE EXPENSES WAS TO OCCUPY THE HOUSE PERMANENTLY. THE FACT THAT ITS PURCHASE WAS SUBJECT TO APPROVAL OF FINANCING AND SATISFACTION OF OUTSTANDING LIENS DOES NOT CHANGE ITS CHARACTER AS THE EMPLOYEE'S PERMANENT QUARTERS. OFFICERS AND EMPLOYEES - TRANSFERS - REAL ESTATE EXPENSES - TITLE INSURANCE POLICY EMPLOYEE OF THE IRS WAS DENIED REIMBURSEMENT FOR OWNER'S TITLE INSURANCE IN CONNECTION WITH PURCHASE OF RESIDENCE AT HIS NEW DUTY STATION. THE FEDERAL TRAVEL REGULATIONS (FTR) ALLOW REIMBURSEMENT FOR OWNER'S TITLE INSURANCE IF THE INSURANCE IS A PREREQUISITE TO FINANCING OR TRANSFERRING THE PROPERTY. WHERE THE INSURANCE IS RECOMMENDED BY SELLER'S ATTORNEY, AND IS NOT REQUIRED TO FINANCE OR TRANSFER THE PROPERTY, INSURANCE COSTS ARE NOT REIMBURSABLE. OFFICERS AND EMPLOYEES - TRANSFERS - REAL ESTATE EXPENSES - FINANCE CHARGES - REIMBURSEMENT PROHIBITION - VETERANS ADMINISTRATION FUNDING FEE EMPLOYEE OF THE IRS IS NOT ENTITLED TO REIMBURSEMENT FOR THE VETERANS ADMINISTRATION FUNDING FEE CHARGED IN CONNECTION WITH PURCHASE OF A RESIDENCE AT HIS NEW DUTY STATION. THE FUNDING FEE IS A FINANCE CHARGE ASSESSED IN ADDITION TO A LOAN ORIGINATION FEE OR A VETERANS ADMINISTRATION LOAN APPLICATION FEE. SINCE IT IS NOT SIMILAR IN NATURE TO EITHER OF THESE EXPENSES IT IS NOT ALLOWABLE UNDER PARA. 2 6.2D(1)(F) OF THE FTR.

MATTER OF: ANDERS E. FLODIN, JULY 12, 1985:

THIS ACTION IS IN RESPONSE TO A REQUEST FOR AN ADVANCE DECISION FROM THE INTERNAL REVENUE SERVICE REGARDING THE DISALLOWANCE OF CERTAIN MOVING EXPENSES CLAIMED BY MR. ANDERS E. FLODIN. /1/ MR. FLODIN, AN EMPLOYEE OF THE INTERNAL REVENUE SERVICE, WAS TRANSFERRED FROM LAS VEGAS, NEVADA, TO WASHINGTON, D.C., AND WAS AUTHORIZED RELOCATION EXPENSES. SPECIFICALLY AT ISSUE IS WHETHER CERTAIN EXPENSES CLAIMED, (1) TEMPORARY QUARTERS, (2) OWNER'S TITLE INSURANCE, AND (3) A VETERANS ADMINISTRATION FUNDING FEE, MAY BE PAID IN CONNECTION WITH THE TRANSFER. FOR THE REASONS DISCUSSED BELOW, WE FIND THAT THE EXPENSES ARE NOT REIMBURSABLE AND WERE PROPERLY DISALLOWED BY THE AGENCY.

TEMPORARY QUARTERS

MR. FLODIN WAS AUTHORIZED A TEMPORARY QUARTERS SUBSISTENCE EXPENSE ALLOWANCE IN CONNECTION WITH HIS TRANSFER TO WASHINGTON, D.C., IN JANUARY 1983. THE STATUTORY AUTHORITY FOR REIMBURSEMENT OF TEMPORARY QUARTERS SUBSISTENCE EXPENSES IS 5 U.S.C. SEC. 5724A(A)(3) (1982), WHICH IS IMPLEMENTED BY PART 2-5 OF THE FEDERAL TRAVEL REGULATIONS (SUPP. 4, AUG. 23, 1982) INCORP. BY REF., 41 C.F.R. SEC. 1017.0003 (1982). THE APPLICABLE PROVISION, PARAGRAPH 2-5.2C, DEFINES TEMPORARY QUARTERS AS FOLLOWS:

C. WHAT CONSTITUTES TEMPORARY QUARTERS. GENERALLY, THE TERM "TEMPORARY QUARTERS" REFERS TO LODGING OBTAINED FROM PRIVATE OR COMMERCIAL SOURCES FOR THE PURPOSE OF TEMPORARY OCCUPANCY AFTER VACATING THE RESIDENCE OCCUPIED WHEN THE TRANSFER WAS AUTHORIZED. HOWEVER, OCCUPANCY OF TEMPORARY QUARTERS THAT EVENTUALLY BECOME THE EMPLOYEE'S PERMANENT RESIDENCE SHALL NOT PREVENT PAYMENT OF THE TEMPORARY QUARTERS ALLOWANCE IF, IN THE AGENCY'S JUDGMENT, THE EMPLOYEE SHOWS SATISFACTORILY THAT THE QUARTERS OCCUPIED WERE INTENDED INITIALLY TO BE ONLY TEMPORARY. IN MAKING THIS DETERMINATION THE AGENCY SHOULD CONSIDER FACTORS SUCH AS THE DURATION OF THE LEASE, MOVEMENT OF HOUSEHOLD EFFECTS INTO THE QUARTERS, TYPE OF QUARTERS, EXPRESSIONS OF INTENT, ATTEMPTS TO SECURE A PERMANENT DWELLING, AND THE LENGTH OF TIME THE EMPLOYEE OCCUPIES THE QUARTERS.

MR. FLODIN HAS CLAIMED TEMPORARY QUARTERS SUBSISTENCE EXPENSES FOR THE 30 -DAY PERIOD BEGINNING JANUARY 3, 1983, DURING WHICH HE AND HIS DEPENDENTS RENTED AND OCCUPIED THE HOUSE THEY PURCHASED AFTER THEIR LOAN WAS APPROVED IN MARCH 1983.

MR. FLODIN ACKNOWLEDGES THAT HE INTENDED TO PURCHASE THE HOUSE AT THE TIME HE ARRANGED TO OCCUPY IT ON A RENTAL BASIS, PENDING CONSUMMATION OF THE PURCHASE TRANSACTION. HOWEVER, HE ARGUES THAT HE SHOULD RECEIVE TEMPORARY QUARTERS SUBSISTENCE EXPENSES BECAUSE THE PURCHASE WAS CONDITIONAL UPON THE APPROVAL OF THE LOAN AND REMOVAL OF A NUMBER OF MECHANIC'S LIENS ON THE PROPERTY WHICH HAD BEEN FORECLOSED. HE ALSO POINTS OUT THAT HIS ACTIONS RESULTED IN SAVINGS TO THE GOVERNMENT.

IT HAS BEEN THE CONSISTENT POSITION OF THIS OFFICE THAT WHEN TRANSFERRING GOVERNMENT EMPLOYEES PAY RENT FOR AND OCCUPY HOMES THEY INTEND TO PURCHASE, THOSE HOMES ARE NOT "TEMPORARY QUARTERS" AS DEFINED BY THE FEDERAL TRAVEL REGULATIONS AND THE EMPLOYEES ARE THEREFORE NOT ENTITLED TO REIMBURSEMENT FOR TEMPORARY QUARTERS SUBSISTENCE EXPENSES. STEPHEN A. WEBB, B-211004, MAY 23, 1983. THE EMPLOYEE'S INTENT IS DETERMINED AT THE TIME HE OR A MEMBER OF HIS FAMILY MOVES INTO THE QUARTERS WHICH LATER BECOME HIS PERMANENT RESIDENCE. WILLIAM E. PALZKILL, B-205866, MAY 18, 1982. WHEN AN EMPLOYEE MOVES INTO A HOUSE HE HAS DECIDED TO PURCHASE, EVEN THOUGH FINAL SETTLEMENT FOR THE HOUSE HAS NOT YET TAKEN PLACE, HE HAS CEASED TO OCCUPY TEMPORARY QUARTERS. THIS IS SO EVEN IF THE OCCUPANCY OF THE PURCHASED QUARTERS RESULTS IN A SAVINGS TO THE GOVERNMENT. WILLIAM E. PALZKILL, AND STEPHEN A. WEBB, SUPRA.

MR. FLODIN HAS INDICATED THAT IT WAS HIS INTENT TO ACQUIRE THE QUARTERS AS HIS FAMILY'S PERMANENT RESIDENCE AT THE TIME THEY COMMENCED OCCUPANCY. ALTHOUGH FAILURE TO RECEIVE APPROVAL OF THE LOAN OR TO REMOVE THE MECHANIC'S LIENS MAY HAVE PREVENTED MR. FLODIN FROM REALIZING HIS INTENT TO PURCHASE THE RESIDENCE, THEY DO NOT AFFECT THE DETERMINATION THAT HIS INTENT WAS TO PURCHASE THE QUARTERS. (IN FACT, WE HAVE HELD THAT LATER VACATING A HOUSE BECAUSE OF INABILITY TO FINANCE THE PURCHASE DOES NOT AFFECT THE DETERMINATION THAT THE EMPLOYEE INTENDED TO OCCUPY THE QUARTERS ON A PERMANENT RATHER THAN A TEMPORARY BASIS. KENNETH O. DUDLEY, B-205894, APRIL 26, 1982.) CONSISTENT WITH THE ABOVE-CITED DECISION MR. FLODIN MAY NOT BE REIMBURSED TEMPORARY QUARTERS SUBSISTENCE EXPENSES. SINCE MR. FLODIN INTENDED TO PURCHASE THE RESIDENCE FROM THE TIME HE MOVED IN, THE RESIDENCE WAS NOT "TEMPORARY QUARTERS" AND HIS CLAIM FOR TEMPORARY QUARTERS SUBSISTENCE EXPENSES MUST BE DENIED.

OWNER'S TITLE INSURANCE

MR. FLODIN WAS AUTHORIZED REAL ESTATE SALE AND PURCHASE EXPENSES IN CONNECTION WITH HIS TRANSFER TO WASHINGTON, D.C. THE PROVISIONS GOVERNING REIMBURSEMENT OF RESIDENCE TRANSACTION EXPENSES ARE CONTAINED IN 5 U.S.C. SEC. 5724A(A)(4) (1982) AND PART 2-6 OF THE FEDERAL TRAVEL REGULATIONS. PARAGRAPH 2-6.2D(1)(I) AUTHORIZES REIMBURSEMENT FOR THE COST OF AN OWNER'S TITLE INSURANCE POLICY PROVIDED ITS PURCHASE IS A PREREQUISITE TO FINANCING THE PROPERTY OR IF THE COST IS INSEPARABLE FROM OTHER INSURANCE COSTS REQUIRED TO FINANCE THE PROPERTY.

THE PROPERTY MR. FLODIN PURCHASED WAS ENCUMBERED BY OVER THIRTY MECHANIC'S LIENS. HE ASSERTS THAT UNDER THESE CIRCUMSTANCES PURCHASE OF AN OWNER'S TITLE INSURANCE POLICY WAS "REQUIRED." IN SUPPORT OF THIS POSITION HE HAS PROVIDED A LETTER FROM THE SELLER'S ATTORNEY IN WHICH THE ATTORNEY RECOMMENDS INSURANCE AND STATES THAT "OWNER'S TITLE INSURANCE WAS ADVISABLE AND IN MY OPINION MANDATORY BECAUSE OF THE PROBLEMS INVOLVED."

WHILE THE PURCHASE OF TITLE INSURANCE MAY HAVE BEEN ADVISABLE, IT APPEARS THAT THE INSURANCE WAS NOT PURCHASED BY MR. FLODIN AS A PREREQUISITE TO OBTAINING FINANCING, BUT AS A MATTER OF PRUDENCE FOR HIS OWN PROTECTION. HIS STATEMENT THAT HE WAS ADVISED BY THE LENDER THAT 80 PERCENT OR MORE OF THE BORROWERS IN THE AREA AVAIL THEMSELVES OF THIS COVERAGE WOULD INDICATE THAT THE PURCHASE OF AN OWNER'S TITLE POLICY WAS NOT REQUIRED BY THE LENDER. SINCE THERE IS NO EVIDENCE THAT MR. FLODIN PURCHASED THE OWNER'S TITLE POLICY AS A PREREQUISITE FOR FINANCING OR TRANSFER OF THE PROPERTY AND SINCE THE POLICY WAS PURCHASED SEPARATELY FROM OTHER INSURANCE, HE MAY NOT BE REIMBURSED FOR ITS COST.

VETERANS ADMINISTRATION FUNDING FEE

ONE OF THE ITEMS OF REAL ESTATE EXPENSES FOR WHICH MR. FLODIN CLAIMS REIMBURSEMENT IS A VETERAN ADMINISTRATION FUNDING FEE OF $485.50 INCURRED IN CONNECTION WITH THE PURCHASE OF A RESIDENCE AT HIS NEW DUTY STATION. IN APPEALING FROM THE INTERNAL REVENUE SERVICE'S DISALLOWANCE OF THIS PARTICULAR EXPENSE, MR. FLODIN POINTS OUT THAT THE REGULATIONS SPECIFICALLY AUTHORIZE REIMBURSEMENT OF A VETERANS ADMINISTRATION LOAN APPLICATION FEE. NOTING THAT SUCH A LOAN APPLICATION FEE WAS NOT ASSESSED IN HIS CASE, HE ASKS FOR CLARIFICATION OF THE DIFFERENCE BETWEEN THE VETERANS ADMINISTRATION LOAN APPLICATION FEE AND THE FUNDING FEE. FORWARDING HIS APPEAL THE INTERNAL REVENUE SERVICE ASKS WHETHER IT IS NECESSARY TO DISALLOW THE FUNDING FEE ON THE BASIS SUGGESTED IN EDWARD W. AITKEN, 63 COMP.GEN. 355, (1984), THAT IT IS CHARGED IN ADDITION TO THE LOAN ORIGINATION FEE RATHER THAN INSTEAD OF THE LOAN ORIGINATION FEE.

EFFECTIVE OCTOBER 1, 1982, PARAGRAPH 2-6.2D OF THE FEDERAL TRAVEL REGULATIONS WAS AMENDED BY GSA BULLETIN FPMR A-4, SUPPLEMENT 4, TO SPECIFICALLY AUTHORIZE REIMBURSEMENT OF LOAN ORIGINATION FEES, VETERANS ADMINISTRATION LOAN APPLICATION FEES AND OTHER FEES SIMILAR IN NATURE. THIS REGULATION, APPLICABLE TO MR. FLODIN'S TRANSFER IN JANUARY 1983, SPECIFICALLY PROVIDES:

D. MISCELLANEOUS EXPENSES

(1) REIMBURSABLE ITEMS. THE EXPENSES LISTED BELOW ARE REIMBURSABLE IN CONNECTION WITH THE SALE AND/OR PURCHASE OF A RESIDENCE PROVIDED THEY ARE CUSTOMARILY PAID BY THE SELLER OF A RESIDENCE IN THE LOCALITY OF THE OLD OFFICIAL STATION OR BY THE PURCHASER OF A RESIDENCE AT THE NEW OFFICIAL STATION TO THE EXTENT THEY DO NOT EXCEED AMOUNTS CUSTOMARILY PAID IN THE LOCALITY OF THE RESIDENCE.

(A) FHA OR VA FEE FOR THE LOAN APPLICATION; (B) LOAN ORIGINATION FEE; (C) COST OF PREPARING CREDIT REPORTS; (D) MORTGAGE AND TRANSFER TAXES; (E) STATE REVENUE STAMPS; (F) OTHER FEES AND CHARGES SIMILAR IN NATURE TO THESE LISTED ABOVE, UNLESS SPECIFICALLY PROHIBITED IN (2), BELOW;

(2) NONREIMBURSABLE ITEMS. EXCEPT AS OTHERWISE PROVIDED IN (1), ABOVE, THE FOLLOWING ITEMS OF EXPENSE ARE NOT REIMBURSABLE.

(E) NO FEE, COST CHARGE, OR EXPENSE DETERMINED TO BE PART OF THE FINANCE CHARGE UNDER THE TRUTH IN LENDING ACT, TITLE I, PUB.L. 90-321, AND REGULATION Z ISSUED IN ACCORDANCE WITH PUB.L. 90-821 BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, UNLESS SPECIFICALLY AUTHORIZED IN (1), ABOVE ***

WE HAVE HELD THAT THE ABOVE REGULATION DOES NOT AUTHORIZE REIMBURSEMENT OF THE VETERANS ADMINISTRATION FUNDING FEE SINCE IT IS A FINANCE CHARGE EXCLUDED BY SUBSECTION 6.2D(2)(E). 62 COMP.GEN. 456 (1983), AND E. LOUIS FRY, B-214243, JULY 26, 1984. SECTION 1829 OF TITLE 38, UNITED STATES CODE, ADDED BY THE OMNIBUS BUDGET RECONCILIATION ACT OF 1982, PUBLIC LAW 97-253, 96 STAT. 805 (1982), PROVIDES THAT A "LOAN FEE" IN THE AMOUNT OF ONE-HALF OF 1 PERCENT OF A HOUSING LOAN MADE, GUARANTEED OR INSURED BY THE VETERANS ADMINISTRATION ADMINISTRATION MUST BE COLLECTED FROM THE VETERAN PURCHASER AND REMITTED TO THE ADMINISTRATOR OF THE VETERANS ADMINISTRATION AS A CONDITION PRECEDENT TO THE MAKING, GUARANTEEING OR INSURING OF A LOAN. THE FEE IS A USER CHARGE WHICH IS DEPOSITED INTO THE U.S. TREASURY AS MISCELLANEOUS RECEIPTS. IT IS REQUIRED TO BE CHARGED IN CONNECTION WITH LOANS MADE ON OR AFTER OCTOBER 1, 1982. 47 FED.REG. 46700 (1982) (TO BE CODIFIED AT 38 C.F.R. 36.4312(E)(1)). ESSENTIALLY, THE VETERANS ADMINISTRATION FUNDING FEE IS A CHARGE FOR A "GUARANTEE OR INSURANCE PROTECTING THE CREDITOR AGAINST THE CONSUMER'S DEFAULT OF OTHER CREDIT LOSS" AND, THUS, A FINANCE CHARGE WITHIN THE MEANING OF 12 C.F.R. 226.4(B)(7) (1983).

THE DISTINCTION BETWEEN A VETERANS ADMINISTRATION FUNDING FEE AND A LOAN ASSUMPTION FEE WAS ADDRESSED IN EDWARD W. AITKEN, 63 COMP.GEN. 355. IN THAT CASE, IN WHICH WE AUTHORIZED REIMBURSEMENT OF A LOAN ASSUMPTION FEE, WE STATED:

ALTHOUGH A LOAN ASSUMPTION FEE MAY BE CHARACTERIZED AS A FINANCE CHARGE, WE CONCLUDE THAT THIS LOAN ASSUMPTION FEE MAY BE REIMBURSED UNDER FTR PARA. 2-6.2D(1)(F) AS A FEE OR CHARGE SIMILAR IN NATURE TO A LOAN ORIGINATION FEE. WE BELIEVE THE INTENT OF PARA. 2-6.2D(1)(F) IS TO PERMIT REIMBURSEMENT OF FEES WHICH ARE SIMILAR TO THOSE LISTED IN PARA. 2- 6.2D(1)(A-E) AND WHICH ARE CHARGED INSTEAD OF ONE OF THE ENUMERATED FEES.

BY WAY OF CONTRAST, WE CONSIDERED A CLAIM FOR REIMBURSEMENT OF A VETERANS ADMINISTRATION (VA) FUNDING FEE WHICH IS A LOAN FEE OF ONE HALF OF ONE PERCENT AND CONSTITUTES A USER CHARGE WHICH IS DEPOSITED INTO THE U.S. TREASURY AS A MISCELLANEOUS RECEIPT WE HELD THAT THE VA FUNDING FEE IS A FINANCE CHARGE UNDER REGULATION Z AND IS NOT REIMBURSABLE UNDER THE AMENDED VERSION OF FTR PARA. 2-6.2D, QUOTED ABOVE. B-209945, JUNE 9, 1983, 62 COMP.GEN. 456. WHAT IS CRUCIAL FOR OUR PURPOSES IS THAT THE VA FUNDING FEE CONSIDERED IN B-209945 IS CHARGED IN ADDITION TO A LOAN ORIGINATION FEE WHICH COMPENSATES THE LENDER FOR EXPENSES INCURRED IN ORIGINATING THE LOAN, PREPARING DOCUMENTS, AND RELATED WORK. IN THE CASE BEFORE US, THE LOAN ASSUMPTION FEE WAS CHARGED INSTEAD OF A LOAN ORIGINATION FEE, AND IT APPEARS TO REPRESENT SIMILAR EXPENSES INCURRED BY THE LENDER.

IN RESPONSE TO THE AGENCY'S QUESTION CONCERNING THE RATIONALE SET FORTH IN THE AITKEN DECISION, WE BELIEVE THAT IT IS A CRITICAL DISTINCTION THAT THE FUNDING FEE IS CHARGED IN ADDITION TO AND NOT INSTEAD OF A LOAN ORIGINATION FEE. UNDER FTR PARA. 2-6.2D(1)(F) ONLY FEES "SIMILAR IN NATURE" TO THOSE SPECIFICALLY IDENTIFIED AS REIMBURSABLE MAY BE REIMBURSED. WE HAVE RECOGNIZED THAT IN AMENDING THE FEDERAL TRAVEL REGULATIONS TO AUTHORIZE REIMBURSEMENT OF LOAN ORIGINATION FEES, THE GENERAL SERVICES ADMINISTRATION INTENDED TO ALLOW REIMBURSEMENT FOR THE LENDER'S ADMINISTRATIVE EXPENSES INCURRED IN PROCESSING A LOAN. ROGER J SALEM, 63 COMP.GEN. 456 (1984). IN THE CASE WHERE AN EXISTING LOAN IS ASSUMED, THE LOAN ASSUMPTION FEE IS INTENDED TO COVER ADMINISTRATIVE EXPENSES INCURRED IN PROCESSING THE ASSUMPTION. IT IS REIMBURSABLE SINCE IT TAKES THE PLACE OF THE LOAN ORIGINATION FEE. JAMES D. HOPPE, B-214724, AUGUST 15, 1984. THE SAME CAN BE SAID OF THE VETERANS ADMINISTRATION LOAN APPLICATION FEE WHICH FTR PARA. 2-6.2D(1)(A) SPECIFICALLY IDENTIFIES AS A REIMBURSABLE CHARGE.

THE VETERANS ADMINISTRATION LOAN APPLICATION FEE IS CHARGED IN THOSE CASES WHERE THE LOAN IS MADE BY THE VETERANS ADMINISTRATION. IT IS NOT CHARGED IN CASES SUCH AS MR. FLODIN'S WHERE THE LOAN IS GUARANTEED OR INSURED BY THE VETERANS ADMINISTRATION. FOR DIRECT LOANS, ONE OF THE LOAN -CLOSING EXPENSES CHARGED IN ADDITION TO THE VETERANS ADMINISTRATION FUNDING FEE REQUIRED BY 38 U.S.C. SEC. 1829(A) IS THE FOLLOWING VETERANS ADMINISTRATION LOAN APPLICATION FEE: (1) $50, OR ONE PERCENT (1%) OF THE LOAN AMOUNT, WHICHEVER IS GREATER, WHICH CHARGE SHALL BE IN LIEU OF THE LOAN CLOSER'S FEE, CREDIT REPORT, AND COST OF APPRAISAL PROVIDED. THAT IF THE LOAN IS TO FINANCE THE COST OF CONSTRUCTION, REPAIRS, ALTERATIONS, OR IMPROVEMENTS NECESSITATING DISBURSEMENTS OF THE LOAN PROCEEDS AS THE CONSTRUCTION OR OTHER WORK PROGRESSES, THE CHARGE TO THE VETERAN-BORROWER SHALL BE TWO PERCENT (2%) OF THE LOAN AMOUNT, BUT NOT LESS THAN $50 IN ANY EVENT 38 C.F.R. SEC. 36.4504(B)(1) (1982). IT IS INTENDED TO COVER COSTS THAT ARE SUBSTANTIALLY IDENTICAL TO THOSE INCURRED BY A COMMERCIAL LENDER AND CHARGED TO THE BORROWER AS A LOAN ORIGINATION FEE. LIKE A LOAN ASSUMPTION FEE, IT TAKES THE PLACE OF LOAN ORIGINATION FEE. NOTE THAT FOR LOANS GUARANTEED BY THE VETERANS ADMINISTRATION, COMMERCIAL LENDERS MUST CHARGE THE VETERANS ADMINISTRATION FUNDING FEE AND MAY CHARGE A LOAN ORIGINATION FEE NOT EXCEEDING 1 PERCENT OF THE LOAN AMOUNT. 38 C.F.R. SECS. 36.4312(D)(2) AND (E). SINCE THE VETERANS ADMINISTRATION FUNDING FEE MR. FLODIN INCURRED IS NOT SIMILAR IN NATURE TO EITHER A LOAN ORIGINATION FEE OR A VETERANS ADMINISTRATION LOAN APPLICATION FEE, IT IS NOT REIMBURSABLE.

CONCLUSION

BASED ON THE FOREGOING, MR. FLODIN'S CLAIMS FOR TEMPORARY QUARTERS SUBSISTENCE EXPENSES, OWNER'S TITLE INSURANCE, AND THE VETERANS ADMINISTRATION FUNDING FEE MUST BE DISALLOWED.

/1/ THE REQUEST WAS MADE BY MR. JOHN E. TOTTEN, INTERNAL REVENUE SERVICE, CHIEF, NATIONAL OFFICE, FINANCIAL OPERATIONS BRANCH, WASHINGTON, D.C.