B-237972, May 22, 1990

B-237972, May 22, 1990

CIVILIAN PERSONNEL - Relocation - Residence transaction expenses - Refinancing - Fees - Reimbursement DIGEST: A transferred employee refinanced the mortgage on his residence at his old duty station to obtain assumable financing to make it more saleable. The agency disallowed the percentage fee paid the lender for refinancing as either a loan discount or prepayment of interest, neither of which may be reimbursed under the Joint Travel Regulations (JTR). The charge made by the lender, however, is in the nature of a mortgage prepayment penalty which is an allowable expense under paragraph 2-6.2d(1)(g) of the Federal Travel Regulations and paragraph C14002d(1), item 7, of the JTR. Therefore, payment may be made to the extent reasonable and customary and otherwise reimbursable under those provisions. See Marshall L. Dantzler, 64 Comp.Gen. 568 (1985).

Kenneth E. Buck - Real Estate Expenses - Refinancing Fee to Sell Old Residence:

This decision is in response to a request from Mr. Stephen O. Nunes, Disbursing Officer, New England Division of the Corps of Engineers, Department of the Army. The issue is the entitlement of an employee to be reimbursed a residence refinancing expense incurred incident to a transfer. We conclude that he may be reimbursed for the following reasons.

BACKGROUND

Mr. Kenneth E. Buck, an employee of the Corps of Engineers, was transferred from Huntsville, Alabama, to Fort Drum, New York, in June 1986. He found it difficult to sell his residence at his old station. Since his mortgage on that residence carried a 15 percent interest rate, he refinanced it to obtain a more favorable interest rate to make an assumption of the loan more attractive to a prospective buyer.

The lender agreed to change the interest rate to a variable rate that started at 8 percent, for which Mr. Buck had to pay a fee of 1.75 percent of the loan balance. The agency disallowed the $1,825.12 fee because it was considered to be in the nature of a loan discount or prepaid interest expense, neither of which is allowable under subsection C14002.1(2) of Volume 2 of the Joint Travel Regulations (JTR). /1/

ANALYSIS AND CONCLUSION

In Marshall L. Dantzler, 64 Comp.Gen. 568 (1985), a transferred employee refinanced his old residence in order to obtain assumable financing for the purchaser. Citing prior decisions, we recognized that refinancing the employee's residence at the old station in order to facilitate a sale is often necessary in the current real estate market. Accordingly, we ruled in Dantzler that the expenses incurred in refinancing a residence to obtain assumable financing are reimbursable to the extent they are reasonable and customary in the area and otherwise allowable under the FTR.

The authority for reimbursing real estate expenses incident to a transfer is contained in 5 U.S.C. Sec. 5724a(a)(4) and part 6 of chapter 2, FTR. /1/ Paragraph 2-6.2d(1)(g) of the FTR authorizes reimbursement of charges assessed an employee for prepayment of a mortgage in connection with the sale of his residence at the old station if stated in the mortgage instrument. Where the charge is not stated in the mortgage instrument, it may still be reimbursed "if customarily charged by the lender", but the amount reimbursable may not exceed 3 months' interest on the loan balance. /3/

The percentage fee that Mr. Buck paid to the lender to obtain a lower interest rate on his mortgage in order to sell his old residence is in the nature of a mortgage prepayment penalty which is an allowable expense in connection with the sale of a residence at the old official station, as stated above. The prohibition on reimbursing loan discounts and prepaid interest, relied on by the agency, does not apply to a seller who is refinancing an existing mortgage and who incurs an otherwise allowable expense.

Therefore, the refinancing fee paid by Mr. Buck may be allowed to the extent that it is reasonable and customary in the area and otherwise reimbursable under FTR, para. 2-6.2d(1)(g).

/1/ For civilian employees of the Department of Defense, the JTR implements the provisions of the governing Federal Travel Regulations (FTR) issued by the General Services Administration. Incorp. by ref., 41 C.F.R. Sec. 101-7.003 (1989). This decision cites to the FTR with a cross -reference to the JTR.

/2/ Chapter 14 of Volume 2, JTR.

/3/ 2 JTR, para. C14002d(1), item 7.