B-168290, FEB. 27, 1970

B-168290, FEB. 27, 1970

MISCELLANEOUS--HOUSING LOANS--MORTGAGE PAYMENTS--READJUSTMENT DECISION TO FEDERAL HOUSING ADMINISTRATION CERTIFYING OFFICER AUTHORIZING A MORTGAGE ASSISTANCE PAYMENT ON BEHALF OF A LOW INCOME HOMEOWNER WHO DID NOT HAVE MONTHLY CHILD SUPPORT PAYMENTS CONSIDERED AS INCOME FOR A FHA INSURED MORTGAGE. SINCE BOTH MORTGAGE AND MORTGAGOR WERE WITHOUT FAULT IN MATTER OF WHETHER CHILD SUPPORT PAYMENTS SHOULD HAVE BEEN INCLUDED OR EXCLUDED IN DETERMINING INCOME FOR LOAN INSURANCE PURPOSES, PAYMENT OF AMOUNT DUE AS RESULT OF ERRONEOUS DETERMINATION WILL NOT BE OBJECTED TO.

TO MR. LESTER H. THOMPSON:

YOUR LETTER OF OCTOBER 31, 1969 (YOUR REFERENCE: COMPTROLLER'S DIVISION, FCM), RAISES A QUESTION AS TO WHETHER A CLAIM BY THE COLLATERAL INVESTMENT COMPANY (COMPANY) FOR $74.70 MAY PROPERLY BE PAID BY THE FEDERAL HOUSING ADMINISTRATION (FHA) AS MORTGAGE ASSISTANCE PAYMENTS ON BEHALF OF MRS. PATRICIA S. WATTS. SPECIFICALLY, YOU REQUEST A DECISION AS TO WHETHER A RECLAIM VOUCHER IN FAVOR OF THE COMPANY IN THE AMOUNT OF $74.70 MAY BE CERTIFIED FOR PAYMENT.

THE FACTS AND CIRCUMSTANCES GIVING RISE TO THE CLAIM ARE SET FORTH BELOW.

ON DECEMBER 30, 1968, MRS. WATTS, A DIVORCEE WITH TWO CHILDREN, AGES 11 AND 13, APPLIED THROUGH THE COLLATERAL INVESTMENT COMPANY (COMPANY) AN APPROVED FHA MORTGAGEE, FOR MORTGAGE ASSISTANCE PAYMENTS UNDER SECTION 235 OF THE NATIONAL HOUSING ACT, AS AMENDED, 12 U.S.C. 1715X. FOR THE PURPOSE OF ASSISTING LOWER INCOME FAMILIES IN ACQUIRING HOMEOWNERSHIP, SECTION 235 AUTHORIZES THE SECRETARY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT TO MAKE, OR CONTRACT TO MAKE, PERIODIC ASSISTANCE PAYMENTS TO MORTGAGEES ON BEHALF OF SUCH HOMEOWNERS.

FHA APPLICATIONS WERE FILLED OUT BY MRS. WATTS AND THE COMPANY AND FORWARDED BY THE COMPANY TO THE COLUMBIA, SOUTH CAROLINA, FHA INSURING OFFICE. BOTH APPLICATIONS TREATED $150 PER MONTH OF CHILD SUPPORT PAYMENTS BEING RECEIVED BY MRS. WATTS AS "REGULAR INCOME" (I.E; "EFFECTIVE INCOME") FOR THE PURPOSE OF CALCULATING APPROPRIATE MORTGAGE ASSISTANCE PAYMENTS. THE COLUMBIA, SOUTH CAROLINA, FHA INSURING OFFICE, HOWEVER, EXCLUDED THE MONTHLY $150 CHILD SUPPORT PAYMENTS FROM MRS. WATTS'"EFFECTIVE INCOME," CATEGORIZING IT AS "UNUSUAL INCOME," AND COMPUTED THE MORTGAGE ASSISTANCE PAYMENTS ACCORDINGLY.

AS A RESULT OF THE FHA COLUMBIA OFFICE'S ACTION, THE MONTHLY FHAASSISTANCE PAYMENT FOR MRS. WATTS WAS FIXED AT $50.30 PER MONTH, WHEREAS IF THE CHILD SUPPORT PAYMENTS HAD NOT BEEN EXCLUDED FROM MRS. WATTS'"EFFECTIVE INCOME" SUCH PAYMENTS WOULD HAVE BEEN $37.85 PER MONTH, A DIFFERENCE OF $12.45 PER MONTH. SINCE THE TOTAL MONTHLY MORTGAGE PAYMENT IS $112.25, THE MORTGAGOR'S (MRS. WATTS') SHARE THEREOF, AS ORIGINALLY APPROVED BY FHA WAS $61.95, BUT IF THE CHILD SUPPORT PAYMENTS HAD BEEN INCLUDED IN "EFFECTIVE INCOME" MRS. WATTS' SHARE OF THE TOTAL MONTHLY MORTGAGE PAYMENT WOULD HAVE BEEN $74.40.

ON JULY 28, 1969, YOU ADVISED THE COMPANY, IN EFFECT, THAT THE FHA COLUMBIA OFFICE HAD ERRED IN THE WATTS' CASE IN TREATING THE CHILD SUPPORT PAYMENTS AS "UNUSUAL INCOME" AND EXCLUDING SUCH PAYMENTS FROM "REGULAR" OR "EFFECTIVE" INCOME. YOU INFORMED THE COMPANY THAT THE ACTION OF THE FHA COLUMBIA OFFICE HAD RESULTED IN OVERPAID ASSISTANCE PAYMENTS ON BEHALF OF MRS. WATTS TOTALING $74.70, COVERING THE PERIOD MARCH 1, 1969, THROUGH AUGUST 1969. YOU ADVISED THE COMPANY THAT APPROPRIATE ADJUSTMENTS SHOULD BE MADE AS TO FUTURE PAYMENTS AND REQUESTED THE COMPANY TO GIVE FHA CREDIT FOR THE $74.70 IN ITS NEXT MONTHLY BILLING, WHICH THE COMPANY DID.

MRS. WATTS WAS ADVISED OF WHAT HAD OCCURRED AND WHILE SHE AGREED TO MAKE THE LARGER MONTHLY MORTGAGE PAYMENTS ($74.40) TO THE MORTGAGEE (COMPANY) PROSPECTIVELY, SHE REFUSED TO REIMBURSE THE COMPANY THE BACK OVERPAID ASSISTANCE PAYMENTS TOTALING $74.70, I.E; THE BACK PAYMENTS COVERING THE PERIOD MARCH 1, 1969, THROUGH AUGUST 1969 (WHICH AMOUNT THE COMPANY HAD REIMBURSED FHA). MRS. WATTS IN HER REFUSAL STATED THAT NEITHER HER INCOME NOR HER DEPENDENTS HAD CHANGED; THAT THE ORIGINAL MORTGAGE PAYMENT OF $61.95 WAS CONFIRMED BY FHA AND ACCEPTED IN WHAT SHE THOUGHT WAS A BINDING CONTRACT. SHE ALSO INDICATED THAT SHE WOULD BE UNABLE TO MAKE BOTH THE NEW MONTHLY MORTGAGE PAYMENT AND THE BACK PAYMENTS AND STILL LIVE IN THE HOUSE.

THE COMPANY FEELS THAT IN VIEW OF ALL THE FACTS AND CIRCUMSTANCES FHA SHOULD PAY THE $74.70 AND, HENCE, SUBMITTED THE INSTANT RECLAIM VOUCHER.

SECTION 235.5(A) OF THE PERTINENT FHA REGULATIONS PROVIDES IN PART AS FOLLOWS (24 CFR 235.5(A)):

"(A) 'ADJUSTED ANNUAL INCOME' MEANS THE GROSS ANNUAL INCOME OF THE FAMILY FROM ALL SOURCES, BEFORE TAXES AND WITHHOLDING, AFTER GIVING EFFECT TO CERTAIN EXCLUSIONS. FROM THE GROSS ANNUAL INCOME THERE SHALL BE EXCLUDED (1) 5 PERCENT OF SUCH INCOME, AS AN ALLOWANCE IN LIEU OF AMOUNTS WITHHELD FROM INCOME FOR SOCIAL SECURITY, CIVIL SERVICE RETIREMENT, ETC.; (2) ALL UNUSUAL OR TEMPORARY INCOME (AS DEFINED BY THE COMMISSIONER); (3) THE EARNINGS OF EACH FAMILY MEMBER WHO IS A MINOR AND WHO IS LIVING WITH THE FAMILY; AND (4) THE SUM OF $300 FOR EACH FAMILY MEMBER WHO IS A MINOR AND WHO IS LIVING WITH THE FAMILY * * *."

IMPLEMENTING ADMINISTRATIVE INSTRUCTIONS ISSUED TO FHA INSURING OFFICES AND IN EFFECT AT THE TIME OF THIS TRANSACTION WERE CONTAINED IN FHA 4441.1, "HOMEOWNERSHIP FOR LOWER INCOME FAMILIES (SECTION 235)." THESE INSTRUCTIONS PROVIDED, IN PERTINENT PART, AS FOLLOWS (PARAGRAPH 17, PAGE 12):

"ADJUSTED ANNUAL INCOME SHALL INCLUDE INCOME DURING THE LAST 12 MONTHS FROM ALL SOURCES, BEFORE TAXES OR WITHHOLDING, OF ALL MEMBERS OF THE FAMILY WHO PROPOSE TO LIVE IN THE UNIT, EXCLUDING UNUSUAL OR TEMPORARY INCOME, EXCEPT THAT $300 SHALL BE DEDUCTED FOR EACH MINOR PERSON (UNDER 21 YEARS OF AGE, EXCLUDING THE MORTGAGOR OR HIS SPOUSE) WHO IS RELATED BY BLOOD, MARRIAGE, OR OPERATION OF LAW, AND WHO IS LIVING IN THE HOUSEHOLD; AND ANY EARNINGS OF SUCH MINORS SHALL NOT BE INCLUDED IN THE INCOME OF THE HOUSEHOLD. CURRENT MONTHLY INCOME IS DERIVED BY DIVIDING GROSS ANNUAL INCOME BY 12. 'UNUSUAL OR TEMPORARY INCOME' MAY INCLUDE 5 PERCENT OF TOTAL FAMILY INCOME (BEFORE DEDUCTIONS) FOR SOCIAL SECURITY WITHHOLDING AND SIMILAR DEDUCTIONS, ALL OR PART OF OVERTIME PAY WHICH WILL BE DISCONTINUED, DEPARTURE OF A SECONDARY WAGE EARNER, UNEMPLOYMENT COMPENSATION WHICH DOES NOT OCCUR REGULARLY, OR OTHER INCOME WHICH WILL BE DISCONTINUED."

ALSO THE BASIC FORM FOR DETERMINING INCOME AND ASSET ELIGIBILITY AND APPROVING A PROPOSED MORTGAGOR FOR ASSISTANCE UNDER SECTION 235 IS FHA FORM 3100, "APPLICATION FOR HOME OWNERSHIP ASSISTANCE UNDER SECTION 235 OF THE NATIONAL HOUSING ACT." THE INSTRUCTION SHEET WHICH ACCOMPANIES THIS FORM PROVIDES UNDER INSTRUCTION NO. 5 AS FOLLOWS:

"5. THE TOTAL AMOUNT OF FAMILY INCOME, EXCLUDING THE INCOME OF MINORS, F- 12 IS TO BE OBTAINED FROM THE ENTRIES ON LINES F-1 THROUGH F 7 AND ATTACHMENTS, IF ANY, AND SHALL INCLUDE INCOME RECEIVED DURING THE LAST 12 MONTHS FROM ALL SOURCES, BEFORE TAXES OR WITHHOLDING, OF ALL ADULT MEMBERS OF THE FAMILY WHO PROPOSE TO LIVE IN THE UNIT, LESS ANY UNUSUAL INCOME (F- 13) WHICH MAY INCLUDE 5 PERCENT OF TOTAL FAMILY INCOME (BEFORE DEDUCTIONS) FOR SOCIAL SECURITY WITHHOLDING AND SIMILAR PAYROLL DEDUCTIONS, ALL OR PART OF OVERTIME PAY WHICH WILL BE DISCONTINUED, DEPARTURE OF A SECONDARY WAGE EARNER, UNEMPLOYMENT COMPENSATION WHICH DOES NOT OCCUR REGULARLY, OR OTHER INCOME OF A TEMPORARY NATURE WHICH WILL BE OR HAS BEEN DISCONTINUED (ATTACH EXPLANATION). ADJUSTED ANNUAL INCOME OF ADULTS (F-14) IS DERIVED BY SUBSTRACTING ITEM F-13 FROM ITEM F-12. THIS AMOUNT IS ADJUSTED FURTHER BY DEDUCTING AN ALLOWANCE OF $300 FOR EACH MINOR PERSON (UNDER 21 YEARS OF AGE, EXCLUDING THE MORTGAGOR OR HIS SPOUSE) (F-15) TO OBTAIN THE CERTIFIED ADJUSTED ANNUAL FAMILY INCOME (F-16). THIS AMOUNT IS THEN DIVIDED BY 12 TO OBTAIN THE CERTIFIED ADJUSTED MONTHLY INCOME (F-17)."

WHILE IT MAY BE THAT FHA DID NOT INTEND THAT THE ABOVE-QUOTED ADMINISTRATIVE INSTRUCTIONS BE CONSTRUED SO AS TO TREAT CHILD SUPPORT PAYMENTS AS "UNUSUAL OR TEMPORARY INCOME," THE INSTRUCTIONS COULD BE CONSIDERED SUSCEPTIBLE OF SUCH AN INTERPRETATION. THE INSTRUCTIONS PROVIDED THAT "UNUSUAL OR TEMPORARY INCOME" MAY INCLUDE "OTHER INCOME WHICH WILL BE DISCONTINUED." CHILD SUPPORT PAYMENTS, BY THEIR NATURE, ARE LIMITED IN TIME AND GENERALLY ARE DISCONTINUED WHEN THE CHILD INVOLVED REACHES THE AGE OF MAJORITY AS PRESCRIBED BY LAW. SEE 2 NELSON DIVORCE AND ANNULMENT (2ND ED; 1961), SECTIONS 14.80 AND 14.91. THUS, THE ACTION OF THE FHA COLUMBIA OFFICE IN EXCLUDING CHILD SUPPORT PAYMENTS FROM "EFFECTIVE INCOME" IN THE INSTANT CASE WAS NOT NECESSARILY INCONSISTENT WITH THE ADMINISTRATIVE INSTRUCTIONS OR CLEARLY IN VIOLATION THEREOF. HENCE, WE CANNOT SAY THAT THE INTERPRETATION APPARENTLY PLACED ON THE ADMINISTRATIVE INSTRUCTIONS BY THE FHA COLUMBIA OFFICE WAS CLEARLY ERRONEOUS.

IN FACT, IT APPEARS FROM THE RECORD THAT FHA RECOGNIZED THAT THE ABOVE- QUOTED INSTRUCTIONS NEEDED CLARIFICATION AND ON MAY 16, 1969- ABOUT FIVE MONTHS AFTER MRS. WATTS' APPLICATION WAS PROCESSED--ISSUED CIRCULAR FHA 4441.6 TO ALL FHA INSURING OFFICES. YOUR LETTER INDICATES THAT CIRCULAR FHA 4441.6 CLARIFIED "EFFECTIVE INCOME" AND "INCOME OF MINORS" SO AS TO INCLUDE CHILD SUPPORT PAYMENTS IN "EFFECTIVE INCOME." ALSO, THE RECORD DISCLOSES THAT IT WAS NOT UNTIL JULY 10, 1969--I.E; AFTER THE ISSUANCE OF THE ABOVE-CITED CLARIFYING INSTRUCTIONS--THAT A QUESTION WAS RAISED WITH THE FHA COLUMBIA OFFICE BY THE FHA WASHINGTON OFFICE CONCERNING THE EXCLUSION OF THE CHILD SUPPORT PAYMENTS FROM MRS. WATTS' "EFFECTIVE INCOME." THE DIRECTOR OF THE FHA COLUMBIA OFFICE IN AGREEING ON JULY 23, 1969, THAT CHILD SUPPORT PAYMENTS SHOULD BE CONSIDERED "EFFECTIVE INCOME" POINTED OUT THAT THE WATTS' CASE WAS PROCESSED PRIOR TO THE ISSUANCE OF THE CLARIFYING INSTRUCTIONS.

IN LIGHT OF ALL THE FACTS AND CIRCUMSTANCES STATED ABOVE AND SINCE BOTH THE MORTGAGEE AND THE MORTGAGOR WERE WITHOUT FAULT IN THE MATTER, WE WOULD NOT QUESTION PAYMENT OF THE AMOUNT IN QUESTION TO THE COMPANY AS ASSISTANCE PAYMENTS ON BEHALF OF MRS. WATTS. ACCORDINGLY, THE RECLAIM VOUCHER MAY BE CERTIFIED FOR PAYMENT IF OTHERWISE CORRECT.