B-168674, FEBRUARY 10, 1970, 49 COMP. GEN. 483

B-168674, FEBRUARY 10, 1970, 49 COMP. GEN. 483

OFFICERS AND EMPLOYEES -- TRANSFERS -- RELOCATION EXPENSES -- TRUTH IN LENDING ACT EFFECT -- WHAT CONSTITUTES A FINANCE CHARGE THE PROHIBITION IN SECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A-56 AGAINST THE REIMBURSEMENT OF ANY FEE, COST, CHARGE, OR EXPENSE DETERMINED TO BE A FINANCE CHARGE UNDER THE TRUTH IN LENDING ACT, AS IMPLEMENTED BY REGULATION Z ISSUED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, PRECLUDES REIMBURSING AN EMPLOYEE WHO PURCHASED A RESIDENCE INCIDENT TO A PERMANENT CHANGE OF STATION NOT ONLY FOR THE LOAN CHARGE THAT IS A FINANCE CHARGE WITHIN THE MEANING OF THE ACT, BUT ALSO FOR A VA FUNDING FEE PAID AS A CONDITION PRECEDENT TO SECURING A VA LOAN GUARANTEE, AND FOR A TAX SERVICE PAID INCIDENT TO THE EXTENSION OF THE CREDIT. HOWEVER, A RECORDING FEE, AND THE COSTS OF OBTAINING A CREDIT REPORT AND LENDER'S TITLE POLICY ARE NOT FINANCE CHARGES AND THESE ITEMS OF COST ARE REIMBURSABLE.

TO M. H. HULL, DEPARTMENT OF AGRICULTURE, FEBRUARY 10, 1970:

YOUR LETTER OF DECEMBER 9, 1969, REFERENCE 6540, REQUESTS A DECISION ON WHETHER THE ENCLOSED VOUCHER IN THE AMOUNT OF $380.05 MAY BE CERTIFIED FOR PAYMENT TO MR. JOHN M. LANE FOR REAL ESTATE EXPENSES INCURRED ON THE PURCHASE OF A RESIDENCE IN GLENDORA, CALIFORNIA, INCIDENT TO A PERMANENT CHANGE OF STATION AS AN EMPLOYEE OF THE FOREST SERVICE.

THE ITEMS OF EXPENSE FOR WHICH REIMBURSEMENT IS CLAIMED INCLUDE:

RECORDING DEED OF TRUST------------------------------ $4.40

CREDIT REPORT---------------------------------------- 10.00

ALTA LENDER'S TITLE POLICY--------------------------- 35.65

LOAN CHARGES----------------------------------------- 210.00

VA FUNDING FEE--------------------------------------- 105.00

TAX SERVICE------------------------------------------ 15.00

TOTAL------------------------------------------ 380.05

THE PRIMARY QUESTION INVOLVED IS WHETHER EITHER THE VA FUNDING FEE OR THE TAX SERVICE CHARGE FOR WHICH REIMBURSEMENT IS CLAIMED CONSTITUTES A PART OF THE FINANCE CHARGE INCIDENT TO THE EXTENSION OF CREDIT AS CONTEMPLATED BY THE TRUTH IN LENDING ACT, 15 U.S.C. 1601 NOTE (TITLE 1 OF PUBLIC LAW 90 -321).

SECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A-56, REVISED JUNE 26, 1969, READS IN PART AS FOLLOWS:

*** 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. ***

UNDER SUCH PROVISION WHENEVER AN ITEM OF EXPENSE INCIDENT TO A REAL ESTATE TRANSACTION CONSTITUTES A FINANCE CHARGE WITHIN THE CONTEMPLATION OF REGULATION Z REIMBURSEMENT THEREFOR IS PRECLUDED. SECTION 106 OF THE TRUTH IN LENDING ACT IS IN PART AS FOLLOWS:

(A) EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, THE AMOUNT OF THE FINANCE CHARGE IN CONNECTION WITH ANY CONSUMER CREDIT TRANSACTION SHALL BE DETERMINED AS THE SUM OF ALL CHARGES, PAYABLE DIRECTLY OR INDIRECTLY BY THE PERSON TO WHOM THE CREDIT IS EXTENDED, AND IMPOSED DIRECTLY OR INDIRECTLY BY THE CREDITOR AS AN INCIDENT TO THE EXTENSION OF CREDIT, INCLUDING ANY OF THE FOLLOWING TYPES OF CHARGES WHICH ARE APPLICABLE:

(1) INTEREST, TIME PRICE DIFFERENTIAL, AND ANY AMOUNT PAYABLE UNDER A POINT, DISCOUNT, OR OTHER SYSTEM OF ADDITIONAL CHARGES.

(2) SERVICE OR CARRYING CHARGE.

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

(4) FEE FOR AN INVESTIGATION OR CREDIT REPORT.

(5) PREMIUM OR OTHER CHARGE FOR ANY GUARANTEE OR INSURANCE PROTECTING THE CREDITOR AGAINST THE OBLIGOR'S DEFAULT OR OTHER CREDIT LOSS.

(E) THE FOLLOWING ITEMS, WHEN CHARGED IN CONNECTION WITH ANY EXTENSION OF CREDIT SECURED BY AN INTEREST IN REAL PROPERTY, SHALL NOT BE INCLUDED IN THE COMPUTATION OF THE FINANCE CHARGE WITH RESPECT TO THAT TRANSACTION:

(1) FEES OR PREMIUMS FOR TITLE EXAMINATION, TITLE INSURANCE, OR SIMILAR PURPOSES.

(2) FEES FOR PREPARATION OF A DEED, SETTLEMENT STATEMENT, OR OTHER DOCUMENTS.

(3) ESCROWS FOR FUTURE PAYMENTS OF TAXES AND INSURANCE.

(4) FEES FOR NOTARIZING DEEDS AND OTHER DOCUMENTS.

(5) APPRAISAL FEES.

(6) CREDIT REPORTS.

REGULATION Z (12 CFR, PART 226) PROMULGATED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM PURSUANT TO THE TRUTH IN LENDING ACT IS IN PART AS FOLLOWS:

SEC. 226.4(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:

(7) PREMIUM OR OTHER CHARGE FOR ANY OTHER GUARANTEE OR INSURANCE PROTECTING THE CREDITOR AGAINST THE CUSTOMER'S DEFAULT OR OTHER CREDIT LOSS.

(E) *** 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.

UNDER 38 U.S.C. 1818(D) THE VA FUNDING FEE IN AN AMOUNT NOT TO EXCEED ONE -HALF OF 1 PER CENTUM OF THE TOTAL LOAN MUST BE COLLECTED FROM THE VETERAN PURCHASER AND REMITTED TO THE ADMINISTRATOR, VETERANS ADMINISTRATION, AS A CONDITION PRECEDENT TO VA GUARANTEEING A LOAN MADE TO THE VETERAN. THE FEE IS FOR DEPOSIT INTO A REVOLVING FUND ESTABLISHED PURSUANT TO 38 U.S.C. 1824 AND IS AVAILABLE FOR THE PURPOSES OF LOAN GUARANTEE AND INSURANCE OPERATIONS AUTHORIZED UNDER CHAPTER 37 OF TITLE 38, UNITED STATES CODE.

IT CLEARLY APPEARS THAT UNDER THE APPLICABLE LAWS AND REGULATIONS QUOTED ABOVE THE VA FUNDING FEE CONSTITUTES A CHARGE PAID BY THE VETERAN PURCHASER INCIDENT TO AND AS A CONDITION PRECEDENT TO HIS OBTAINING FROM THE CREDITOR A LOAN THAT IS GUARANTEED BY THE VA. THEREFORE, SUCH FEE MUST BE REGARDED AS A FINANCE CHARGE WITHIN THE MEANING OF SECTION 106(A)(5) OF THE TRUTH IN LENDING ACT, AND SECTION 226.4(A)(7) OF REGULATION Z, QUOTED ABOVE. IN SUCH CONNECTION WE POINT OUT THAT THE FUNDING FEE IS NOT INCLUDED IN THE ENUMERATION OF EXCLUDABLE CHARGES, REAL PROPERTY TRANSACTIONS, AS SET FORTH IN SECTION 106(E) OF THE ACT AND SECTION 226.4(E) OF THE IMPLEMENTING REGULATION. ACCORDINGLY, WE CONCLUDE THAT THE VA FUNDING FEE OF $105 IS NOT A REIMBURSABLE REAL ESTATE EXPENSE UNDER SECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A-56.

WE UNDERSTAND THAT THE $15 ITEM PAID FOR TAX SERVICES REPRESENTS A CHARGE PAID BY THE EMPLOYEE PURCHASER TO THE ESCROW HOLDER WHOM WE HAVE BEEN ADVISED ALSO IS THE LENDING INSTITUTION. THE CHARGE APPARENTLY IS MADE BY THE LENDER INCIDENT TO ITS PRORATING THE TAX OBLIGATION OF THE BUYER OR SELLER COVERING THE YEAR IN WHICH SETTLEMENT IS MADE. WE NOTE THAT THE AMOUNT CLAIMED ($15) IS SHOWN ON THE DISCLOSURE STATEMENT, TRANSMITTED WITH YOUR LETTER, AS A FINANCE CHARGE. UNDER THE CIRCUMSTANCES AND BASED UPON THE FOREGOING UNDERSTANDING THE $15 CHARGE IS REGARDED AS AN EXPENSE INCURRED INCIDENT TO THE EXTENSION OF CREDIT WHICH UNDER THE CONTROLLING REGULATION (REGULATION Z) MUST BE REGARDED AS A FINANCE CHARGE AND, AS SUCH, IS NOT REIMBURSABLE.

IT IS CLEAR THAT THE $210 ITEM DESIGNATED AS A LOAN CHARGE CONSTITUTES A FINANCE CHARGE WITHIN THE MEANING OF THE TRUTH IN LENDING ACT AND IMPLEMENTING REGULATIONS, THEREFORE, IT, TOO, IS NOT REIMBURSABLE. SUCH CONNECTION WE POINT OUT THAT WHILE UNDER THE PRIOR REGULATION A REASONABLE LOAN ORIGINATION FEE WAS REIMBURSABLE, THE CURRENT REGULATIONS AS REVISED JUNE 26, 1969, MAKE NO PROVISION FOR REIMBURSING AN EMPLOYEE PURCHASER FOR A LOAN ORIGINATION FEE. THE OTHER ITEMS ENUMERATED ON THE VOUCHER (RECORDING FEE, $4.40; CREDIT REPORT, $10; ALTA LENDER'S TITLE POLICY, $35.65) PROPERLY MAY BE CERTIFIED FOR PAYMENT. ACCORDINGLY, THE VOUCHER, WHICH IS RETURNED HEREWITH, MAY BE CERTIFIED FOR PAYMENT IN THE TOTAL AMOUNT OF $50.05.