B-171792, MAY 28, 1971

B-171792, MAY 28, 1971

CIVILIAN EMPLOYEE - REAL ESTATE EXPENSES - FINANCE CHARGE SUSTAINING DECISION DENYING CLAIM OF DOUGLAS A. JERNIGAN FOR REAL ESTATE EXPENSES INCURRED IN CONNECTION WITH THE PURCHASE OF A HOUSE. AS CLAIMANT MERELY AGREED TO REMIT THE LOAN SEWER CHARGE IF HIS LOAN APPLICATION WERE APPROVED, SUCH CHARGE IS A FINANCE CHARGE THE REIMBURSEMENT OF WHICH IS SPECIFICALLY PROHIBITED BY OMB CIRCULAR NO. A 56.

TO CHARLES E. LAMBDIN:

THIS IS IN FURTHER REFERENCE TO YOUR LETTER OF JANUARY 18, 1971, AND PRIOR CORRESPONDENCE WITH ENCLOSURES, REQUESTING RECONSIDERATION OF MR. DOUGLAS A. JERNIGAN'S CLAIM FOR $330 OF REAL ESTATE EXPENSES WHICH OUR OFFICE SETTLEMENT DISALLOWED ON JULY 7, 1970.

THE ENCLOSURES WITH YOUR LETTER INCLUDED A COPY OF MR. JERNIGAN'S CHECK DATED JUNE 14, 1969, SHOWING THAT HE PAID $250 AS EARNEST MONEY AND THE SELLER'S ENDORSEMENT THEREON STATING IT "WILL BE APPLIED AS PART OF PURCHASE PRICE ON HOUSE AND LOT LOCATED AT 248 HARREL CIR. BARNESVILLE, GA. AS PER TERMS AND CONDITIONS AGREED UPON." APPARENTLY, IN ADDITION TO THE PURCHASE AND SALE PRICE OF $27,500 FOR THE HOUSE AND LOT, THE PARTIES AGREED TO PROVISIONS OBLIGATING MR. JERNIGAN TO PAY CERTAIN EXPENSES WHICH WOULD ARISE SUBSEQUENTLY INCIDENT TO HIS OBTAINING FHA FINANCING, AS YOU SAY. HOWEVER, MR. JERNIGAN'S APPLICATION, DATED JUNE 16, 1969, FOR A LOAN OF $22,000 TOWARD FINANCING THE HOUSE PURCHASE, AUTHORIZED THE THOMASTON FEDERAL SAVINGS AND LOAN ASSOCIATION TO INCUR CERTAIN TYPES OF EXPENSES INCLUDING "INITIAL SERVICE CHARGE" ON HIS BEHALF "AS REQUIRED TO PROCESS THE APPLICATION," AND HE AGREED "TO PAY FOR ANY EXPENSES SO INCURRED." HIS APPLICATION WAS APPROVED BY THE ASSOCIATION'S LOAN COMMITTEE ON JUNE 27, 1969, AND BY THE ASSOCIATION'S BOARD OF DIRECTORS ON AUGUST 18, 1969.

THE STATEMENT OF SETTLEMENT OF THE $22,000 LOAN PROCEEDS, DATED JULY 3, 1969, SETS FORTH THE "TERMS OF THE LOAN, THE EXPENSES THEREOF, AND OTHER RECEIPTS AND DISBURSEMENTS IN CONNECTION THEREWITH." THE DISBURSEMENT DISTRIBUTION OF THE LOAN PROCEEDS INCLUDED THE $330 INITIAL SERVICE CHARGE. PRESUMABLY, THE ACTUAL DISBURSEMENTS DID NOT OCCUR PRIOR TO JULY 3, 1969, BECAUSE IN ACKNOWLEDGING RECEIPT OF THE LOAN SETTLEMENT AND CORRECTNESS THEREOF, MR. JERNIGAN "AUTHORIZES AND RATIFIES THE DISBURSEMENT OF THE FUNDS AS STATED THEREON."

THE FOREGOING DEMONSTRATES THAT ON JUNE 16, 1969, MR. JERNIGAN MERELY AGREED TO REMIT THE LOAN SERVICE CHARGE IF THE ASSOCIATION APPROVED HIS APPLICATION, AND THAT THE ACTUAL REMITTANCE OF THE $330 OCCURRED WHEN THAT AMOUNT WAS DEDUCTED IN THE DISTRIBUTION OF THE PROCEEDS OF THE LOAN ON OR AFTER JULY 3, 1969.

SECTION 4.2D OF OFFICE OF MANAGEMENT AND BUDGET CIRCULAR NO. A-56 (1966) WAS REVISED JUNE 26, EFFECTIVE JULY 1, 1969. TRANSMITTAL MEMORANDUM NO. 5 DATED JUNE 26, 1969, ADVISED ALL PERSONS CONCERNED AS FOLLOWS:

"THE REVISION OF 4.2D PROVIDES FOR REIMBURSEMENT OF MORTGAGE PREPAYMENT CHARGES, CLARIFIES THE TYPES OF EXPENSES THAT ARE REIMBURSABLE IN CONNECTION WITH THE CONSTRUCTION OF A RESIDENCE, REMOVES LENDER'S LOAN ORIGINATION FEE FROM THE LISTING OF REIMBURSABLE EXPENSES, AND PROHIBITS REIMBURSEMENT FOR EXPENSES WHICH ARE DETERMINED TO BE A PART OF THE FINANCE CHARGE UNDER THE TRUTH IN LENDING ACT. (THE TRUTH IN LENDING ACT, TITLE I, PUBLIC LAW 90-321 (15 U.S.C. 1605), IS EFFECTIVE JULY 1, 1969.)"

IN THAT RESPECT, SEE THE ENCLOSED COPIES OF OUR DECISIONS B-168239, DECEMBER 15, 1969; B-168359, JANUARY 2, 1970; AND B-168407, DECEMBER 22, 1969. COMPARE B-168475, JANUARY 16, 1970.

THEREFORE, OUR OFFICE SETTLEMENT OF JULY 7, 1970, WHICH DISALLOWED MR. JERNIGAN'S CLAIM FOR $330 MUST BE SUSTAINED.