Request for Reimbursement of Real Estate Expenses

A Federal employee appealed a GAO Claims Group decision which disallowed his claim for reimbursement of the expenses of an appraisal and credit report incurred in connection with his unsuccessful attempt to secure Federal Housing Administration (FHA) financing to purchase a residence incident to his transfer of official duty station. Upon transfer, the employee entered into a contract to purchase a residence under an FHA-guaranteed mortgage. After the employee completed the necessary papers and paid the appraisal and credit fees, the mortgage company informed him that the property did not appraise for a sufficient amount so as to permit FHA to guarantee the loan. The seller would not agree to a lesser amount under the same type of financing. The employee then entered into a new contract to purchase the same residence for a lesser amount to be financed under a conventional mortgage. The mortgage company would not accept the prior appraisal and credit report. Another appraisal and credit report were, therefore, made at the request of the lender. Subsequently, the second mortgage application was approved. Applicable regulations state that an employee may be reimbursed for certain real estate expenses, including appraisal fees and costs of preparing credit reports. However, GAO has held that the intent of the regulations relating to the reimbursement of real estate expenses is to reimburse one set of authorized expenses relating to one sale and one purchase. The reasoning behind this holding is that the costs associated with incomplete contracts are duplicative and analogous to losses due to market conditions, and reimbursement of such losses is prohibited by regulations. Since the employee had been reimbursed for one appraisal and credit report, GAO held that he could not be reimbursed for a second service. Accordingly, the previous GAO decision was sustained.