______________________ December 12, 1997 ______________________ GSBCA 14256-RELO In the Matter of GERALD FEDIW Gerald Fediw, Manassas, VA, Claimant. Andrew J. Eikren, Director, Accounting Support, Defense Finance and Accounting Service, Indianapolis, IN, appearing for Department of Defense. HYATT, Board Judge. Under permanent change of station (PCS) orders issued in July 1994, claimant, Gerald Fediw, a computer specialist employed by the Department of the Army, was transferred in the interest of the Government from Fort Huachuca, Arizona to Fort Belvoir in Northern Virginia. His claim is for reimbursement of four items of expenses incurred in the purchase of a residence in Virginia: 1) an underwriting fee of $150; 2) a tax service fee of $76; 3) a state grantor tax of $288; and 4) a document review fee of $175. All four items were disapproved by the command. The Defense Finance and Accounting Service (DFAS) has forwarded Mr. Fediw's claim for our review, recommending that the first three items be denied and that the last item be paid. As explained further below, we agree with the position taken by DFAS and find that the underwriting fee and the tax service fee are nonreimbursable components of the finance charge under the Truth in Lending Act; the state grantor tax has not been shown to be a cost that is "customarily" shifted to the buyer in the locality; and the document review fee is properly reimbursable as a legal expense. Background After moving to Virginia, claimant purchased a house in October 1996 and, on December 23, 1996, filed a voucher for reimbursement of the allowable expenses incurred. On January 30, 1997, the Army responded by approving the claim presented in an amount reduced by the cost of four items determined to be nonreimbursable. The items excluded from payment were the following: underwriting fee $150 tax service fee $ 76 document review fee $175 state grantor tax $288 The first three items, which were charged by the mortgage company, were regarded by the Army as finance charges imposed by the lender incident to the extension of credit. The state grantor tax was disapproved because the Army determined that it is customary in the area for the seller, not the buyer, to pay this cost. Claimant disagrees with this assessment. In support of his position he has provided a memorandum from his lending institution, George Mason Mortgage Corporation (GMMC), explaining three of the charges for which reimbursement was denied by the Army. This memorandum describes the nature and purpose of these fees as follows: Loan Document Review Fee - is a fee charge by GMMC for the review of all final legal documents prior to settlement. Underwriting Review Fee - fee charge by GMMC for the underwriting of the complete mortgage loan file. Tax Service Fee - fee charge by third party for establishment of tax and insurance escrow account. The memorandum further states that "[t]hese fees are actual costs incurred by George Mason Mortgage Corporation and are not considered finance charges." In a memorandum submitted by claimant to DFAS and the command, claimant states that it is his understanding that builders in Virginia customarily require buyers of new houses to pay all closing costs, including the state grantor tax, which, claimant asserts, is considered to be a recording fee. Claimant further states that he consulted local HUD offices and was advised that in this area it is customary for sellers to pay transfer taxes and for buyers to pay recording fees. Claimant has not submitted any independent documentation to support these statements, however. DFAS, after reviewing the file, has adopted the position that the underwriting fee and the tax service fee are nonreimbursable finance charges but disagrees with the disapproval of the document review fee, which it believes may properly be reimbursable under General Accounting Office precedent. It agrees with the Army's denial of the state grantor tax because Mr. Fediw has not produced any documentation to support his argument that it is customary for the buyer to assume this cost in Northern Virginia. Discussion Neither the underwriting fee nor the tax service fee is recoverable under the Federal Travel Regulation (FTR), 41 CFR 302-6.2(d)(2)(v) (1996), which provides that unless specifically authorized elsewhere in the regulation, no fees, charges, costs, or expenses determined to be part of the finance charge under the Truth in Lending Act, 15 U.S.C. 1605 (1994), may be reimbursed. Accord Joint Travel Regulation (JTR) C14002-A.4.b(5). The Truth in Lending Act provides that the finance charge shall be determined as the sum of all charges imposed directly or indirectly by the creditor as an incident to the extension of credit. The Board and the General Accounting Office (GAO), which previously had the authority to settle relocation claims, have consistently recognized that the underwriting fee paid by the borrower, while not itself a finance charge, is a charge paid incident to and as a prerequisite to the extension of credit. Charles A. Peters, GSBCA 13643-RELO, 97-1 BCA 28,689 (1996); Kenneth R. Pedde, B-223797 (Apr. 20, 1987); George J. Wehrstedt, B-192851 (May 11, 1979); see also S.K. Datta, GSBCA 13888-RELO, 97-1 BCA 28,929. Similarly, the tax service fee, for the establishment of an escrow account for the payment of real estate taxes, has been deemed to be a prerequisite to the extension of credit and thus not reimbursable. Floyd L. Craft, GSBCA 13698- RELO, 97-2 BCA 29,092; Pamela Swires, B-260724 (Sept. 21, 1995); Sue Wolohan, B-219546 (Jan. 30, 1989); Richard P. Johnson, B-281754 (Sept. 17, 1985).[foot #] 1 With respect to the state grantor's tax, there is a GAO decision directly on point. Christopher S. Werner, B-210351 (May 10, 1983). Werner also involved the Virginia state grantor's tax, which is set forth in the Code of Virginia at 58-1.802. Under the Virginia Code, the tax is to be paid by the seller. In Werner, the seller shifted payment of the tax at settlement to the buyer, who, like the claimant here, was purchasing a newly built home in Northern Virginia and argued that this was a common practice in such purchases. GAO reasoned that even if a practice is quite common, this is not enough to raise it to the status of a charge "customarily assumed" by the purchaser. The Board follows a similar rule. See Brent T. Wahlquist, GSBCA 13721- RELO, 97-2 BCA 20,094; Christopher L. Chretien, GSBCA 13704- RELO, 97-1 BCA 28,701 (1996). GAO concluded in Werner that since the grantor's tax was not an expense customarily assumed by the buyer it was not reimbursable under FTR 302-6.2(d). Although Mr. Fediw has likewise asserted that it is common for buyers of new construction to be required by the builder to assume the cost of this tax, there is no conclusive evidence before us that this is a cost customarily paid by the buyer. Given the language of the statute, which imposes this tax on the seller, and the lack ----------- FOOTNOTE BEGINS --------- [foot #] 1 The fact that the lending institution does not consider these cost items to be part of the finance charge is not dispositive. John G. Barry, B-199944 (Apr. 16, 1981). ----------- FOOTNOTE ENDS ----------- of concrete evidence that this tax is customarily shifted to the buyer, we find that the Army properly denied reimbursement of this item. Finally, although the Army disapproved reimbursement of the document review fee charged by the lending institution, DFAS has suggested that this cost might in fact be reimbursable, citing the case of Alvin A. West, B-194668 (Sept. 16, 1979), in which a charge imposed by a mortgage company for its attorney's review of condominium documents was determined to be reimbursable under the FTR. As a general proposition, nonlitigation legal and related expenses, not included in charges for other services for which reimbursement is also claimed, are reimbursable if customarily paid by the buyer to the extent they do not exceed amounts customarily charged in the locality where the house has been purchased. 41 CFR 302-6.2(c); George W. Lay, 56 Comp. Gen. 561 (1977). GAO has specifically recognized that fees imposed by a bank on a purchaser for the cost of the bank's attorney's review of documents at or prior to settlement are recoverable if reasonable. William A. Worochock, B-195462 (Apr. 22, 1980); Frank C. Hider, B-188487 (July 15, 1977); Stanley M. Wolf, B- 183807 (Aug. 30, 1976). Since GMMC required claimant to pay this fee, there is no evidence in the record that it is part of the finance charge, and it appears to be reasonable in amount for this area, this fee should be reimbursed by the Army. _____________________________ CATHERINE B. HYATT Board Judge