Board of Contract Appeals
General Services Administration
Washington, D.C. 20405
__________________
December 8, 2000
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GSBCA 15330-RELO
In the Matter of RICHARD A. POISEL
Richard A. Poisel, Vail, AZ, Claimant.
Capt. Leslie A. Rowley, Office of the Staff Judge Advocate,
Claims Division, United States Army Intelligence Center, Fort
Huachuca, AZ, appearing for Department of the Army.
HYATT, Board Judge.
Claimant, Richard A. Poisel, is a civilian employee of the
Department of the Army. He was transferred from Fort Monmouth,
New Jersey to Fort Huachuca, Arizona in April 1999. Incident to
this transfer, he purchased a new home in Arizona and submitted a
claim for reimbursement of real estate expenses incurred. The
Army reduced his claim for expenses, which totaled $9,849, to the
amount of $4,927. Mr. Poisel disagrees with some of the
reductions made and has requested the Board's review of these
disallowances.
Background
Mr. Poisel decided to have a home built in Arizona. He
purchased a lot, obtained a construction loan, and eventually
took out a permanent mortgage to finance the house. It appears
that he sought to have the Army pay all closing costs associated
with the three loans required for (1) the purchase of the lot,
(2) construction of the house, and (3) permanent financing for
the residence. The Army reviewed the expenses associated with
the purchase of the land and made a number of reductions. The
principal reductions for which Mr. Poisel seeks review pertain to
disallowance of the underwriting fee, the tax service fee, a loan
discount fee, and an item described as a one percent discount to
the mortgage company. The Army paid a number of the customary
and reasonable expenses incurred on the construction loan, but
disallowed mortgage broker fees, which it determined, after a
discussion with the mortgage company, were actually discount
points. The Army declined to pay any expenses associated with
the third loan, for permanent financing on the house, reasoning
that these were duplicative of the expenses incurred under the
first two loans.
Mr. Poisel challenges the disallowances of the various fees
described above and argues that the closing expenses associated
with the third loan were necessary and not duplicative. The
Board wrote to claimant and the Army and requested that they
provide a description of what the loan and mortgage discounts,
and broker fees, consisted of. In addition, the Board noted
that, under applicable rulings, ordinarily the closing costs
associated with the permanent loan, rather than the costs
associated with closing on the prior loans, are reimbursed and we
asked the Army to explain its decision in this regard.
With respect to the loan discount fees, Mr. Poisel states
that he could not obtain supplementary statements from the
mortgage company, but contends that these fees should not be
deemed to reflect interest, or points, associated with the loans
because it would have made no sense, and was not his intent, to
buy down the interest rate on short term loans. Thus, he
maintains that these were not loan discount fees or points, but
some other type of charge identified as such under the mortgage
company's accounting system. Claimant further asserts that
before he engaged a loan brokerage firm, Pinnacle Mortgage
Company, it was explicitly agreed that no loan discount fees
would be permitted. In its response, the Army counters that it
contacted the mortgage company and was told that the charges were
in fact "discounts."
As to the broker fees charged for the construction loan, Mr.
Poisel states that it is his understanding that this was the fee
received by the loan brokerage firm for processing the loan
documents. A loan broker was needed to obtain the lowest
possible interest rate.
Discussion
Under 5 U.S.C. 5724a(a)(4)(Supp. IV 1998), employees who
are transferred in the interest of the Government may be
reimbursed for certain expenses incurred in the purchase of a
residence at the new duty station. Included among the items
that may be reimbursed are certain miscellaneous expenses that
are customarily paid by . . . the purchaser of a residence at the
new official station, to the extent they do not exceed
specifically stated limitations, or in the absence thereof,
amounts customarily paid in the locality of the residence." 41
CFR 302-6.2(d) (1999). Among the miscellaneous charges that may
be reimbursed are fees charged by banks or mortgage companies for
the administrative costs of processing the loan. Fees related to
the extension of credit itself, however, may not be reimbursed.
Underwriting and Tax Service Fees
The Army has properly disallowed Mr. Poisel's claim for the
underwriting fee and the tax service fee. Neither of these fees
is recoverable under the Federal Travel Regulation (FTR), 41
CFR 302-6.2(d)(2)(v) (1999), 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 Regulations (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 incident to the
extension of credit. The Board has consistently recognized that
these fees are charges paid incident to and as a prerequisite to
the extension of credit, and thus are not reimbursable. Gerald
Fediw, GSBCA 14256-RELO, 98-1 BCA 29,513; accord Stanley H.
Levine, GSBCA 15065-RELO, 00-1 BCA 30,809.
Loan Discount and Mortgage Broker's Fees
The Army also disallowed loan discount fees charged in
connection with the financing process. The Board has previously
recognized that "loan discounts" and "mortgage discounts" are
generally synonymous and that under FTR 302-6.2(d)(2)(ii),
"mortgage discounts" are nonreimbursable real estate transaction
costs. Brent T. Wahlquist, GSBCA 13721-RELO, 97-2 BCA 29,094.
Claimant was given an opportunity to show that the mortgage
company used the term "loan discount" to assess some other type
of charge that might be reimbursable, but was unable to explain
what the term was intended to mean. Even if we accept claimant's
argument that he did not pay points and that these charges were
not a form of interest, there is no basis in this record for us
to determine that these charges represent administrative costs or
that it is customary in this locality for the buyer to pay them.
The burden is on the claimant to establish his right to payment.
Rule 401(c) (48 CFR 6104.1(c) (1999)). In the absence of
satisfactory evidence to the contrary, we must conclude the term
refers to a charge associated with the extension of credit and
that the agency properly disallowed this cost.
Similarly, there is no statute or regulation that would
authorize payment of the mortgage broker's fees. Thus, the Army
properly declined to reimburse these charges. Michael L. Peeler,
B-252355 (July 20, 1993).
The Three Loans
In response to Mr. Poisel's claim for reimbursement of the
closing costs incurred with respect to the three loans
associated with the purchase of his newly constructed house, the
agency properly recognized that it should not reimburse
duplicative costs. With respect to closing costs and other
expenses associated with the three loans, in addressing similar
circumstances the Board has recognized that an employee who
chooses to construct a home at the new duty station will be
eligible to recover real estate transaction expenses to the same
extent as an employee who purchased an existing home. Where
each stage of the building process involves a number of expenses
which would appropriately be reimbursed in connection with the
purchase of an existing residence, the employee may be reimbursed
only once for each type of expense that is allowable under the
regulations. In general, the expenses incurred incident to
permanent financing on the completed house are most
representative of expenses an employee would incur to purchase an
existing residence, and entitlement determinations should be
based primarily on an examination of that settlement. When
similar fees and expenses are incurred more than once as a result
of the decision to construct a new home rather than buy an
existing residence, the duplicate fees are considered to have
resulted from the construction of the new home and are not
reimbursable. Thomas S. Cushing, GSBCA 13867-RELO, 97-2 BCA
29,022; see also David G. Winter, GSBCA 14229-RELO, 98-1 BCA
29,361; Brent T. Wahlquist, GSBCA 14163-RELO, 97-2 BCA 20,095.
[foot #] 1
The intent of this rule of thumb is that the employee should
not receive a higher level of reimbursement when a house is newly
constructed than would have been received for purchasing an
existing house. The agency has not provided any explanation for
its decision to reimburse the closing costs for the land and the
construction loan, rather than the costs associated with the
permanent loan. On this record we do not know whether claimant
would receive a higher level of reimbursement if the Army were
instead to reimburse the closing costs incurred for the permanent
loan. To determine the proper amount of reimbursement due to
claimant, the agency should review the files, ascertain the costs
that are reimbursable in connection with the third loan for
permanent financing, and then review whether there are any
additional, nonduplicative costs incurred with respect to the two
earlier loans which might also be reimbursed. The agency should
then make the appropriate adjustment.
________________________________
CATHERINE B. HYATT
Board Judge
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[foot #] 1 Thus, although the agency expressed concern about
whether it was proper to take out three loans, this is
immaterial. The employee's recovery is limited by the rule
prohibiting the payment of duplicative costs or costs incurred
solely by reason of the decision to construct a house, rather
than purchase an existing residence.