Memorandum for the Chairman The buyer and seller entered into a sales contract dated August 2, 1981. The sales price was originally listed on the preprinted_contract form as $305,500. This is stricken from the form and in its place is the figure $325,000. The seller states that he insisted that the contract include the higher amount. A preprinted provision for "agents fee" provides for payment by the seller. This was manually revised to provide for payment by the buyer "included in the down payment." The August 20, 1981, closing statement recites a "contract sales price" of $325,000, but elsewhere the total is broken down as "$305,500 base purchase price plus $19,500 paid by purchaser equals $325,000 total purchase price. A gross amount of $325,100 is listed as due the seller, and the $19,500 commission is listed as "paid from sellers funds at settlement." The commission of 6% is calculated at the $325,000 sales price. The buyer believes that the higher price was used in the closing statement at the direction of the settlement agent to reflect the appropriate transfer value. The settlement agent believes the statement reflects what the parties to the transaction had earlier agreed upon. The buyer has no recollection of the circumstances surrounding the modification of the sales contract to reflect the higher sales price. The relocation allowance plan in effect at the time of the transaction provided, in the case of "sale closing costs", for reimbursement of "all reasonable selling expenses... including mortgage pre-payment penalty, broker's commission, mortgage discount points, duplicate loan carrying costs, etc." (emphasis supplied). For "purchase closing costs the policy provided for reimbursement of "all normal and reasonable buyer costs." It is our tentative view that in the context of the facts of this transaction, the commission paid by the buyer cannot be treated as a normal and reasonable buyer cost. This is not to say that it may not be normal and reasonable under other circumstances for the buyer to incur such an expense. For example, it may be normal and reasonable for a buyer to retain his own broker in search of a house and agree to pay a fee independently of what the seller may be obliged to pay and ordinarily include in the sales price. In such a case, the seller owes no fee to the broker in the event of sale, and any payment by the buyer in no way bears on the consideration paid the seller for the house. In this case, the seller was obliged to pay a fee to Golubin & Warwick in the event of sale of 6 percent of the sales price including commission. That fee, as we understand it, would be split by Golubin & Warwick with another broker if the sale were consummated with the assistance of another broker through the multiple listing service. Memorandum for the Chairman The papers are somewhat inconclusive as to whether the purchase price for the home was $305,500 or $325,000, and whether the buyer or seller paid the brokerage commission. But even if the buyer paid the commission, as recited in the contract of sale and settlement statement, it appears that the lesser price was agreed to only on condition that the buyer pay a commission the seller was contractually obliged to pay in connection with the transaction. This should be viewed as part of the overall consideration to the seller, so that the transaction involved a $325,000 purchase price, regardless of how denominated in the closing papers. Thus we view the commission not as a normal and reasonable buyer cost, but as part of the purchase price. We do not believe the negotiations surrounding payment of the commission have altered its essential character so that it would qualify as a normal and reasonable buyer cost rather than the purchase price. Advised of the Office of General Counsel's tentative decision, the officer/director has voluntarily agreed to pay to the Corporation on June 1, 1983, or as soon thereafter as the Office of General Counsel reaches its final decision, a sum representing the reimbursement and interest thereon in the event the Office of General Counsel concludes that the reimbursement was not in accordance with the Corporation's relocation reimbursement policy. In agreeing to the payment the officer/director has restated his firm belief that the reimbursement was in accord with the Corporation's relocation reimbursement policy, and has reserved all his rights to ultimate repayment of the sum as well as all other amounts to which he may be entitled by law or Corporation policy. (5.b.) A mortgage interest rate differential claim [The matter remains] unresolved and adequate The Corporation's policy regarding "mortgage interest differentials" stated: "provide payment for interest rate differences between old and new rate times old mortgage dollar balance for a 3-year period. Payment to be made on an annual basis." Memorandum for the Chairman There is no explicit requirement that the employee sell his old residence as well as purchase a new residence. Such a requirement might be implied from the text if the purpose of the provision were solely to reimburse the employee for the loss of a favorable mortgage as a consequence of the job-related change of principal residence. The sale of the original principal residence; however, would not establish that there was in fact economic loss. If the old mortgage were assignable, and mortgage rates had risen in the area of the original principal residence, the value of the mortgage would not be lost, but instead be reflected in the sales price received by the employee with the transfer of the mortgage as part of the sale. On the other hand, the differential may also be viewed as provided to enable the new employee to purchase a new residence on financing terms comparable to those he had obtained when he financed his old principal residence. The purpose would be to assist in providing a standard of housing comparable to that enjoyed in his prior place of residence. If this be the purpose, whether he sold his old home or retained it as an investment would not govern eligibility for the differential. It is our tentative view that the differential may properly be paid under the above stated policy, and the more recent statement of policy effective October 10, 1982, even where the original principal residence has not been sold. We plan to discuss this matter with compensation specialists to assure we fully appreciate all factors involved in this and comparable reimbursement programs. (5.c.) Expenses incurred of more than $3,000 prior The Corporation should assemble the pertinent A review of the audit file suggests that the expenses incurred in April and May 1981 were first claimed as relocation costs, and as such costs, disallowed. This decision appears to have been reversed in March of 1982 on the basis that the director/employee was conducting business on behalf of the Corporation. Memorandum for the Chairman The passage of time has made it impossible for the director/employee to reconstruct completely all the business conducted during the period. The officer/director has attempted to reconstruct his activities based on incomplete records. While the reconstruction does not cover all days for which reimbursement is sought, it does reflect substantial contact with Corporation employees and candidates for employment, and members of the executive and legislative branches. The officer/director has located his receipt for the April 23-28, 1981, round trip between Atlanta and Washington, but not for May 15-16, 1981. Further efforts to elaborate on the documentation in the files are continuing. At your request I have conducted a review of three matters relating to reimbursement of an officer and director of the Corporation that were raised as exceptions in the fiscal year 1982 internal audit of travel and relocation expenses and employee advance accounts conducted by the Office of the Inspector General and presented in a February 1983 Addendum. I set forth below the results of the review and the conclusions reached with. regard to each matter. (5.a.) A director and officer has been reimbursed $19,500 for the [The matter remains] unresolved and adequate justification I have reviewed the Corporation's file on the payment, interviewed the director/officer, spoken telephonically to the seller, Maurice N. DeGroff, and the settlement agent, attorney George E. Bitner, and have interviewed Pat Buck, sales associate, and William Malone, office manager, for Holley, Hargett & Spain, the real estate brokerage firm that received one half of the commission and on whose form the sales contract was written. I have |