BVA9507745 DOCKET NO. 93-14 043 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in Denver, Colorado THE ISSUE Waiver of recovery of loan guaranty indebtedness. REPRESENTATION Appellant represented by: Diana J. Payne, Attorney WITNESS AT HEARING ON APPEAL Appellant ATTORNEY FOR THE BOARD Christopher P. Kissel, Associate Counsel INTRODUCTION The record reflects that the appellant is currently on active duty in the United States Navy. This matter comes before the Board of Veterans' Appeals (the Board) on appeal from a decision of the Committee on Waivers and Compromises (the Committee) of the Department of Veterans Affairs Regional Office in Denver, Colorado (VARO), issued in December 1992. The Committee determined that there was no fraud, misrepresentation or bad faith involved in the creation of the indebtedness; however, they concluded that collection of the outstanding indebtedness in the amount of $25,767.25, plus accrued interest thereon, would not be against the principle of equity and good conscience. The Board notes that the validity of the loan guaranty indebtedness is not in dispute. Carlson v. Derwinski, 1 Vet.App. 144 (1992); Schaper v. Derwinski, 1 Vet.App. 430 (1991). There had been no transfer by the appellant of the property subject to the VA loan guaranty prior to default, warranting consideration of a retroactive release of liability. 38 U.S.C.A. § 3713(b) (West 1991); 38 C.F.R. § 36.4323(g) (1994); Schaper, 1 Vet.App. at 432. CONTENTIONS OF APPELLANT ON APPEAL The appellant contends that recovery of the outstanding loan guaranty indebtedness would result in financial hardship. DECISION OF THE BOARD The Board, in accordance with the provisions of 38 U.S.C.A. § 7104 (West 1991), has reviewed and considered all of the evidence and material of record in the veteran's claims file(s). Based on its review of the relevant evidence in this matter, and for the following reasons and bases, it is the decision of the Board that the appellant's request for a waiver of the loan guaranty indebtedness should be granted in part, based on the principle of equity and good conscience. FINDINGS OF FACT 1. In January 1987, the appellant assumed a home mortgage loan which was guaranteed, in part, by the Department of Veterans Affairs (VA). 2. A notice of default was received by VA in October 1988. The first uncured default was on August 1, 1988. 3. A foreclosure sale was held on April 12, 1989. The property was sold for an amount less than the outstanding principal, interest and foreclosure costs, resulting in a deficiency. 4. The VA paid a claim to the lender pursuant to its home loan guaranty obligation, and the resulting loss to the government in the amount of $25,767.25 was charged as a debt to the appellant. 5. The record reflects that there was fault on the part of the appellant in the creation of the debt. 6. To require recovery of the entire amount plus all of the accrued interest of the outstanding loan guaranty indebtedness would cause undue financial hardship to the appellant. 7. Recovery of $12,767.25 of the outstanding loan guaranty indebtedness, plus interest thereon, from the appellant would not result in undue financial hardship or otherwise be inequitable. CONCLUSIONS OF LAW 1. After default, there was a loss of the property which served as security for the VA guaranteed loan. 38 U.S.C.A. § 5302 (West 1991); 38 C.F.R. § 1.964(a) (1994). 2. Waiver of recovery of $13,000.00 of the outstanding loan guaranty indebtedness, plus all of the accrued interest, would be consistent with the principle of equity and good conscience. 38 U.S.C.A. § 5302 (West 1991); 38 C.F.R. § 1.965(a) (1994). 3. Recovery of the remaining $12,767.25 of the outstanding loan guaranty indebtedness would not be contrary to the principle of equity and good conscience. 38 U.S.C.A. § 5302 (West 1991); 38 C.F.R. § 1.965(a) (1994). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS Initially, the Board finds that the appellant has presented a claim which is supported by evidence which leads to the belief that it is well grounded. 38 U.S.C.A. § 5107(a) (West 1991) and Murphy v. Derwinski, 1 Vet.App. 78 (1990). A waiver of loan guaranty indebtedness may be authorized in a case in which collection of the debt would be against equity and good conscience. 38 U.S.C.A. § 5302(b) (West 1991). The standard "Equity and Good Conscience," will be applied when the facts and circumstances in a particular case indicate a need for reasonableness and moderation in the exercise of the Government's rights. The decision reached should not be unduly favorable or adverse to either side. The phrase equity and good conscience means arriving at a fair decision between the obligor and the Government. In making this determination, consideration will be given to the following elements, which are not intended to be all inclusive: (1) Fault of debtor. Where actions of the debtor contribute to creation of the debt. (2) Balancing of faults. Weighing fault of debtor against Department of Veterans Affairs fault. (3) Undue hardship. Whether collection would deprive debtor or family of basic necessities. (4) Defeat the purpose. Whether withholding of benefits or recovery would nullify the objective for which benefits were intended. (5) Unjust enrichment. Failure to make restitution would result in unfair gain to the debtor. (6) Changing position to one's detriment. Reliance on Department of Veterans Affairs benefits results in relinquishment of a valuable right or incurrence of a legal obligation. See 38 C.F.R. § 1.965 (1994). The pertinent facts in this case have been detailed above in this decision. The Board has concluded that no fraud, misrepresentation or bad faith was involved in the creation of the indebtedness. However, no circumstance is found that would relieve the appellant of his responsibility with respect to the outstanding indebtedness arising from his default on the VA guaranteed loan. Initially, the Board notes that there is no evidence that recovery of the indebtedness would defeat the purpose for which the benefits are intended nor is there any evidence to suggest that reliance by the appellant on Department of Veterans Affairs benefits resulted in the relinquishment of a valuable right or the incurrence of a legal obligation. Furthermore, there is no evidence of fault on the part of VA or evidence of unjust enrichment. In this case, the Board finds that the elements of fault of the debtor and undue hardship are for application. After having carefully considered all of the evidence of record, the Board believes that the appellant was at fault in the creation of the loan guaranty indebtedness. His signature to the 1987 assumption agreement certified that he was fully informed of the terms of the mortgage, including its payment schedule, and therefore he accepted full responsibility for meeting the legal obligations of the contract. His arguments concerning his difficult personal or financial situation existing at the time of his default and any real or potential difficulties arising out of those circumstances did not abrogate any of his legal responsibilities pertinent to the loan or resulting indebtedness. The appellant was gainfully employed at the time of his default in August 1988, and he remained employed throughout the redemption period. Moreover, his mortgage responsibility was not relieved because he could not sell or rent the property without incurring additional expenses; as correctly noted by the Committee in its December 1992, decision, "[t]he VA is not in the business of bailing out bad business ventures." Similarly, the decline in property values, while not within his control, cannot serve to relieve him of the mortgage responsibility, since he had the option of continuing to own the property. In summary, the appellant has not presented evidence that the situation was beyond his control and which would relieve him of responsibility for the circumstances that led to the default and related indebtedness to VA. Although the Board has found that the appellant was responsible, at least in part, for the creation of the loan guaranty indebtedness, the degree of fault is not so great as to bar consideration of waiver of recovery of the outstanding indebtedness. The Board notes that the Committee in essence found that the appellant could afford to pay off the outstanding loan guaranty indebtedness in the amount of $25,767.25, plus interest, without undue financial hardship. A Financial Status Report dated November 2, 1991, reflects that the appellant and his wife were then employed by the U. S. Navy and that total monthly income was $3,140.83. They listed three child dependents. Total monthly expenses exceeded $3,500, and included $250 for clothing and $925 in "Other Living Expenses," which were itemized as follows : $60 for automobile gasoline expenses, $35 for wardroom dues, $25 for haircuts, $27 for dry cleaning, $100 total per year for home improvements, $30 for school supplies, $48 for car repairs and $600 total for college fund savings ($200 for each child). He reported a negative monthly balance of $457.24. Listed assets included $10,000 resale value in furniture and household goods, ownership of three automobiles (a 1983 Subaru, $2,000 listed resale value; a 1986 Saab, $3,000 listed resale value; and, a 1991 Dodge Caravan, $15,000 listed resale value). Payments on installment contracts and debts, not including his $577 per month rent or mortgage payment, totaled $1,405.49 per month and included debts owed on a Visa credit card and two automobiles purchased in March 1990 and August 1991. At this hearing in August 1992, the appellant reported that his financial situation was essentially unchanged as reported above except for $700 in attorney's fees incurred as a result of appealing this claim. After careful analysis of the appellant's financial status, it is the Board's opinion that payment of a portion of the outstanding VA loan guaranty indebtedness in reasonable monthly installments would not prevent the appellant from providing for the basic necessities of life for himself and his family. The Board is of the opinion that a number of his reported expenses are discretionary in nature, particularly monthly outlays for college fund savings, and are therefore, insufficient to establish additional proof of financial hardship. The standard of "undue financial hardship" is invoked only where the collection of the debt would seriously impair the veteran-debtor's ability to "provide his/her family with the basic necessities of life." See VBA Circular 20-90-5 (February 12, 1990). Moreover, it appears that a number of his other reported expenses, particularly monthly outlays for clothing, car repairs, school supplies and dry cleaning, appear high, and therefore, in the opinion of the Board, do not establish additional financial hardship when allocated over the course of a five year period. His other reported expenses appear reasonable given his present family situation. Prudent allocation of future monthly living expenses should enable to appellant be able to pay off approximately one- half of the outstanding indebtedness owed to the Government without causing him or his family undue financial hardship. In view of these findings, and in fairness to the Government, which sustained a substantial loss in this transaction due to the appellant's default, the Board believes that the appellant can afford to pay that portion of the outstanding indebtedness amounting to $12,767.25, if monthly payments of approximately $200 are made over a five year period, with careful management of his income, expenses and additional accrued debt. The veteran-debtor is reminded that he is expected to accord a Government debt the same regard given any other debt. Recovery of the remainder of the loan guaranty indebtedness, $13,000.00, plus all accrued interest, is waived. 38 C.F.R. §§ 1.964(a)(2), 1.965(a) (1994). ORDER Waiver of recovery of loan guaranty indebtedness, in the amount of $13,000.00, plus all accrued interest, is granted. Waiver of recovery of the remaining loan guaranty indebtedness in the amount of $12,767.25 is denied. KENNETH R. ANDREWS, JR. Member, Board of Veterans' Appeals The Board of Veterans' Appeals Administrative Procedures Improvement Act, Pub. L. No. 103-271, § 6, 108 Stat. 740, ___ (1994), permits a proceeding instituted before the Board to be assigned to an individual member of the Board for a determination. This proceeding has been assigned to an individual member of the Board. NOTICE OF APPELLATE RIGHTS: Under 38 U.S.C.A. § 7266 (West 1991), a decision of the Board of Veterans' Appeals granting less than the complete benefit, or benefits, sought on appeal is appealable to the United States Court of Veterans Appeals within 120 days from the date of mailing of notice of the decision, provided that a Notice of Disagreement concerning an issue which was before the Board was filed with the agency of original jurisdiction on or after November 18, 1988. Veterans' Judicial Review Act, Pub. L. No. 100-687, § 402 (1988). The date which appears on the face of this decision constitutes the date of mailing and the copy of this decision which you have received is your notice of the action taken on your appeal by the Board of Veterans' Appeals.