BVA9502002 
DOCKET NO.  93-02 937     )       DATE
          )
          )

On appeal from the decision of the
Department of Veterans Affairs Regional Office in Montgomery,
Alabama

THE ISSUE

Recovery of the loan guaranty indebtedness.

ATTORNEY FOR THE BOARD

Michael A. Pappas, Associate Counsel

INTRODUCTION

The appellant served on active duty from August 1983 to May 1987,
and from January 1991 to May 1991.

This matter came before the Board of Veterans' Appeals (the Board)
on appeal from a decision on waiver of indebtedness of the
Montgomery, Alabama, Regional Office's Committee on Waivers and
Compromises (RO).  An August 1992 decision denied the appellant's
request for a waiver of his loan guaranty indebtedness in the
amount of $10,024.43, plus accrued interest.  The appeal was
received and docketed at the Board in February 1993.  The
appellant has represented himself throughout his appeal, and the
case is now ready for appellate review.

The appellant has not challenged the validity of the loan
guaranty indebtedness.  Accordingly, we limit our consideration
to the issue shown on the preceding page.

CONTENTIONS OF APPELLANT ON APPEAL

The appellant asserts that the RO committed error by failing to
grant a waiver of recovery of his loan guaranty indebtedness
since, essentially, he should not be considered at fault in the
creation of the indebtedness, and the enforcement of collection
will result in an undue hardship to him.

Specifically, in their assessment of fault, the appellant believes
that the RO did not properly consider the following mitigating
factors:  (1)  Shortly after the purchase of the subject property
used as security for the VA guaranteed loan, the appellant was
laid off from his job.  His spouse also became unemployed.  Their
efforts to obtain employment were futile since there was no work
available in the area.  Their sole source of income was limited to
unemployment benefits.  The resulting diminution in available
finances made it difficult for the appellant to meet the monthly
mortgage obligation.  (2)  Following the initial default, the
appellant made every effort to work out a repayment plan with the
note holder.  He believes that he would ultimately have been
successful, but the note holder refused to accept partial
payments.  (3) In the midst of this financial dilemma, the
appellant was called into active service to participate in the
Desert Storm operation.  He left his spouse in charge of his
financial affairs, but she was unable to convince the note holder
to accept partial payments under a modified repayment plan.  Upon
his return from overseas, he was able to find a job but was soon
laid off.  Regardless, by this time the indebtedness had
accumulated to such an extent that foreclosure was inevitable.  He
and his spouse were divorced soon after the foreclosure, "due to
the pressures put on by [the note holder] and the VA."  The
appellant essentially argues that since he realistically had no
control over the circumstances leading to the foreclosure, it
would now be patently unfair for the VA to insist upon his
repayment of the indebtedness.

With respect to his ability to repay the indebtedness, the
appellant argues that his income is essentially equivalent to
minimum wage.  It is barely enough to enable him to meet his
current monthly obligations.  The additional burden created by the
payment of the loan guaranty indebtedness would create a severe
hardship on him.  Further, the appellant anticipates that the
insistence of collection by the VA will drive him to bankruptcy.

The proper consideration of these factors should have led the RO
to find that a waiver of the appellant's loan guaranty
indebtedness would not be against the principles of "equity and
good conscience."

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 preponderance of the evidence is against the appellant's
request for a total waiver of recovery of the remainder of the
loan guaranty indebtedness, but supports a partial waiver, in the
amount of $3,860.00, plus accrued interest.

FINDINGS OF FACT

1.  All relevant evidence necessary for an equitable disposition
of the appellant's appeal has been obtained by the RO.

2.  There was a default in the appellant's VA guaranteed loan
necessitating a foreclosure sale of the subject property resulting
in the appellant's loan guaranty indebtedness of $10,024.43, plus
accrued interest.

3.  The appellant was not without fault in the creation of the
loan guaranty indebtedness.  Through the pursuit of a repayment
plan and the sale of the subject property, the appellant attempted
to mitigate the amount of the loan guaranty indebtedness.  His
efforts at mitigation were prematurely abandoned.

4.  The VA realized a net gain of $3,860.00 as a result of a post-
foreclosure resale of the subject property.  The appellant may be
credited for this net gain.

5.  The appellant would be unjustly enriched if a total waiver of
indebtedness were granted.

6.  The appellant's income, with consideration of the costs of
life's basic necessities, is sufficient to permit repayment of the
loan guaranty indebtedness not waived herein, without resulting in
excessive financial difficulty, and repayment of this reduced
indebtedness would not be inequitable.

CONCLUSIONS OF LAW

1.  There was a loss by the VA after default on the VA guaranteed
loan and the foreclosure sale of the property which constituted
the security for the loan.  38 U.S.C.A. §§ 5107(a), 5302
(West 1991); 38 C.F.R. § 1.964(a) (1993).

2.  A partial waiver of the appellant's loan guaranty indebtedness
in the amount of $3,860.00, plus accrued interest, is consistent
with the principles of equity and good conscience.  38 U.S.C.A.
§§ 5107(a), 5302; 38 C.F.R. § 1.965(a) (1993).

3.  Recovery of the remainder of the loan guaranty indebtedness in
the amount of $6,164.43, plus accrued interest, would not violate
the principles of equity and good conscience.  38 U.S.C.A.
§§ 5107(a), 5302; 38 C.F.R. § 1.965(a).

REASONS AND BASES FOR FINDINGS AND CONCLUSIONS

The Board notes that the appellant's claim with respect to waiver,
is "well grounded" within the meaning of 38 U.S.C.A. § 5107(a).
That is, he has presented a claim which is not inherently
implausible.  The Board is also satisfied that all relevant facts
have been properly developed.  There is no indication that there
are other records pertinent to the appellant's claim for a waiver
which have not been obtained.  Consequently, no further assistance
to the appellant is required to comply with the duty to assist the
appellant mandated by 38 U.S.C.A. § 5107(a).

Factual Background

The documentary evidence before the Board supports the following
factual summary:

In October 1988, the appellant purchased a home in Sylacauga,
Alabama, for $32,900, utilizing a 10.50 percent VA guaranteed
loan in the same amount, expending no money in the transaction.
The anticipated monthly payments on the loan, including taxes and
insurance, were projected to be $325.95.  In conjunction with the
purchase of the property, the appellant executed a VA Application
for Home Loan Guaranty, VA Form 26-1802a.  In that document, the
appellant certified and agreed to repay the VA for any claim
which VA would be required to pay the lender on account of
default under the terms of the loan.  The document also specified
that "[t]his debt will be the object of established collection
procedures."  In qualifying for the loan, the appellant noted
that he was unmarried and reported that he was employed as a
Napper Operator for the Russell Corporation, with a monthly gross
pay of $1,333.  His probability of continued employment was
described by his employer to be good.  He reported that his
assets totaled $21,005.00.  His debts totaled $7,467.00,
exclusively from secondary credit debts.  In September 1988, an
appraisal of the subject property had been undertaken, and it was
found it to be valued at $34,500.00.

It would appear that soon after the purchase of the subject
property, the appellant was married.  The appellant initially
defaulted on the loan in February 1989.  In the resulting Notice
of Default issued by the note holder to the VA in May 1989, it
was indicated that the reason for the default was that the
appellant "reinstated this account with a check which was
dishonored by his bank."  The note holder apparently spoke with
the appellant's spouse who indicated that she had paid other
bills.  She then stated that "checks were stolen, but full
reinstatement would be sent by May 19, [1989]."  The appellant
was noted to be "cooperative," but as of the date of the Notice
of Default, payment had not been received.

On June 5, 1989, a VA field trip was conducted to the subject
property.  It was found that the property was listed for sale
with a professional realtor.  On June 9, 1989, the note holder
directed a letter to the VA to inform them that the appellant's
mortgage account had been reinstated into current status.  Also
on June 9, 1989, the appellant's mortgage was selected for a
federal audit.  The audit concluded that the information used in
the qualification of the appellant for the loan had been reported
correctly.  It was also discovered in the course of the audit,
that the appellant had incurred new credit card indebtedness in
excess of $2,450 over that which had been reported upon
qualifying for the VA guaranteed loan five months previously.  On
June 14, 1989, the VA directed a letter to the appellant at his
address.  He responded on June 21, 1989, and provided the VA with
his home and work phone numbers.  He stated that he was "living
with his family because he was going through a divorce."

After July 1990, almost every payment received by the note holder
from the appellant was at least one month late.  The first
uncured default on the loan occurred with the October  1, 1990
payment.  A Notice of Default was issued by the note holder to
the VA in December 1990.  The reason originally provided for the
default was that the "payment had already been mailed."  It was
noted that the appellant was cooperative, but unemployed.  The
amount of each delinquent installment was noted to be $337.04.
The note holder telephoned and wrote to the appellant on several
occasions between October and December 1990.  When the appellant
was contacted, he indicated that his spouse handled the finances,
and that she should be contacted.  When his spouse was contacted
in November, she stated that she had been out of work, but had
since returned to work and would mail a payment soon.  By
December 13, 1990, the appellant indicated that his unemployment
was the reason for the default.  But, he stated that he would
send a payment by Federal Express.  On December 28, 1990, a
payment was received and credited to his account.  That was the
last payment received by the note holder from the appellant.

A representative from the VA contacted the appellant by telephone
on January 17, 1991.  The appellant indicated that he was making
payments to the note holder on a repayment plan, but wished to
make partial payments of $300, beginning in February.  He stated
that he was being deployed immediately to the Persian Gulf.

A Notice of Intention to Foreclose was issued by the note holder
in March 1991.  It was stated that the appellant had broken many
promises to repay the loan.  It also indicated that the appellant
was in the Persian Gulf but was due home soon.

The subject property was appraised for liquidation purposes in
August 1991.  It was found to be occupied by the appellant.  It
would appear from a picture of the premises that it was being
offered for sale through a professional realtor.  The appraiser
valued the subject property in "as is" condition at $30,000.  The
reason given for the difference between the original value
($34,500) and the then current value, was that "depreciation from
all sources exceed market increases."  Based upon this appraisal,
in October 1991, the VA established the specified bid of $26,943
as the minimum amount that would be credited to the indebtedness
in the event of a claim on the loan guaranty.  That would also be
the price to the VA in the acquisition of the subject property in
the event the note holder selected that option.  In conjunction
with the October 1991 analysis establishing the specified bid, it
was reported that the subject property continued to be occupied
by the appellant.

The foreclosure sale of the subject property occurred on November
19, 1991.  The note holder was the successful bidder at the
public auction sale for the VA's specified bid of $26,943.00.
The VA subsequently acquired the subject property from the note
holder for the amount of the specified bid.

Following its acquisition, the VA immediately marketed the
subject property for resale.  In conjunction with that endeavor,
in December 1991 an "initial cleanup and repairs to secure the
property" was undertaken, costing the VA a total of $217.  The VA
determined that, although $2,125 worth of additional repairs were
recommended, it would initially market the subject property for
resale in "as is" condition; a private mortgage broker's
recommended sales price of $33,000 was used as the asking price.

In January 1992, the note holder filed a claim against the VA
under the loan guaranty.  The claim was paid by the VA in the
amount of $10,024.43, thus establishing the appellant's loan
guaranty indebtedness.  This amount was determined by subtracting
the note holder's bid amount from the appellant's total
indebtedness as of the date of the foreclosure sale, $37,549.93,
and further subtracting from that amount a credit of $582.50,
derived from an insurance refund.

On February 28, 1992, the subject property was resold for VA's
asking price of $33,000.  In conjunction with the resale, the VA
incurred $1,980 in additional expenses based upon the realtor's
sales commission.

Pursuant to his request for a waiver of recovery of the loan
guaranty indebtedness, in July 1992, the appellant submitted a
completed financial status report.  The appellant is divorced,
with no dependents, and resides in Sylacauga, Alabama.  He
disclosed that his gross monthly income as a cashier in a
convenience store was $660.  He failed to disclose his net
income.  He reported monthly expenses totaling $299.60.  These
expenses included $165 for rent, $45 for food, $39 for telephone
expenses, $15 for insurance, $5.60 for clothing, and $30 for
gasoline.  The appellant reported assets totaling $159,
consisting solely of cash in the bank or on hand.  He listed the
ownership of a 1981 automobile, but assigned no value to it.  He
reported that the unpaid balance of his debts, not including the
VA loan guaranty indebtedness, totaled $40.  This debt was the
residue of an expense incurred for the purchase of tires.

Analysis

The law and regulations authorize a waiver of collection of a loan
guaranty indebtedness from an appellant where he has been found to
be free from an indication of fraud, misrepresentation, or bad
faith, and both of the following factors are found to exist:
(1) After default there was a loss of the property which
constituted security for the loan, and (2) collection of the
indebtedness would be against equity and good conscience.
38 U.S.C.A. § 5302(b); 38 C.F.R. § 1.964(a).

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) The fault of the debtor, (2) balancing of faults
between the debtor and the VA, (3) undue hardship of collection on
the debtor, (4) a defeat of the purpose of an existing benefit to
the veteran, (5) the unjust enrichment of the veteran, and,
(6) whether the veteran changed positions to his detriment in
reliance upon a granted VA benefit.  38 U.S.C.A. § 5302; 38 C.F.R.
§ 1.965(a).

The RO found the appellant to be free from an indication of fraud,
misrepresentation or bad faith, and the Board concurs with that
preliminary finding.  In the evaluation of whether equity and good
conscience necessitate a favorable waiver decision, the Board must
consider all of the specifically enumerated elements applicable to
a particular case.  However, the issues of fault, unjust
enrichment, and undue financial hardship, are more significant to
the case before us.  Furthermore, although not an explicit element
of equity and good conscience, the Board also looks to whether the
appellant attempted to mitigate the indebtedness.

VA's working definition of "fault" is "The commission or omission
or an act that directly results in the creation of the debt."
(Veteran's Benefits Administration Circular 20-90-5, February 12,
1990)  Fault should initially be considered relative to the degree
of control the appellant had over circumstances leading to the
foreclosure.  If control is established, even to a minor degree,
the secondary determination is whether the debtor's actions were
those expected of a person exercising a high degree of care, with
due regard for the debtor's contractual responsibilities to the
Government.  The age, financial experience and education of the
debtor should also be considered in these determinations.

Clearly, the appellant was in direct control of the debt
obligation during his entire ownership of the subject property,
including prior to the initial uncured default and throughout the
foreclosure process.  This is so despite the fact that the
appellant had often deferred to his spouse in financial matters
during the abbreviated term of the loan.  From the outset, the
appellant had established that his obligation to the VA under the
loan was less than a priority.  He immediately placed the health
of the loan in jeopardy by increasing the amount of his secondary
debt obligations.

Following his purchase of the subject property, the appellant was
allegedly laid off by his employer.  But this fact alone should
not have precluded his ability to meet his relatively modest
monthly mortgage obligations; by his own admission, the appellant
received unemployment benefits in lieu of an income.  Despite the
fact that the appellant and his spouse were experiencing ongoing
marital difficulties, for the most part they continued to share
the home as their residence.  Even though the appellant was the
sole owner of the subject property, his spouse could feasibly have
been expected to contribute toward payments on the loan, and very
likely did so.  Essentially, the appellant had qualified for the
loan based solely upon his income, but thereafter had the
potential advantage of an additional income from which to draw.
Even the appellant's call into service for Desert Storm should not
have diminished his ability to meet his mortgage obligations;
ironically, in fact, it may have been enhanced since he at least
had an income during that time.

The appellant chose to lay the blame for his failure to meet his
mortgage obligation on the note holder, stating that partial
payments should have been acceptable to them.  The fact is that
the appellant had incurred substantial secondary debts both before
and after he acquired the subject property, and apparently had
simply allocated his financial resources in other directions than
the VA guaranteed loan.  The appellant also wishes to blame the
note holder and the VA for his failed marriage.

Regardless of his underlying excuse, the appellant was in direct
control of the situation and was required to take those actions
expected of a person exercising a high degree of care, with due
regard to his contractual responsibility to the Government.  The
evidence indicates that the appellant failed to consult
meaningfully with the note holder or the VA.  In fact, he was
either evasive or misleading in his dealings.  It is clear that
the appellant unilaterally made a choice as to how he would
allocate his income.  The appellant acted in a manner that was
expedient to his needs, without considering the consequences to
the VA.  He did so at his peril.  We find that the decisions were
taken to the detriment of his contractual responsibility to the
Government.

The Board is concerned with the appellant's "commission or
omission of acts resulting in the creation of the debt."  It is
reasonable to conclude that the appellant should be held
responsible for the consequences of his failure to simply meet
his mortgage obligation, namely, the default and the foreclosure
of the VA guaranteed loan.  By definition, the appellant must be
considered at fault in the creation of the loan guaranty
indebtedness.

Notwithstanding this conclusion, the Board may take into
consideration any mitigating factors, and a finding of fault can
be tempered by a finding that the appellant made some efforts to
avoid or minimize the loan guaranty indebtedness.  The record
shows that the appellant was able to cure at least one earlier
default in 1989.  This undoubtedly was the result of a serious
effort made on his part, under adverse conditions.  Further,
following the initial uncured default in 1990, he made at least a
short-lived attempt to follow a repayment plan.  The Board is also
cognizant of the fact that the appellant had attempted to sell the
premises almost continuously from the time he purchased it until
foreclosure, although it is unknown whether his asking price was
reasonable.

Placing these acts in their best light, it can be found that the
appellant made at least a perfunctory effort toward the avoidance
of foreclosure.  In so doing, he exhibited some sense of
responsibility for his obligation to the Government, although it
was secondary to the allegiance he had for his own financial well-
being.  It would be unrealistic for him to believe, however, that
he could avoid the entire debt.  The appellant's efforts in
mitigation of his fault can be acknowledged under "equity and good
conscience."  This approach is consistent with our end
determination and arrival at a substantial reduction of the
appellant's indebtedness through a partial waiver.

In summary, the appellant made financial choices that he believed
were in his best interest; in so doing, he unilaterally agreed to
accept the consequences of those choices.  Even though he created
the circumstances leading to foreclosure in the first place, he
may be credited for his efforts toward rectifying his mistakes and
attempting to reduce the considerable financial harm his decisions
eventually caused others, namely the VA.

In a waiver determination, the Board is required to consider
whether the granting of a waiver would provide an unjust
enrichment to the appellant.  The appellant has been credited for
the payment of his mortgage through October 1, 1990.  The
evidence demonstrates that the appellant resided in the premises
until October 1991.  Having done so, he received at least 12
months of free home occupancy.  Valued in terms of the monthly
mortgage payments, $337.04, the appellant saved over $4,000 in
mortgage or rental payments.  This is a substantial amount that
would be obtained unjustly if a total waiver of the appellant's
loan guaranty indebtedness were granted.

The Board has reviewed the record to determine if there exists
other factors, outside of the appellant's control, which
contributed to the creation of the indebtedness, or in turn, which
could act to reduce the amount of that indebtedness.  It appears
from an analysis of the resale of the subject property by the VA
that a gain may have been realized that may now be credited
against the appellant's indebtedness.

The VA's expenditures in this transaction included the payment of
the specified bid to the note holder for the purchase of the
property, $26,943.00; the payment on the loan guaranty to the note
holder, $10,024.43; the cost of repairs to the subject property,
$217.00; and the realtor's sales commission, $1,980.00; for a
total cost of the subject property to the VA of $39,164.43.  The
VA resold the subject property for $33,000.00.  Therefore, the
total out-of-pocket loss to the VA in the transaction is the
difference between the total cost of acquisition, and the amount
obtained from the resale.  That difference is $6,164.43.  The
appellant may only be held responsible for the indemnification of
any loss that was incurred by the VA.  Consequently, his loan
guaranty indebtedness may be reduced to the amount of VA's out-of-
pocket loss, $6,164.43.

Finally, the Board must analyze the appellant's current financial
status and the potential impact of loan guaranty payments on his
ability to provide himself with the basic necessities of life.
The Board is particularly mindful of the principle that the
appellant is expected to accord a debt to the Government the same
regard given to any other debt.  Since his purchase of the subject
property, it appears that the appellant has repaid a significant
amount of secondary debt.  He claimed debts in excess of $7,000
when he purchased the property; he incurred over $2,000 of
additional indebtedness during his ownership, but on his 1992
financial status report, he reported debts totaling only $40.
Furthermore, the proper analysis of undue hardship must take into
consideration not only the appellant's present financial picture
but a realistic projection of his status in the foreseeable
future.  The appellant is young and resourceful, and may
reasonably be expected to have many more years of substantially
gainful employment.

Although the appellant has provided his gross and not his net
income, even if one were to assume that he was required to deduct
one-third of that income for taxes and other expenses, he would
have enough net income to meet his monthly expenditures and still
net a surplus of $140.  Providing the appellant with the benefit
of the doubt in an assessment of his financial condition, it
appears that he would be able to pay the remainder of the debt
over a five-year period.

This is not to say that he will not experience certain
inconveniences as a result of the payment of the indebtedness to
the Government.  Obviously, additional finances would be
beneficial to his quality of living.  There is no evidence,
however, that he will be forced to endure a lack of food,
clothing, warmth, or shelter as a result of the collection of the
debt.

In conclusion, the Board has determined that the appellant was at
fault in the creation of the loan guaranty indebtedness.
Although the appellant made an effort to avoid the loss, since he
created the circumstances leading to the indebtedness in the
first place, he should bear the burden of its repayment.  We have
also determined that he was potentially enriched as a direct
result of the VA guaranteed loan, and that he has the financial
ability to pay a large portion of the loan guaranty indebtedness.
It must also be noted that the Government incurred a significant
loss in this transaction.  Finally, the Board has considered the
gain that the VA realized in the resale of the subject property,
and the relationship of its out-of-pocket loss to the
indebtedness owed by the appellant.  A collection of the reduced
amount of $6,164.43, plus accrued interest, of his loan guaranty
indebtedness would not be unduly favorable or adverse to either
the Government or the appellant, nor would it violate the
principles of "equity and good conscience."  38 U.S.C.A. § 5302;
38 C.F.R. § 1.965(a).

ORDER

A partial waiver of recovery of the appellant's loan guaranty
indebtedness in the amount of $3,860.00, plus accrued interest, is
granted.

Waiver of recovery of the remainder of the loan guaranty
indebtedness in the amount of $6,164.43, plus accrued interest, is
denied.

          THOMAS J. DANNAHER
          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.
(Continued on next page)
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.