BVA9502566 DOCKET NO. 93-06 911 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in San Francisco, California THE ISSUE Waiver of recovery of loan guaranty indebtedness. WITNESS AT HEARING ON APPEAL Appellant ATTORNEY FOR THE BOARD Barry F. Bohan, Counsel INTRODUCTION The dates of the appellant's military service are not of record. In a June 1989 decision, the Committee on Waivers and Compromises of the Department of Veterans Affairs Regional Office in San Francisco, California (VARO) granted the appellant a partial waiver of $18,675.06 of charged loan guaranty indebtedness in the original amount of $22,309.43 plus accrued interest of $1,365.63, leaving indebtedness in the amount of $5,000 due to VA. The appellant did not appeal that decision. However, in October 1991, he requested a waiver of the remaining indebtedness. This appeal arose from a January 1992 decision of the Committee on Waivers and Compromises of VARO which denied the appellant's request for a waiver of the remaining indebtedness of $3,634.37. In March 1993, the appellant testified at a personal hearing which was conducted by the undersigned member of the Board at VARO. CONTENTIONS OF APPELLANT ON APPEAL The appellant contends, in substance, that he defaulted on his mortgage payments because he lost his job. He testified at his personal hearing that he attempted to sell the house, without success. In effect, he claims to be without fault in the creation of the loan guaranty indebtedness. He also disputes evidence of record which indicates that he resided in the house for many months after default and had to be evicted from the premises. Additionally, he contends that collection of the remaining loan guaranty indebtedness would cause him and his family undue 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 folder and loan guaranty file. 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 a waiver of recovery of the remaining loan guaranty indebtedness should be granted, based on the standard of equity and good conscience. FINDINGS OF FACT 1. In April 1982, the appellant and his spouse purchased a house using a home loan which was guaranteed, in part, by VA. 2. Due to loss of income caused by unemployment, the appellant defaulted on his mortgage payments. Foreclosure proceedings were initiated. 3. In September 1986, the property was sold at a trustee's sale for an amount less than the unpaid principal balance, accrued interest, and expenses of foreclosure. 4. VA paid the lender's loan guaranty claim, and the related debt to the government, in the amount of $22,309.43, was charged to the appellant. A waiver of $18,675.06 of the charged indebtedness was later granted by VARO, leaving indebtedness plus interest in the amount of $5,000 due to VA. 5. To require recovery of the remaining charged indebtedness from the appellant would be unfair. 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) (1993). 2. Recovery of the remaining loan guaranty indebtedness would be against equity and good conscience. 38 U.S.C.A. §5302 (West 1991); 38 C.F.R. §§ 1.964, 1.965(a) (1993). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS The appellant is seeking a waiver of recovery of the remaining loan guaranty indebtedness in the amount of $5,000, including accrued interest. 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). Furthermore, we find that the appellant's claim has been adequately developed for appellate purposes by VARO and that we may therefore proceed to a disposition of the case. VARO's finding that the appellant has not demonstrated fraud, misrepresentation or bad faith in this case is also noted. Under pertinent law and VA regulations, no debt may be waived under the standard of equity and good conscience if bad faith is found to exist. 38 U.S.C.A. § 5302(c) (West 1991); 38 C.F.R. § 1.965 (b) (1993). The evidence has been carefully reviewed and the Board finds that the loan guaranty indebtedness in the original amount of $22,309.43 was properly established. Schaper v. Derwinski, 1 Vet.App. 430 (1991). In the interest of clarity, the Board will first briefly review the chronological history of this case. The issue presented on this appeal will then be discussed. History of the case In April 1982, the appellant and his spouse purchased a house in Fairfield, California for $79,407, using a home mortgage loan which was guaranteed, in part, by VA. 38 U.S.C.A. §§3701 et seq. (West 1991). At the time, the appellant was a steam fitter. The property was secured by a Deed of Trust and Deed of Trust Note. The first mortgage payment was made in June 1982. In September 1984, the lender notified VARO that the appellant had defaulted in his home loan. The reason given was "curtailment of income". A payment plan was established. The default continued, however, and proceedings under the Deed of Trust were initiated in June 1985. In August 1985, the appellant contacted VARO by telephone, stating that he had been out of work for a year and that he was trying to sell the house. In October 1985, the attorney for the lender wrote to VARO that the appellant filed a Chapter 13 bankruptcy proceeding on October 18, 1985. However, the attorney noted that foreclosure proceedings had been initiated in June 1985, before the bankruptcy was filed. In November 1985, the lender filed a Proof of Claim in the United States bankruptcy Court in the Northern District of California. In September 1986, the property was sold at a trustee's sale for $78,611. In January 1987, the lender filed a claim under the loan guaranty, which was satisfied, in part, by VA. An October 1985 appraisal indicated that the property was vacant and secured. However, numerous subsequent documents of record indicate that the appellant continued to live in the house after the sale. A June 1986 appraisal indicated that the house was "occupied by owner". In July 1987, VA brought eviction proceedings in the Municipal Court of California, County of Solano. The county sheriff was instructed to proceed with eviction in October 1987. However, the premises were vacated before physical eviction became necessary. A November 1987 appraisal reported that the property was in relatively good condition. There were several repossessed properties and resale properties in the area. However, sales in the area were described as good. The hearing testimony Careful attention has been given to the appellant's December 1992 hearing testimony. In essence, he ascribed his default to financial difficulties caused by the loss of steady employment caused by a physical disability. Evidently, he was unable to obtain workers compensation benefits, and after a time his unemployment payments ran out. He defaulted on his house payments and eventually filed for bankruptcy. The appellant further testified that he tried to sell and to rent the house but was unable to: "it was a dead horse" [hearing transcript, page 3]. He further testified that he moved out of the house shortly after his default and wound up homeless. He eventually received Social Security benefits and now resides with his wife in an apartment. The Board further notes that in his April 1992 Notice of Disagreement, the appellant emphatically denied living in the house until November 1987. Analysis 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); 38 C.F.R. § 1.964 (1993). "Equity and good conscience" involves a variety of elements. Particular emphasis, however, is placed upon the elements of the fault of the debtor and undue hardship. 38 C.F.R. § 1.965 (a)(1),(3) (1993). In this case, the element of unjust enrichment may also be also present, since VARO has found that the appellant lived rent-free in the house for many months after default. 38 C.F.R. § 1.965 (a)(5) (1993). In essence, however, "equity and good conscience" means fairness to both the appellant and to the government. It is noted that the remaining elements of the standard of equity and good conscience have been considered and found to be inapplicable to this case. As a preliminary matter, the Board notes that the appellant has not contended that his bankruptcy should serve as a bar to VA's collection of the charged indebtedness. As indicated above, it appears that foreclosure proceedings were started before the bankruptcy proceedings. Therefore, the Board concludes that the appellant's bankruptcy is not a factor in the outcome of this case. With respect to the element of unjust enrichment, there is a clear discrepancy between VARO's position, that the appellant stayed until evicted in November 1987, and the appellant's statements, which indicate that he vacated the house much earlier and that some one else was living there. A review of various property appraisals indicates that the house was vacant in October 1985, which was about the time the appellant filed his bankruptcy petition, but was adversely occupied in 1986 and until November 1987. Although the Board understands that certain documents of record indicate that the appellant occupied the house in 1986 and 1987, it strains credulity to imagine that he moved out of the house and then moved back in. The Board will therefore take at face value his sworn hearing testimony to the effect that he vacated the premises relatively soon after default. Cartright v. Derwinski, 2 Vet.App. 24 (1991). Unjust enrichment is not found. With respect to the element of the appellant's fault, the evidence of record indicates that his default was caused by unemployment due to physical disability. He kept in contact with the lender and, somewhat belatedly, with VARO. Further, it appears that he made attempts to sell and to rent the house, without success. There is some evidence of record which supports his contention that the neighborhood was oversold and that the housing market at the time was difficult. After having carefully reviewed all of the evidence of record, the Board believes that the circumstances in this case were beyond the control of the appellant. Although the appellant may not have done everything he could to keep the lender and VARO informed about his situation, there is greater evidence concerning an involuntary loss of income being the cause of the default. His lack of fault, alone, supports waiver of recovery of the remaining loan guaranty indebtedness. VBA Circular 20-90- 5, February 12, 1990 and TG 20-90-2, April 23, 1990. ORDER Waiver of recovery of loan guaranty indebtedness is granted. J.J. SCHULE 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.