BVA9500136 DOCKET NO. 93-06 058 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in Denver, Colorado THE ISSUE Entitlement to waiver of recovery of loan guaranty indebtedness. REPRESENTATION Appellant represented by: Colorado Department of Social Services ATTORNEY FOR THE BOARD J.W. Engle, Counsel INTRODUCTION The appellant served on active duty from January 1968 to January 1970. This matter came before the Board of Veterans' Appeals (the Board) on appeal from a decision in June 1992 by the Denver, Colorado, Department of Veterans Affairs Regional Office (VARO). We note that the validity of the loan guaranty indebtedness is not in dispute. Carlson v. Derwinski, 2 Vet.App. 144 (1992); Schaper v. Derwinski, 1 Vet.App. 430 (1991). Furthermore, there had been no transfer by the veteran 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) (1992); Schaper, 1 Vet.App. at 432. In addition, the Board notes that the Committee on Waivers and Compromises determined that there was no fraud, misrepresentation or bad faith involved in the creation of the loan guaranty indebtedness. CONTENTIONS OF APPELLANT ON APPEAL The appellant contends that recovery of the outstanding loan guaranty indebtedness would result in 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 files. 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 waiver of $4,000.00 of the indebtedness is warranted. Waiver of the remaining $4,000.00 of the loan guaranty indebtedness is denied. FINDINGS OF FACT 1. In August 1984, the appellant obtained a loan in the amount of $64,000.00, which was guaranteed, in part, by VA, for the refinance of a mortgage secured by a home located in Silverton, Colorado. 2. A Notice of Default dated in January 1985 noted that the first uncured default was October 1, 1984. It was noted that the lender had made attempts to contact the appellant by letter and telephone but there was no response and the appellant's telephone was reported to have been disconnected. 3. A Notice of Intention to Foreclose dated in January 1985 noted that the lender had again attempted to contact the appellant but was unsuccessful. 4. In January 1985 VA attempted to contact the appellant by letter after several attempts by telephone were unsuccessful. VA requested that the appellant respond to discuss available options in an effort to avoid foreclosure; however, there was no response from the appellant. 5. The mortgage was foreclosed and the property sold at a foreclosure sale in June 1985. The proceeds of the sale were less than the outstanding principal, interest and foreclosure costs and the resulting deficiency of $22,916.44 was charged to the appellant. 6. In June 1992 the Committee on Waivers and Compromises concluded that the default was, in significant part, beyond the appellant's control and granted a partial waiver in the amount of $14,916.44 and denied waiver of $8,000.00. 7. The Financial Status Report dated in July 1992 reflects that the appellant's monthly income exceeds his monthly expenses by approximately $19.93. However, the majority of the appellant's installment debt should be paid in full within 24 months. 8. Recovery of $4,000.00, plus accrued interest, after waiver of $4,000.00 of the outstanding loan guaranty indebtedness, from the appellant under a reasonable payment schedule will not deprive him of the basic necessities of life, or otherwise be inequitable. CONCLUSIONS OF LAW 1. After default, there was a loss of 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 $4,000.00 of the loan guaranty indebtedness plus accrued interest on that amount would be contrary to the standard of equity and good conscience. 38 U.S.C.A. §§ 5107, 5302 (West 1991); 38 C.F.R. § 1.965(a) (1993). 3. Recovery of $4,000.00 plus accrued interest, of the loan guaranty indebtedness would not be contrary to the standard of equity and good conscience. 38 U.S.C.A. §§ 5107, 5302 (West 1991); 38 C.F.R. § 1.965(a) (1993). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS Initially, the Board finds that the appellant has submitted evidence which is sufficient to justify a belief that his claim is well grounded. 38 U.S.C.A.§ 5107(a) (West 1991) and Murphy v. Derwinski, 1 Vet.App. 78 (1990). Furthermore, we believe that this case has been adequately developed for appellate purposes by VARO and that we may therefore proceed to a disposition on the merits without the necessity of a remand for further records. Review of the record reveals that in August 1984, the appellant and his wife obtained a loan in the amount of $64,000.00, which was guaranteed, in part, by VA, to refinance a mortgage which was secured by a home located in Silverton, Colorado. A Notice of Default dated in January 1985 noted that the first uncured default was October 1, 1984. The lender indicated that they attempted to contact the appellant by letter and telephone but were unsuccessful. It was further noted that the appellant's telephone was disconnected. A subsequent Notice of Intention to Foreclose noted that the lender again attempted to contact the appellant but was unsuccessful. It was further noted that foreclosure was recommended. In January 1985 VA attempted to contact the appellant by letter after several attempts by telephone were unsuccessful. VA requested that the appellant respond to discuss available options in an effort to avoid foreclosure, unfortunately, there was no response from the appellant. The mortgage was foreclosed and the property sold at a foreclosure sale in June 1985. The proceeds of the sale were less than the outstanding principal, interest and foreclosure costs and the resulting deficiency of $22,916.44 was charged to the appellant. In June 1992 the appellant requested a waiver of the outstanding loan guaranty indebtedness. He indicated that in March or April 1984 his wife was diagnosed with "re-occurring" breast cancer and that by June or July 1984 the local medical facilities could no longer help and scheduled her for treatment in Tuscon, Arizona. He reported that the Tuscon Medical Center wanted to start her on specialized treatments in August 1984 which would require treatments three times per week. He noted that he contacted the lender and a local Realtor with respect to selling the subject house to take care of the "debt". He reported that he was forced to move to Phoenix, Arizona so his wife could receive her treatments. He indicated that he had no health insurance and had to take a job which paid a substantially lower salary than his job in Colorado. He further noted that he returned to Colorado in 1986 and was rehired at his previous place of employment. He then contacted the Realtor who was handling the sale of the subject property and inquired about reinstating the loan. He reported that he was told that since he "let it go back" he "lost out and they (presumably the lender) wouldn't even consider talking to me at all." In June 1992 the Committee on Waivers and Compromises concluded that the default was, in significant part, beyond the appellant's control and granted a partial waiver in the amount of $14,916.44 and denied waiver of $8,000.00. In December 1992 a hearing was held before the Committee on Waivers and Compromises. The appellant testified to the need for a vehicle for transportation to and from various medical appointments in several States. He further reported that he was receiving Workmen's Compensation and that his wife was also 100 percent disabled and required transportation to treatment facilities. In addition, he explained various expenses identified on his Financial Status Report dated in July 1992. 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). "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. (b) In applying this single standard for all areas of indebtedness, the following elements will be considered, any one of which, if found, will preclude the granting of waiver: (1) Fraud or misrepresentation of a material fact (see § 1.962(b)). (2) Material fault. The inexcusable commission or omission of an act that directly results in the creation of a debt to the Government. (3) Lack of good faith. Absence of an honest intention to abstain from taking unfair advantage of the holder and/or the Government. 38 C.F.R. § 1.965 (1993). There is no evidence of fault on the part of VA, that recovery of the indebtedness would nullify the objective for which the benefits was intended, or that there was detrimental reliance based upon the facts of this case. The elements of the above regulation which are applicable to this case include the fault of the debtor, and whether collection would deprive the debtor or his family of the basic necessities. After having carefully considered all of the evidence of record, the Board believes that the appellant demonstrated some fault in the creation of the loan guaranty indebtedness. The appellant's need to obtain treatment at that time for his wife' illness is acknowledged; however, he essentially abandoned both the subject property and his mortgage obligation. Although he reported that he attempted to sell the property and notified the lender of his circumstances, there is no objective evidence of record to support his attempts to sell the property and both the Notice of Default and the Notice of Intention to Foreclose dated in January 1985 indicated that there had been no contact between the lender and the mortgagors from the time of the default through the date of foreclosure. Furthermore, the appellant made no attempt to contact VA with respect to the circumstances surrounding the default to discuss available options in an effort to avoid foreclosure. Accordingly, in view of the above, the appellant has not presented evidence which would relieve him of all responsibility for the circumstances that led to the default and related indebtedness to VA. The question for determination now is whether recovery of the outstanding loan guaranty indebtedness would result in undue financial hardship. The appellant indicated on his most recent Financial Status Report dated in July 1992 that his monthly income exceeded his monthly expenses by approximately $19.93. The Board believes that several of the appellant's reported debts are high including the $520.00 per month for various "other living expenses" and $40.19 per month for cable television. While he testified at his hearing in December 1992 that those "other living expenses" included vehicle maintenance, dog and cat food, cigarettes and household supplies, the appellant has a new vehicle which should not require any extensive maintenance not ordinarily be covered by the new vehicle warranty, and the expenses for dog and cat food, cigarettes and cable television are not considered necessities such to warrant consideration in the determination of financial hardship. Furthermore, the appellant's installment debts are all current and should be paid in full within 24 months. After taking the appellant's financial circumstances into consideration, the undersigned concludes that a partial waiver of the outstanding loan guaranty indebtedness is in order, based on the standard of equity and good conscience, in particular the element of financial hardship. 38 C.F.R. §§ 1.964(a) (2), 1.965(a) (1993). 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 $4,000.00, if monthly payments in a reasonable amount are made over a five year period, with careful management of his income, expenses and additional accrued debt. A veteran-debtor is expected to accord a Government debt the same regard given any other debt. Recovery of the remainder of the loan guaranty indebtedness, $4,000.00, plus accrued interest is waived. In reaching the above conclusion, the Board has considered the appellant's receipt of approximately $3,300.00 in proceeds from the refinance of his previous mortgage and origination of the VA guaranteed loan. ORDER Waiver of $4,000.00 plus accrued interest, of the outstanding loan guaranty indebtedness is denied. Waiver of $4,000.00 plus accrued interest, of the outstanding loan guaranty indebtedness is granted. 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.