BVA9503956 DOCKET NO. 93- 10 178 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in Chicago, Illinois THE ISSUE Waiver of recovery of loan guaranty indebtedness. ATTORNEY FOR THE BOARD L. M. Barnard, Counsel INTRODUCTION The appellant served on active duty from September 1966 to April 1985. This appeal arises from a decision of the Chicago, Illinois, Department of Veterans Affairs (VA), Regional Office (RO), Committee on Waivers and Compromises, which denied a waiver of the loan guaranty indebtedness in the amount of $27,750, plus accrued interest. CONTENTIONS OF APPELLANT ON APPEAL The appellant contends, in essence, that repayment of this indebtedness would cause a financial hardship. He asserts that, while his current financial situation leaves him with $469 after payment of expenses, this amount would never cover any emergencies. He noted that he works overseas as part of the defense industry. He commented that, due to the shrinking of this market, he was expecting to be laid off at any moment. Finally, he commented that his pay was already attached in order to repay back taxes. Therefore, he claims that he cannot afford to repay this indebtedness. 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 appellant's loan guaranty folder. 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 recovery of the loan guaranty indebtedness is denied, based on the principle of equity and good conscience. FINDINGS OF FACT 1. In June 1985, the appellant purchased a house using a home loan which was guaranteed, in part, by VA. 2. The appellant defaulted on mortgage payments in May 1989. Mortgage foreclosure proceedings were initiated. 3. In July 1991, the property was sold at a foreclosure sale for an amount less than the unpaid 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 $27,750, was charged to the appellant. 5. To require recovery of the charged indebtedness from the appellant would not 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. §§ 5107(a), 5302 (West 1991); 38 C.F.R. § 1.964(a) (1993). 2. Recovery of the loan guaranty indebtedness would not be against equity and good conscience. 38 U.S.C.A. §§ 5107(b), 5302 (West 1991); 38 C.F.R. §§ 1.964(a), 1.965(a) (1993). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS The appellant is seeking waiver of recovery of the loan guaranty indebtedness in the amount of $27,750, plus accrued interest. 38 U.S.C.A. § 5302(b) (West 1991). Initially, the Board finds that the appellant has presented a claim 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 the RO and that we may therefore proceed to a disposition of the case. Finally, we have carefully reviewed the evidence and find that the loan guaranty indebtedness in the amount of $27,750 was properly established. Schaper v. Derwinski, 1 Vet.App. 430 (1991). We also note, and agree with, the RO's finding that the appellant has not demonstrated fraud, misrepresentation or bad faith in this case. Under pertinent law and VA regulations, no debt may be waived under the standard of equity and good conscience if fraud, misrepresentation or bad faith is found to exist. 38 U.S.C.A. § 5302(c) (West 1991); 38 C.F.R. § 1.965(b) (1993). History of the case In June 1985, the appellant purchased a home in Granite City, Illinois, for $60,000, using a home mortgage loan which was guaranteed, in part, by VA. 38 U.S.C.A. § 3701 et seq. (West 1991). The property was secured by a Mortgage and a Mortgage Note. The first mortgage payment was made on August 1, 1985. In February 1990, the mortgage holder notified VA that mortgage payments had not been made since May 1, 1989. The Notice of Default and Intention to Foreclose indicated that the appellant's attitude toward the default was poor. He provided no information as to his monthly income and monthly obligations. He also failed to provide information as to his current employer. He made no reference to setting up a payment schedule. In June 1990, judicial foreclosure proceedings were begun. A Final Judgment was issued in March 1991. In June 1991, the appellant's spouse contacted the RO and stated that the appellant had been laid off from his job, although she did not state when this occurred. However, this report suggests that he was employed at the time of this contact, for she stated that he was in Egypt as some type of independent contractor. She then noted that they had tried to sell the house, but because there was a lien against the property, they had been unable to sell it. The property was sold at a foreclosure sale in July 1991 for $49,396. In December 1991, the mortgage holder filed a claim under the loan guaranty. This was subsequently satisfied by VA. In March 1992, the appellant requested a waiver of recovery of the loan guaranty indebtedness. His request was denied in a May 1992 decision of the Committee on Waivers and Compromises. It was noted that he was at fault in the creation of the indebtedness and that repayment would not result in undue financial hardship. 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). "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). In essence, however, "equity and good conscience" means fairness to both the appellant and to the government. With respect to fault, it is noted that the appellant stopped making loan payments in May 1989. The Notice of Default filed in February 1990 noted that his attitude towards this default was poor. He refused to provide information about his monthly income and expenses. He even failed to provide the name of his employer. While his spouse stated in June 1991, after the foreclosure on the property was completed, that he had been laid off at the time of the default, it is noted that, at the time of the default itself, the appellant had made no reference to the loss of employment as the reason for the default. In fact, he provided absolutely no explanation at the time of the default. Had the appellant experienced a loss of employment, the time of the default would have been the appropriate time to bring it to the attention of the mortgage holder and VA. It is also noted that there was a lien against the property, apparently due to a loan taken against its value. Finally, the appellant's spouse indicated in June 1991 that they had tried to sell the house, although the lien prevented its sale. However, the record contains no documentation to support this claim. After carefully reviewing the evidence of record, the undersigned has reached the conclusion that the appellant was at fault in the creation of this indebtedness. It is noted that there was apparently a lien against the house, evidence of an installment debt which would have hindered his ability to meet his obligations. While the appellant's spouse indicated that he had lost his job at the time of the default, it is noted that the record does not support this contention. The Notice of Default suggested that his attitude toward his obligation had been poor. This notice provided no information about his employment at all. Significantly, however, he did not state that he had lost whatever employment he was engaged in. The appellant then made no effort whatsoever to resolve the situation or to mitigate the loss to the Government. Therefore, it would appear that he failed to exercise due care with regard to his contractual obligation. Turning to the element of financial hardship, the undersigned notes that the appellant is currently employed overseas in the defense industry by General Dynamics. According to the April 1992 Financial Status Report, his total monthly income was reported as $6,216. His monthly expenses amounted to $5, 747. These expenses included $830 in rent, $600 for food, $300 for utilities, $250 for insurance, $2500 in alimony and child support, and $942 in various installment debts. None of these installment debts was past due. He also asserted that the IRS was withholding $500 per month to recoup back taxes While he asserted that he was supporting three households (his, his wife and children and his dependent mother), he still had $469 left over each month after meeting his obligations. His assets equaled $12,800. He reported no other source of income. He stated that he would not be able to pay more than $200 per month to satisfy this debt. After having carefully reviewed the evidence of record, the undersigned finds that that evidence does not support a waiver of recovery of the loan guaranty indebtedness due to financial hardship. While the appellant appears to have many financial obligations, he is able to meet them on his salary. In fact, after meeting these obligations, he is left with $469 each month. The tax debt was reported as $5,000 in 1992, with payments of $500 monthly, and this debt should now be paid. He has asserted that he fears that he will be laid off, but there is no indication that this has occurred. Rather, the evidence indicates that he has the financial resources to repay this indebtedness. Accordingly, the undersigned finds that the appellant can afford to repay this indebtedness, without depriving himself of the basic necessities, if such payments were made over a reasonable period of time. 38 C.F.R. § 1.965(a)(3) (1993). ORDER Waiver of recovery of the loan guaranty indebtedness in the amount of $27,750, plus accrued interest, 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.