BVA9505325 DOCKET NO. 92-56 648 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in Los Angeles, California THE ISSUES 1. Validity of the loan guaranty indebtedness. 2. Recovery of the loan guaranty indebtedness. WITNESS AT HEARING ON APPEAL Appellant and spouse ATTORNEY FOR THE BOARD Michael A. Pappas, Associate Counsel INTRODUCTION The veteran served on active duty from April 1943 to January 1946. When this matter was last considered by the Board of Veterans' Appeals (the Board), in April 1992, it was remanded to the Department of Veterans Affairs (VA) Los Angeles, California, Regional Office's Committee on Waivers and Compromises (RO) for further development. The appeal was returned to the Board in December 1994. The veteran has represented himself throughout his appeal. Preliminarily, it should be noted that the April 1992 remand posed a considerable challenge to the RO in terms of the voluminous and detailed effort required in the development of the veteran's appeal. It appears that the RO met the challenge with textbook precision. All suggested resources of pertinent information were pursued and apparently exhausted. The RO should be specifically commended for their tenacious efforts in the fulfillment of the duty to assist a veteran in the development of his claim. REMAND A review of the record indicates that, as of the date of the foreclosure of the subject property, February 20, 1989, the total indebtedness on the VA guaranteed loan was $97,241.84. The VA required the note holder to bid at the foreclosure sale the "upset bid" amount of $84,788.00. This amount represented the reasonable value assigned to the subject property by the liquidation appraisal, less the estimated cost of repairs and resale. At some point between February and May 1989, the outstanding total indebtedness was credited with the value of the veteran's remaining escrow account balance, in the amount of $175.44. Following the foreclosure sale, the note holder elected to convey the subject property to the VA for the "upset bid" amount. Title was conveyed to the VA in March 1989. In May 1989, the VA paid the note holder $12,278.40 on their loan guaranty claim. This amount paid by the VA on the loan guaranty represented the outstanding indebtedness on the loan ($97,241.84) less the "upset bid" amount ($84,788.00), less the escrow account balance credit ($175.44). The amount paid by the VA to the note holder also established the amount of the veteran's loan guaranty indebtedness. Thereafter, the VA repaired and marketed the subject property, and on August 10, 1990, the property was resold for the gross sales price of $135,001.00, with the VA receiving $125,064.75 in the transaction. It is unclear whether the VA was able to realize a net gain from the resale of the subject property, although it appears that it may have. Under certain circumstances, a net gain by the VA in the resale of property acquired through foreclosure may be used to offset a veteran's loan guaranty indebtedness. There is nothing in the record indicating that VA's resale of the subject property has been taken into account in the determination of the amount of the veteran's loan guaranty indebtedness. The United States Court of Veterans Appeals (the Court) has released a decision bearing directly on the present appeal: In Schaper v. Derwinski, 1 Vet.App. 430 (1991) it was held that when the validity of a debt is challenged by an appellant, a threshold determination must be made on that question prior to a decision on waiver of indebtedness. It may be extrapolated from that decision that when the validity of the amount of a debt is challenged, a threshold determination must be made on that question as well. Although the veteran in the instant case has not specifically articulated a challenge to the validity of the amount of the indebtedness based upon the potential gain of the VA from a post- foreclosure resale of the subject property, it is likely that the information necessary to formulate such a challenge was not available to him. Regardless, the Board may infer such a challenge on his behalf. Akles v. Derwinski, 1 Vet.App. 118 (1991). Since the issuance of the Board's April 1992 remand, Veterans Benefits Administration's procedures were modified suggesting new guidelines relevant to the issue. The RO should review their substantive accounting in this case with a focus on VBA Manual M26-4, paragraphs 3.14, 3.17 and 3.18, and the recent (November 1992) changes to VBA Manual M26-4 relevant to the issue of the offset of a debt due to a gain from resale. It should be determined whether the VA recouped any of its losses from its payout on the loan guaranty, and, if so, whether the veteran's indebtedness can be adjusted accordingly. The Board regrets any further delay in the adjudication of the veteran's claim. Under the circumstances, however, the Board is compelled to remand this case to the RO for the following actions: The RO should review all documents relevant to the amount of the loan guaranty indebtedness under the terms of VA foreclosure regulations. In particular, it should be determined whether the VA recouped any of its losses in their payout on the loan guaranty from the subsequent resale of the subject property, and, if so, whether the veteran's indebtedness can be adjusted accordingly. The review should include consideration of any amounts paid by the VA in the post-foreclosure repair and marketing of the subject property. The provisions of VBA Manual M26-4, paragraphs 3.14, 3.17 and 3.18, and the recent (November 1992) changes to VBA Manual M26-4 should be consulted and applied. The RO should then provide the veteran with a specific and detailed accounting of exactly how his loan guaranty indebtedness was derived. A copy of this accounting should be associated with the claims file. Following the completion of the requested accounting, if any amount of the veteran's indebtedness remains collectable as a valid debt, regardless of whether it has already been collected, the case should be returned to the Board. The purpose of this remand is to procure clarifying data and to ensure due process of law. No action by the veteran is required, until he is so notified. WILLIAM J. REDDY 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. Under 38 U.S.C.A. § 7252 (West 1991), only a decision of the Board of Veterans' Appeals is appealable to the United States Court of Veterans Appeals. This remand is in the nature of a preliminary order and does not constitute a decision of the Board on the merits of your appeal. 38 C.F.R. § 20.1100(b) (1994).