BVA9504787 DOCKET NO. 93-08 960 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in Houston, Texas THE ISSUE Waiver of recovery of loan guaranty indebtedness. REPRESENTATION Appellant represented by: AMVETS ATTORNEY FOR THE BOARD L. M. Barnard, Counsel INTRODUCTION The veteran served on active duty from November 1977 to January 1980. This appeal arises from an April 1992 decision of the Houston, Texas, Department of Veterans Affairs (VA), Regional Office (RO), Committee on Waivers and Compromises, which denied waiver of recovery of the loan guaranty indebtedness in the amount of $23,923.99, plus accrued interest. The Committee found that the appellant had been at fault in the creation of this indebtedness, and repayment of this debt would not cause undue financial hardship. CONTENTIONS OF APPELLANT ON APPEAL The appellant contends, in essence, that the creation of the debt was not his fault. He stated that he defaulted because, due to an economic downturn in the Houston area, he had lost his plumbing business and that they could not maintain mortgage payments on his wife's income only. Even if found to be at fault, it is asserted that repayment would cause an 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 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 collection of the loan guaranty indebtedness would not be against equity and good conscience. FINDINGS OF FACT 1. In October 1986, the appellant and his spouse purchased a house using a home loan which was guaranteed, in part, by VA. 2. After the appellant lost his plumbing business, he defaulted on the loan in July 1987. Mortgage foreclosure proceedings were initiated. 3. In February 1988, 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 loss to the government, in the amount of $23,923.99, was charged as a debt 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 CONCLUSION The appellant is seeking waiver of recovery of a loan guaranty indebtedness in the amount of $23,923.99. 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 $23,923.99 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 October 1986, the appellant and his spouse purchased a house in Houston, Texas, for $85,749, using a home mortgage loan which was guaranteed, in part, by VA. 38 U.S.C.A. §§ 3701 et seq. (West 1991). The first mortgage payment was made in December 1986. In September 1987, the lender notified VA that mortgage payments had not been made since July 1, 1987. This notification noted that the reason for the default was the unemployment and illness of the appellant. A delinquency servicing statement noted that the appellant indicated on July 16, that he would send $500 a month for three months. However, no funds were forthcoming. A phone call that same day noted that the appellant was not working due to his drug use. In October 1987, a Notice of Intention to Foreclose was sent to VA. This form indicated that a Deed in Lieu of Foreclosure and a Voluntary Conveyance were not feasible. The veteran was still occupying the home. In January 1988, foreclosure proceedings were initiated, and on February 2, 1988, the property was sold at a foreclosure sale for $55,875. In April 1988, the mortgage holder filed a claim under the loan guaranty, which VA satisfied. In February 1992, the appellant requested waiver of recovery of the loan guaranty indebtedness. He stated that the Houston economy had been bad at the time of the default. He reiterated that he had lost his plumbing business, all of his tools and his truck. After that, he became depressed, a condition he claims to have sought counseling for. Since that time, he had been unable to maintain steady employment. In April 1992, the RO found that the appellant had been at fault in the creation of the indebtedness, and that requiring repayment of that indebtedness would not be against equity and good conscience. 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, the record reveals that the appellant stopped making payments on the loan in July 1987. He stated in his waiver claim that he been unable to make the payments on only his wife's salary after the loss of his business. He had claimed that he had lost this business because of the downturn in the Houston economy. However, records from the period indicate that he lost his business because of his heavy abuse of cocaine. In fact, his wife stated that he spent $100-200 each day for the purchase of this drug. The appellant and his wife apparently made no attempt to sell the property. The record suggests that the appellant was still residing in the home as late as August 1988. During this time, he and his wife made no payments. After carefully reviewing the record, the undersigned has reached the conclusion that the appellant was at fault in the creation of the loan guaranty indebtedness. The evidence indicates that, despite his assertion that he lost his business due to economic conditions, he actually lost it because of his cocaine addiction. This addiction clearly hindered his ability to address his obligations. He was unable to give the attention to the business that it needed; as a consequence, he lost it. While he asserted that his reduced economic situation made it impossible to meet his obligations, it is noted that his March 1992 Financial Status Report indicated that he purchased a new $14,000 automobile in September 1987, two months after the default. He was also able to obtain two new credit card accounts. Clearly, his credit- worthiness had been re-established very quickly. At the time that he obtained the mortgage, he knew that it was his responsibility to make the payments. The appellant obviously had a great deal of control over the circumstances that lead to the default. He failed to exercise due care with regard to his contractual obligation to the Government. Turning to the element of financial hardship, the undersigned notes that the appellant has not worked in several years. According to the March 1992 Financial Status Report, his spouse had a total monthly income of $2268.58. Expenses amounted to $2131.80. Thus, there was a $136.78 surplus each month. However, it is noted that these monthly expenses included a $333.36 monthly payment for a new car, which was purchased after the default on the home loan. This report also indicated that the appellant's credit standing had apparently been reinstated, since he was paying on two installment debts, amounting to $448.44 per month. Neither of these two debts, nor the car payment, were overdue. They were also spending $600 for rent, $300 on food, $100 on utilities and heat, $75 on the telephone and $115 on insurance. Their furniture and household goods were reported to be worth $3,000. In January 1993, the appellant submitted another Financial Status Report. Again, the appellant reported that he was still unemployed; his spouse's income had increased to $2295.32 per month. Their expenses amounted to $2256.73 each month. These included $600 for rent, $100 for food, $100 on heat and utilities, $75 for the telephone, $135 on insurance, $35 for cable, and despite already reporting utilities, another $30 on water was noted. Despite reporting that they pay for insurance, another $110 for the appellant's drug rehabilitation program was reported. They stated that they spent $100 per month on gas. They also reported spending $826.73 per month on installment debts. These included $691.73 per month for a new car purchased in December 1992. New credit card balances had been incurred in August, November, and December 1992. None of these payments were past due, save a large debt to a department store, which the appellant's spouse stated would be paid in full as soon as they got some extra money. It was also indicated that the value of their household goods had increased to $4,000. After having carefully reviewed the evidence of record, the undersigned finds that a financial hardship would not result from requiring the appellant to repay this debt. While the appellant has asserted that he and his spouse do not have the financial wherewithal to repay this indebtedness, it is noted that, following this default, they were able to purchase a new car in 1987, and then replaced this vehicle with another new car in 1992. They have also re-established their credit standing, as is evidenced by the incurrence of several installment debts, none of which are past due. It is noted that the debt due to the Government is to be given the same consideration as any other debt owed. Finally, it would appear that the appellant reported expenses for utilities twice, once as one bill for $100, and then a separate $30 notation for water. They also pay $35 per month for cable, a discretionary expense. Furthermore, the $110 spent on drug rehabilitation for the appellant is not a debt, but something necessary only when he seeks treatment. Therefore, this is arguably not a continuous expense. In regard to the 1992 automobile, it is noted that this vehicle should be paid for soon, thus providing additional sums of money with which the debt could be satisfied within a reasonable period. As the veteran manages his debts, his payments to VA could increase, thus leading to liquidation of his loan guaranty debt. In the final analysis, there is every indication, that with prudent budgeting, the appellant would be able to repay this indebtedness, if reasonable payments were made over a reasonable period of time, such as 5 years. 38 C.F.R. § 1.917 (1993). In short, recovery of the loan guaranty indebtedness would not be against equity and good conscience. 38 U.S.C.A. § 5302 (West 1991); 38 C.F.R. §§ 1.964(a), 1.965(a) (1993). ORDER Waiver of recovery of loan guaranty indebtedness 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.