BVA9502383 
DOCKET NO.  93-00 337     )       DATE
          )
          )

On appeal from the decision of the
Department of Veterans Affairs Regional Office in Chicago,
Illinois

THE ISSUE

Recovery of the loan guaranty indebtedness.

WITNESS AT HEARING ON APPEAL

Appellant

ATTORNEY FOR THE BOARD

Michael A. Pappas, Associate Counsel

INTRODUCTION

The appellant served on active duty from April 1971 to November
1971.

This matter came before the Board of Veterans' Appeals (the
Board) on appeal from a decision on waiver of indebtedness of the
Department of Veterans Affairs (VA), Chicago, Illinois, Regional
Office's Committee on Waivers and Compromises (RO).  We note that
the appellant's loan guaranty indebtedness was originally
established in January 1985, in the amount of $8,175.45, plus
accrued interest.  In their initial determination on waiver of
indebtedness in February 1989, the RO found the appellant to be
less than materially at fault in the creation of the debt, but
denied a waiver based upon a finding that the collection of the
debt would not impose an undue hardship upon the appellant.  That
decision was not timely appealed and became final.

Effective December 18, 1989, 38 U.S.C.A. § 3102 (1989)
[now 38 U.S.C.A. § 5302 (West 1991)] was revised by the Veterans'
Benefits Amendments Act of 1989, Public Law 101-237.  The
elements of "fraud, misrepresentation, or bad faith" replaced
"material fault or lack of good faith" as elements which
automatically preclude the granting of a waiver.  Thereafter, the
appellant requested a reconsideration of the RO's prior denial.
The amount of the indebtedness then existing, $7,531.45, plus
accrued interest, became the subject of the waiver
reconsideration.

A December 1991 decision of the RO indicated that there was no
finding of fraud, misrepresentation, or bad faith; nevertheless a
waiver was denied based upon a determination that the appellant
was at fault in the creation of the debt, and that the collection
of the indebtedness would not cause the appellant or his family
undue financial hardship.  Essentially, it had been found that
collection of the indebtedness would not be against the
principles of "equity and good conscience."  It is this decision
that is currently on appeal to the Board.

A hearing was held before a member of the Board sitting in
Chicago, Illinois, in November 1992.  The appeal was received and
docketed at the Board in January 1993.  The appellant has
represented himself throughout his appeal, and the case is now
ready for appellate review.

A review of the record establishes that the appellant has not
challenged the validity of the loan guaranty indebtedness.
Accordingly, the Board limits its review to the issue of waiver of
recovery as shown on the initial page of this decision.

CONTENTIONS OF APPELLANT ON APPEAL

The appellant asserts that the RO committed error in denying his
request for a waiver of recovery of his loan guaranty
indebtedness since he was not at fault in its creation, and the
insistence upon his repayment of the indebtedness has created a
severe financial hardship.  The appellant specifically alleges
that he initially purchased the subject property from his brother
and sister as an investment; he was unaware that he was required,
as a condition of the VA guaranty, to occupy it as his home.
Nevertheless, he was thereafter able to rent the property for an
extended period of time.  Unfortunately, his rental income ceased
at the same time that he lost his job.  He contacted the VA, but
was provided no information as to what he could do to avoid
foreclosure.  Consequently, he should not be considered at fault.

With respect to his financial status, the appellant contends that
he has had burdensome financial obligations associated with the
support of four dependent children.  Although he has been
steadily employed, his spouse's employment is irregular.  His
current financial status report shows a positive balance, but,
due to the expenses of child support, he has determined that none
of his positive monthly cash surplus can be applied to his VA
indebtedness without resulting in an extraordinary hardship for
him and his family.

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 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 the preponderance of the evidence is against the
appellant's request for a waiver of recovery of his loan guaranty
indebtedness in the amount of $7,531.45, plus accrued interest.
FINDINGS OF FACT

1.  All relevant evidence necessary for an equitable disposition
of the appellant's appeal has been obtained by the RO.

2.  There was a default in the appellant's VA guaranteed loan
necessitating a foreclosure sale of the subject property,
resulting in the appellant's loan guaranty indebtedness of
$8,175.45, plus accrued interest.  As of December 18, 1989, a
total indebtedness of $7,531.45, plus accrued interest remained
outstanding.

3.  As a condition of obtaining the VA guaranteed loan, the
appellant agreed to occupy the subject property used as security
for that loan.  The appellant failed to occupy the subject
property.  The appellant was not without fault in the creation of
the loan guaranty indebtedness.  The appellant failed to act in
mitigation of his fault.

4.  The appellant's income, with consideration of the costs of
life's basic necessities, is sufficient to permit repayment of
his loan guaranty indebtedness without resulting in excessive
financial difficulty, and repayment of that indebtedness would
not be inequitable.

CONCLUSIONS OF LAW

1.  There was a loss after default of the property which
constituted the security for the appellant's 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 appellant's loan guaranty indebtedness, in
the amount of $7,531.45, plus accrued interest, would not violate
the principles of equity and good conscience.  38 U.S.C.A.
§§ 5107(a), 5302 (West 1991); 38 C.F.R. § 1.965(a) (1993).

REASONS AND BASES FOR FINDINGS AND CONCLUSIONS

We have found that the appellant's claim is "well grounded"
within the meaning of 38 U.S.C.A. § 5107(a).  That is, we find
that he has presented a claim which is not inherently
implausible.  We are also satisfied that all relevant facts have
been properly developed.  The hearing that was accorded the
appellant provided him with an adequate opportunity to explain
his position and produce documentation to verify certain
allegations supportive of his waiver request.  No additional
assistance to the appellant is required to comply with the duty
to assist mandated by 38 U.S.C.A. § 5107(a).

Factual Background

The documentary evidence before the Board supports the following
factual summary:

In July 1979, the appellant purchased a home in Illinois from his
brother and sister for $15,000.00, utilizing a 10 percent VA
guaranteed loan in the same amount, expending only a $15
application fee in the transaction.  Monthly mortgage payments,
including principal, interest, tax, and insurance were $170.00.
In conjunction with the purchase of the property, the appellant
executed a VA Application for Home Loan Guaranty, VA Form 26-
1802a.  In that document, he certified and agreed to repay the VA
any claim which VA would be required to pay the note holder on
account of default under the terms of the loan.  He acknowledged
that he was aware that he would not be relieved from his
indemnity obligation to the VA unless a creditworthy appellant
was found to assume the loan and substitute his entitlement for
the appellant's.  He also certified that he actually occupied the
subject property used as security for the loan as his home or
intended to move into and occupy it as his home within a
reasonable period of time.  The appellant executed a second VA
document, a Certification of Loan Disbursement, VA Form 26-1876,
in which he certified that the purpose of the VA loan was to
purchase residential property that he intended to occupy as his
home.  It was based partly upon these representations that the VA
issued the loan guaranty.

In qualifying for the loan, the appellant's monthly gross income
was reported to be $800 from employment as an assistant manager.
He reported assets totaling $14,277.34, and liabilities totaling
$2,483.94.

The first uncured default on the loan occurred on February 1,
1984.  A Notice of Default was issued by the note holder to the
VA on April 3, 1984.  It indicated that six letters had been sent
to the appellant, but he "had not yet responded to [the] letters
or notices."  The reason given for the default was the
appellant's "improper regard for obligations."  The appellant's
attitude toward the default was assessed by the note holder as
"unconcerned."  Temporary forbearance from foreclosure was
recommended, however.

A Notice of Intention to Foreclose was issued by the note holder
in May 1984, wherein it was indicated that the appellant had
failed to respond to any of the note holder's letters or notices.
It was noted that the subject property was occupied by the
appellant.  Foreclosure was recommended.

On June 21, 1984, the VA directed a letter to the appellant at
the property address to inform him that the note holder intended
to foreclose on the subject property.  The appellant was urged
"to contact the VA to discuss the serious problem."

An appraisal of the property was made in September 1984; the home
was valued in "as is" condition at $7,300.  The appraiser was
able to enter the premises through a broken window; the appraiser
noted that it was vacant.

A foreclosure sale of the subject property was held on October
30, 1984.  The note holder was the successful bidder at the sale
for VA's specified bid amount of $8,397.61.  Subsequently, the VA
paid the note holder on the loan guaranty, and a loan guaranty
indebtedness of $8,175.45, plus accrued interest, was
established.

At his November 1992 hearing, the appellant testified that when he
originally purchased the subject property he had no intention of
living in the home since he already had an apartment in which he
resided.  His intention was to use the subject property for income
purposes.  Eventually, when the rental income ceased he had also
lost his job.  He attempted to contact the VA, but was
unsuccessful.  He was never made aware of anything that he could
do to avoid foreclosure.

Pursuant to his request for a waiver request, the appellant has
filed two financial status reports, in October 1991 and in
December 1992.  Since the December 1992 report is both the most
recent and the most thorough, it projects a more accurate picture
of the appellant's current financial status and will be reported
in detail.  The following portrayal of the appellant's financial
status has been supplemented by pertinent testimony provided by
the appellant at his November 1992 hearing.  The appellant
indicated that he had been employed as a welder since September
1990.  He reported that he was married and had four minor
dependents, although only three were living with him and his
spouse.  The fourth, an eighteen year old, who lived with his
mother, was supported by the appellant through the payment of
regular monthly child support payments.

The appellant reported gross monthly income of $1,520.  After
deductions for taxes, retirement ($25), social security, and child
support ($160), his monthly net income was $962.  Together with
his spouse's monthly net income of $845, their combined monthly
net income was $1,807.  He reported that their monthly expenses
totaled $1,475, including $600 toward food, $200 toward clothing,
and $150 toward automobile repair, home repair, and cable TV.  He
reported no expenses allocated toward rent or mortgage since, as
the appellant has explained, his spouse owns the home in which
they live, free and clear from any mortgages.  There were also no
expense allocations for installment contracts or other debts since
they reportedly have no such debts (except for the VA guaranteed
loan indebtedness).  After payment of monthly expenses, a positive
net balance of $332 resulted.  He indicated, however, that nothing
from that balance could be applied towards the VA loan guaranty
indebtedness.  His reported assets totaled $4,050.

Analysis

The law and regulations authorize a waiver of collection of a loan
guaranty indebtedness from an appellant where both of the
following factors are found to exist:

(1) After default there was a loss of the property which
constituted security for the loan, and (2) collection of the
indebtedness would be against equity and good conscience.
38 U.S.C.A. § 5302(b); 38 C.F.R. § 1.964(a).  The standard "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) The fault of the debtor, (2) balancing of faults
between the debtor and the VA, (3) undue hardship of collection on
the debtor, (4) a defeat of the purpose of an existing benefit to
the veteran, (5) the unjust enrichment of the veteran, and,
(6) whether the veteran changed positions to his detriment in
reliance upon a granted VA benefit.  38 U.S.C.A. § 5302; 38 C.F.R.
§ 1.965(a).

In the evaluation of whether equity and good conscience
necessitate a favorable waiver decision, the Board must consider
all of the specifically enumerated elements applicable to a
particular case.  However, the issues of fault and undue financial
hardship are more significant to the case before us.  Furthermore,
although not an explicit element of equity and good conscience,
the Board also looks to whether the appellant attempted to
mitigate the indebtedness.

VA's working definition of "fault" is "The commission or omission
or an act that directly results in the creation of the debt."
(Veteran's Benefits Administration Circular 20-90-5, February 12,
1990)  Fault should initially be considered relative to the degree
of control the appellant had over circumstances leading to the
foreclosure.  If control is established, even to a minor degree,
the secondary determination is whether the debtor's actions were
those expected of a person exercising a high degree of care, with
due regard for the debtor's contractual responsibilities to the
Government.  The age, financial experience and education of the
debtor should also be considered in these determinations.

From the outset, the appellant played the leading role in the
circumstances leading to foreclosure.  Innocently or not, he
initially perpetrated a deception in the qualification process for
the VA guaranteed loan by misleading the lender and the VA into
believing that he would occupy the subject property as his home
within a reasonable period of time.  The entire VA Loan Guaranty
Program is founded upon a desire on the part of the Government to
provide veterans with the ability to purchase real property which
they would then occupy as their home.  The program allows the
veterans to do so under favorable conditions such as reduced
interest rates and little or no money down.  The program is also
founded upon a belief that veterans will represent their
intentions honestly with respect to the use of the home, and that
it will not be abused by a veteran for illicit gains, such as the
purchase of property solely for rental investment purposes.  It is
obvious that the lender and the VA took into account the
appellant's assurance that he would occupy the property as his
principal residence, and that assurance was crucial to the
approval of the loan.

The purchase transaction was an ongoing process, requiring the
appellant's active participation at several intervals.  From the
time the appellant contracted to purchase the subject property
until the day of settlement, two months had transpired.  The
appellant has not been shown to have been incompetent or under
any legal disability during this time period.  The appellant
claims that he was not aware that he would have to occupy the
subject property as a condition of obtaining the loan.  Although
the Board is appreciative of the appellant's recent candor, his
prior oblivion must be construed by the Board as indicative of
the appellant's reckless disregard for his contractual
obligations to the note holder and the VA.  It is not
inconceivable that an indirect result of the appellant's failure
to occupy the subject property was his eventual inability to
repay the VA guaranteed loan.  But it is inarguable that the
creation of the loan guaranty indebtedness was a direct result of
his failure to repay the note holder as he had also promised at
settlement.

Clearly, the appellant was in direct control of the debt
obligation prior to the initial uncured default and throughout
the foreclosure process.  This is so, regardless of the reason
for the appellant's alleged failure to read the documents that
obligated him under the VA guaranteed loan, or the underlying
reason why he entered into the transaction in the first place.
Direct control being established, the appellant was required to
take those actions expected of a person exercising a high degree
of care, with due regard to his contractual responsibilities to
the Government.

It appears that, once he was unable to rent out the subject
property, he simply chose to abandon the home.  The appellant
argues that any assessment of his fault should be negated since
he had also lost his job and therefore was left with no recourse
but to abandon the subject property.  This argument has no merit.
The appellant's abandonment of the subject property is not the
critical issue; the total abandonment of his contractual
obligation under the loan is.  He unilaterally made a choice as
to how he would allocate the financial resources he had.  The
Board finds, that the appellant chose this course of action to
the detriment of his contractual responsibility to the
Government.  He did so at his peril.  In choosing to abandon the
home and the loan obligation, the appellant should be held
responsible for the consequences, namely the default and the
foreclosure of the VA guaranteed loan.  By definition, the
appellant must be considered at fault in the creation of the loan
guaranty indebtedness.  Based upon the dubious manner by which he
had qualified for the loan, the appellant's overall fault must be
considered egregious.

As indicated, the Board must also look to whether the appellant
attempted to mitigate the amount of the indebtedness.  Following
an in-depth analysis, the Board believes that the appellant's
fault cannot be mitigated.  The evidence indicates that the
appellant failed to communicate or cooperate with the note holder,
and never consulted the VA.  Apart from that, the appellant made
no other discernible attempt to reduce the financial harm his
choice caused others, namely the VA.

Finally, we must analyze the appellant's current financial status
and the potential impact of loan guaranty payments on his ability
to discharge his responsibilities to provide himself and his
family with the basic necessities of life.  We are particularly
mindful of the principle that the appellant is expected to accord
a debt to the Government the same regard given to any other debt.
Much of the information regarding his financial status was
affirmed by his testimony at a hearing.  We find that testimony to
be sincere but not very helpful to his case.  The appellant has
indicated that he has no other debts.  Furthermore, the proper
analysis of undue hardship must take into consideration not only
the appellant's present financial picture but a realistic
projection of his status in the foreseeable future.  The appellant
has had steady employment and a stable income in a desirable
trade.  He and his spouse realize a significant monthly cash
surplus.  It does not appear that they have minimized their
expenditures to the greatest extent possible.  They are relatively
young and resourceful and may reasonably be expected to have many
more years of gainful employment.  His family's assets include a
home, and, although no value was assigned to that asset by the
appellant, it is undoubtedly a valuable commodity.  The simple
prospect of having no monthly rent or mortgage obligation is
enviable.  Further, one of the children he claims as a dependent
receiving child support has now reached the age of majority.  It
is likely that the obligation of support payments will cease in a
short period of time, if they have not already.

It appears that the appellant could conservatively afford a
monthly payment of $150 and still be able to afford all other
quoted expenses for necessities.  This amount is, in fact, less
than one-half of his reported monthly cash surplus.  Typically,
loan guaranty debts are paid off within a five-year (60 month)
period.  On that basis, a realistic projection of the appellant's
foreseeable financial status is that, with prudent budgeting, he
would be able to pay a similar amount per month, within that five-
year period, toward the loan guaranty indebtedness.  The end
result would not be unduly favorable or adverse to either the
Government or the appellant.  This is not to say that the
appellant and his family will not experience certain
inconveniences as a result of the payment of the indebtedness to
the Government.  Obviously, additional finances would be
beneficial to their quality of living.  There is no evidence,
however, that they will be forced to endure a lack of food,
clothing, warmth, or shelter as a result of the collection of the
appellant's debt.

The Board has determined that the fault of the appellant in the
creation of the loan guaranty indebtedness was significant.  The
VA has absorbed a substantial loss in this transaction.  The
appellant made no attempt to mitigate the amount of that loss and
should bear the burden of its repayment.  It has also been
determined that he has the financial ability to repay the
indebtedness.  The Board believes that the RO had arrived at a
fair determination that was not unduly favorable or adverse to
either the Government or the appellant.  The Board finds,
therefore, that under the principles of equity and good
conscience, taking into consideration, as a whole all of the
specifically enumerated elements of 38 C.F.R. § 1.965(a), it was
not unfair to recover the remainder of the appellant's loan
guaranty indebtedness, in the amount of $7,531.45, plus accrued
interest.  The decision of the RO is affirmed for the reasons and
bases cited herein.

ORDER

Waiver of recovery of the appellant's loan guaranty indebtedness,
in the amount of $7,531.45, plus accrued interest, is denied.

          GEORGE R. SENYK
          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.