BVA9502768 DOCKET NO. 93-07 310 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in Nashville, Tennessee THE ISSUE Entitlement to waiver of recovery of loan guaranty indebtedness. ATTORNEY FOR THE BOARD J.W. Engle, Counsel INTRODUCTION The appellant served on active duty from February 1960 to May 1969. This matter came before the Board of Veterans' Appeals (the Board) on appeal from a decision dated in August 1992, by the Committee on Waivers and Compromises of the Nashville, Tennessee, 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. CONTENTIONS OF APPELLANT ON APPEAL The appellant contends, in essence, 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 file. 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 waiver of recovery of the outstanding loan guaranty indebtedness. FINDINGS OF FACT 1. In November 1985 the appellant and his wife obtained a loan in the amount of $42,000.00, which was guaranteed, in part, by VA, for the purchase of a home located in Memphis, Tennessee. 2. In August 1990, VA received a Notice if Default which indicated that the first uncured default was on May 1, 1990. It was further noted that the appellant had vacated the subject property and indicated that his company was shutting down and he would be unable to pay for the house. He further reported that he attempted to sell the house but was unsuccessful. 3. A Notice of Intention to Foreclose dated in August 1990 noted that the subject property was vacated. 4. In December 1990 the subject property was sold at a foreclosure sale for an amount less than the unpaid principal, accrued interest, and foreclosure expenses. 5. VA paid a claim to the lender pursuant to the loan guaranty agreement and a debt in the amount of $14,546.17 was charged to the appellant. 6. The financial status report dated in July 1992 reflects that the appellant's monthly income exceeds his monthly expenses by approximately $276.00. 7. Recovery of the outstanding loan guaranty indebtedness would not be unfair. 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) (1992). 2. Recovery of the outstanding loan guaranty indebtedness of $14,546.17 plus accrued interest, would not be against equity and good conscience. 38 U.S.C.A. § 5302 (West 1992); 38 C.F.R. § 1.965(a) (1992). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS Review of the pertinent evidence reveals that in November 1985 the appellant and his wife obtained a loan in the amount of $42,000.00, which was guaranteed, in part, by VA, for the purchase of a home in Memphis, Tennessee. A Notice of Default dated on August 2, 1990 noted that the appellant reported he had vacated the subject property and that his company was shutting down and he was not going to be able to pay for the house. He further noted that he attempted to sell the subject property but was unsuccessful. A Notice of Intention to Foreclose dated on August 4, 1990 noted that the subject property was vacant. In December 1990 the subject property was sold at a foreclosure sale for an amount less than the unpaid principal, accrued interest, and foreclosure expenses. VA paid a claim to the lender pursuant to the loan guaranty agreement and a debt in the amount of $14,546.17 was charged to the appellant. In July 1992 the appellant requested a waiver of the outstanding loan guaranty indebtedness. He indicated that he had made significant repairs including replacing the kitchen floor, carpet in the den and painting in three rooms in an effort to sell the subject property. He further noted that he had to go to California to assist his mother and that neither VA nor the lender would assist him at that time. Analysis Initially, we note that the appellant's claim is well-grounded within the meaning of 38 U.S.C.A. § 5107(a) (West 1991); 38 C.F.R. § 1.965(a) (1991). We are also satisfied that all relevant facts have been properly developed. 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 indication of which, if found, will preclude the granting of waiver: (1) Fraud or misrepresentation of a material fact (see § 1.962(b)). (2) Bad faith. This term generally describes unfair or deceptive dealing by one who seeks to gain thereby at another's expense. Thus, a debtor's conduct in connection with a debt arising from participation in a VA benefits/services program exhibits bad faith if such conduct, although not undertaken with intent to seek an unfair advantage, with knowledge of the likely consequences, and results in a loss 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). Initially, it must be determined whether consideration of waiver of recovery is precluded by law. Ridings v. Brown, 6 Vet.App. 544 (1994) The evidence of record does not indicate an intent to take advantage of the Government. Accordingly, fraud or misrepresentation of a material fact, bad faith, or lack of good faith is not established. Remaining for consideration are the elements of the principle of equity and good conscience. There is no evidence of fault on the part of VA, that recovery of the indebtedness would nullify the objective for which the benefit was intended, that the appellant would be unjustly enriched, 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 debtor and his family of basic necessities. After having carefully considered all of the evidence of record, the Board believes that the appellant has not presented evidence which would relieve him of responsibility for the circumstances which led to the default. Although he has indicated that he attempted to sell the subject property and that neither VA nor the lender would help him at the time of the default, there is no objective evidence of record to support his contentions concerning his efforts to sell the property. Furthermore, there is no indication within the loan guaranty file to establish that he contacted VA regarding the circumstances surrounding the default and to discuss possible alternatives even though VA attempted to contact him by letter in August 1990 and again at his new address in California in September 1990. In addition, while he reported that his company was "shutting down," and that he would not be able to "pay" for the house, he voluntarily vacated the subject property and moved to California where he apparently secured employment. There is no evidence to establish that he was unable to obtain employment in Tennessee or that he was unable to meet the mortgage payments due to lack of financial resources at that time. The record does not provide a basis to conclude that the appellant took any action in May 1990, the month in which the first uncured default occurred, or at any time thereafter in an effort to avoid default and foreclosure. There is no objective evidence of record to establish that any attempts were made to sell or rent the subject property and the record is silent with regard to any attempts on the part of the appellant to contact either VA or the lender with respect to the circumstances surrounding the default. The Board has considered all of the evidence of record including the appellant's contentions; however, in view of the above and the lack of evidence to establish otherwise, we believe that the appellant bears some responsibility in the creation of the loan guaranty indebtedness. Turning to the element of undue hardship, the record reflects that the appellant submitted a VA Form 4-5655, Financial Status Report in July 1992. He reported that his monthly income exceeded his monthly expenses by approximately $276.00. We note that the appellant has listed debts to Montgomery Wards and Sears Roebuck as well as to MasterCard which will be paid in full within 12 months providing an additional $170.00 per month which could be applied to the outstanding loan guaranty indebtedness in combination with the current $276.00. After careful analysis of the appellant's financial status, it is the undersigned's opinion that repayment of the debt in monthly installments of $270.00 or more, for a period of approximately 5 years would not prevent the appellant from providing for himself with the basic necessities of life. ORDER Waiver of recovery of the 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.