Citation Nr: 0001639	
Decision Date: 01/19/00    Archive Date: 01/28/00

DOCKET NO.  97-09 813	)	DATE
	)
	)

On appeal from the
Department of Veterans Affairs Regional Office in Houston, 
Texas


THE ISSUE

Recovery of a loan guaranty indebtedness in the amount of 
$25,109, plus interest.


REPRESENTATION

Appellant represented by:	Disabled American Veterans


WITNESS AT HEARING ON APPEAL

Appellant


ATTORNEY FOR THE BOARD

Robin M. Webb, Associate Counsel


INTRODUCTION

The veteran had active service from March 1974 to June 1977.

This appeal arises before the Board of Veterans' Appeals 
(Board) from an October 1996 decision, in which the Houston, 
Texas Regional Office's Committee on Waivers and Compromises 
(RO) denied the veteran's request for a waiver of loan 
guaranty indebtedness.

The Board notes that the veteran's claim was last before the 
Board in July 1999.  At that time, it was remanded so that 
the RO could readjudicate the issue of entitlement to a 
waiver of recovery of a loan guaranty indebtedness in the 
amount of $25,109 plus interest, in light of additional 
evidence received.  Subsequently, the RO was to issue the 
veteran and his representative a supplemental statement of 
the case.  Review of the record indicates that the RO 
complied with the Board's directives, as required by law.  
See Stegall v. West, 11 Vet. App. 268 (1998).  Here, the RO 
considered the additional information of record in its 
readjudication of the veteran's claim.  Also, the RO provided 
the veteran and his representative with a supplemental 
statement of the case.

The Board also notes that the veteran has not challenged the 
validity of the loan guaranty indebtedness.  Accordingly, 
then, the Board limits its consideration to the issue as 
framed on the title page of this decision.


FINDINGS OF FACT

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

2.  There was a default in the veteran's VA guaranteed loan 
that necessitated a foreclosure sale of the subject property, 
resulting in the veteran's loan guaranty indebtedness of 
$25,109, plus accrued interest.

3.  The veteran was at fault in the creation of his loan 
guaranty indebtedness.  The veteran attempted to mitigate the 
amount of the indebtedness by refinancing and by actively 
pursuing the resale of the property.

4.  The veteran would be unjustly enriched if a total waiver 
of recovery of his loan guaranty indebtedness were granted.

5.  In 1984, when the veteran and his spouse purchased the 
subject property utilizing the original VA guaranteed loan, 
it had an imputed value equal to the amount of the loan, 
$82,000.  In May 1986, the veteran and his spouse refinanced 
the original VA guaranteed loan, in the amount of $81,250.  
In August 1987, just prior to foreclosure of the VA 
guaranteed refinance loan, the subject property was valued by 
the VA "as is" at $62,000, representing a diminution in 
value of $20,000, from the time that the veteran and his 
spouse had purchased it.  This diminution in value reflected 
an ongoing devaluation of the subject property due to the 
downturn in the local market, in which the subject property 
was situated.  The veteran and his spouse were not 
responsible for this diminution in value.

6.  The veteran's income, with consideration of the costs of 
life's basic necessities, is sufficient to permit repayment 
of the balance of the loan guaranty indebtedness, not waived 
herein, without resulting in undue financial hardship, and 
repayment of the indebtedness would not be inequitable.


CONCLUSIONS OF LAW

1.  After default on the VA guaranteed loan, there was a loss 
of the subject property which constituted the security for 
the VA guaranteed loan.  38 U.S.C.A. §§ 5107(a), 5302 (West 
1991 & Supp. 1999); 38 C.F.R. § 1.965(a) (1999).

2.  A partial waiver of the veteran's loan guaranty 
indebtedness in the amount of $10,000, plus accrued interest, 
is consistent with the principles of equity and good 
conscience.  38 U.S.C.A. § 5302 (West 1991 & Supp. 1999); 
38 C.F.R. § 1.965(a) (1999).

3.  Recovery of the remainder of the loan guaranty 
indebtedness, in the amount of $15,109, plus accrued 
interest, would not violate the principles of equity and good 
conscience.  38 U.S.C.A. § 5302 (West 1991 & Supp. 1999); 
38 C.F.R. § 1.956(a) (1999).


REASONS AND BASES FOR FINDINGS AND CONCLUSIONS

Initially, the Board finds that the veteran has submitted a 
well grounded claim with respect to waiver within the meaning 
of 38 U.S.C.A. § 5107(a) (West 1991).  That is, the veteran 
has presented a claim that is not inherently implausible.  
The Board also finds that all relevant facts have been 
developed, and there is no indication that there are other 
records pertinent to the veteran's claim that have not been 
obtained.  Consequently, no further assistance to the veteran 
is required in order to comply with VA's duty to assist the 
veteran, as mandated by 38 U.S.C.A. § 5107(a).

I.  Pertinent Law and Regulations

Applicable VA law and regulations authorize a waiver of 
collection of a loan guaranty indebtedness from a veteran 
where he has been found to be free from an indication of 
fraud, misrepresentation, or bad faith, and 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 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).  

II.  Factual Background

In July 1984, the veteran and his spouse purchased a home in 
Missouri City, Texas, utilizing a 14 percent, VA guaranteed 
loan in the amount of $82,000.  The home that was purchased 
became the security for the repayment of the loan.

In August 1985, the veteran's employment with Ammex Products 
Incorporated was terminated, as the company was sold to a 
Mexican concern.  The veteran was hired by the Mexican 
concern, but because of the collapse in the oil market, he 
was soon jobless.  The veteran used what wages he earned from 
working with the Mexican concern to make his mortgage 
payments.  The veteran also borrowed from an existing life 
insurance policy in order to make his mortgage payments.

In May 1986, the veteran and his spouse refinanced and 
obtained an 11 percent, VA guaranteed refinance loan in the 
amount of $81,250.  The veteran and his spouse used the 
proceeds from this loan to pay off the existing mortgage.  
This refinance loan is the one that was eventually 
foreclosed, creating the loan guaranty indebtedness that is 
the subject of this appeal.

In conjunction with obtaining the refinance loan, the veteran 
executed VA Form 26-1820 (Report of Home Loan Processed on 
Automatic Basis).  In this document, the veteran certified 
and agreed to pay VA for any claim the VA would be required 
to pay the lender on account of default under the terms of 
the loan.  This document also specified that "[t]his debt 
will be the object of established collection procedures."

In May 1987, the note holder (North American Mortgage Co.) 
reported to VA that the loan was in default for the month of 
March 1987 and subsequent installments.  The veteran claims 
that as a result of the economic downturn in the region and 
the loss of his job and subsequent underemployment, he and 
his spouse were unable to meet their monthly mortgage 
obligations.  The veteran attempted to sell the subject 
property, listing it with ERA realtors.  Given the economic 
downturn in Houston, however, he was unable to do so.  The 
veteran claims that he was told by his realtors that the only 
way to sell the subject property was to give it away.  VA 
Form 26-8753 (Supplemental Servicing Code Sheet), dated in 
May 1987, reflects the veteran's communication with VA, in 
which he indicated that he had lost his job.  VA personnel 
advised the veteran to sell the property.

In August 1987, an appraisal of the subject property was 
conducted.  It was valued by VA "as is" in the amount of 
$62,000.  It was noted in the appraisal that the subject 
property was in a newer neighborhood, whose property values 
were being adversely affected by foreclosures.

The veteran and his family lived in the subject property for 
seven months effectively rent-free until September 1987, when 
final judgment of foreclosure was obtained.  A foreclosure 
sale of the subject property was held on October 6, 1987, the 
proceeds of which were $59,413.01.  This resulted in a VA 
loan guaranty indebtedness of $25,109.

The veteran and his spouse divorced in 1988, due in part to 
the strain put on the marital relationship because of the 
veteran's unemployment and attendant financial problems, 
including default on the mortgage.

Pursuant to his request for a waiver of recovery of the loan 
guaranty indebtedness, the veteran, in September 1996, 
submitted VA Form 20-5655 (Financial Status Report), in which 
the veteran indicated that he had no income.  The veteran 
stated that he had no place to live and that he was staying 
with friends.  The veteran also stated that the $400 he had 
reported for food was actually provided by an associate and 
considered salary in kind.

In correspondence to the veteran, also dated in September 
1996, the RO requested additional documentation from the 
veteran.  With no response from the veteran, the RO denied 
the veteran's waiver in an October 1996 decision, stating 
that there was no finding of fraud, misrepresentation, or 
showing of bad faith.  However, the veteran was at fault in 
the creation of the loan guaranty indebtedness, and his 
failure to respond to the RO's request for additional 
information was construed to reflect a disregard for the 
circumstances of the default and foreclosure.

In January 1997, the veteran submitted a statement from the 
IRS that indicated that there were no filings for the years 
1985 to 1990.  The veteran also submitted VA Form 20-5655 
(Financial Status Report), in which he listed his current 
monthly gross salary as $1,000.  Total deductions came to 
$56, leaving the veteran with a total monthly net income of 
$944.  The veteran indicated that $178 a month compensation 
payment was being withheld by VA.  The veteran's average 
monthly expenses consisted of a $525 rent payment and $200 
for food.  The veteran's net monthly income less expenses was 
$219.

Subsequent to submitting the IRS statement noted above, the 
veteran submitted a 1988 federal income tax return that 
reflected a business income for the year of $8,500.  The 
veteran also submitted court papers that indicated that the 
veteran was to pay $900 a month in child support payments.  
It was noted that from October 5, 1989, to October 15, 1991, 
the veteran was in arrears in the amount of $2,300.

VA Form 1042 (Referral of Indebtedness to Committee on 
Waivers and Compromises) shows that the veteran is in receipt 
of VA benefits in the amount of $91 a month.  Of that amount, 
$67.20 was withheld per month, in order to pay off the 
veteran's loan guaranty indebtedness.  As of October 1996, 
the amount recovered was $4, 976.40.

The veteran's 1996 federal income tax return reflects a total 
income of $1,500.  The veteran's apartment lease agreement 
confirms the veteran's earlier reported monthly rental 
payment of $525.

Pursuant to the Board's October 1998 remand, the veteran 
submitted copies of his 1997 and 1998 federal income tax 
returns.  The veteran's total income for 1997 was $21,390.  
For 1998, it was $12,400. The veteran also submitted an 
updated VA Form 20-5655 (Financial Status Report), in which 
he listed his monthly gross salary as $1,240.  Total 
deductions came to $224, leaving the veteran with a total 
monthly net income of $1,016.  The veteran indicated that VA 
withheld $184 a month in compensation payment.  The veteran's 
monthly expenses were a $425 rental payment, $200 for food, 
and a $450 child support payment.  A lay statement from one 
of the veteran's relatives speaks to the general downturn in 
the area's economy at that time and the veteran's attendant 
personal and financial problems.

III.  Analysis

The RO found the appellant to be free from an indication of 
fraud, misrepresentation or bad faith, and the Board concurs 
with that preliminary finding.  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, unjust enrichment, and whether the 
collection of the loan guaranty indebtedness would defeat the 
purpose of an existing VA benefit to the veteran or impose 
upon him an undue financial hardship are more significant in 
this instance.  Furthermore, although not an explicit element 
of equity and good conscience, the Board also looks to whether 
the appellant attempted to mitigate the amount of the 
indebtedness.  

VA's working definition of "fault" is "[t]he commission or 
omission of an act that directly results in the creation of 
the debt."  (Veterans Benefits Administration Circular 20-90-
5, February 12, 1990).  Fault should initially be considered 
relative to the degree of control the veteran 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.

In this instance, notwithstanding the fact that the veteran's 
employment termination was involuntary and precipitated by a 
collapse in the oil market, the veteran was at all times in 
direct control of the subject property and debt obligation.  
Utilizing the VA guaranteed refinance loan, the appellant had 
been able to pay off the existing mortgage and lower his 
monthly mortgage payment.  Normally, one could have expected 
the subject property to appreciate in value.  Based upon the 
failing economy of the region, this did not happen.  Rather, 
the record shows that the subject property underwent an 
approximate $20,000 diminution in value.  However, the VA 
should not be expected to ensure the continued appreciation of 
the property, in addition to guaranteeing payment on the loan 
obligation.  The veteran's responsibility for payment under 
this loan obligation was not contingent upon the continued 
economic health of the region in which the property was 
situated or whether it was advantageous for him to maintain 
his loan payments.  This is so, even though the veteran 
certainly was not responsible for the collapse of the oil 
market and the general economic downturn in the region.  The 
veteran was under direct control of the financial situation, 
though, and it was incumbent upon him to take those actions 
expected of a person exercising a high degree of care, with 
due regard to his contractual responsibility to the 
Government.

The veteran may argue that his fault is totally excusable 
because he was not in control of the oil market and 
responsible for his termination and general economic downturn 
experienced in the region, which resulted in a gross 
diminution in value of the subject property.  However, these 
arguments, while relevant to mitigation, are not the critical 
issue; the total abandonment of his contractual obligation 
under the loan is.  By definition, and under all accepted 
criteria, the veteran must be considered at fault.

Notwithstanding this conclusion, though, the Board may take 
into consideration all mitigating factors, and a finding of 
fault can be tempered by a finding that the veteran made 
substantial efforts under adverse conditions to minimize the 
loan guaranty indebtedness.

Here, weighing in favor of mitigation, the Board notes that 
the veteran attempted to avoid foreclosure through the 
marketing of the subject property, as advised by VA in May 
1997.  However, the veteran was unsuccessful in that regard, 
and the record indicates that he was told that the only way to 
sell the subject property was to give it away.

The Board also notes that the diminution in value of the 
subject property was outside of the veteran's control, which 
contributed to the creation of the indebtedness.  It appears 
from the August 1987 appraisal of the property that the 
veteran's problems coincided with the economic troubles in the 
region, including property values adversely affected by 
foreclosures in the neighborhood.  The Board has no reason to 
question the reliability of the appraisal contained in the 
loan guaranty file.  At the time of the veteran's purchase in 
1984, the subject property was worth $82,000.  Prior to the 
foreclosure in October 1987, the subject property was 
appraised in "as is" condition for $62,000, representing a 
diminution in value of $20,000.

Further, the Board notes that the veteran's unemployment was 
not voluntary.  Rather, he was terminated when the oil market 
collapsed and the companies he worked for went out of 
business.  Apparently, this was a common occurrence.

Weighing against mitigation, the Board reiterates that the 
veteran did not make his mortgage payments, as contractually 
obligated.  The Board also notes that the veteran and his 
family held over in the subject property for a period of seven 
months, from default to foreclosure, living essentially rent-
free.  In effect, then, the veteran was unjustly enriched by 
this action.

The Board has indicated that the VA should not be expected to 
ensure the continued appreciation of the property in addition 
to guaranteeing payment on the loan obligation.  In light of 
the substantial mitigating factors outlined above, however, 
the Board believes that the veteran may be spared from the 
complete impact of the spiraling depreciation in property 
values, a depreciation that greatly contributed to the amount 
of the indebtedness.  Affording the veteran the benefit of all 
reasonable doubt in this analysis, given the mitigating 
factors discussed above, the Board believes that it would not 
be unduly favorable or adverse to the appellant or to the VA 
to waive a portion of the appellant's loan guaranty 
indebtedness that could be directly attributed to that severe 
$20,000 diminution in value.  

Prior to an equitable ascertainment of the amount of the 
indebtedness that should be waived and the amount to be 
collected, it is incumbent upon the Board to analyze the 
financial data provided by the veteran and determine if 
collection of the loan guaranty indebtedness not waived herein 
would seriously impair the veteran's ability to provide 
himself and his family with the basic necessities of life.  
The Board is particularly mindful of the principle that the 
veteran is expected to accord a debt to the Government the 
same regard given to any other debt.

Initially, then, the Board notes that VA has consistently 
withheld $67.20 per month from the veteran, in order to recoup 
the loan guaranty indebtedness.  As of October 1996, the 
amount recovered was $4,976.40.  That amount can only have 
increased with the passage of time.  The veteran's Financial 
Status Reports reflect VA's withholding of benefits, but the 
Board notes that the veteran has never factored into his 
monthly financial accounting this withheld amount.  Indeed, 
the record shows that the veteran has historically had a net 
monthly income of approximately $200, and this amount is 
without consideration of the veteran's VA disability payments, 
were they added into the calculation.  As such, the veteran's 
financial statements fail to support a showing of undue 
hardship.  He has been able to provide himself (and his 
children, through partial support payments) with shelter, 
food, and clothing.

In reaching this determination as to this element, the Board 
notes that the veteran testified at his video hearing before a 
Member of the Board (conducted in July 1998) that his children 
lived in an apartment with his ex-wife.  (Transcript (T.) at 
17-19).  He did not testify as to any want on their part, 
except for the fact that his eldest daughter had asked him to 
help pay for college.  (T. at 16).  Rather, the veteran 
indicated that this loan guaranty indebtedness had made credit 
unavailable to him and that he could not buy another house or 
get married again until his credit was straightened out.  (T. 
at 16-19).  The Board also notes that the veteran's income in 
1998 was $21,390, as reflected in his 1998 federal income tax 
return.

Further, given that the veteran has never factored his VA 
compensation payments into calculation of his monthly 
financial accounting (his average monthly income) and that the 
record shows that the veteran and his children are not without 
the basic necessities of life in light of the VA's monthly 
withholding, the Board finds that repayment of the loan 
guaranty indebtedness not waived herein does not defeat the 
purpose for which the disability benefits were originally 
granted.  Clearly, the veteran has provided for himself and 
his family, even without the amount of money withheld by VA.  
Obviously, additional finances would be beneficial to the 
veteran's quality of living, and he might experience certain 
inconveniences as a result of the payment of the indebtedness 
to the Government, but he and his children are not (and have 
not been) without the basic necessities of life.

The Board has determined that the veteran was at fault in the 
creation of the loan guaranty indebtedness, and VA absorbed a 
sizable loss in this transaction.  The Board has also 
determined that the current monthly withholding of VA 
benefits, in order to repay the loan guaranty indebtedness, 
has not been an undue hardship for the veteran.  However, the 
Board cannot ignore that the veteran had no control over the 
collapse of the oil market, his termination, and the 
subsequent gross diminution in value of the subject property.  
For that matter, neither did VA.  As such, the Board finds 
that splitting the diminution in value of the subject 
property, $20,000, between the veteran and VA to be 
appropriate in this instance, under the principles of equity 
and good conscience, taking into consideration all of the 
specifically enumerated elements of 38 C.F.R. § 1.965(a).  The 
end result would not be unduly favorable or adverse to either 
the Government or the veteran.

Accordingly, the prior decision of the RO is amended, and the 
veteran's request for a waiver is granted in part, in the 
amount of $10,000, plus accrued interest.


ORDER

Waiver of recovery of part of the veteran's loan guarantee 
indebtedness in the amount of $10,000, plus accrued interest, 
is granted.

Waiver of recovery of the remainder of the veteran's loan 
guaranty indebtedness in the amount of $15, 109, plus accrued 
interest, is denied.



		
	V. L. Jordan
	Member, Board of Veterans' Appeals