BVA9504155 DOCKET NO. 93-10 680 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in Chicago, Illinois THE ISSUE Waiver of recovery of loan guaranty indebtedness. WITNESS AT HEARING ON APPEAL Appellant ATTORNEY FOR THE BOARD Christopher P. Kissel, Associate Counsel INTRODUCTION This matter comes before the Board of Veterans' Appeals (the Board) on appeal from a January 1992 decision of the Committee on Waivers and Compromises (the Committee) of the Chicago, Illinois, Department of Veterans Affairs Regional Office (VARO). The appellant filed a notice of disagreement in July 1992, and a statement of the case was issued by VARO in October 1992. He filed a substantive appeal to the Board in December 1992. The case was received at the Board in May 1993. CONTENTIONS OF APPELLANT ON APPEAL The appellant contends that the default and resulting loan guaranty indebtedness were beyond his control. He also argues that recovery of the outstanding loan guaranty indebtedness would result in 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(s). 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 appellant's actions did not constitute bad faith, fraud or misrepresentation and therefore, waiver of recovery of the loan guaranty indebtedness is not precluded by law. Accordingly, the issue of entitlement to waiver of recovery of the loan guaranty indebtedness is the subject of a remand immediately following this decision. FINDINGS OF FACT 1. In January 1984, the appellant refinanced his house in Midlothian, IL, using a home mortgage loan which was guaranteed, in part, by the Department of Veterans Affairs (VA). 2. A notice of default and intention to foreclose was received by VA in June 1989. It was noted that the first uncured default was on April 1, 1989. No specific reasons for the default were indicated; however, it was noted that the property was vacant and that numerous efforts to contact the appellant had proved unsuccessful. 3. During the redemption period, in July 1989, the appellant contacted VA by phone and informed representatives of the Department that he had been unemployed and thus, unable to satisfy the terms of his loan. In addition, he informed VA that he had the house up for sale. 4. A foreclosure sale was held on May 23, 1990. 5. The property was sold for an amount less than the outstanding principal, interest and foreclosure costs, and the resulting deficiency of $24,188.08 was charged to the appellant. 6. In January 1992, the Committee on Waivers and Compromises determined that the appellant's actions which resulted in default and foreclosure constituted bad faith because he failed to make mortgage payments despite his ability to do so, because he did not attempt to sell or rent the property so as to prevent a foreclosure, and because he failed to cooperate with the VA. 7. There is no evidence of a deliberate or intentional act on the appellant's part, over which he had complete control, which he knew would result in the loss to the government and creation of the indebtedness. 8. The appellant did not act in bad faith when he failed to meet the monthly mortgage payment obligation. CONCLUSION OF LAW The appellant's actions did not constitute fraud, misrepresentation or bad faith. 38 U.S.C.A. § 5302(c) (West 1991). REASONS AND BASES FOR FINDINGS AND CONCLUSION Initially, the Board finds that the appellant has presented a claim which is 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). 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). In essence, "equity and good conscience" means fairness to both the appellant and to the government. 38 C.F.R. § 1.965(a) (1993). Among the elements of the standard of equity and good conscience is the element of financial hardship. However, a finding of fraud, misrepresentation and/or bad faith on the part of the appellant precludes consideration of waiver of recovery of the debt. 38 C.F.R. § 1.965(b) (1993). In other words, if fraud, misrepresentation, or bad faith is found, the elements of the standard of equity and good conscience, including financial hardship, are not for consideration, since the granting of waiver of recovery is precluded. "Bad Faith," according to regulation, "generally describes unfair or deceptive dealing by one who seeks to gain thereby at another's expense" and involves conduct which "although not undertaken with actual fraudulent intent, is undertaken with the intent to seek an unfair advantage, with knowledge of the likely consequences, ...." 38 C.F.R. § 1.965(b) (2) (1993). The essence of fraud, misrepresentation, or bad faith is a willful intent on the part of the veteran/debtor. The burden of proving such willful intent lies solely with VA. VBA Circular 20-90-5 (February 12, 1990). After review of the evidence of record, the Board does not believe that the appellant's actions evidenced bad faith. Specifically, we find no evidence of "willful intent" on the part of the appellant to seek an unfair advantage or to neglect or refuse to fulfill some duty or contractual obligation. There is no evidence of a deliberate act on the appellant's part, over which he had complete control, which he knew would result in the creation of the indebtedness. While it appears he was unemployed and/or financially over-extended at the time of his default and that this situation caused the default, the undersigned does not believe his actions could be viewed as constituting a willful intent to seek unfair advantage or to neglect or refuse contractual obligations, either prior to or following his default in April 1989. The record suggests that he attempted to sell the property prior to the default. See Appellant's letter of October 10, 1991, and letter from Realtor dated September 3, 1988. Further, the record reflects that he attempted to offer a deed- in-lieu of foreclosure prior to the foreclosure sale. See Letter from his attorney, J. J. Duda, dated May 10, 1989. Moreover, the record clearly reflects that he made an effort in July 1989 to negotiate with VA in an attempt to mitigate the loss to the Government resulting from his default. The appellant's version of the events leading to his default in April 1989 is supported in the record, to the extent that they have not been proven otherwise by VARO. In view of the above, the Board concludes that the appellant's actions did not constitute bad faith, fraud or misrepresentation and therefore, waiver of recovery of the loan guaranty indebtedness is not precluded by law. ORDER To the extent of the finding of no fraud, misrepresentation, or bad faith on the part of the appellant, the appeal is resolved in his favor. REMAND In view of the favorable decision regarding the absence of a statutory bar to consideration of waiver of recovery of the appellant's loan guaranty indebtedness, this case is REMANDED to VARO for the following action: 1. The appellant should be afforded another opportunity to submit a current Financial Status Report (VA Form 4-5655), with any additional supporting documentation regarding income and expenses. Any lack of response or failure to cooperate should be clearly documented in the record. 2. After information concerning the appellant's current financial status has been obtained, the case should be referred to the Committee on Waivers and Compromises. That committee should reach a determination as to whether or not collection of the loan guaranty indebtedness would be contrary to the principle of equity and good conscience. After the above development and adjudication have been completed, and if the claim remains denied, the case should be returned to the Board after compliance with all requisite appellate procedure. The purpose of this REMAND is to procure clarifying data and to ensure due process. The Board intimates no opinion as to the ultimate conclusion warranted, pending completion of the requested development. No action is necessary on the appellant's part until he receives further notice. 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.