BVA9504146 DOCKET NO. 93- 10 712 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in Denver, Colorado THE ISSUE Waiver of recovery of loan guaranty indebtedness. REPRESENTATION Appellant represented by: AMVETS WITNESS AT HEARING ON APPEAL Appellant ATTORNEY FOR THE BOARD L. M. Barnard, Counsel INTRODUCTION The veteran served on active duty from July 1958 to July 1962. This appeal arises from a June 1992 decision of the Committee on Waivers and Compromises of the Denver, Colorado, Department of Veterans Affairs (VA), Regional Office, which granted a partial waiver. This decision found that his degree of fault was reduced; therefore, $9,979.68 was waived. However, $10,000 was not waived, because the RO found that the veteran was at fault in the creation of the debt when he accepted a job transfer. CONTENTIONS OF APPELLANT ON APPEAL The appellant contends, in essence, that he was without fault in the creation of the loan guaranty indebtedness and that, even if he were found to be at fault, recovery of the indebtedness would cause him 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 the appellant's request for waiver of loan guaranty indebtedness should be granted. FINDINGS OF FACT 1. In June 1983, the appellant purchased a house using a home loan which was guaranteed, in part, by VA. 2. Due to a job transfer and an inability to sell the property, the appellant defaulted on mortgage payments. Mortgage foreclosure proceedings were initiated. 3. In June 1990, 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 $19,979.68, was charged as a debt to the appellant. 5. In June 1992, the RO waived $9,979.68 of the charged indebtedness. 6. To require recovery of the remaining charged indebtedness from the appellant would 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 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 a waiver of recovery of the remaining loan guaranty indebtedness of $10,000, plus accrued interest. 38 U.S.C.A. § 5302 (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 $23,370.88 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 A brief chronological history of this case is in order. The facts are not in substantial dispute. In June 1983, the appellant purchased a house in Englewood, Colorado, for $96,000, using a mortgage loan guaranteed, in part, by VA. 38 U.S.C.A. § 3701 et seq. (West 1991). The property was secured by a Deed of Trust and a Deed of Trust Note. The first mortgage payment was made in July 1983. In January 1989, the appellant contacted the RO by telephone and stated that he was being transferred in May 1989 and that he was going to have to place the home on the market. In March 1989, the lender notified VA that mortgage payments had not been made since January 1, 1989. It was noted that the appellant's attitude towards the default was unknown. He had apparently requested a Deed in Lieu of Foreclosure, but then had failed to submit the needed financial information. In May 1989, the RO sent a letter to the appellant, noting that his loan was delinquent and that he should take action to avoid foreclosure. That same month, the RO contacted the lender, noting that they had been unable to contact the appellant, although a Deed in Lieu of Foreclosure was being considered. In June 1989, the appellant wrote to the RO and requested that he be granted a release from liability. He again noted that he was being transferred to another state, and his employer had refused to buy the home. He stated that the home was going to have to be sold. The record contains another Notice of Default, dated in September 1989. This noted that the first uncured default occurred in July 1989. Obviously, the appellant had cured the prior delinquency, but defaulted a second time in July. This notice indicated that the appellant had requested a Deed in Lieu of Foreclosure because of a distant job transfer. Foreclosure was recommended because of the appellant's inability to cure the default. In January 1990, the appellant contacted the RO and informed them that he been in constant contact with the lender. He stated that he had been told by them that a Deed in Lieu of Foreclosure could not be accepted without VA approval. The following month he wrote again to state that he had made the mortgage payments through June 1989, but could no longer afford to maintain two homes in different states. In February 1990, the lender contacted the RO and indicated that a Deed in Lieu of Foreclosure was feasible. VA then conducted an appraisal of the property. The March 1990 appraisal noted that the home was in generally good condition and was vacant. No major repairs were necessary. However, due to a decline in the economic conditions of the area, the home's value had depreciated to $82,000. Following this appraisal, VA contacted the appellant in March 1990, and informed him that a Deed in Lieu of Foreclosure would not be accepted. He was told that VA regulations prohibited VA from consenting to a Deed in Lieu if the property was worth substantially less than the amount due on the loan. In June 1990, the property was sold at a foreclosure sale for $96,316.59. In January 1991, the lender filed a claim under the loan guaranty, which was satisfied by VA. In April 1992, the appellant testified at a personal hearing. He stated that he was transferred to Seattle, Washington, in May 1989. He had called a realtor at that time to sell the house, but noted that the realtor was reluctant to take on the property, given how much was still owed on the loan, as well as due to the poor market at the time. He stated that, had he stayed in the area, there would have no problem in meeting the mortgage payments. However, he could not afford to pay the mortgage payments on the home, and pay his rent in Seattle. He reiterated that he had contacted the RO and the lender as early as January 1989 to tell them of his impending transfer. In regard to renting the home, he noted that his monthly mortgage payment had been $1,200. At that time, monthly rents were only $850. He said that he could not have made up this difference. The RO Decision The appellant's request for a total waiver of the indebtedness was denied in the June 1992 decision of the Committee on Waivers Compromises (COW) of the RO which is the subject of this appeal. The Committee found that the appellant was free from fraud, misrepresentation or bad faith. He was found to be at fault because he accepted a job which was a "lateral" movement and not a promotion. However, because he had tried to obtain a Deed in Lieu of Foreclosure and because he had tried to sell the property, his fault was reduced and $9,979.68 was waived. The Committee found that requiring repayment of the remaining $10,000 of the indebtedness would not cause a financial hardship. 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. Agency guidelines suggest that waiver may be granted in cases like this, if it is found that there was complete lack of fault on the part of the veteran, and that the veteran was not unjustly enriched. Such waiver may be granted regardless of the veteran's ability to repay. TG 20-90- 2, par.4.12b (Apr.1990). A different conclusion may be reached, however, if the veteran failed to accept the offer of a Deed in Lieu of Foreclosure or a Voluntary Conveyance. Id. The undersigned has carefully reviewed the evidence in this case. With respect to fault, the evidence demonstrates that the appellant became aware that he was to be transferred to out-of- state in January 1989. He immediately notified the RO, as is evidenced by a report of contact dated that month, that he would be transferred in May 1989. He indicated at that time that he was going to sell the house. While he apparently defaulted at that time, the record clearly shows that he cured this delinquency and continued to make payments on the property until July 1, 1989, even though he had lived in Washington State since May 1989. He stated at his hearing that it had become impossible to maintain two homes. He had placed the home on the market, but was unable to sell it. He indicated at his personal hearing that he had to try to sell it himself because no realtor would take it. Apparently, the economy was not good, there was a glut of homes on the market, and he still owed a considerable amount on the loan. Finally, it is noted that the appellant requested a Deed in Lieu of Foreclosure as early as March 1989. While the lender agreed that such a Deed was feasible, VA refused to accept this Deed in March 1990, noting that VA regulations prohibited acceptance in those instances where the value of the property was substantially less than what was owed on the loan. Clearly, the appellant made every effort to mitigate any loss to the Government. The RO suggested that the default was the appellant's responsibility because he had accepted a transfer which was only a lateral move and not a promotion. However, the appellant had stated that the transfer would afford him future opportunities; he had indicated that he turned down past opportunities and knew that to do so again would harm his chances for future advancement. It is the finding of the undersigned that the fact that the appellant accepted a transfer does not equate with fault. The fact remains that he attempted to mitigate any loss to the government at the time of the transfer by placing the home on the market and trying to obtain a Deed in Lieu of Foreclosure. After having carefully reviewed all of the evidence of record, the undersigned concludes that the circumstances leading to the default in this case were beyond the control of the appellant. Although the RO's position has been considered, the undersigned finds that the appellant should be given the benefit of the doubt with respect to the issue of fault. It is found that the appellant's lack of fault, together with the absence of any evidence of unjust enrichment, supports waiver of recovery of the loan guaranty indebtedness. 38 U.S.C.A. § 5107(a) (West 1991); VBA Circular 20-90-5, February 12, 1990 and TG 20-90-2, April 23, 1990. ORDER Waiver of recovery of loan guaranty indebtedness is granted. 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.