BVA9500613 
DOCKET NO.  93-02 294     )       DATE
          )
          )

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

THE ISSUE

Waiver of recovery of loan guaranty indebtedness.

REPRESENTATION

Appellant represented by: Disabled American Veterans

ATTORNEY FOR THE BOARD

Barry F. Bohan, Counsel

INTRODUCTION

The appellant served on active duty in the United States Marine
Corps from November 1971 to November 1973.

This appeal arose from a February 1992 decision of the Committee
on Waivers and Compromises of the Department of Veterans Affairs
Regional Office in Houston, Texas (VARO) which granted the
appellant a partial waiver of $10,580.57, plus interest, of
charged loan guaranty indebtedness in the original amount of
$21,161.15, leaving the appellant with liability for $10,580.58,
plus accrued interest.

CONTENTIONS OF APPELLANT ON APPEAL

The appellant contends, in substance, that he was without
substantial fault in the creation of the loan guaranty
indebtedness because his default on mortgage payments was due to
his financial inability to pay.  He further contends that VA
demonstrated greater fault, because he had sold the house, but
the purchaser backed out of the sale after getting tired of
VARO's alleged delay in approving the sale.  Finally, the
appellant contends that enforcement of repayment of the loan
guaranty indebtedness would cause financial hardship to 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 veteran's claims folder
and loan guaranty 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 waiver of recovery of loan
guaranty indebtedness should be granted.

FINDINGS OF FACT

1.  In , the appellant purchased a house using a home loan which
was guaranteed, in part, by VA.

2.  Due to financial overextension, the appellant defaulted on
loan payments.  He secured a buyer for the property.  The buyer
later backed out of the deal.  Mortgage foreclosure proceedings
were initiated.

3.  In September 1989, the property was sold at a substitute
trustee's sale for an amount less than the unpaid principal
balance, accrued interest, and expenses of foreclosure.

4.  VA paid the lender's loan guaranty claim, and the related debt
to the government, in the amount of $21,161.15, was charged to the
appellant.  VARO later granted the appellant a partial waiver of
the loan guaranty indebtedness in the amount of $10,580.57, plus
interest, leaving the appellant with liability for $10,580.58,
plus accrued interest.

5.  To require recovery of the 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. § 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 CONCLUSIONS

The appellant is seeking a waiver of recovery of loan guaranty
indebtedness.  As noted above, the charged indebtedness is
currently $10,580.58, plus accrued interest.

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).  Furthermore, we find
that the appellant's claim has been adequately developed for
appellate purposes by VARO and that we may therefore proceed to a
disposition of the case.

The evidence has been carefully reviewed and the Board finds that
the loan guaranty indebtedness was properly established.  Schaper
v. Derwinski, 1 Vet.App. 430 (1991).  The Board further notes
that the Committee on Waivers and Compromises found that the
appellant was free from 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 bad
faith is found to exist.  38 U.S.C.A. § 5302(c) (West 1991);
38 C.F.R. § 1.965 (b) (1993).

In the interest of clarity, the Board will first briefly review
the chronological history of this case.  The issue presented on
this appeal will then be discussed.

History of the case

In October 1983, the appellant and his spouse purchased a house
in Laredo, Texas for $55,000, using a home mortgage loan which
was guaranteed, in part, by VA.  38 U.S.C.A. §§ 3701 et seq.
(West 1991).  The property was secured by a Deed of Trust Note
and Deed of Trust.  The first mortgage payment was made in
December 1983.

The record reflects a sporadic home loan payment history starting
in 1987.  In July 1988, the lender notified VARO that the loan
was delinquent.  The appellant had contacted the lender and
stated, in effect, that he was financially unable to continue to
make monthly home loan payments.  Also in July 1988, the
appellant and his spouse executed an "Acknowledgment of
Liability" which stated that they acknowledged that any payments
made by VA under the loan guaranty would constitute a debt they
would owe VA.

On September 9, 1988, the appellant signed a contract for the
sale of the house.  On September 15, 1988, the appellant wrote a
letter "to whom it may concern" which stated, in effect that he
was financially overextended and was unable to continue making
monthly payments.  He further stated that he was selling the
house, at a loss, to rid himself of the obligation.

The evidence of record reflects that, over the next few months,
the appellant dealt with VARO in an effort to secure VA's
permission to sell the house.  An appraisal was completed in
October 1988.  A Compromise Agreement Worksheet was completed by
VARO in December 1988.  In January 1989, the appellant and his
spouse executed a "Statement and Agreement of Liability to the
Veterans Administration on Compromise Agreements".

In March 1989, VARO wrote to the lender, stating that VA had
decided to accept the appellant's compromise offer.  The lender
was advised to discontinue foreclosure proceedings.  In April
1989, VARO was informed that the buyers had backed out of the
contract.  VARO immediately advised the lender to reinstate
foreclosure proceedings.  The house was sold for $44,185 at a
substitute trustee's sale in September 1989.

Of particular interest is a July 1989 letter from the prospective
buyer's attorney to the appellant.  In essence, the prospective
buyer wanted his earnest money deposit of $500 back.  The
attorney stated that the reason why the buyer had backed out of
the contract was that he "was not able to obtain financing for
the purchase of the property."

In a January 1992 statement to VARO, the appellant again
indicated that he had been unable to make monthly house payments
because of financial overextension.  The appellant went on to
write:  "We...obtained a buyer for our home but you [VARO] took 8
months just to tell us you approved.  The buyer backed off
because of the tardiness of the deal."

In its February 1992 decision, the Committee on Waivers and
Compromises found that the appellant was at fault in the creation
of the loan guaranty indebtedness because of his disregard for
this obligation.  His efforts to secure a purchaser for the
property were noted.  A partial waiver was granted, based on "the
veteran's present and future financial status, [and] the fact
that he tried to sell the property and was in contact with the
lender and VA."

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) (West 1991); 38 C.F.R. § 1.964
(1993).  "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) (1993).  In this case, the element of balancing
of faults may also be present.  38 C.F.R. § 1.965 (a)(2) (1993).
In essence, however, "equity and good conscience" means fairness
to both the appellant and to the government.  It is noted that the
remaining elements of the standard of equity and good conscience
have been considered and found to be inapplicable to this case.

After having carefully reviewed all of the evidence of record,
the Board believes that the appellant must be given the benefit
of the doubt in this case with respect to the issue of fault.  38
U.S.C.A. § 5107(b) (West 1991).  Although he may not have managed
his personal finances with the utmost care, he made a diligent
effort to sell the house and indeed found a prospective buyer.
That the prospective buyer later backed out of the deal is no
reflection of the appellant's conscientiousness.  In fact, the
record is replete with evidence that he cooperated fully with the
lender and VA and made appropriate efforts to reduce or eliminate
any loss to the Government.  Accordingly, it is believed that
there is equal evidence concerning fault.  Lack of fault, alone,
supports waiver of recovery of the remaining loan guaranty
indebtedness.  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.