BVA9504786 DOCKET NO. 93-11 060 ) 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. ATTORNEY FOR THE BOARD Christopher P. Kissel, Associate Counsel INTRODUCTION The appellant served on active duty from January 1975 to January 1979. This matter comes before the Board of Veterans' Appeals (the Board) on appeal from a decision of the Committee on Waivers and Compromises (the Committee) of the Department of Veterans Affairs Regional Office in Houston, Texas (VARO), issued in November 1991. The Committee determined that there was no fraud, misrepresentation or bad faith involved in the creation of the indebtedness; however, after grant of a partial waiver in the amount of $8,945.68, they concluded that collection of the remaining portion of the indebtedness in the amount of $8,945.68, plus accrued interest thereon, would not be against the principle of equity and good conscience. The Board notes that the validity of the loan guaranty indebtedness is not in dispute. Carlson v. Derwinski, 1 Vet.App. 144 (1992); Schaper v. Derwinski, 1 Vet.App. 430 (1991). There had been no transfer by the appellant 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) (1993); Schaper, 1 Vet.App. at 432. CONTENTIONS OF APPELLANT ON APPEAL The appellant contends 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 it would not be against the principle of equity and good conscience to require payment of the outstanding balance of the loan guaranty indebtedness, plus interest thereon. FINDINGS OF FACT 1. In January 1983, the appellant purchased a house in San Antonio, Texas, using a home mortgage loan which was guaranteed, in part, by the Department of Veterans Affairs (VA). The amount of the loan was $84,450. 2. A notice of default and a notice of intention to foreclose were received by VA respectively, in May and June 1989. The notice of default indicated that the first uncured default was on February 1, 1989. 3. A foreclosure sale was held on June 5, 1990. The property was sold for an amount less than the outstanding principal, interest and foreclosure costs, resulting in a deficiency. 4. The VA paid a claim to the lender pursuant to its home loan guaranty obligation, and the resulting loss to the government in the amount of $17,891.37 was charged as a debt to the appellant. 5. The record reflects that there was fault on the part of the appellant in the creation of the debt. 6. In November 1991, the Committee on Waivers and Compromises granted a partial waiver of recovery in the amount of $8,945.68 based on undue financial hardship. The remaining outstanding indebtedness of $8,945.68 plus interest was charged to the appellant. 7. Recovery of the outstanding loan guaranty indebtedness, plus interest thereon, from the appellant would not result in undue financial hardship or otherwise be inequitable. 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 remaining portion of the outstanding loan guaranty indebtedness would not be contrary to the principle of equity and good conscience. 38 U.S.C.A. § 5302 (West 1991); 38 C.F.R. § 1.965(a) (1993). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS 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). 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) 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. See 38 C.F.R. § 1.965 (1993). The pertinent facts in this case have been detailed above in this decision. The Board notes that the Committee determined that no fraud, misrepresentation or bad faith was involved in the creation of the indebtedness and the undersigned agrees, but after consideration of all of the elements of equity and good conscience, the undersigned also finds no circumstance that would relieve the appellant of his responsibility with respect to the outstanding indebtedness arising from his default on the VA guaranteed loan. Initially, the Board notes that there is no evidence that recovery of the indebtedness would defeat the purpose for which the benefits are intended nor is there any evidence to suggest that reliance by the appellant on Department of Veterans Affairs benefits resulted in the relinquishment of a valuable right or the incurrence of a legal obligation. Furthermore, there is no evidence of fault on the part of VA or evidence of unjust enrichment. In this case, the Board finds that the elements of fault of the debtor and undue hardship are for application. After having carefully considered all of the evidence of record, the Board believes that the appellant was at fault in the creation of the loan guaranty indebtedness. His signature to the mortgage contract certified that he was fully informed of the terms of the mortgage, including its payment schedule, and therefore he accepted full responsibility for meeting the legal obligations of the contract. However, the record on appeal reflects that beginning in February 1989, the appellant defaulted on his monthly mortgage payments. VA phone contact with the appellant's wife in May 1989 revealed that the appellant had quit his job and was attending dental school; additional phone contacts revealed that the family had incurred medical bills which exhausted their savings secondary to a car accident in July 1988, approximately six months prior to the default (February 1989). However, the record reveals that the primary reason for default was the appellant's decision to quit his job and attend dental school. At the time of the default in February 1989, the appellant's wife was gainfully employed and was making approximately $2,200 per month. While her income was enough to provide the family with the basic necessities of life, the loss of the appellant's income due to his decision to attend dental school, combined with a substantial amount of credit debt, caused the default in this case. The record on appeal further reveals that the mortgage holder attempted to work out a repayment plan with the appellant; however, he could not bring his account current. As a result of the appellant's delinquent payments, the subject property went into default and the costs associated with the foreclosure and loan guaranty obligation to the lender resulted in a loss to the Government. While the record reflects that the appellant may have attempted to sell the house in the redemption period, which resulted in a regrettable situation with the prospective buyer, there is no documentation of record which serves to substantiate that the appellant made a concerted attempt to sell or rent the house prior to the initial default in February 1989. The appellant's arguments concerning his difficult family/financial situation existing at the time of his default and any real or potential difficulties arising out of those circumstances did not abrogate any of his legal responsibilities pertinent to the loan or resulting indebtedness. In summary, the appellant has not presented evidence that the situation was beyond his control and which would relieve him of responsibility for the circumstances that led to the default and related indebtedness to VA. Although the Board has found that the appellant was responsible, at least in part, for the creation of the loan guaranty indebtedness, the degree of fault is not so great as to bar consideration of waiver of recovery of the outstanding indebtedness. The Board notes that the Committee in essence found that the appellant could afford to pay off the outstanding loan guaranty indebtedness in the amount of $8,945.68, plus interest, without undue financial hardship. A Financial Status Report dated August 22, 1991, reflects that the appellant was attending dental school and that his wife was then employed as an insurance agent. Total monthly income was $2,280. They listed four dependents. Their reported monthly expenses included $100 for clothing, $325 for insurance payments, and $80 for gasoline for two automobiles. Total monthly expenses were $1,910. The appellant reported a positive monthly balance of $370. Listed assets included $400 cash in bank, $500 resale value in furniture and household goods, and ownership of two automobiles (a 1988 Chevrolet van, $8,000 listed resale value; and a 1977 Chevrolet Blazer truck, $500 listed resale value). Payments on installment contracts and debts totaled $405 per month and included debts owed on the 1988 Chevy van automobile acquired in 1988 (original amount of debt: $12,200). After careful analysis of the appellant's financial status, it is the Board's opinion that payment of the remaining unwaived outstanding VA loan guaranty indebtedness in reasonable monthly installments would not prevent the appellant from providing for the basic necessities of life for himself and his family. The standard of "undue financial hardship" is invoked only where the collection of the debt would seriously impair the veteran- debtor's ability to "provide his/her family with the basic necessities of life." See VBA Circular 20-90-5 (February 12, 1990). The expenses reported by the appellant appear reasonable given his present family situation. With consideration of his $370 reported monthly positive balance and with prudent allocation of future monthly living expenses, he should be able to pay off the outstanding indebtedness owed to the Government without causing him or his family undue financial hardship. In view of these findings, and in fairness to the Government, which sustained a substantial loss in this transaction due to the appellant's default, the Board believes that the appellant can afford to pay off the outstanding indebtedness if monthly payments are made over a five year period, with careful management of his income, expenses and additional accrued debt. The veteran-debtor is reminded that he is expected to accord a Government debt the same regard given any other debt. The Board concludes that a waiver of that remaining portion of the loan guaranty indebtedness, which had not been waived by VARO, is not in order, based on the standard of equity and good conscience. 38 C.F.R. §§ 1.964(a)(2), 1.965(a) (1993). ORDER The appeal 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.