BVA9504779 DOCKET NO. 89-25 954 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in Chicago, Illinois THE ISSUE Recovery of the loan guaranty indebtedness. ATTORNEY FOR THE BOARD Michael A. Pappas, Associate Counsel INTRODUCTION The appellant's period of service has not been verified. This matter came before the Board of Veterans' Appeals (the Board) on appeal from a decision on waiver of indebtedness of the Department of Veterans Affairs (VA), Chicago, Illinois, Regional Office's Committee on Waivers and Compromises (RO). It is noted that the appellant's loan guaranty indebtedness was originally established in the amount of $6,470.63, plus accrued interest. In the initial determination on waiver of indebtedness in July 1988, the RO found the appellant to be materially at fault in the creation of the debt, a finding that precluded further consideration of a waiver under the then existing law. In October 1989, the Board remanded the claim, administratively, to afford the appellant an opportunity for a hearing. Effective December 18, 1989, 38 U.S.C.A. § 3102 (1989) [now 38 U.S.C.A. § 5302 (West 1991)] was revised by the Veterans' Benefits Amendments Act of 1989, Public Law 101-237. The elements of "fraud, misrepresentation, or bad faith" replaced "material fault or lack of good faith" as elements which automatically preclude the granting of a waiver. Thereafter, the RO again considered the appellant's request for a waiver. In a May 1990 decision, the RO determined that there was evidence of misrepresentation on the part of the appellant, thus barring further consideration of a waiver. It is this decision that is currently on appeal to the Board. The appeal was again received at the Board in February 1995. The appellant has represented himself throughout his appeal, and the case is now ready for appellate review. As a preliminary matter, it is noted that following their May 1990 decision, the RO mistakenly failed to issue a supplemental statement of the case setting forth the revised law pertaining to misrepresentation and the revised reasons and bases for their decision. Notwithstanding, it is noted that these revised elements were included within the context of the May 1990 decision, itself. A copy of the May 1990 decision was forwarded to the appellant in September 1990. Under these circumstances, the Board finds that the failure of the RO to subsequently issue a supplemental statement of the case is harmless error. Black's Law Dictionary 646 (6th ed., 1990), defines "harmless error" as an error which is trivial or formal or merely academic and was not prejudicial to the substantial rights of the party assigning it, and in no way affecting the outcome of the case. The United States Court of Veterans Appeals (the Court) addressed the issue of "harmless error" in Sanchez v. Derwinski, 2 Vet.App. 330, 333 (1992), indicating that the test is whether the error in question would change the resolution of the appellant's claim. Since the appellant in the instant case was provided actual notice of the pertinent regulations, the Board finds that the RO's failure to issue a supplemental statement of the case was not prejudicial to the appellant. Further, since mandating the issuance of a supplemental statement of the case would not change the resolution of the appellant's claim, no useful purpose could be served by remanding the case for the correction of that error. A review of the record establishes that the appellant has not formally challenged the validity of the loan guaranty indebtedness. Accordingly, the Board limits its review to the issue of waiver of recovery, as shown in the initial page of this decision. CONTENTIONS OF APPELLANT ON APPEAL Essentially, the appellant asserts that the RO committed error in denying his request for a waiver of recovery of his loan guaranty indebtedness since it was his son and not he who purchased and owned the subject property used as security for the VA guaranteed loan. The appellant claims that he "co-signed" the VA guaranteed loan and purchased the subject property for his son, but it was his son who defaulted on the loan and allowed it to be foreclosed. His son now stands willing to accept the resulting indebtedness. 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 claims files. 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 preponderance of the evidence shows the existence of misrepresentation on the part of the appellant in the creation of the loan guaranty debt. Therefore, waiver of indebtedness is precluded by a regulatory bar. FINDINGS OF FACT 1. All relevant evidence necessary for an equitable disposition of the appellant's appeal has been obtained by the RO. 2. There was a default in the appellant's VA guaranteed loan necessitating a foreclosure of the subject property, resulting in a loan guaranty indebtedness of $6,470.63, plus accrued interest. 3. The evidence clearly indicates that the appellant knowingly misrepresented facts upon which the VA guaranteed loan was approved; the VA and the lender relied upon the appellant's misrepresentation to their detriment. CONCLUSIONS OF LAW 1. Following the default on the VA guaranteed loan, there was a loss of the property which constituted the security for the loan. 38 U.S.C.A. §§ 5107(a), 5302(c) (West 1991); 38 C.F.R. § 1.964(a) (1994). 2. There was misrepresentation on the part of the appellant in the creation of the loan guaranty debt. 38 U.S.C.A. §§ 5107(a), 5302(c). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS The Board has carefully considered the evidence compiled by and on behalf of the appellant. We find that the appellant's claim is "well grounded" within the meaning of 38 U.S.C.A. § 5107(a). That is, we find that he has presented a claim which is not inherently implausible. We are also satisfied that all relevant facts pertaining to misrepresentation in the creation of the loan guaranty indebtedness have been properly developed to the extent possible, and that no further assistance to the appellant in developing the facts pertinent to his claim is required to comply with the duty to assist the appellant as mandated by 38 U.S.C.A. § 5107(a). Factual Background The pertinent documentary evidence before the Board supports the following factual summary: In October 1978, the appellant and his spouse contracted for the purchase of a home in Lake Ville, Illinois, contingent upon their ability to secure a VA guaranteed loan. It was noted in the contract that their address was [redacted]. At some point thereafter, the appellant and his spouse issued a handwritten statement indicating that their home in Lindenhurst had become too big for the two of them, and that the area was too congested. It was their stated intention to move into a smaller home in the country. They speculated as to the possibility of allowing their sons to take over the home in Lindenhurst. In November 1978, pursuant to obtaining the VA guaranty on the loan, the appellant was required by the VA and the lender to execute an Application for Home Loan Guaranty, VA Form 26- 1802a. On that form, the appellant certified that the purpose of the loan was to purchase an existing home and that it was his intention to move into and occupy the property as his home within a reasonable time. The form specifically noted that "[f]ederal statutes provide severe penalties for any fraud, intentional misrepresentation, or criminal connivance or conspiracy purposed to influence the issuance of any guaranty or insurance by the [VA]." The form also warned that the certification should be read carefully, and that "the application should not be signed unless it is fully completed." The appellant certified that the information provided on the application was true to the best of his knowledge. Based upon those representations and others, the appellant and his spouse were deemed qualified for the loan, and the VA issued the loan guaranty. In December 1978, the appellant and his spouse completed the purchase of the subject property used as security for the loan, for the purchase price of $35,000, utilizing a VA guaranteed loan in the same amount, expending less than $500 in the transaction. They executed a Mortgage Note and a Mortgage, establishing their non-contingent obligation to repay the note holder under the terms of the Note, and their pledge of the subject property as security for its repayment. They also executed the Settlement Statement, ostensibly finding it to be correct and approving of the disbursements. Numerous other supporting documents were executed by them in completion of the transaction. The first default on the loan occurred with the January 1, 1980 payment. A Notice of Default was issued by the note holder indicating that the appellant was both the original veteran-obligor and present owner. This default was eventually cured, but a series of defaults and reinstatements followed. One of these defaults, in February 1981, resulted in the issuance of a Notice of Default by the note holder in April 1981. It was stated in that Notice, that the "son of [the] borrowers lives in the property and is to make payments." The first uncured default on the loan occurred with the April 1, 1983 payment. A Notice of Default was issued by the note holder in June 1983. It was indicated therein that the property was now being used for rental purposes. A Notice of Intention to Foreclose was issued simultaneously. A foreclosure sale of the subject property was held on August 27, 1984, resulting in a loan guaranty indebtedness of $6,470.63, plus accrued interest. In May 1988, the appellant directed a letter to the RO and stated that it was his son who had purchased the subject property, and although he had co-signed for the property, it was his son who owned it and defaulted on the loan. In a statement submitted in April 1989, the appellant stated that he purchased the subject property for his son, and not for himself. He stated further, that his son went through a divorce, moved out of state, and simply allowed the property to be repossessed. In March 1994, the appellant's son contacted the RO and stated that the loan guaranty indebtedness in question was his debt and not his fathers. He stated that his father had used his VA benefits to help him out. Analysis The law precludes a waiver of recovery of an overpayment or a waiver of collection of any indebtedness where an indication of any one of the following elements is found to exist: (1) Fraud, (2) misrepresentation, or (3) bad faith. 38 U.S.C.A. § 5302(c). Upon this finding, any contentions or evidence relating to equity and good conscience necessitating a waiver, such as it relates to undue hardship, etc., becomes "moot." "Misrepresentation" is defined by Black's Law Dictionary, 903 (6th ed. 1990), as: Any manifestation by words or other conduct by one person to another that, under the circumstances, amounts to an assertion not in accordance with the fact. Misrepresentation is: [in] a limited sense, an intentional false statement respecting a matter of fact, made by one of the parties to a contract, which is material to the contract and influential in producing it. According to VA guidelines, in order to establish fraud or misrepresentation, the VA must determine that there was a willful misrepresentation on the part of the debtor of a material fact, or the willful failure to disclose a material fact, with the intent of obtaining or retaining a VA benefit. In addition, it must be shown that the willful intent to misrepresent was done with the knowledge that such misrepresentation would result in the erroneous award of the VA benefit. Veterans Benefits Administration Circular No. 20-990-5, New Standards for Waiver Consideration (February 12, 1990). Clearly, in the present case, the appellant perpetrated a deception in the qualification process for the VA guaranteed loan by misleading the lender and the VA into believing that he was purchasing the subject property for the exclusive use and benefit of him and his spouse, and that they would be exclusively responsible for the underlying VA guaranteed loan. The appellant went to great lengths to explain why he and his spouse were purchasing a smaller home in the country, rather than remaining in the home they already owned. In contrast, the appellant has more recently admitted that his son was the true owner of the subject property, and that it was his belief that his son was solely obligated under the loan. The entire VA Loan Guaranty Program is founded upon a desire on the part of the Government to provide veterans with the ability to purchase real property under favorable conditions such as reduced interest rates with little or no money down. The program is also founded upon a belief that veterans will represent their qualifications and intentions honestly. It is obvious that the lender and the VA relied upon the appellant's assurance that he and his spouse would be the exclusive owners of the subject property, and that assurance was crucial to the approval of the loan. It is also apparent that the appellant was aware that his son would not be approved for the loan or be able to purchase the subject property without his active participation in the ruse. It was disclosed to the appellant that Federal statutes provided severe penalties for intentional misrepresentation. He executed VA Form 26-1802a, certifying his intention to occupy the subject property as his home. He and his spouse executed the Mortgage and the Mortgage Note, evincing their exclusive responsibility for the secured debt obligation. The shear volume of supporting documentation, taken as a whole, leads us to call into serious question the appellant's credibility. But for the misrepresentations of his true intentions, the appellant would not have been able to purchase the subject property for his son under such favorable conditions. It is interesting to note that the very thing that the thorough qualification of a legitimate borrower is designed to prevent, came to pass. The appellant's son was not subjected to the scrutiny of loan qualification. Almost predictably, his chronically delinquent account ultimately led to foreclosure. As a matter of law, the finding of "misrepresentation" by the RO on the part of the appellant is supported by the factual evidence. The appellant's misrepresentation of material facts, that he and his spouse would be the exclusive owners of the subject property and exclusive obligors under the VA guaranteed loan, were relied upon by VA and the lender to their detriment. The appellant had complete knowledge that such misrepresentation would result in the erroneous award, the qualification for the loan, and the purchase of the subject property for his son. The only contentions advanced by the appellant is that he purchased the subject property for his son, and that his son actually owes the indebtedness to the VA. It is ironic that the appellant's contentions form the basis for the finding of a prior willful misrepresentation. The Board ventures no opinion as to the authenticity or validity of any oral or written agreements between the appellant and his son. Neither the VA nor the lender condoned, nor were they knowingly made a party to any such agreement. The Board finds that because of the appellant's misrepresentation of the facts, the loan guaranty indebtedness was created; as a matter of law, consideration of a waiver is precluded. 38 U.S.C.A. § 5302. ORDER Waiver of recovery of loan guaranty indebtedness is denied. (Continued on next page) THOMAS J. DANNAHER 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.