BVA9505294 DOCKET NO. 93-09 973 ) 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: The American Legion WITNESS AT HEARING ON APPEAL Appellant ATTORNEY FOR THE BOARD Barry F. Bohan, Counsel INTRODUCTION The appellant served on active duty in the United States Air Force from December 1979 to June 1991. This appeal arose from an October 1991 decision of the Committee on Waivers and Compromises of the Department of Veterans Affairs regional Office in Denver, Colorado (VARO) which granted the appellant a partial waiver of $14,741.42 of original charged indebtedness in the amount of $26,741.42, leaving her responsible for the remaining loan guaranty indebtedness of $12,000, plus accrued interest. In April 1993, the appellant testified at a personal hearing which was conducted before the undersigned member of the Board at the Department of Veterans Affairs Regional Office in Atlanta, Georgia. CONTENTIONS OF APPELLANT ON APPEAL The appellant contends, in substance, that she was without fault in the creation of the loan guaranty indebtedness because of circumstances which were essentially beyond her control, namely a military transfer and a sharply declining housing market in Colorado Springs, Colorado. She further contends that VA is partially at fault, because she was "allowed" by VA to purchase a condominium which declined in value. Additionally, she contends that collection of the remaining loan guaranty indebtedness would cause her 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 veteran's loan guaranty 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 waiver of recovery of the loan guaranty indebtedness should be granted, based on the standard of equity and good conscience. FINDINGS OF FACT 1. In August 1984, the appellant purchased a condominium in Colorado Springs, Colorado, using a home loan which was guaranteed, in part, by VA. 2. Due to a military transfer, the appellant vacated the premises in April 1986. Efforts to sell the condominium were unsuccessful. The appellant defaulted on her monthly loan payments in January 1988. 3. In November 1989, the property was sold at a foreclosure 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 loss to the government, in the amount of $26,741.42, was charged as a debt to the appellant. A waiver of $14,741.42 of the charged indebtedness was later granted by VARO, leaving indebtedness in the amount of $12,000 due to VA. 5. 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. § 5302 (West 1991); 38 C.F.R. § 1.964(a) (1993). 2. Recovery of the remaining loan guaranty indebtedness would be against equity and good conscience. 38 U.S.C.A. § 5302 (West 1991); 38 C.F.R. §§ 1.964, 1.965(a) (1993). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS The appellant is seeking a waiver of recovery of the remaining loan guaranty indebtedness in the amount of $12,000, 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. VARO's finding that the appellant has not demonstrated fraud, misrepresentation or bad faith in this case is also noted. 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). The evidence has been carefully reviewed and the Board finds that the loan guaranty indebtedness in the original amount of $26,741.42 was properly established. Schaper v. Derwinski, 1 Vet.App. 430 (1991). 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 August 1984, while she was on active duty, the appellant purchased a condominium in Colorado Springs, Colorado for $84,000, 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 and Deed of Trust Note. The first monthly loan payment was made in September 1984. The appellant received orders transferring her to Korea in late 1985. In April 1986, the appellant was transferred to Korea and vacated the premises. She placed the property for sale with a broker and rented it to various tenants. Despite reducing her asking price, she was unable to sell the property. In July 1987, she offered a deed in lieu of foreclosure, which was rejected by VA. She defaulted on her monthly loan payment in January 1988. Proceedings were initiated under provisions contained in the Deed of Trust. An August 1988 appraisal stated that the "condominium market is flat with declining values due to high rate of unemployment, oversupply and limited demand." A VARO foreclosure appraisal memorandum in August 1989 stated that the economic trend in the area was in decline in excess of 20 percent. The property was sold at a foreclosure sale for $60,800 in November 1989. In July 1990, the lender filed a claim under the loan guaranty, which was satisfied, in part, by VA. The appellant was charged with responsibility for loan guaranty indebtedness in the amount of $26,741.42. In April 1991, the appellant requested waiver of the entire charged loan guaranty indebtedness. A partial waiver was granted in the October 1991 VARO decision which is the subject of this appeal. In December 1991, the appellant offered a compromise settlement of $2,000. VA rejected that offer in February 1992 and proposed a lump sum settlement of $10,000 to be paid by the appellant. The appellant did not accept that counteroffer. The appellant's statements The Board has paid particular attention to the appellant's explanatory statements, especially her sworn testimony at the April 1993 hearing. Cartwright v. Derwinski, 2 Vet.App. 24, 25 (1991). The appellant described her efforts as "sincere and proactive". She testified that she vacated the premises because of her military transfer to another post in Korea. She stated that she placed the condominium on the market and reduced the asking price on her condominium three times, but still was unable to sell it. She rented the property while she was in Korea "with at least a $600 per month out-of-pocket loss", because the rental of $575 did not cover her loan payment and expenses which totaled approximately $1,200 monthly. She described how she offered a deed in lieu of foreclosure and later a compromise settlement, both of which were rejected by VA. Analysis A waiver of recovery of a debt 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 (a)(2) (1993). "Equity and good conscience" involves a variety of elements, including the elements of the fault of the debtor, balancing of faults, undue hardship and changing position to one's detriment, all of which have been raised in this case. 38 C.F.R. § 1.965 (a) (1993). In essence, however, "equity and good conscience" means fairness to both the appellant and to the government. After having considered the evidence, the Board believes that there is no fault apparent from the record. Based on the evidence of record, the appellant lost the condominium despite her best efforts to salvage the situation because the exigencies of military service, coupled with adverse economic conditions in the Colorado Springs area at the time, made it impossible for her to "ride out" the economic downturn. The record is replete with evidence that the appellant attempted to rectify the situation by trying to sell the house and by offering a deed in lieu of foreclosure, without success. It is clear that she attempted to communicate with the lender and with VA in order to work out a solution. After having carefully reviewed all of the evidence of record, the Board believes that no fault exists on the part of the appellant. It is believed that the circumstances in this case were completely beyond her control. Her lack of fault, alone, supports a waiver of recovery of the 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. BETTINA S. CALLAWAY 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.