BVA9500033 DOCKET NO. 93-00 344 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in Chicago, Illinois THE ISSUE Waiver of recovery of loan guaranty indebtedness. WITNESS AT HEARINGS ON APPEAL Appellant ATTORNEY FOR THE BOARD Barry F. Bohan, Counsel INTRODUCTION The appellant served on active duty in the United States Army from January 1964 to January 1967. This appeal arose from a May 1991 decision of the Committee on Waivers and Compromises of the Chicago, Illinois VA Regional Office (VARO). In August 1991, a personal hearing, at which the appellant testified, was conducted at VARO. In November 1992, the appellant appeared and testified at a second personal hearing, which was conducted by the undersigned member of the Board at VARO. CONTENTIONS OF APPELLANT ON APPEAL The appellant contends, in substance, that he was without fault in the creation of the loan guaranty indebtedness. In particular, he has indicated that he believes that he was not fully informed of his options at the time of his default and foreclosure. He further contends that collection of the remaining loan guaranty indebtedness would cause him and his family 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 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 a partial waiver of recovery of the indebtedness, in the amount of $6,517.49, plus all accrued interest, is granted, based on the standard of equity and good conscience. Waiver of the remaining loan guaranty indebtedness, $6,000, is denied. FINDINGS OF FACT 1. In September 1978, the appellant purchased a dwelling using a home loan which was guaranteed, in part, by VA. 2. In May 1982, the appellant defaulted on loan payments and abandoned the property. Mortgage foreclosure proceedings were initiated. 3. In August 1984, 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 $16,087.63, was charged as a debt to the appellant. The charged indebtedness was later reduced to $12,517.49. 5. To require recovery of $6,517.49, plus all of the accrued interest, of the charged indebtedness from the appellant would be unfair. 6. Recovery of the remaining $6,000 of the loan guaranty debt from the appellant would not be inequitable. CONCLUSIONS OF LAW 1. After default, there was a loss of the property which served as security for the VA guaranteed loan. 8 U.S.C.A. § 5302 (West 1991); 38 C.F.R. § 1.964(a) (1993). 2. Recovery of $6,517.49, plus all of the accrued interest, of the charged 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). 3. Recovery of the remaining $6,000 of the charged loan guaranty indebtedness would not 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 loan guaranty indebtedness in the original amount of $16,087.49 Of that amount, $12,517.49, plus accrued interest, remains unpaid. Initially, the Board finds that the appellant has presented a claim which in light of the evidence 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 the Board may therefore proceed to a disposition of the case. The evidence has been carefully reviewed and the Board finds that the loan guaranty indebtedness in the original amount of $16,087.49 was properly established. Schaper v. Derwinski, 1 Vet.App. 430 (1991). It is noted that in his handwritten Notice of Disagreement in June 1991, the appellant stated "I had no knowledge of any action...or any other process." In the next sentence, however, he acknowledged that he "received foreclosure notice." Similarly, during his hearing in November 1992, the appellant, in response to a question from this Board member, initially indicated that he did not receive notification of the default and foreclosure (hearing transcript, page 10). However, he thereafter stated that he had, in fact received notice (hearing transcript, page 11). It therefore appears that the appellant is not challenging the validity of the indebtedness based on alleged lack of due process. United States v. Whitney, 602 F. Supp. 722 (W.D.N.Y. 1985). Rather, as will be discussed in greater detail below, it appears that he is alleging that VA was partially at fault in the creation of the loan guaranty indebtedness in that he was not informed of his possible options at the time of his default. 38 C.F.R. § 1.965(a)(2) (1993). 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 appeal will then be discussed. History of the case In September 1978, the appellant purchased a dwelling in Chicago, Illinois for $37,900, 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 mortgage note and mortgage. In his Application for Home Loan Guaranty (VA Form 26-1802a), the appellant stated that he intended to occupy the property as his home. The appellant's mortgage payment history was sporadic. Notices of default were filed by the mortgage holder in January 1980, December 1980 and February 1982. each time, the appellant made up the delinquent payments after much prodding by the mortgagee. Despite his statement that he would use the premises as a personal residence, it appeared that he was renting it out to tenants, and it appeared that his mortgage payments were late when his tenants' rental payments were late. In August 1982, the mortgage holder notified VA that mortgage payments had not been made since May 1982. The appellant had ignored numerous attempts by the mortgagee to contact him. The property was described as being occupied by tenants. The appellant was described by the mortgage holder as being uncooperative and having total disregard for his mortgage obligation. Mortgage foreclosure proceedings were subsequently initiated in the Circuit Court of Cook County, Illinois, Chancery Division. The appellant was duly served with summons, both in person and by publication, in January 1984. A default foreclosure judgment was entered in May 1984, and the property was sold for $32,409.62 at a foreclosure sale in August 1984. In September 1984, the mortgage holder filed a claim under the loan guaranty, which was satisfied, in part, by VA. In December 1984, the appellant was found to be responsible for loan guaranty indebtedness in the amount of $16,087.63 by VARO. Because the loan guaranty indebtedness was satisfied, in part, by the expedient of VA taking possession of the appellant's federal income tax refunds, by April 1991 the charged indebtedness had been reduced to $12,517.49. The appellant requested a waiver of the loan guaranty indebtedness in April 1991, evidently after his federal income tax refund had been applied to reduce the indebtedness. His request for waiver was denied in the May 1991 decision of the Committee on Waivers and Compromises of VARO which is the subject of this appeal. 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. In essence, the appellant has contended that he was without fault in the creation of the loan guaranty indebtedness because the condition of the property deteriorated and he could not afford to fix it. He also has contended that he was not informed of his options, in particular the fact that he could have asked for a deed in lieu of foreclosure. Finally, he has stated that he does not have the financial wherewithal to pay the charged loan guaranty indebtedness. Fault In his request for waiver of loan guaranty indebtedness, the appellant stated that the roof of the house started to leak into the tenant's apartment in 1982. He further stated that he could not afford to fix the leak. During his August 1991 and November 1982 hearings, he referred to a number of other problems with the building, including rodents, roaches, inadequate insulation and broken glass. He stated, in essence, that these problems became financially overwhelming to him and that he abandoned the property. During the November 1992 hearing, he responded to questions concerning his efforts to work with the mortgage holder: Q. Did you try to get into...a payment schedule with the mortgage company? A. No I didn't. Q. Was there any reason why you didn't talk to them? A. Well, during this time my uncle passed [away]. And I just gave up on the property, period. [hearing transcript, page 11]. With respect to any efforts he made to sell the house, his testimony was as follows: Q. [Was there a]ny reason why you didn't see a realtor...? A. No. No Particular reason. Q. You just gave up? A. All these problems that occurred. I just say, ...this is too, too rough for me. [hearing transcript, page 12]. It is evident, based on the above testimony and other evidence of record, that the appellant was undoubtedly at fault in the creation of the loan guaranty indebtedness. In essence, he abandoned the house without having made any efforts to sell it or even to inform the mortgage holder or VA of the situation. The evidence of record indicates that this was a rental property. It appears that, whether intentionally or not, the appellant wishes the Government to accept financial responsibility for his failed investment. The Board therefore finds that there is ample evidence of fault on the part of the appellant. Balancing of faults With respect to the appellant's contention that he was not informed of his options by VARO, during the August 1991 personal hearing he admitted that he did not contact VA: "I was going through this financial situation with my ex-wife and...it was just too much pressure for me; I didn't even think of going to counseling at the VA" [hearing transcript, page 3]. The appellant's testimony concerning his failure to contact VA was essentially the same during the November 1992 hearing [hearing transcript, page 5]. It appears that it is somewhat disingenuous on the part of the appellant to allege that VA was remiss in not informing him of possible options with respect to foreclosure when he admittedly made no effort to contact either the lender or VA. After a careful review of the record, no fault on the part of VA is apparent. Financial hardship The Financial Status Report forms (VA Form 5-5655) submitted by the appellant in August and November 1992 have been carefully reviewed. The appellant is a bus driver. His spouse is employed as a social service case worker. The couple have five children, from 11 to 21 years of age. According to the November 1991 Financial Status Report, monthly family income approximates total family expenses. It is noted, however, that the monthly telephone bill was $175 and water service cost $125 monthly. The appellant has not explained those figures. In June 1992, the appellant contacted VARO, in essence reiterating his request for a waiver of loan guaranty indebtedness because the old VA loan had appeared on his credit record in connection with a mortgage loan application. This information was somewhat inconsistent with his Financial Status Reports, which showed no extra available funds. After having carefully reviewed all of the evidence of record, the Board finds that the appellant could afford to pay $6,000 of the charged loan guaranty indebtedness, if payments were made in monthly installments over a period of time. 38 C.F.R. § 1.917 (1993). This conclusion is based on the appellant's Financial Status reports, which indicate that with careful budgeting an additional $100 could be available monthly. Accordingly, a partial waiver of $6,517.49, plus all accrued interest, is granted. ORDER Waiver of recovery of loan guaranty indebtedness in the amount of $6,517.49, plus all accrued interest, is granted. Waiver of recovery of the remaining loan guaranty indebtedness of $6,000 is denied. JOAQUIN AGUAYO PERELES 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.