BVA9412303
DOCKET NO.  93-24 386     )       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.

WITNESSES AT HEARING ON APPEAL

Appellant and spouse

ATTORNEY FOR THE BOARD

Christopher P. Kissel, Associate Counsel

INTRODUCTION

The appellant served on active duty from August 1968 to October
1970.

This matter came 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 Denver, Colorado (VARO), issued in August 1992.
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 $8,940.06, they concluded that collection of the
remaining portion of the indebtedness would not be against the
principle of equity and good conscience.

CONTENTIONS OF APPELLANT ON APPEAL

The appellant contends in substance, that he did not receive
adequate notice of the foreclosure sale and that the loan guaranty
indebtedness is therefore invalid, based on a lack of due process.
The appellant further contends that enforcement by VA of payment
of the loan guaranty indebtedness would be against the standard of
equity and good conscience because he was without fault in the
creation of the loan guaranty indebtedness.  Further, he contends
that enforcement by VA of repayment of the indebtedness would
cause him 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 the indebtedness was valid and that collection may be
enforced.  Further, 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 remaining unwaived balance of the loan
guaranty indebtedness, plus interest thereon.

FINDINGS OF FACT

1.  In December 1986, the appellant refinanced his house in
Westcliffe, CO, using a home mortgage loan which was guaranteed
by the Department of Veterans Affairs.  The amount of the loan
was $43,000.

2.  A notice of default and intention to foreclose was received by
VA in January 1989, which noted that the first uncured default was
on October 1, 1988.

3.  The foreclosure sale was held on October 5, 1989.

4.  The property was sold for an amount less than the outstanding
principal, interest and foreclosure costs, and the resulting
deficiency of $16,940.06 was charged to the appellant.

5.  The appellant was provided with sufficient and adequate notice
of the default and foreclosure.

6.  There was fault on the part of the appellant in the creation
of the debt.

7.  In August 1992, the Committee on Waivers and Compromises
granted a partial waiver of recovery in the amount of $8,940.06
based on undue financial hardship.  The remaining outstanding
indebtedness of $8,000 plus interest was charged to the appellant.

8.  Recovery of the outstanding loan guaranty indebtedness, plus
interest thereon, from the appellant would not result in undue
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.  The charged loan guaranty indebtedness in the amount of
$16,940.06 was validly established.  38 U.S.C.A. § 3732 (West
1991); 38 C.F.R. §§ 1.911, 36.4323 (1993).

3.  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

The appellant is seeking waiver of recovery of the outstanding
loan guaranty indebtedness.  38 U.S.C.A. 5302(b) (West 1991).  His
contentions are, in general, set forth above.

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).  That is, we believe that his
claim may be capable of substantiation and that a thorough review
of the evidence is called for.  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.

I.  Factual Background

In October 1986, the appellant, a veteran with active service
from August 1968 to October 1970, applied for a home mortgage
loan which was guaranteed by the Department of Veterans Affairs
(VA).  38 U.S.C.A. §§ 3701 et seq. (West 1991).  The application
was approved, and in December 1986 the appellant refinanced his
house in Westcliffe, CO, using the home mortgage loan which was
guaranteed, in part, by VA.  The amount of the loan was $43,000.
Of that amount, the appellant paid off the original mortgage loan
indebtedness of approximately $33,200.  In addition, the
appellant paid off a considerable amount owed on then existing
installment contract and credit card debts.  After making those
payments, he received over $3,000 in cash proceeds.  The date of
the first uncured default was October 1, 1988.  The lender filed
a notice of default and intention to foreclose with VA in January
1989.  At that time, the lender indicated that contact with the
appellant revealed only the following concerning the reasons for
his default:  "Mortgagor would only say financial difficulties.
Would not discuss."  The record reflects no evidence of any
further contact between the lender and the appellant during the
redemption period.

The record further reflects, as elicited by the appellant's
testimony before a member of the Board in June 1993, that he
vacated the subject property in December 1988 and moved to
Arizona to pursue a teaching career.  See Hearing Transcript,
p. 7 (June 25, 1993).  The appellant also testified that he
turned in the keys to the property to his Realtor (Custer County
Realty, Inc.) just prior to his move out of state and apparently
through that agency attempted to list the property for sale.  The
approximate time such action may have been taken, either prior to
his default in October 1988 or at some time during the redemption
period, has not been established by the record.  While there is
no objective evidence of record to indicate that the property was
listed for sale by the appellant or the Realtor, the record
reflects that VA received a letter from the Realtor in March 1989
at which time VA was informed of the following:

The letter that you [VA] sent [the
appellant] dated February 24, 1989 was
forwarded to me by [the appellant's]
friend.  Since we had the property listed
and [the appellant] has moved out of state,
before he left he signed the enclosed
Warranty Deed deeding the property back to
[VA].

Since at this time we have not sold this
property, we are sending the Warranty Deed
and Estoppel Affidavit back to you in lieu
of foreclosure.

It has been established that the "friend" referred to above in
the Realtor's March 1989 letter to VA was the appellant's current
wife whom he married in December 1989.  See Hearing Transcript at
p. 6.  His wife's testimony at the June 1993 hearing revealed
that the appellant had a Post Office Box in Cannon City, CO, for
receipt of mail and that in fact, she received notice from the VA
of the lender's intent to foreclose (VA's letter of February 24,
1989, noted above) which she apparently forwarded to the Realtor.
Id. at pgs. 5-7.  The "Warranty Deed" noted above was signed by
the appellant over four months after his default on February 16,
1989.  The deed instrument, first received by VA in March 1989
along with the Realtor's letter noted above, was apparently
construed by VA as a request for consideration of a deed in lieu
of foreclosure.  However, the evidence of record reflects that
his request for deed in lieu of foreclosure, as reflected by an
attempt to convey the property to VA by warranty deed, was not
accepted by VA.  The appellant submitted no financial information
in connection with his request, and as far as the Board can
determine, no further action with respect to the matter was taken
by the appellant.

The subject property was sold at a foreclosure sale in October
1989.  The lender subsequently filed a claim under loan guaranty,
which was satisfied, in part, by VA.  In July 1992, the appellant
filed a request for consideration of waiver of recovery of the
loan guaranty indebtedness.  His waiver request was denied, in
part, by decision of the Committee of VARO dated in August 1992.
This appeal followed.

II.  Analysis

Validity of the Indebtedness

We note that the appellant, in addition to requesting a waiver of
indebtedness, is also challenging the validity of the
indebtedness based on the alleged right of the VA to collect the
loan guaranty indebtedness, or alternatively on due process
grounds, claiming, in substance, that his rights were violated by
inadequate notice of the foreclosure action.  It is clear that
the appellant has the right to dispute the existence of the loan
guaranty indebtedness.  38 C.F.R. § 1.911(c) (1993); Smith v.
Derwinski, 1 Vet.App. 267, 272 (1991) (citing Bahnmiller v.
Derwinski, 923 F.2d 1085, 1087 (4th Cir. 1991)).

With respect to the VA's right to collect the loan guaranty
indebtedness, we note that VARO sought collection of this debt
against the appellant on the theory of indemnity.  The record
reflects that when the appellant obtained this loan he agreed in
contractual terms to indemnify, or to repay, the government for
any loss to the government incurred on the loan guaranty.  See VA
Application for Home Loan Guaranty, VA Form 26-1802a, Section V
(October 9, 1986).  The law is clear that VA, as guarantor of a
loan, has a right of indemnity, independent of any right of the
lender, to seek reimbursement for amounts paid on account of the
liabilities of the veteran.  38 U.S.C.A. § 3732 (West 1993); 38
C.F.R. § 36.4323(e) (1993).  The VA's right to indemnity has been
upheld by a decision of the United States Supreme Court.  See
United States v. Shimer, 367 U.S. 374, 81 S.Ct. 1554, 6 L.Ed. 2nd
908 (1961).

With respect to the appellant's contention that his due process
rights were violated on account of the lender or VA's failure to
inform him of the foreclosure action, we find no merit to this
argument.  It appears that his argument is premised on a finding
that he was unaware of the foreclosure sale on account of the
fact that he was not then residing in the subject property and
therefore, could not have received notice that such action
resulted due to a failure to satisfy the terms of the mortgage
contract.  We note that the appellant elected to vacate the
subject property in December 1988 without informing the VA or
leaving a forwarding address.

While it appears that the appellant may not have received notice
that the foreclosure sale was in fact held on October 5, 1989,
the Board concludes that he had sufficient and adequate notice
that such action was imminent since he was the individual who
defaulted on the subject property in the first instance, and as
established by the record on appeal, was aware through contact
with his Realtor that the property had not been sold and that his
purported request for a deed in lieu of foreclosure had not been
accepted by VA.  We therefore do not believe it to be
unreasonable to assume that the appellant, with the exercise of
reasonable care expected of a person of his age, knowledge and
experience, had constructive notice of an imminent foreclosure
following his failure to satisfy a known legal obligation when he
was fully cognizant that such failure resulted from his default
approximately one year earlier (October 1988).

As indicated above, the evidence of record indicates that the
appellant's wife received written notice from VA of the lender's
intentions to foreclose in February 1989 when she picked up his
mail at a Post Office Box in Cannon City, CO.  While it appears
from review of the evidence of record that the VA mailed its
February 1989 notice letter to the appellant's last known mailing
address, which at that time was the subject property address,
apparently the letter found its way to the Cannon City Post
Office Box since the appellant's wife testified that she received
the letter.  Whether she actually forwarded the letter to the
appellant or informed him of its contents cannot be established.
The appellant has testified that he never received the letter or
was informed of its contents.  However, in our opinion, his
contentions lack credibility.  Considering the fact that the
woman who received the letter later became his wife and
considering that she apparently had his permission to receive and
collect his mail at the Cannon City Post Office Box, it appears
highly implausible, even incredible, that a letter containing a
notice of default and possible foreclosure would not have been
considered sufficiently important such that she would have either
forwarded the letter directly to his Arizona address or at least
informed him of its contents.

Notwithstanding the above findings, the following exchange of
testimony between the appellant and a Board Member at his June
1993 hearing reveals that he was sufficiently aware of an
impending foreclosure on account of his default in the first
instant and on account of fact that he was informed by his
Realtor that they were unable to sell the property prior to the
foreclosure sale and that his purported deed in lieu had not been
accepted by VA:

[Question]:  Now you know sometime at the
beginning of early '89 you turned it over
Custer Realty but you know you're not
making payments.

[Answer]:  Right.

[Question]:  Did you make a call to them or
make any contact as to what is happening to
my house?

[Answer]:  To Custer County Realty?

[Question]:  Yeah.

[Answer]:  I called then to see what was
going on.  I used to call them about once a
month.

[Question]:  What did they tell you?

[Answer]:  Well there's nobody buying
property and I assumed that the deed had
already been sent back.  They didn't
mention that.

See Hearing Transcript at pgs. 7-8.

The Board also points to his request for a deed in lieu of
foreclosure for additional proof that he was well aware of an
imminent foreclosure on the subject property.  As indicated
above, his testimony reveals that he had knowledge that his
request for a deed in lieu had not been accepted by VA.  Such a
request would only be applicable to a situation involving a
default and pending foreclosure action.  In view of these
findings, we find no credible basis to believe that the appellant
was unaware of the foreclosure action due to his alleged failure
to receive VA's notice of such action or due to any other reason.
We have considered the appellant's statements of record; however,
we find his version of the facts pertaining to his knowledge of
the default and foreclosure to be unsupported by the record in
this case.

Accordingly, the Board concludes that the loan guaranty
indebtedness of $16,940.06 was validly established and therefore
was enforceable against the appellant by VA.

Waiver of the Indebtedness

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.  We note that the Committee determined that no fraud,
misrepresentation or bad faith was involved in the creation of
the indebtedness and we agree, but after consideration of all of
the elements of equity and good conscience, we also find 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.

After having carefully considered all of the evidence of record,
the Board believes that the appellant demonstrated some fault in
the creation of the loan guaranty indebtedness.  Notwithstanding
his contentions to the contrary,  the evidence does not indicate
that the appellant took any action, at the time of the default in
October 1988, to either inform the VA or the lender of the
financial difficulties he was experiencing and their impact on
his ability to meet his mortgage obligations, or to make any
attempt to rectify these problems, either by attempting to sell
or rent the property or by entering into a forbearance
arrangement with the lender.  The appellant simply informed the
lender that he could no longer afford his monthly mortgage
payments and then vacated the property in December 1988.  His
decision to vacate the property soon after the default at a
minimum was imprudent and indicates a voluntary disregard for his
contractual obligations to the lender and VA.

We find no evidence of record which demonstrates a good faith
effort by the appellant to mitigate the loss to the Government
caused by his default.  His request for deed in lieu of
foreclosure, submitted without pertinent financial information or
follow-up inquiry, appears in retrospect no better than a feigned
effort designed to give a false impression of cooperation and
intention to avoid foreclosure.  Significantly, there is no
evidence whatsoever that the appellant ever attempted to contact
the VA directly concerning this matter.  While the record
reflects that the appellant may have attempted to list the
property for sale during the redemption period, there is no
objective, contemporaneous documentation of record which serves
to substantiate that he made a concerted attempt to sell the
house prior to default or before he vacated the property in
December 1988.

In summary, the appellant has not presented evidence which would
relieve him of responsibility for the circumstances that led to
the default and related indebtedness to VA.  Although we have
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 indebtedness.

We note that the Committee in essence found that the appellant
could afford to pay off a portion of the loan guaranty
indebtedness in the amount of $8,000.00, plus interest, without
undue financial hardship.

The appellant's arguments concerning the exclusion of his wife's
finances in this matter are without merit.  The standard of
"undue financial hardship" is invoked 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
Veteran's Benefits Administration (VBA) Circular 20-90-5
(February 12, 1990) (emphasis added).  VBA's Circular 20-90-5
specifically cites to "[i]come from all sources of the debtor,
spouse, and dependents" among other financial factors which must
be considered in determining whether collection of the debt would
prevent the veteran-debtor from meeting necessities or the
essential subsistence expenses.  Accordingly, the Board will
consider the appellant's complete financial picture as reflected
by his Financial Status Report (FSR) dated July 1, 1992 as well
as his wife's FSR dated August 18, 1992.

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 the
basic necessities of life for himself and his family.  The two
FSR's of record, noted above, reflect that the appellant and his
wife were employed since January 1990 and September 1990,
respectively.  The appellant reported no change in his or his
wife's employment status at his hearing before a member of the
Board in June 1993.  They listed no dependents.  Total monthly
income after deductions was $2,701.  Reported monthly expenses
included $622 for "other living expenses" which were itemized by
the appellant and his wife to include monthly outlays for gas and
automobile expenses (he indicated that he commuted 128 miles round
trip to work), expenses for his teaching certification (continuing
education, fees, publications, teaching tools, transportation, and
conferences), taxes owned by his wife on a vacant lot located in
Colorado, and for school expenses incurred by his wife for
training to become a paralegal.  Total monthly expenses exceeded
$2,790.  The appellant and his wife  reported a combined negative
monthly balance of approximately $95.

The Board believes that the reported monthly expenses appear
inflated, particularly, monthly outlays for food ($340 for two
adults with no children).  In addition, we believe that a number
of the other reported monthly expenses, including clothing
expenses ($115), are discretionary in nature and therefore, do not
establish additional proof of 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, and with reasonable adjustments made in the amount of
money expended per month on his living expenses, the Board
believes that the appellant could afford to pay the remaining
indebtedness of $8,000, if monthly payments are made over a five
year period.  We remind the veteran-debtor 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

Waiver of recovery of the outstanding loan guaranty indebtedness
is denied.

          C. D. ROMO

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.