Decision Date: 11/29/95				Archive Date: 
11/30/95 
DOCKET NO.  93-26 865	)	DATE 
	) 
	) 
 
On appeal from the 
Department of Veterans Affairs Regional Office in 
Montgomery, Alabama 
 
 
 
THE ISSUE 
 
Waiver of recovery of loan guaranty indebtedness. 
 
 
 
REPRESENTATION 
 
Appellant represented by:	The American Legion 
 
 
 
ATTORNEY FOR THE BOARD 
 
P. M. Lynch, Associate Counsel 
INTRODUCTION 
 
The appellant served on active duty from September 1967 to 
August 1969. 
 
This case 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 Montgomery, Alabama, 
Department of Veterans Affairs Regional Office (VARO) issued 
in June 1993. 
 
The Board notes that the validity of the loan guaranty 
indebtedness is not in dispute.  Carlson v. Derwinski, 2 
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 Supp. 1995); 38 
C.F.R. § 36.4323(g) (1994); Schaper, 1 Vet.App. at 432. 
 
 
CONTENTIONS OF APPELLANT ON APPEAL 
 
The appellant contends that enforcement by VA of payment of 
the loan guaranty indebtedness would be against the 
principle of equity and good conscience because he was 
without fault in the creation of the indebtedness.  Further, 
he 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 Supp. 1995), 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 July 1985, the appellant and his spouse financed the 
purchase of a house in Montgomery, Alabama, using a home 
mortgage loan which was guaranteed by the Department of 
Veterans Affairs (VA).  The amount of the loan was 
$76,750.00. 
 
2.  A notice of default and a notice of intention to 
foreclose were received by VA in June 1990.  The notice of 
default noted that the first uncured default was on March 1, 
1990.  The appellant's divorce was cited as the reason for 
the default. 
 
3.  A foreclosure sale was held on November 20, 1990. 
 
4.  The property was sold for an amount less than the 
outstanding principal, interest and foreclosure costs, and 
the resulting loss to the Government of $12,333.26 was 
charged as a debt to the appellant. 
 
5.  The debt was reduced after sale of the property to a 
principal amount of $7,208.19. 
 
6.  The record reflects that there was fault on the part of 
the appellant in the creation of the debt. 
 
7.  Based on the appellant's most current financial status, 
as reflected by a Financial Status Report dated May 6, 1993, 
recovery of the outstanding loan guaranty indebtedness, in 
the amount of $7,208.19, plus interest thereon, from him 
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 Supp. 1995); 38 C.F.R. § 1.964(a) (1994). 
 
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 Supp. 1995); 38 C.F.R. § 1.965(a) (1994). 
 
 
REASONS AND BASES FOR FINDINGS AND CONCLUSIONS 
 
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). 
 
Initially, the Board points out that it is cognizant of the 
statement of the appellant's representative in Washington, 
D.C. that the appellant's local representative did not have 
an opportunity to review the claims folder prior to 
forwarding this case to the Board.  See VA Manual M21-1, 
Part IV, Change 13, Paragraphs 8.23, 8.40 (October 3, 1992); 
see also VA Manual M21-1, Part IV, Change 64, Paragraphs 
8.31-8.34, 8.45 (October 11, 1994).  Paragraph 8.23a 
provides that the RO should give the representative an 
opportunity to execute VA Form 1-646 in all instances except 
as noted in paragraph 8.23b, which provides that if an 
appeal was remanded by the Board solely for assembly of 
records for forwarding to the Board without further 
consideration by the agency of original jurisdiction, VA 
Form 1-646 is not required.  However, this case has not been 
remanded by the Board.  While it does not appear that the 
appellant's local accredited representative was given an 
opportunity to execute VA Form 1-646, the Board observes 
that the Washington-based representative was given an 
opportunity to review the claims folder before submitting it 
to the Board.  He has submitted additional argument on 
behalf of the appellant.  However, he has offered no 
explanation for the requirement that the local 
representative, rather than the Washington-based 
representative of the same service organization, review the 
claims folder on the appellant's behalf.  Therefore, the 
Board concludes that a remand is not warranted solely for 
solicitation of argument by the local representative merely 
because that procedure is usually followed.  See Soyini v. 
Derwinski, 1 Vet.App. 540, 546 (1991) (strict adherence to 
requirements in the law does not dictate an unquestioning, 
blind adherence in the face of overwhelming evidence in 
support of the result in a particular case; such adherence 
would result in unnecessarily imposing additional burdens on 
VA with no benefit flowing to the veteran); Sabonis v. 
Brown, 6 Vet.App. 426, 430 (1994) (remands which would only 
result in unnecessarily imposing additional burdens on VA 
with no benefit flowing to the veteran are to be avoided); 
cf. Brady v. Brown, 4 Vet.App. 203, 207 (1993) (a remand is 
unnecessary even where there is error on the part of VA, 
where such error was not ultimately prejudicial to the 
veteran's claim).   
 
Concerning the merits of the appellant's claim, 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 Supp. 1995). 
 
The principle of "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 (1994). 
 
The pertinent facts in this case have been set forth above 
in the FINDINGS OF FACT.  The Board has concluded that no 
fraud, misrepresentation or bad faith was involved in the 
creation of the indebtedness.  However, no circumstance is 
found 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 VA 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.  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 finds 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 March 1990, the appellant defaulted on his 
monthly mortgage payments. 
 
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 
mortgage holder resulted in a loss to the Government.  The 
appellant's attempts to sell the house prior to default, as 
verified by the evidence of record, are noteworthy and show 
effort on his part.  Unfortunately, however, while the sale 
of the house may not have been possible due the real estate 
market conditions, and although this is not in his control, 
those circumstances alone cannot serve to relieve him of his 
mortgage responsibility since he had the option of 
continuing to own the property. 
 
Similarly, the appellant's arguments concerning his 
difficult marital situation existing at the time of the 
default and any real or potential difficulties arising out 
of that situation did not abrogate any of his legal 
responsibilities pertinent to the loan or resulting 
indebtedness.  The appellant has indicated throughout the 
appeal that his and his wife's joint income was required the 
obtain the VA guaranteed loan and that when his wife 
divorced him, he could not sustain the payments on his own.  
His divorce apparently involved his moving out of the 
property, as he reported that in addition to his loan 
obligation, he was paying for his own separate rent and 
utilities.  However, the Board notes that he was employed at 
the time of his default and remained so throughout the 
redemption period.  Moreover, the negative impact of this 
situation was foreseeable and therefore, it cannot serve to 
absolve the appellant from fault in the creation of the 
indebtedness.  The Board does not believe it unreasonable to 
assume that the appellant, taking action commensurate with a 
person of similar age, knowledge and experience, would have 
taken whatever actions were required, to include negotiation 
with the mortgage holder, VA or private lending 
institutions, so as to prevent the occurrence of an actual 
default.  However, the record reflects that no such actions 
were taken by the appellant at the time of the default in 
March 1990, i.e., to inform either the VA or the lender of 
any difficulties he was experiencing as a result of his 
divorce. 
 
The appellant also refutes the VARO's June 1993 
determination that he was not cooperative with VA and that 
he made no efforts, i.e., deed in lieu of foreclosure, to 
mitigate the loss to the Government caused by his default.  
In this regard, he maintains that VA did not make adequate 
efforts to contact him prior to foreclosure to inform him of 
any such options.  He contends that all correspondence and 
inquiries by VA regarding the default were made with his ex-
wife who occupied the property rather than with him.  He 
further reported that his ex-wife did not cooperate with him 
regarding the property or notify him of any communications 
with VA.  Significantly, however, a review of the claims 
folder demonstrates that the VARO did, in fact, attempt 
unsuccessfully to reach the appellant personally following 
the default.  The notice of default received by the VARO in 
June 1990 noted that, despite many attempts, the mortgage 
holder was unable to contact the appellant at either 
telephone number contained in the claims file and that he 
had not responded to written communications.  Therefore, in 
June 1990, a VA officer made a field visit to the 
appellant's house, which was his last address of record.  
The report indicates that the VA representative spoke with 
the appellant's wife who occupied the property; however, she 
would not reveal where the appellant worked.  Rather, she 
took VA's telephone number and stated that she would give it 
to the appellant. 
 
More importantly, the appellant was aware of his obligation 
with respect to his indebtedness to VA.  See VA Form 26-
1802a, paragraph 31B, dated June 21, 1985.  However, the 
record reflects that he took no actions at the time of the 
default in March 1990 to inform VA of his whereabouts.  The 
Board notes that his mailing address had remained unchanged; 
if it had changed or was otherwise unreliable for proper 
receipt of correspondence, due to his divorce or due to any 
other reason, the obligation was on the appellant to inform 
VA accordingly.  See Hyson v. Brown, 5 Vet.App. 262 (1993) 
(in the normal course of events, it is the burden of the 
veteran to keep VA apprised of his current mailing address).  
The alleged conduct of his ex-wife with respect to 
withholding VA communications is regrettable; however, any 
improper action of his ex-wife cannot establish a basis for 
the appellant's failure to meet 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 $7,208.19, plus 
interest, without undue financial hardship.  The most recent 
Financial Status Report of record, dated May 6, 1993, 
reflects that the appellant was then employed.  It appears 
that he had remarried; however his present wife was 
unemployed.  Total monthly income after deductions was 
$2,386.00.  He listed two dependents, ages 17 and 22.  
Reported monthly expenses included $600.00 for 
rent/mortgage, $450.00 for food, $150.00 for utilities and 
heat, $33.00 for telephone, $135.00 for insurance, $50.00 
for clothing and $100.00 for his son in college.  Total 
monthly expenses exceeded $2,300.00.  The appellant reported 
a positive monthly balance of $34.00.  His listed assets 
included only $2,000.00 resale value in furniture and 
household goods.  Payments on installment contracts and 
debts, not including his $600.00 per month rent/mortgage 
payment, totaled $834.00 per month and included debts owed 
on credit cards and three personal loans, reportedly 
obtained to make payments on his VA guarantied loan prior to 
the default. 
 
After careful analysis of the appellant's financial status, 
it is the Board's opinion that payment of the outstanding VA 
loan guaranty indebtedness in reasonable monthly 
installments would not prevent the appellant from providing 
himself with the basic necessities of life.  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).  In this respect, the Board notes that the 
appellant's installment debts, particularly, the River City 
National Bank personal loan debt totaling $12,000.00 with 
$501.00 monthly installment payments and the ITT financial 
services personal loan debt totaling $500.00 with $48.00 
monthly installment payments, are scheduled to be satisfied 
as of the date of this decision and if not, could be 
satisfied within a reasonable period of time.  Retirement of 
these debts would provide $549.00 in additional monthly 
funds.  An additional $549.00 per month, or even a lesser 
amount when supplemented by his $34.00 reported monthly 
positive balance of additional funds, would retire the debt 
to the Government if reasonable payments were allocated over 
the course of five years without causing him and his family 
undue financial hardship. With anticipation of future 
earnings from employment, the Board believes that he will be 
able to maintain a positive monthly balance of income to 
expenses. 
 
In view of above 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 reasonable 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.  
Accordingly, waiver of the outstanding loan guaranty 
indebtedness is not in order, based on the standard of 
equity and good conscience.  38 C.F.R. §§ 1.964(a)(2), 
1.965(a) (1994). 
 
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 
Supp. 1995), 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. 
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