Citation NR: 9717011	
Decision Date: 05/19/97		Archive Date: 05/29/97
DOCKET NO.  94-24 756	)	DATE
	)
	)

On appeal from the
Department of Veterans Affairs (VA) Regional Office (RO) in 
Manchester,
New Hampshire


THE ISSUE

Entitlement to waiver of recovery of a home loan guaranty 
indebtedness. 


WITNESS AT HEARING ON APPEAL

Appellant


ATTORNEY FOR THE BOARD

Kurt G. Ehrman, Counsel



INTRODUCTION

The appellant apparently had active duty from October 1980 to 
February 1985, and from September 1986 to September 1989.  
This matter comes before the Board of Veterans' Appeals 
(Board) on appeal from a December 1992 decision of the 
Committee on Waivers and Compromises (Committee) of the RO, 
which denied a claim for waiver of recovery of a home loan 
guaranty indebtedness in the principal amount of $36,000.00, 
plus accrued interest, based on a finding of bad faith on the 
part of the veteran with regard to the indebtedness.  

In March 1996, the veteran’s sworn testimony was obtained at 
a personal hearing before a traveling member of the Board 
sitting at the RO (Travel Board hearing).  


CONTENTIONS OF APPELLANT ON APPEAL

The appellant contends that he is without bad faith with 
regard to his home loan guaranty indebtedness, and that he is 
entitled to a waiver of this indebtedness due to unforeseen 
circumstances, including his difficulty in obtaining a 
civilian job upon his decision not to re-enlist in the 
service in September 1989.  The veteran acknowledges that in 
a March 1989 statement to the mortgage lender he stated his 
intention to re-enlist for active duty in the armed services 
in September 1989, and that this statement appears to have 
been relied upon by the mortgage lender in authorizing his 
May 1989 VA guaranteed home loan, as the couple’s primary 
source of income in addition to their respective civilian 
jobs was the appellant’s military occupation.  However, he 
specifically denies any bad faith--any intention to mislead 
or defraud the VA--and that his later indebtedness was the 
result of difficulty in obtaining suitable civilian 
employment in 1989 and 1990.  


DECISION OF THE BOARD

The Board, in accordance with the provisions of 38 U.S.C.A. 
§ 7104 (West 1991 & Supp. 1996), has reviewed and considered 
all of the evidence and material of record in the veteran's 
claims files and loan guaranty folder.  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 does not show the 
existence of bad faith on the part of the veteran in the 
creation of the VA home loan guaranty indebtedness.  
Therefore, waiver of indebtedness is not automatically 
precluded by a regulatory bar.  


FINDINGS OF FACT

1.  All evidence relevant to the issue of the existence of 
bad faith on the part of the veteran with regard to his home 
loan guaranty indebtedness has been obtained.  

2.  There was a default in the veteran's VA guaranteed home 
loan necessitating a foreclosure sale of the subject 
property, which resulted in a VA home loan guaranty 
indebtedness in the principal amount of $36,000.00, plus 
accrued interest thereon.  

3.  The evidence does not indicate that the appellant 
exercised bad faith, or a willful intent to take an unfair 
advantage of the VA, with regard to his indebtedness.  


CONCLUSIONS OF LAW

1.  There was a loss after default on property which 
constituted security for a VA guaranteed home loan.  38 
U.S.C.A. §§ 5107, 5302 (West 1991); 38 C.F.R. § 1.964(a) 
(1996).  

2.  There is no showing of bad faith on the part of the 
veteran in the creation of his VA home loan guaranty 
indebtedness. 38 U.S.C.A. § 5302 (West 1991).  


REASONS AND BASES FOR FINDINGS AND CONCLUSIONS

The Board finds that the veteran's application for waiver of 
a VA home loan guaranty indebtedness is well-grounded within 
the meaning of 38 U.S.C.A. § 5107 (West 1991).  That is, he 
has presented a claim that is "plausible."  Murphy v. 
Derwinski, 1 Vet.App. 78 (1990).  The Board is also satisfied 
that all relevant facts to the claim adjudicated on the 
merits herein have been properly developed by the VA, and 
that no further duty to assist is indicated or mandated by 
section 5107.  


I.  Factual Background

The documentary evidence before the Board supports the 
following factual summary:

In February 1989, the veteran and his wife, a co-obligor, 
entered into a written sales agreement for the purchase of a 
home located in Merrimack, New Hampshire.  They applied for a 
home loan, the loan application was considered with an 
evaluation of their respective credit history, as well as 
proof of employment, and verification of the couple’s 
civilian income, as well as the appellant’s military income 
and his intent to re-enlist in September.  The veteran’s 
gross monthly income from military service was noted to be 
$1224.  His income from a second job was $610, and his wife’s 
income was $1473.  In March 1989, the mortgage lender 
requested written verification of the appellant’s intent to 
re-enlist in September 1989, and by signed letter of March 
1989, the appellant indicated his intention to do so.  Soon 
thereafter, the couple obtained the necessary financing, and 
in April 1989 a loan was obtained in the amount of 
$103,929.00, for the financing of the purchase of the subject 
property.  VA guaranteed a portion of the loan.

In March 1990, the loan servicing agent a notice of intent to 
foreclose to the VA.  It was reported that the loan had been 
in default since December 1, 1989, that the appellant had 
been out of work, but he was currently employed on a 
temporary basis at a data processing company.  His wife was 
working for their church.  It was also indicated that a 
repayment plan had been worked out with the veteran, and that 
he would make two payments in mid-March 1990 and one and one-
half payments each month thereafter until the account was 
current.  The monthly loan payment was noted to be 
approximately $1125.  Subsequent information from the loan 
servicing agent indicated that the veteran had made no 
payments pursuant to the repayment plan and that he could not 
afford the property.

The subject property was scheduled for a foreclosure sale in 
July 1990.  An initial appraisal of the property was 
obtained, which showed a more than 20 percent decrease in its 
present value.  Consequently, a VA Field review was conducted 
later in July 1990, to include an examination of both the 
interior and exterior of the subject property.  A higher 
appraisal was obtained, albeit, at considerably less than the 
original purchase price.  The property was noted to be vacant 
and secure.  The VA requested a “no bid” status on the 
subject property, and on July 27, 1990, the mortgagor bought 
back the subject property for a bid amount of $85,000.00.  

The proceeds of the sale were insufficient to satisfy the 
entire outstanding indebtedness, including interest and other 
charges, and the VA was required to pay a deficiency claim 
pursuant to the terms of the loan guaranty agreement.  The 
payment of that claim resulted in the veteran’s indebtedness 
to the Government, as noted earlier.  The appellant’s request 
for waiver of the indebtedness was received at the RO in 
October 1992, and his sworn testimony was obtained at a 
Travel Board hearing conducted in March 1996.  


II.  Analysis

The law precludes waiver of recovery of an overpayment or 
waiver of collection or recovery of an indebtedness (or any 
interest thereon) where 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) (West 1991).  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".  

"Bad faith" is defined for VA purposes, under 38 C.F.R. 
§ 1.965(b)(2) (1996) as: 

[U]nfair or deceptive dealing by one who 
seeks to gain...at another’s 
expense...[and] conduct, although not 
undertaken with actual fraudulent intent, 
is undertaken with intent to seek an 
unfair advantage, with knowledge of the 
likely consequences...

(Emphasis added).  

The United States Court of Veterans' Appeals (the Court) has 
determined that while bad faith, for VA home loan guaranty 
purposes, does not require a showing of actual fraudulent 
intention, a finding of bad faith certainly requires more 
than a showing of mere neglect of a contractual obligation, 
or the failure to fulfill a duty or contractual obligation, 
e.g., conduct undertaken with an intent to seek an unfair 
advantage is enough for a showing of bad faith.  Richards v. 
Brown, 9 Vet.App. 255 (1996).  

In the immediate case on appeal, the RO found the veteran to 
have acted in bad faith with regard to his indebtedness when 
he failed to re-enlist in September 1989 after having 
promised that he would do so in March 1989.  It is noted that 
the veteran’s March 1989 statement of his then intention to 
re-enlist was relied upon by VA in approving the home loan 
guarantee.  The evidence of record fails to show that the 
veteran’s failure to re-enlist was in bad faith, or evidence 
of any bad faith in his earlier March 1989 statement of 
intention to do so.  There is no showing of bad faith on the 
part of the veteran in either his making the March 1989 
statement of intent to re-enlist or in his later decision not 
to re-enlist after having secured a VA home loan guaranty 
based, at least in part, on his promise to do so.

At his June 1994 Travel Board hearing the veteran testified 
that regardless of his March 1989 statement of intent to re-
enlist, his decision not to do so was based on knowledge 
later gained (in the summer of 1989) that upon re-enlistment 
he would have no guaranty of being assigned to his present 
duty station--the location of the subject property.  The 
appellant also explained that at the time he wrote the March 
1989 statement, he was not aware of the likelihood that any 
September 1989 re-enlistment would possibly involve a 
relocation to another duty station.  He also testified that 
he had not known, until after he signed the March 1989 
statement, that he would have no control or ability to 
negotiate his duty location upon re-enlistment.  No evidence 
is of record as to any contrary knowledge of the veteran at 
either the date of his signing of the March 1989 statement, 
or of his later decision not to re-enlist in September 1989.  

The appellant provided sworn testimony of his valid motives 
in not re-enlisting in September 1989, after having earlier 
promised the VA, in essence, that he would.  The appellant 
stated that he did not want to subject his family to the 
potential of a relocation upon his re-enlistment, and he 
expressed confidence that he could obtain more suitable 
employment in the civilian sector.  He admitted that, in 
retrospect, his prospects of civilian employment at a 
comparable rate of pay appear to have been less than he had 
then thought.

The veteran also explained that even if he had re-enlisted, 
he still would not have had enough income to make the monthly 
mortgage payments as the couple’s income had considerably 
diminished as both he and his wife lost their civilian jobs 
in the summer of 1989.  Moreover, despite his difficulty in 
securing civilian employment, the veteran is shown to have 
made some attempt at a repayment schedule, albeit with 
apparently no success.  

In consideration of the above, the Board is, accordingly, of 
the opinion that the veteran has provided a reasonable 
explanation of his choice not to re-enlist in September 1989, 
and the remaining evidence of record falls short of the sort 
of evidence required for a finding of bad faith under section 
1.965(b)(2).  While his decision not to re-enlist may have 
been an erroneous or unwise decision in retrospect, the Board 
finds that the evidence of record fails to show a willful or 
fraudulent intent on the part of the veteran to seek or 
obtain an unfair advantage of the VA.  Accordingly, the Board 
is unable to find that the evidence clearly supports a 
finding of bad faith with regard to his VA home loan guaranty 
indebtedness.  

Just as there are various bases for a finding of bad faith, 
there are also many circumstances which can significantly 
dilute or negate a finding of the "willful intention to seek 
an unfair advantage."  The above evidence presents such a 
case.  Similarly, the evidence also does not present any 
indication of misrepresentation or fraud on the part of the 
veteran.  

Accordingly, the Board first finds that the above 
circumstances negate a finding of bad faith.  Secondly, it 
cannot be determined from the evidence of record that the 
veteran had the financial ability to make his mortgage 
payment after he lost his civilian part-time job and his wife 
lost her job, both in the summer of 1989.  His decision is 
not shown to have been systematically contrived in any 
attempt to deceive the VA, or seek an “unfair advantage,” 
under section 1.965(b)(2).  Rather, he testified that he 
truthfully believed that he could secure adequate full-time 
civilian employment after separation from service.  
Unfortunately, this was not the case.  With no showing of 
unfair or deceptive dealing, an intention to receive a gain 
at another’s expense, or conduct undertaken with intent to 
seek an unfair advantage, the Board finds no “bad faith” 
under 38 C.F.R. § 1.965(b)(2) (1996).  



ORDER

Waiver of recovery of a VA home loan guaranty debt is not 
precluded by reason of a finding of bad faith on the part of 
the veteran.  To this extent, the appeal is granted.  


REMAND

The Board notes that given the above finding of no indication 
of fraud, misrepresentation, or bad faith on the part of the 
veteran in the creation of his loan guaranty indebtedness, 
appellate consideration of the issue of entitlement to waiver 
of recovery of a loan guaranty debt must be completed at the 
RO, under the principles of “equity and good conscience.”  38 
U.S.C.A. § 5302; 38 C.F.R. §§ 1.964 and 1.965(a).  This has 
not been completed.  The RO should complete any development 
of the record deemed necessary for the equitable evaluation 
of the claim on this basis, including requesting more recent 
financial information from the veteran and the co-obligor.

In light of the foregoing, and after a review of the entire 
evidentiary record, the Board finds that prior to further 
appellate consideration of the issue of entitlement to waiver 
of recovery of a loan guaranty debt, the case should be 
remanded to the RO for the following development:

1.  The RO should provide the veteran and 
his wife, the co-obligor, with another 
Financial Status Report form (VA Form 4-
5655) for completion.  The RO should 
request that the veteran, and his wife 
fully complete, sign, and date the form, 
and return it to the RO.

2. Thereafter, the veteran's claim should 
be reviewed by the RO, with specific 
consideration of the principles of 
“equity and good conscience,” and 38 
U.S.C.A. §§  5302 and 5303; 38 C.F.R. 
§§ 1.964 and 1.965.  The RO should 
formulate a decision reflecting those of 
the six enumerated elements which it has 
considered in its determination under the 
standards of "equity and good conscience" 
and any other elements which have been 
considered but are not enumerated in the 
regulations.  

If the decision, in whole or in part, 
remains adverse to the veteran, he should 
be provided a supplemental statement of 
the case, with an opportunity to respond 
thereto.  Evidence recently submitted or 
received, but not previously considered, 
should be reviewed.  

Thereafter, if indicated, the case should be returned to the 
Board for appellate consideration.  The Board intimates no 
opinion as to the ultimate outcome of this case.  No action 
is required on the veteran's part until further notice. 

This claim must be afforded expeditious treatment by the RO.  
The law requires that all claims that are remanded by the 
Board of Veterans’ Appeals or by the United States Court of 
Veterans Appeals for additional development or other 
appropriate action must be handled in an expeditious manner.  
See The Veterans’ Benefits Improvements Act of 1994, Pub. L. 
No. 103-446, § 302, 108 Stat. 4645, 4658 (1994), 38 U.S.C.A. 
§ 5101 (West Supp. 1996) (Historical and Statutory Notes).  
In addition, VBA’s ADJUDICATION PROCEDURE MANUAL, M21-1, Part 
IV, directs the ROs to provide expeditious handling of all 
cases that have been remanded by the Board and the Court.  
See M21-1, Part IV, paras. 8.44-8.45 and 38.02-38.03.



		
	BARBARA B. COPELAND
	Member, Board of Veterans' Appeals

38 U.S.C.A. § 7102 (West Supp. 1996) 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 & Supp. 1996), 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, 102 Stat. 4105, 4122 (1988).  The date 
that appears on the face of this decision constitutes the 
date of mailing and the copy of this decision that you have 
received is your notice of the action taken on your appeal by 
the Board of Veterans’ Appeals.  Appellate rights do not 
attach to those issues addressed in the remand portion of the 
Board’s decision, because a remand is in the nature of a 
preliminary order and does not constitute a decision of the 
Board on the merits of your appeal.  38 C.F.R. § 20.1100(b) 
(1996).  
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