Citation Nr: 9908057 Decision Date: 03/24/99 Archive Date: 03/31/99 DOCKET NO. 94-33 104A ) DATE ) ) On appeal from the Department of Veterans Affairs Regional Office in Houston, Texas THE ISSUE Entitlement to waiver of recovery of loan guaranty indebtedness. REPRESENTATION Appellant represented by: Disabled American Veterans WITNESSES AT HEARING ON APPEAL Appellant and G.J. ATTORNEY FOR THE BOARD T. L. Douglas, Associate Counsel INTRODUCTION The appellant served on active duty from September 1969 to March 1972. The record indicates she re-enlisted in May 1980 and that she is presently serving on active duty. This matter comes before the Board of Veterans' Appeals (Board) on appeal from a November 1993 decision by the Committee on Waivers and Compromises (COWC) of the Department of Veterans Affairs (VA), Regional Office (RO) in Houston, Texas. In September 1997 the Board found waiver of recovery of loan guaranty was not precluded by fraud, misrepresentation or bad faith, and remanded the case to the RO for additional development. The issue of validity of the amount of indebtedness was previously addressed by the Board; therefore, this decision is limited to the issue of entitlement to waiver of recovery of loan guaranty indebtedness. But see Schaper v. Derwinski, 1 Vet. App. 430, 437 (1991); 38 C.F.R. § 1.911(c)(1) (1998). FINDINGS OF FACT 1. All relevant evidence necessary for an equitable disposition of this appeal has been requested or obtained. 2. The appellant purchased a mobile home in 1982 for $20,517.00, which was used as security for a VA guaranteed loan in the amount of $20,764.00, and agreed to indemnify VA in the event of a loss following a default and repossession of the mobile home. 3. The appellant's default necessitated a repossession and sale of the mobile home, resulting in a loan guaranty indebtedness of $7,884.23, plus accrued interest. 4. The appellant did not commit fraud, misrepresentation, or bad faith in the creation of the loan guaranty indebtedness. 6. The appellant was at fault in creating the loan guaranty indebtedness, and VA was not at fault. 7. Waiver of loan guaranty indebtedness would result in unfair enrichment to the appellant. 8. Recovery of loan guaranty indebtedness would not deprive the appellant or her family of basic necessities. 9. Denial of waiver would not defeat the purpose of the award of VA benefits. 10. There is no indication that the appellant relinquished a valuable right or incurred a legal obligation in reliance on benefits received. CONCLUSIONS OF LAW 1. There was a loss by VA after the default on the VA guaranteed loan and repossession and sale of the mobile home which constituted the security for the loan. 38 U.S.C.A. § 5107(a), 5302 (West 1991); 38 C.F.R. § 1.964(a) (1998). 2. Recovery of loan guaranty indebtedness would not violate the standard of equity and good conscience. 38 U.S.C.A. §§ 5107, 5302 (West 1991); 38 C.F.R. §§ 1.963(a), 1.965(a) (1998). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS Criteria Waiver of loan guaranty indebtedness may be authorized in a case in which there was a loss of the property which constituted security for the loan guaranteed, there is no indication of fraud, misrepresentation, or bad faith on the part of the person or persons having an interest in obtaining the waiver, and collection of such indebtedness would be against equity and good conscience. 38 U.S.C.A. § 5302(b) (West 1991); 38 C.F.R § 1.964 (1998). 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 the debtor. Where actions of the debtor contribute to the creation of the debt. (2) Balancing of faults. Weighing fault of the debtor against VA 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 VA benefits results in relinquishment of a valuable right or incurrence of a legal obligation. See 38 U.S.C.A. § 5302(West 1991); 38 C.F.R. § 1.965(a) (1998). Factual Background The records reflect that in October 1982 the appellant purchased a mobile home for $20,517.00. The purchase was financed by a VA guaranteed loan in the original amount of $20,764.00. The appellant reported she had been employed by the U.S. Army since May 15, 1980. Her monthly earnings were reported as follows: base pay was $1,325.00; rations pay was $158.00; clothing pay was $9.00; and quarters pay was $213.00. She reported she was unmarried and did not have dependents. Her debts and obligations totaled $10,755.00. In conjunction with the purchase of the mobile home, the appellant executed, in October 1982, a Report of Automatic Mobile Home and/or Loan Lot, VA Form 26-8149. In that document, she certified and agreed that she was legally obligated to make the payments under the loan contract. The document indicated that "As a GI home loan borrower I will be legally obligated to make payments called for by my loan contract. The fact that I dispose of my property after the loan had been made WILL NOT RELIEVE ME OF LIABILITY FOR MAKING THESE PAYMENTS." In August 1983 a Notice of Default was issued by S. A. Corporation, hereinafter referred to as the mortgage holder, which indicated that the date of the first uncured default was July 1, 1983. The amount of the default was $567.06. The outstanding balance of the loan was $20,562.20. The appellant occupied the mobile home at that time. It was noted that the appellant would mail a payment in August 1983 to bring the account current. The reason for the default was that the appellant had been unemployed for one month. In April 1984 the appellant was delinquent in the amount of $361.25. In January 1985 the mortgage holder agreed to put the appellant on a partial repayment plan, in which the appellant would mail half of the delinquency on January 31, 1985, and the balance on February 15, 1985. In June 1985 the appellant submitted to VA an Application for Release from Personal Liability to the Government on a Home Loan (VA Form 26-6381). The appellant indicated that she and a person willing to assume her VA loan had agreed on a purchase price but that no sale had been completed and no contract or deed had been signed. In a June 1985 letter the RO informed the appellant that her application for Release of Liability could not be approved prior to satisfaction of her debt to the Government for an educational benefit overpayment in the amount of $1,845.20. In a July 1985 letter to the mortgage holder, the appellant stated that for the past eight months she had been trying to sell her mobile home, but that it appeared there was no market for the sale. She indicated that since she was on active duty and was being relocated, and because she was in financial distress, she wanted to avoid the hassle of foreclosure proceedings and voluntarily deed the mobile home to the mortgage holder. In August 1985 VA informed the appellant that her application for a Release from Liability to the Government on the Home Loan was denied because they had not received the requested fee for a credit report or employment verification from the party willing to assume the loan, and because the appellant owed a debt to the Government for an educational benefit overpayment in the approximate amount of $1,845.20. In August 1985 a Notice of Default was issued. The first uncured default, in the amount of $996.09, occurred on June 1, 1985. The outstanding loan balance, as of August 12, 1985, was $19,592.51. The mortgage holder indicated that the reason for the default was the appellant's flagrant disregard for contractual obligations. The mortgage holder stated that the appellant paid the loan when she wanted, had no valid reason for being delinquent, and made no commitment to pay. She occupied the property at that time. In August 1985 a Notice of Foreclosure was issued. The mortgage company stated that the appellant would not make a commitment to bring the account current. In September 1985 the mortgage holder notified the RO that they had repossessed the appellant's mobile home on September 12, 1985. At the time of repossession, the amount of the default was $19,592.51. In September 1985, the mortgage holder notified the appellant that the mobile home would be sold at a private sale after September 27, 1985. An October 1985 Manufactured Home Appraisal Report indicated the mobile home's retail book value was $11,387.00. On October 8, 1985, the appellant reported that she had problems with the mobile home due to defects, could not get the manufacturer to honor the warranty, and had a curtailment of finances. She also indicated that her sister with two children moved into her mobile home after her sister lost a job. She stated that she had a possible buyer for the mobile home. In November 1985 VA authorized the holder to sell the mobile home for the best price obtainable. The mobile home was sold for $14,918.00. In January 1986 VA paid a claim under the loan guaranty to the holder in the amount of $7,964.23. In February 1986 VA sent a Notice of Indebtedness to the appellant at the address of the mobile home. They informed the appellant that she was indebted to the United States Government in the amount of $7,884.23. In a July 1986 financial status report the appellant indicated that her total monthly net income was $1,595.50. She reported that her total monthly expenses were $1,526.83. In a June 1987 letter to the Personal Property Division of Harris County, Houston, Texas, the appellant indicated that she had returned the mobile home to the mortgage holder in July 1985 and they sold the mobile home in August 1985. She indicated that she was on active duty and was no longer living in Houston. In her September 1993 request for a waiver of the loan guaranty indebtedness, the appellant stated that prior to her mobile home being sold by the mortgage holder, she attempted to sell the mobile home, but that the Houston area was economically depressed due to an oil crisis. She indicated that her mobile home park was virtually destroyed by Hurricane Alicia and that her home required extensive repairs. She also stated that her father had been ill and that she had incurred family related financial obligations. The appellant requested a compassionate reassignment in service to South Carolina and this was granted in 1989. She indicated that she had incurred financial difficulties when her spouse, from whom she was presently separated, was ordered to pay child support. She submitted statements, dated in 1988, from her father's health care providers indicating that her father had been severely ill since 1981. In an August 1993 financial status report the appellant indicated that her total monthly net income was $2,487.45, and that she was on active duty. She reported that her monthly expenses totaled $2,223.37. At her personal hearing, the appellant stated that after she purchased the mobile home in 1982 she had problems hooking the unit up and the unit had manufacture defects. Transcript, p. 4 (October 1995). She stated she did not recover from repairs to the home after a 1983 hurricane until mid 1984. Tr., p. 7. She stated the repairs for the mobile home and family emergencies caused her, in part, to fall behind in mortgage payments. Tr., p. 9. The appellant stated that she officially deeded the trailer back to the mortgage holder in May 1985, and she made the last loan payment in May 1985. Tr., p. 12. She stated that she was told by VA that after the mobile home was deeded back to the mortgage holder she would be responsible for the amount owing on the loan after the sale of the trailer, but that VA never contacted her about the amount due. Tr., p. 15. She stated she attempted to sell the home, but the sale was not completed because VA and the mortgage holder did not notify the interested party that he had been approved to assume the loan. Tr., p. 11. In November 1997 and September 1998 the RO requested the appellant furnish information regarding her financial status, including a completed Financial Status Report (VA Form 20- 5655). In October 1998 the appellant's service representative requested a 30 days extension to allow the appellant to submit VA Form 20-5655 and other relevant evidence. No subsequent information from the appellant was provided. Analysis Initially, the Board notes that the appellant's claim is found to be well-grounded under 38 U.S.C.A. § 5107(a) (West 1991). That is, she has presented a claim which is plausible. Murphy v. Derwinski, 1 Vet. App. 78 (1990). The Board is satisfied that all relevant facts have been properly developed, and that no further assistance is required in order to satisfy the duty to assist mandated by 38 U.S.C.A. § 5107(a). In this case, the Board previously found the indebtedness did not result from fraud, misrepresentation or bad faith on the appellant's part, any of which would constitute a legal bar to granting the requested waiver. See 38 U.S.C.A. § 5302. Therefore, recovery of indebtedness can be waived if it is shown that it would be against the principles of equity and good conscience to require the appellant to repay the debt to the government. 38 C.F.R. §§ 1.963, 1.965. Based on the evidence of record, the Board finds that the appellant was at fault in the creation of the debt. The record shows she failed to make payments as required in her loan agreement, and that a loss resulted from the sale of the home after her default. The record also reflects VA was not at fault in the creation of the debt. The Board further finds that waiver of recovery would constitute unjust enrichment to the appellant. The Board also finds that the evidence is not persuasive that the appellant would experience undue financial hardship if required to pay the amount of indebtedness. The Board notes that the appellant did not respond to recent requests for additional financial information, but that the August 1993 financial status report indicates excess income after expenses of over $260. Therefore, the Board finds the appellant's reported financial status is sufficient to allow for payments toward the amount of indebtedness. In addition, the Board notes the record does not reflect that denial of waiver would defeat the purpose of paying VA benefits by nullifying the objective for which the benefits are intended, and there is no persuasive evidence that reliance on the overpaid benefits resulted in the appellant's relinquishment of a valuable right or the incurrence of a legal obligation. The Board finds the appellant's claim as to undue financial hardship is not persuasive and she was at fault in the creation of the debt. Therefore, recovery of the loan guaranty indebtedness would not be against equity and good conscience. ORDER Entitlement to waiver of recovery of loan guaranty indebtedness is denied. RONALD R. BOSCH Member, Board of Veterans' Appeals - 11 -