B-134020, JAN. 22, 1958

B-134020: Jan 22, 1958

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THE WITHERSPOONS DISCOVERED THAT THERE WAS NO SOURCE OF WATER ON THE PROPERTY AND WATER HAD TO BE HAULED IN FROM ELSEWHERE. THE WITHERSPOONS ARE PRESENTLY SUING THE SELLERS AND THEIR AGENT FOR DAMAGES ON THE BASIS OF THE ALLEGED MISREPRESENTATION OF THE PROPERTY. JUDGMENT WAS RENDERED AGAINST THE WITHERSPOONS FOR $11. THE VETERANS ADMINISTRATION UNDER ITS GUARANTY WAS REQUIRED TO PAY AND DID PAY THE MORTGAGE HOLDER THE SUM OF $2. 412.08 WAS CHARGEABLE TO THE VETERAN. WITHERSPOON IS NOT LIABLE FOR THE SUM CLAIMED BY THE GOVERNMENT BY REASON OF THE WAIVER OF THE DEFICIENCY JUDGMENT. ASSUMING THAT THE VETERANS ADMINISTRATION MAY HAVE LOST ITS RIGHT TO REIMBURSEMENT BY WAY OF SUBROGATION BY CONSENTING TO THE WAIVER OF THE DEFICIENCY JUDGMENT.

B-134020, JAN. 22, 1958

TO WARNICK, ROGERS AND PHARES:

YOUR LETTER OF SEPTEMBER 19, 1957, REQUESTS REVIEW OF THE GOVERNMENT'S CLAIM AGAINST OTHEL E. WITHERSPOON IN THE AMOUNT OF $2,412.08 PLUS INTEREST.

THE RECORD BEFORE OUR OFFICE DISCLOSES THAT MR. WITHERSPOON AND HIS WIFE PURCHASED A PIECE OF REAL ESTATE IN SEDGWICK COUNTY, KANSAS. THEY BORROWED THE REQUIRED $11,000 PURCHASE MONEY FROM THE DEMING INVESTMENT COMPANY, OSWEGO, KANSAS, GIVING AS SECURITY THEREFOR A MORTGAGE NOTE ON THE SAID PROPERTY, EXECUTED ON FEBRUARY 2, 1955. UPON DUE APPLICATION OF MR. WITHERSPOON, A VETERAN, THE VETERANS ADMINISTRATION GUARANTEED 60 PERCENT OF THE MORTGAGE IN ACCORDANCE WITH THE SERVICEMEN'S READJUSTMENT ACT OF 1944. THE DEMING INVESTMENT COMPANY SUBSEQUENTLY SOLD THE MORTGAGE NOTE TO THE PAUL REVERE LIFE INSURANCE COMPANY OF WORCESTER, MASSACHUSETTS. SHORTLY AFTER MOVING INTO THE PROPERTY, THE WITHERSPOONS DISCOVERED THAT THERE WAS NO SOURCE OF WATER ON THE PROPERTY AND WATER HAD TO BE HAULED IN FROM ELSEWHERE. THEY IMMEDIATELY MOVED OUT, CEASED MAKING PAYMENTS ON THE MORTGAGE, AND COMMENCED NEGOTIATIONS TO RESCIND THE SALE ON THE GROUND THAT THE PROPERTY HAD BEEN REPRESENTED AS HAVING A WELL SUPPLYING ADEQUATE WATER. THE WITHERSPOONS ARE PRESENTLY SUING THE SELLERS AND THEIR AGENT FOR DAMAGES ON THE BASIS OF THE ALLEGED MISREPRESENTATION OF THE PROPERTY. AS A RESULT OF THE DEFAULT, THE HOLDER OF THE MORTGAGE INSTITUTED FORECLOSURE PROCEEDINGS AND ON SEPTEMBER 16, 1955, JUDGMENT WAS RENDERED AGAINST THE WITHERSPOONS FOR $11,372.91. HOWEVER, AT THE FORECLOSURE SALE, THE PROPERTY BROUGHT ONLY $9,000 AND THE COURT REFUSED TO CONFIRM THE SALE AT THAT PRICE AND ENTER A DEFICIENCY JUDGMENT FOR THE DIFFERENCE OF $2,372.91. TO AVOID THE EXPENSE OF APPEAL, THE VETERANS ADMINISTRATION ALLOWED THE HOLDER OF THE MORTGAGE TO WAIVE THE DEFICIENCY JUDGMENT AND THE COURT CONFIRMED THE SALE AT $9,000. THE VETERANS ADMINISTRATION UNDER ITS GUARANTY WAS REQUIRED TO PAY AND DID PAY THE MORTGAGE HOLDER THE SUM OF $2,902.56 (UNPAID BALANCE OF THE LOAN PLUS INTEREST, EXPENSES, ETC., LESS THE $9,000 OBTAINED ON FORECLOSURE) OF WHICH $2,412.08 WAS CHARGEABLE TO THE VETERAN. UP TO THE PRESENT, MR. WITHERSPOON HAS REFUSED TO REPAY TO THE VETERANS ADMINISTRATION THE SUM CHARGEABLE TO HIM.

YOU CONTEND THAT MR. WITHERSPOON IS NOT LIABLE FOR THE SUM CLAIMED BY THE GOVERNMENT BY REASON OF THE WAIVER OF THE DEFICIENCY JUDGMENT. ASSUMING THAT THE VETERANS ADMINISTRATION MAY HAVE LOST ITS RIGHT TO REIMBURSEMENT BY WAY OF SUBROGATION BY CONSENTING TO THE WAIVER OF THE DEFICIENCY JUDGMENT, NEVERTHELESS, SEPARATE AND APART FROM ANY SUBROGATION RIGHT, THE VETERANS ADMINISTRATION HAS A RIGHT OF INDEMNITY ENFORCEABLE AGAINST MR. WITHERSPOON. THE ADMINISTRATOR OF VETERANS AFFAIRS IS AUTHORIZED UNDER SECTION 694D (A) OF TITLE 38 OF THE U.S.C. TO PROMULGATE SUCH RULES AND REGULATIONS AS HE DEEMS NECESSARY FOR CARRYING OUT THE PROVISIONS OF THE SERVICEMEN'S READJUSTMENT ACT OF 1944. SAID SECTION PROVIDES IN PART:

"THE ADMINISTRATOR IS AUTHORIZED TO PROMULGATE SUCH RULES AND REGULATIONS * * * AS ARE NECESSARY AND APPROPRIATE FOR CARRYING OUT THE PROVISIONS OF THIS SUBCHAPTER. * * *"

THE PERTINENT SECTION OF THE REGULATIONS ISSUED BY THE ADMINISTRATOR PURSUANT THERETO IS SECTION 36.4323 (E) OF TITLE 38 OF THE CODE OF FEDERAL REGULATIONS, WHICH PROVIDES:

"ANY AMOUNTS PAID BY THE ADMINISTRATOR ON ACCOUNT OF THE LIABILITIES OF ANY VETERAN GUARANTEED OR INSURED UNDER THE PROVISIONS OF THE ACT SHALL CONSTITUTE A DEBT OWING TO THE UNITED STATES BY SUCH VETERAN.'

IN SECURING THE GUARANTEE OF THE LOAN, MR. WITHERSPOON EXECUTED A VETERANS ADMINISTRATION LOAN FORM WHICH CONTAINS AN AGREEMENT THAT THE REGULATIONS PROMULGATED UNDER THE SERVICEMEN'S READJUSTMENT ACT OF 1944, AS AMENDED, WOULD GOVERN THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO THE LOAN. WHEN MR. WITHERSPOON EXECUTED THE LOAN FORM HE AGREED TO INDEMNIFY THE UNITED STATES AGAINST LOSS. IT IS UPON THIS AGREEMENT THAT THE GOVERNMENT BASES ITS CLAIM RATHER THAN UPON ITS RIGHT TO SUBROGATION TO THE MORTGAGE HOLDER'S RIGHTS.

THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF IOWA, IN THE CASE OF UNITED STATES V. HENDERSON, 121 F.SUPP. 343, 344, HAS SAID:

"THE LANGUAGE OF THIS PROVISION (36.4323 (E) ( IS CLEAR AND THERE CAN BE NO QUESTION THEREFROM OF THE INTENT OF THE CONGRESS TO MAKE ANY PAYMENTS MADE BY THE GOVERNMENT UNDER THE GUARANTEE OF THE ACT AN ENFORCEABLE DEMAND UNTIL FULL SATISFACTION IS OBTAINED. * * * DEFENDANT'S LIABILITY, CREATED WHEN HIS LOAN APPLICATION WAS MADE OUT AND THE NOTE AND MORTGAGE EXECUTED, REMAINS A DIRECT AND SUBSISTING OBLIGATION UNTIL THE GOVERNMENT HAS BEEN REPAID. * * *"

THE RULE IS WELL ESTABLISHED THAT WHERE THE UNITED STATES ACTS WITHIN THE PERMITTED SCOPE OF ITS GOVERNMENTAL AUTHORITY THE QUESTION OF THE CREATION OR NEGATION OF AN EXPRESS OR IMPLIED LIABILITY OF AN INDIVIDUAL TO THE UNITED STATES IS TO BE DETERMINED BY FEDERAL LAW. FURTHER, IN THE ABSENCE OF A FEDERAL STATUTE TO THE CONTRARY, THE RIGHT OF THE UNITED STATES TO ENFORCE IN A FEDERAL COURT SUCH A LIABILITY MAY NOT BE DEFEATED OR LIMITED BY STATE LAW. CF. CLEAR FIELD TRUST CO. V. UNITED STATES, 318 U.S. 363; UNITED STATES V. STANDARD OIL CO., 332 U.S. 301; UNITED STATES V. INDEPENDENT SCHOOL DISTRICT NO. 1 OF OKMULGEE COUNTY, OKLAHOMA, 209 F.2D 578.

SINCE MR. WITHERSPOON'S LIABILITY TO THE GOVERNMENT HERE INVOLVED IS IN NO WAY DEPENDENT UPON OR CONNECTED WITH HIS SUIT AGAINST THE SELLER OF THE PROPERTY AND WOULD NOT BE AFFECTED BY THE OUTCOME OF SAID SUIT, WE DO NOT BELIEVE IT DESIRABLE FOR THE GOVERNMENT TO INTERVENE THEREIN. HOWEVER, WE CONCLUDE THAT MR. WITHERSPOON IS INDEBTED TO THE UNITED STATES AS PREVIOUSLY INDICATED.

THE RECORD INDICATES THAT THIS MATTER WAS THE SUBJECT OF A CONFERENCE BETWEEN A REPRESENTATIVE OF THE VETERANS ADMINISTRATION AND MR. PHARES WHO IS REPORTED TO HAVE ADVANCED THE VIEW THAT THE VETERAN WAS WITHOUT FAULT IN THE ORIGINAL TRANSACTION AND SHOULD BE OFFERED AN OPPORTUNITY TO APPEAR BEFORE A COMMITTEE ON WAIVERS TO REQUEST THAT THE DEBT BE WAIVED. THE VETERANS ADMINISTRATION, UNDER 38 U.S.C. 694J (A) (4), IS AUTHORIZED TO COMPROMISE, WAIVE, OR RELEASE ANY RIGHT ACQUIRED UNDER THE LOAN GUARANTY PROGRAM. THE RECORD BEFORE US DOES NOT SHOW THAT THIS INDEBTEDNESS WAS CONSIDERED BY THE VETERANS ADMINISTRATION UNDER SUCH AUTHORITY, IT BEING OUR UNDERSTANDING THAT SUCH DEBTS ARE NOT SO CONSIDERED EXCEPT AT THE WRITTEN REQUEST OF THE VETERAN. WE HAVE NO INFORMATION AS TO WHETHER AN ADJUSTMENT OF THE DEBT CAN BE EFFECTED UNDER SUCH STATUTORY PROVISION. HOWEVER, UNLESS SUCH AN ARRANGEMENT IS EFFECTED IT WILL BE INCUMBENT UPON US TO CONTINUE COLLECTION PROCEEDINGS. THEREFORE, WE WILL DEFER, FOR A REASONABLE PERIOD, FURTHER COLLECTION ACTION IN ORDER TO GIVE MR. WITHERSPOON AN OPPORTUNITY TO ATTEMPT TO EFFECT ADJUSTMENT OF THE DEBT WITH THE VETERANS ADMINISTRATION. ANY REQUEST FOR CONSIDERATION OF THE MATTER UNDER 38 U.S.C. 694J (A) (4) OR ANY OFFER THAT THE VETERAN MAY CARE TO SUBMIT IN COMPROMISE OF THE DEBT SHOULD BE ADDRESSED TO THE LOAN GUARANTY COMMITTEE ON WAIVERS AND COMPROMISES, VETERANS ADMINISTRATION, WASHINGTON 25, D.C. ..END :