B-141888, JUL. 21, 1960

B-141888: Jul 21, 1960

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DUVAL AND SULLIVAN: REFERENCE IS MADE TO YOUR LETTERS DATED MARCH 30. SHE WAS INDEBTED TO THE GOVERNMENT IN THE AMOUNT OF $1. THE LOAN WAS SECURED BY A MORTGAGE ON THE PREMISES ON MARCH 19. THE PROPERTY WAS CONVEYED TO J. 183.26 WAS ENTERED AGAINST J. SHERIFF'S SALE WAS HELD ON MAY 26. PRESLEY COMPLETELY ERASED ANY INSURING AGREEMENT OF THE GOVERNMENT SO FAR AS THE UNION FEDERAL SAVINGS AND LOAN ASSOCIATION WAS CONCERNED ON THE BASIS THAT IT WAS IMPOSSIBLE FOR THE GOVERNMENT TO INSURE A NONVETERAN OR HIS CONTRACT AND THAT THUS THE GOVERNMENT WAS UNDER NO LEGAL OBLIGATION TO MAKE ANY PAYMENT TO THE LENDING INSTITUTION. HAS NEGATED ANY RIGHT IT MIGHT HAVE HAD TO PROCEED AGAINST THE PRESLEYS.

B-141888, JUL. 21, 1960

TO SPARRONBERGER, DUVAL AND SULLIVAN:

REFERENCE IS MADE TO YOUR LETTERS DATED MARCH 30, AND JUNE 17, 1960, FURTHER PROTESTING THE SETOFF BY THE UNITED STATES OF CERTAIN AMOUNTS OTHERWISE DUE MRS. HARRIET A. PRESLEY, YOUR CLIENT, AGAINST HER INDEBTEDNESS TO THE GOVERNMENT ARISING FROM THE DEFAULT OF A HOME LOAN MORTGAGE GUARANTEED BY THE VETERANS ADMINISTRATION, WHICH OBLIGATION HAD BEEN ASSUMED BY MRS. PRESLEY AND HER HUSBAND, J. PAUL PRESLEY.

MRS. PRESLEY, AS A FORMER GOVERNMENT EMPLOYEE HAD TO HER CREDIT $85.70, REPRESENTING A FINAL PAY CHECK, $208.95, REPRESENTING LUMP-SUM PAYMENT FOR ACCRUED ANNUAL LEAVE, AND $675.93 IN THE CIVIL SERVICE RETIREMENT FUND, MAKING A TOTAL OF $970.50. SHE WAS INDEBTED TO THE GOVERNMENT IN THE AMOUNT OF $1,012.42, REPRESENTING A DEFICIENCY JUDGMENT OBTAINED AGAINST HER AND HER HUSBAND IN THE AMOUNT OF $767.44 PLUS ACCRUED INTEREST IN THE AMOUNT OF $244.98 AS OF JUNE 30, 1958.

IT APPEARS THAT ON FEBRUARY 10, 1947, ROBERT K. MITCHELL, AN ELIGIBLE VETERAN, AND HIS WIFE, PURCHASED RESIDENTIAL PROPERTY LOCATED AT 718 N. GIBSTON STREET, INDIANAPOLIS, INDIANA. PURSUANT THERETO THEY BORROWED $5,000 FROM THE UNION FEDERAL SAVINGS AND LOAN ASSOCIATION OF INDIANAPOLIS. THE LOAN WAS SECURED BY A MORTGAGE ON THE PREMISES ON MARCH 19, 1947, THE VETERANS ADMINISTRATION BY "LOAN GUARANTY CERTIFICATE" GUARANTEED 50 PERCENT OF SUCH INDEBTEDNESS "SUBJECT TO THE SERVICEMEN'S READJUSTMENT ACT OF 1944, AS AMENDED, PUBLIC LAW 268, 79TH CONGRESS, AND THE REGULATIONS ISSUED THEREUNDER.' THE MITCHELLS MAINTAINED THE LOAN IN GOOD STANDING. ON MAY 28, 1948, THE PROPERTY WAS CONVEYED TO J. PAUL AND HARRIET A. PRESLEY, NONVETERANS, WHO ASSUMED AND AGREED TO PAY THE MORTGAGE INDEBTEDNESS.

THE PRESLEYS MADE SEVERAL PAYMENTS AND THEN DEFAULTED ON THE LOAN WHICH THEY HAD AGREED TO PAY. THE LENDING INSTITUTION INSTITUTED FORECLOSURE PROCEEDINGS. PURSUANT THERETO, ON DECEMBER 8, 1949, A DECREE OF FORECLOSURE AND JUDGMENT IN THE AMOUNT OF $5,183.26 WAS ENTERED AGAINST J. PAUL AND HARRIET A. PRESLEY AND ROBERT K. AND MARY L. MITCHELL BY THE MARION COUNTY (INDIANA) SUPERIOR COURT. SHERIFF'S SALE WAS HELD ON MAY 26, 1950, AND AS A RESULT OF THE SUCCESSFUL BID BEING LESS THAN THE AMOUNT OF THE JUDGMENT, A DEFICIENCY JUDGMENT REMAINED AGAINST THE DEFENDANTS. ON OR ABOUT JULY 13, 1950, THE VETERANS ADMINISTRATION PAID THE UNION FEDERAL SAVINGS AND LOAN ASSOCIATION $767.44 PURSUANT TO THE V.A. GUARANTY. ON AUGUST 31, 1950, UNDER 38 CFR 36.4380, THE V.A. WAIVED THE INDEBTEDNESS OF ROBERT K. MITCHELL. THE UNION FEDERAL SAVINGS AND LOAN ASSOCIATION FORMALLY ASSIGNED THE DEFICIENCY JUDGMENT AGAINST THE PRESLEYS TO THE VETERANS ADMINISTRATION.

YOU URGE THAT THE ASSUMPTION OF THE MORTGAGE BY MR. AND MRS. PRESLEY COMPLETELY ERASED ANY INSURING AGREEMENT OF THE GOVERNMENT SO FAR AS THE UNION FEDERAL SAVINGS AND LOAN ASSOCIATION WAS CONCERNED ON THE BASIS THAT IT WAS IMPOSSIBLE FOR THE GOVERNMENT TO INSURE A NONVETERAN OR HIS CONTRACT AND THAT THUS THE GOVERNMENT WAS UNDER NO LEGAL OBLIGATION TO MAKE ANY PAYMENT TO THE LENDING INSTITUTION. YOU FURTHER SAY THAT THE GOVERNMENT, BY RELEASING THE VETERAN FROM HIS OBLIGATION, HAS NEGATED ANY RIGHT IT MIGHT HAVE HAD TO PROCEED AGAINST THE PRESLEYS. YOU ALSO CONTEND THAT THE FORMAL ASSIGNMENT BY THE LENDING INSTITUTION OF CLAIM AGAINST THE PRESLEYS TO THE V.A. WAS INVALID IN THAT IT WAS MADE AT A TIME WHEN THE LENDING INSTITUTION, HAVING BEEN PAID BY THE GOVERNMENT, HAD NO FURTHER CLAIM AGAINST THIRD PARTIES.

IN ESTABLISHING THE VETERANS ADMINISTRATION'S PROGRAM OF HOME LOAN GUARANTEES FOR VETERANS, THE SERVICEMEN'S READJUSTMENT ACT OF 1944, 38 U.S.C. 694 ET SEQ. (1952 ED.), EXPRESSLY AUTHORIZED THE ADMINISTRATOR OF VETERANS AFFAIRS TO PROMULGATE SUCH RULES AND REGULATIONS AS ARE NECESSARY AND APPROPRIATE TO CARRY OUT THE PROVISIONS OF THE ACT. SEE 38 U.S.C. 694D (1952 ED.). PURSUANT TO THIS STATUTORY AUTHORITY, THE ADMINISTRATOR HAS PROVIDED BY 38 CFR 36.4308 (A) THAT "THE CONVEYANCE OF, OR OTHER TRANSFER OF TITLE TO PROPERTY * * * AFTER THE CREATION OF A LIEN THEREON TO SECURE A LOAN WHICH IS GUARANTEED OF INSURED * * * BY THE ADMINISTRATOR * * * SHALL NOT OF ITSELF TERMINATE OR OTHERWISE AFFECT THE GUARANTY OR INSURANCE.' IT IS THUS CLEAR THAT THE CONVEYANCE OF THE MORTGAGED PROPERTY TO THE PRESLEYS DID NOT OPERATE TO RELEASE THE V.A. FROM ITS CONTRACT TO GUARANTEE THE LOAN UPON WHICH THE MORTGAGE LIEN HAD BEEN PLACED AS SECURITY. THE GUARANTEED OBLIGATION REMAINED IN FORCE AND WITH IT THE GUARANTEE. ON DEFAULT OF THE MORTGAGE, THE V.A. WAS REQUIRED TO PERFORM UNDER ITS CONTRACT OF GUARANTY.

THE PRESLEYS BY ASSUMING AND AGREEING TO PAY THE MORTGAGE INDEBTEDNESS BECAME DIRECTLY INDEBTED TO THE UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND WITH RESPECT TO THE MITCHELLS BECAME THE PRINCIPAL DEBTOR, WHILE THE LIABILITY OF THE MITCHELLS TO THE ASSOCIATION WAS CHANGED TO THAT OF A SURETY. DEPARTMENT OF STATE REVENUE V. CROWN DEVELOPMENT CO., 109 N.E.2D 426; BLACK V. KRAUFF, 85 N.E.2D 647; WILLARD V. WOOD, 1 APP.D.C. 44. UNDER SUCH CIRCUMSTANCES, EVEN IF THE ASSOCIATION HAD RELEASED THE MITCHELLS FROM THEIR LIABILITY, SUCH ACTION WOULD NOT HAVE DISCHARGED THE PRESLEYS FROM THE LIABILITY WHICH THEY HAD ASSUMED. COLEMAN V. BECK, 5 N.W.2D 104; STATE-PLANTERS BANK AND TRUST CO. V. RANDOLPH, 176 S.E. 561; HARRIS V. DE PAULINA, 178 N.E.225.

IT IS WELL-SETTLED THAT A GUARANTOR PAYING A DEBT OR JUDGMENT IS SUBROGATED, AT LEAST AS AGAINST THE DEBTOR PRIMARILY LIABLE, TO ALL OF THE CREDITOR'S RIGHTS AND REMEDIES, EVEN WITHOUT FORMAL ASSIGNMENT OF THE DEBT OR JUDGMENT, IN THE ABSENCE OF EQUITABLE REASONS OR AGREEMENTS TO THE CONTRARY. IN RE PHILLIPS' ESTATE, 202 S.W.2D 107; GRUBBS V. SLATER, 266 S.W.2D 85; RECONSTRUCTION FINANCE CORPORATION V. MARYLAND CASUALTY CO., 23 F.SUPP. 1008. CONSEQUENTLY THE V.A. BECAME SUBROGATED TO THE ASSOCIATION'S RIGHTS IN THE MATTER, EVEN WITHOUT FORMAL ASSIGNMENT OF THE DEBT. 38 U.S.C. 694G; UNITED STATES FIDELITY AND GUARANTY CO. V. WESTERN SEAFOOD CO. 67 P.2D 892. THEREFORE, IT IS UNNECESSARY TO INQUIRE INTO THE VALIDITY OF THE SUBSEQUENTLY PERFORMED FORMAL ASSIGNMENT BY THE ASSOCIATION OF ITS JUDGMENT RIGHTS AGAINST THE PRESLEYS TO THE VETERANS ADMINISTRATION.

FURTHERMORE, SINCE THE V.A. WAS SUBROGATED TO THE RIGHTS OF THE ASSOCIATION, THE WAIVER OF THE MITCHELLS' LIABILITY DID NOT DISCHARGE THE PRESLEYS FROM THEIR LIABILITY TO THE V.A. COLEMAN V. BECK, 5 N.W.2D 104.

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