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Travelstead v. Derwinski

Decided: November 3, 1992; As Amended November 13, 1992.


Appealed from: U.S. Court of Veterans Appeals. Judge Mankin

Before Nies, Chief Judge, Mayer and Lourie, Circuit Judges.


LOURIE, Circuit Judge.

The government appeals from the July 3, 1991 decision of the Court of Veterans Appeals (CVA), Appeal No. 89-5, reversing the decision of the Board of Veterans' Appeals, which affirmed the Veterans Administration's (VA's) decision denying eligibility for retroactive release from liability on a VA-guaranteed home loan. The court remanded the case for a new evaluation. We find that we have jurisdiction to decide this appeal and we affirm on the merits.


In December 1980, Charles W. Travelstead purchased a home with money advanced by a private lender. The loan was secured in part by a VA home loan guaranty in the amount of $27,500. In 1984, Travelstead sold the home to Hollis Copeland. As stated in the standard instructions printed in every guaranty application, such sale did not release Travelstead from liability to the VA if Copeland defaulted. Application for release must have been made to the Secretary and evaluated under standards set forth at 38 U.S.C.S. § 3713(a) (Law Co-op. Supp. 1992)*fn1 Travelstead made no such application.

In February of 1987, the VA received notices of foreclosure and default from the private lender. It promptly informed Travelstead that he would be liable to the government if the VA paid a claim under its guaranty. In November of 1987, a foreclosure and sale of the house left a deficiency of $20,145.74. Pursuant to its guaranty, the VA paid the private lender this amount and then demanded indemnity from Travelstead.

In November of 1988, Travelstead applied to the VA for a waiver of indebtedness under 38 U.S.C.S. § 5302(b) (Law Co-op. Supp. 1992) (formerly 38 U.S.C. § 3102(b)).*fn2 This statute permits the VA to "waive payment of an indebtedness" with respect to a guaranteed loan "where the Administrator determines that collection of such indebtedness would be against equity and good conscience." The application was denied by the Veterans Affairs Committee on Waivers and Compromises; the denial was affirmed by both the Board and the court.*fn3 Because the court's § 5302 ruling was not appealed, this waiver provision is not before us.

The statutory basis for Travelstead's entitlement to a waiver then shifted from § 5302 to 38 U.S.C.S. § 3713(b) (Law Co-op. Supp. 1992)*fn4 when the Court of Veterans Appeals raised sua sponte the applicability of this statute, which provides for a retroactive release from liability. To justify its consideration of this issue, the court cited its jurisdictional statute, 38 U.S.C. § 4052(b) (1988),*fn5 which states that "review in the Court shall be on the record of proceedings before the Administrator and the Board." Because the record showed that a VA examiner had considered Travelstead (apparently without request) for a retroactive release, the court reviewed his entitlement to such release as part of its plenary review of the administrative record.

The court found the procedure applied by the VA in evaluating Travelstead's eligibility for a retroactive release to be contrary to the express language of the statute. The procedure was evidenced by a document styled "Check Sheet -- Release from Liability Under Section 1817(b) 38 U.S.C.," in which a VA examiner marked a box indicating that Copeland had "defaulted during 1st 12 mos; not considered satisfactory risk." The check sheet contained no other possible reasons for denial of release, implying that the post-transfer default was all that was considered. The court found this evaluation inadequate, stating that:

The law requires the VA to look at the facts as they existed at the time of transfer, not after transfer, in order to determine whether a veteran would have been entitled to a release from liability had he applied for it. We trust that the VA will change this form to eliminate the legally incorrect language and that determinations as to eligibility for a release of liability under a guaranty will thereafter be made in accordance with the law.

Accordingly, the court remanded to the Board for a "proper adjudication of [Travelstead]'s entitlement to a release of liability." The government appeals.


1. Does the "finality rule" bar this court from reviewing a decision of the Court of Veterans Appeals which: 1) overturns the Secretary's established standard for denying a retroactive release; and 2) ...

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