Carter v. Derwinski

Dale Carter (plaintiff) was a veteran of the United States Armed Forces. Carter purchased a home in Idaho through a program administered by the Department of Veterans Affairs (VA) (defendant). Under the program, the VA agreed to reimburse home-loan lenders if debtors defaulted on their loans. The statute creating the program granted the VA a right to subrogate itself to the rights of a home-loan lender to recover from a defaulting debtor. Alternatively, regulations promulgated under the statute gave the VA the right to pursue an indemnity action against a defaulting debtor. Idaho state law allowed for nonjudicial foreclosure actions but barred subsequent collection of deficiencies unless the lender obtained a fair market valuation within three months of the foreclosure. Carter defaulted on his loan, triggering the VA’s guarantee. The VA held a nonjudicial foreclosure but did not obtain a fair market valuation within three months of that foreclosure. The VA then sought to recover from Carter the remainder of what the VA had paid under the guarantee. Carter sued the VA, seeking to enjoin the VA from collecting the deficiency. The trial court held that the VA’s right of subrogation took precedence over its right of indemnity and further held that the VA lost its right of subrogation when it failed to timely obtain a fair market valuation. Accordingly, the trial court ruled in favor of Carter. The VA appealed.