Diana L. Flannigan (Holyk) - Administrative Offset Decision

Petitioner was notified by a Notice of Intent that, pursuant to 31 U.S.C.§ 3720A, the Secretary of the U.S. Department of Housing and Urban Development ("HUD") intended to seek offset by the Internal Revenue Service ("IRS") of any Federal income tax refund due to Petitioner against a claimed past-due, legally enforceable debt of Petitioner to HUD. The claimed debt has resulted from a defaulted loan which was insured against non- payment by the Secretary pursuant to Title I of the National Housing Act (12 U.S.C. § 1703). This defaulted loan has been assigned to the Secretary in accordance with 24 C.F.R. § 201.54. Petitioner filed a request to present evidence that the debt was not past-due or not legally enforceable. As a result of that request, referral of the debt for offset by the IRS was temporarily stayed.

Discussion

The Deficit Reduction Act of 1984, 31 U.S.C. § 3720A ("the Act") provides Federal agencies with a remedy for the collection of debts owed to the United States Government. The Act places the primary burden of proof on the debtor to establish by documentary evidence or application of law that the claimed debt is not past-due or not enforceable. 31 U.S.C. § 3720A(b) (2); Ronald Durr, HUDBCA No. 86-1422-F413 (Mar. 28, 1986); see also 24 C.F.R. § 17.152(b) and (c).

First, Petitioner asserts that, under the terms of a divorce decree issued by a state court, liability for repayment of the loan in question has been transferred or otherwise assigned to Petitioner's former spouse.

The terms of a divorce decree which purport to release Petitioner from any obligation to repay the subject debt is not a valid defense to this action. Both Petitioner and Petitioner's former spouse jointly and severally executed and delivered the installment note. Where a property settlement or divorce decree purports to release one spouse from a joint obligation, the claims of the existing creditors against the spouse are not affected unless the creditors were parties to the action. Deborah Gage, HUDBCA No. 86-1727-F286 (Jan. 14, 1986); see also 27B C.J.S. Divorce § 251(4) (1959); 63 A.L.R. 3d 373, 403-04 (1975). Neither the lender nor the Secretary of HUD were parties to Petitioner's divorce action or to the division of property attendant to the divorce. While Petitioner may pursue through state or local court the recovery from Petitioner's former spouse of monies paid to HUD to satisfy this obligation, Petitioner, nevertheless, remains jointly and severally liable for the repayment of this outstanding debt.

Second, Petitioner claims that she submitted a check for approximately one-half of the outstanding debt to serve as a "release as to any further payment upon the debt obligation of [Petitioner]." (Pet. Letter of Sept. 30, 1996). Petitioner contends that the Secretary's negotiation of this check served as an accord and satisfaction of her obligation on this debt.

In Ohio, an accord and satisfaction is an affirmative defense to a claim for money damages. If a party against whom a claim for damages is made can prove accord and satisfaction, that party's debt is discharged by operation of law. Allen v. R.G. Industrial Supply, 66 Ohio St. 3d 229, 611 N.E.2d 794 (1993). For payment of something less than the amount due to result in an accord and satisfaction, there must be more than mere payment of a lesser sum by the debtor. Accord and satisfaction is, in fact, a contract which must reflect the essential elements of the meeting of the minds of the parties and the giving and receiving of something of value as consideration therefor, contemplated as something less than the amount claimed by a creditor. Bryan Hays, HUDBCA No. 90-4841-L321 (Dec. 19, 1989) (citing Ayers Plastics Co. v. Packaging Products, 597 S.W.2d 177, 181 (1980) (Mo.App.)). This is true even where the check in payment of the lesser sum contained a restrictive endorsement that acceptance constituted payment in full. Id. Only where there has been a dispute concerning the amount due is an accord and satisfaction effected by payment and acceptance of a lesser amount. Id. If there is not an actual dispute between the parties, there cannot be an accord and satisfaction because if there is no dispute, the accord would not be supported by consideration since the creditor would not be giving anything up in exchange for the payment from the debtor. Allen, supra.

In this case, there is no evidence that the amount of the debt owed to HUD was ever in dispute between the parties. Therefore, I find that there was not an accord and satisfaction in this case.

Therefore, in the absence of evidence to the contrary, I find that the debt claimed by the Secretary is past-due and legally enforceable.

Order

Petitioner is indebted to HUD is the amount claimed by the Secretary. The Order imposing the stay of referral of this matter to the Internal Revenue Service is vacated. It is hereby ORDERED that the Secretary of HUD is authorized to refer Petitioner's debt to the IRS accordance with 31 U.S.C. § 3720A for offset against any refund which is otherwise due.

June 16, 1997