HARRY N. WALTERS, ADMINISTRATOR OF VETERANS' AFFAIRS, PETITIONER V. HOME SAVINGS AND LOAN ASSOCIATION OF LAWTON, OKLAHOMA No. 83-277 In the Supreme Court of the United States October Term, 1983 The Solicitor General, on behalf of the Administrator of Veterans' Affairs, petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Tenth Circuit in this case. Petition for a Writ of Certiorari to the United States Court of Appeals for the Tenth Circuit PARTIES TO THE PROCEEDING In addition to the parties shown by the caption, American First Title and Trust Company and Oklahoma Mortgage Company, Inc., were named as defendants in the district court. The district court found no liability as to those defendants, and they were not identified as appellees in the court of appeals. We are informed that respondent recently changed its name to Home Savings Bank, F.A. TABLE OF CONTENTS Opinions below Jurisdiction Regulation involved Statement Reasons for granting the petition Conclusion Appendix A Appendix B Appendix C Appendix D Appendix E Appendix F OPINIONS BELOW The opinion of the court of appeals (App. A, infra, 1a-26a) is reported at 695 F.2d 1251. The opinion of the district court (App. C, infra, 30a-37a) is not reported. The order of the district court, filed August 29, 1979, denying cross-motions for summary judgment (App. E, infra, 39a-41a) is not reported. JURISDICTION The judgment of the court of appeals (App. F, infra, 42a) was entered on December 21, 1982. A timely petition for rehearing was denied on April 21, 1983 (App. B, infra, 27a-29a). On July 15, 1983, Justice White extended the time for filing a petition for a writ of certiorari to and including August 19, 1983. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). REGULATION INVOLVED 38 C.F.R. 36.4325(a) provides: Subject to the incontestable provisions of 38 U.S.C. 1821 as to loans guaranteed or insured on or subsequent to July 1, 1948, there shall be no liability on account of a guaranty or insurance, or any certificate or other evidence thereof, with respect to a transaction in which a signature to the note, the mortgage, or any other loan papers, or the application for guaranty or insurance is a forgery; or in which the certificate of discharge or the certificate of eligibility is counterfeited, or falsified, or is not issued by the Government. QUESTION PRESENTED Whether the Administrator of Veterans' Affairs may be equitably estopped from relying on a valid regulation providing that forgery is a defense to liability on a home loan guaranty. STATEMENT 1. The Veterans' Benefits Act, 38 U.S.C. (& Supp. V) 1801 et seq., establishes a program under which the Veterans' Administration ("VA") guarantees loans made to veterans to assist them in securing residential housing. Under the program the VA may guarantee up to 60% of the amount of a loan to be applied to the purchase or construction of a residence. 38 U.S.C. (& Supp. V) 1803(a)(1). In the event the veteran defaults on the loan, the VA generally must pay the amount owing under the terms of the guaranty. However, Congress has authorized the Administrator of Veterans' Affairs ("Administrator") to establish defenses to liability through promulgation of regulations. See 38 U.S.C. (Supp. V) 210(c)(1) and 1981. /1/ Pursuant to this delegation of authority, the Administrator has promulgated 38 C.F.R. 36.4325(a), which provides in part that "there shall be no liability on account of a guaranty * * * with respect to a transaction in which a signature to the note, the mortgage, or any other loan papers, or the application for guaranty or insurance is a forgery * * *." When the Administrator receives notice of a foreclosure sale, he may specify in advance of the sale the minimum amount that will be credited to the indebtedness of the borrower. 38 C.F.R. 36.4320(a); United States v. Shimer, 367 U.S. 374, 379-380 (1961). The holder of the mortgage note may then bid the specified amount for the property at the foreclosure sale. If that bid is successful, the holder of the note may elect within 15 days of the sale to convey the property to the VA. 38 C.F.R. 36.4320(a)(1). Once the property is transferred, the VA will pay the holder the amount previously specified by the Administrator. 38 C.F.R. 36.4320(g). 2. On April 7, 1971, the Oklahoma Mortgage Company loaned $34,000 to Percy Durham, a veteran, and his wife, Zelma Durham. The VA guaranteed the mortgage pursuant to 38 U.S.C. (& Supp. V) 1803(a)(1) and 1810(c). Several weeks later Oklahoma Mortgage assigned the note, mortgage, and loan guaranty certificate to respondent Home Savings and Loan Association of Lawton, Oklahoma. However, Oklahoma Mortgage continued as service agent for respondent in connection with the mortgage. App. A, infra, 2a; App. C, infra, 31a. Within a few years the Durhams defaulted on their mortgage payments, and on July 12, 1974, respondent began foreclosure proceedings. A foreclosure judgment was entered in Oklahoma state court on December 6, 1974. On January 28, 1975, there was a foreclosure sale of the property, at which respondent bid $30,000 -- the amount the VA had specified pursuant to 38 C.F.R. 36.4320(a)(1). Respondent then elected to convey the property to the VA pursuant to 38 C.F.R. 36.4320(g). On February 24, 1975, a sheriff's deed to the property was recorded in the name of the Administrator, and on April 4, 1975, the VA paid respondent $30,000. After making repairs, the VA on April 16, 1975, conveyed the property to third parties for the price of $31,000. App. A, infra, 2a; App. C, infra, 32a-33a. Meanwhile, on approximately February 24, 1975 (the day the sheriff's deed to the property was recorded in the name of the Administrator), Oklahoma Mortgage informed the VA that it had received information that the signatures of Zelma Durham on the note and mortgage might be forgeries. The VA began an investigation, but did not inform respondent of the allegation of forgery. App. A, infra, 2a-3a; App. C, infra, 32a-33a. On October 16, 1975, the VA paid respondent $6,733.19 pursuant to the guaranty, based on respondent's claim for losses incurred in connection with the default. /2/ Around this time, the VA investigation confirmed that Mrs. Durham's signatures on the note and mortgage were in fact forgeries. On October 28, 1975, the VA asked respondent to return the $6,733.19 payment, and respondent complied by sending a check for that amount to the VA. The VA then requested that respondent remit an additional $1,055.46 plus interest, representing losses (including sales expenses) the VA had incurred in selling the property to third parties. Respondent refused to pay the additional amount, and the VA subsequently recovered the sum through an offset against other VA funds due to respondent. App. A, infra, 2a-3a; App. C, infra, 33a-34a. 3. Respondent brought this suit against the Administrator, Oklahoma Mortgage Company (the original lender and subsequently the service agent), and the American First Title and Trust Company (the company that had issued a title insurance policy to Oklahoma Mortgage that apparently covered loss from forgery). /3/ Respondent sought primarily to enforce the alleged liability of the VA on the loan guaranty certificate. In August 1979, the United States District Court for the Western District of Oklahoma (Eubanks, J.) denied cross-motions for summary judgment, stating, inter alia, that "(t)he court does not believe that the (VA's forgery) defense is barred by any estoppel theory" (App. E, infra, 41a). On June 11, 1980, the district court (West, J.) held a hearing, at which Mrs. Durham testified that her signatures had been forged. However, respondent again contended that the VA should be estopped from raising forgery as a defense to its liability on the guaranty, on the ground that the agency knew about the possibility of forgery when it accepted conveyance of the property and resold it. App. C, infra, 30a, 34a-35a. The district court held that the VA was estopped from asserting forgery as a defense to liability on the guaranty (App. C, infra, 30a-37a). The court announced that the government could be estopped when necessary to prevent injustice to private parties who had relied to their detriment on a government agency's statements or conduct, so long as there was no impairment of "the public's interests" (id. at 35a). The court found the elements of estoppel to be "clearly satisfied," observing that the VA had purchased and sold the property without notifying respondent of the alleged forgery and, by conveying the property to third parties, "effectively precluded (respondent) from making itself whole by retaining the property and possibly reselling at a higher price" (id. at 36a). The court concluded that the public policy of the United States would not be frustrated by directing the VA to honor the guaranty, since the VA had an "independent right of indemnity" under the statute (id. at 36a-37a). /4/ The court entered judgment for respondent against the Administrator in the amount of $7,838.13, the total of the two sums the VA had recovered from respondent. The judgment recited that no liability was found concerning American First Title and Trust Company and Oklahoma Mortgage Company. App. D, infra, 38a. 4. A divided panel of the court of appeals affirmed (App. A, infra, 1a-26a). The court of appeals recognized that this Court has declined on numerous occasions to apply the doctrine of equitable estoppel to prevent the government from enforcing statutes or regulations. However, the court of appeals purported to distinguish those decisions on various grounds, concluding that none of them "present(s) facts having any similarity to those here" (id. at 3a). The court characterized the VA's acceptance of the sheriff's deed and its subsequent payment of $30,000 to respondent as "affirmative actions" on which respondent was "entitled to rely" (id. at 7a). In the court's view, respondent was entitled to treat the transaction as an accomplished fact, and when the VA verified months later that the signatures were forged, "it was too late to unravel the yarn" (ibid.). Like the district court, the court of appeals concluded that estoppel would not harm the fiscal policies of the United States, since the VA had recourse against the borrowing veteran (ibid.). /5/ The court of appeals rejected the government's contention that respondent could not have relied on the VA's failure to disclose the possibility of forgery. The court characterized as "speculative" respondent's claim that it could have sold the property at a profit if it had retained it (App. A, infra, 7a). However, the court concluded that the VA's affirmative acts from the time of the foreclosure suit until after the guaranty payment "led (respondent) to rely on its compliance with VA regulations" and "were inconsistent with denial of the validity of the original loan transaction" (id. at 8a). Judge McKay dissented (App. A, infra, 9a-26a). He concluded that the majority's attempts to distinguish past decisions of this Court declining to estop the government "will prove to be chimerical rather than precedential and will introduce new contradictions into an already confused area of law" (id. at 9a). Judge McKay disputed what he perceived as the majority's attempt to distinguish respondent's claim on the ground that it involved a "commercial transaction" (id. at 14a-16a). He found that the VA loan guaranty program was more in the nature of a subsidy than a commercial transaction and that in any event this Court in FCIC v. Merrill, 332 U.S. 380 (1947), had rejected the view that the government has the status only of a private litigant when it engages in commercial activities. In Judge McKay's view, respondent had not established even the preliminary elements of estoppel (including those elements that would be necessary to estop a private party), since it had not shown the existence of misleading conduct that induced reasonable detrimental reliance (see App. A, infra, 17a-18a). Judge McKay was unable to identify any legally imposed duty, or even a good faith obligation, that would require the VA to notify loan guaranty holders when the agency receives an allegation of forgery (id. at 24a). Even assuming there were such a duty of disclosure, Judge McKay determined that the VA's silence here could not have been misleading, since respondent apparently had elected to convey the property before the agency received the forgery allegation (id. at 24a-25a). Because he concluded that the VA had not engaged in misleading conduct, Judge McKay found it unnecessary to reach the questions whether respondent's reliance was reasonable, whether it resulted in any detriment, and whether there were other considerations suggesting that the court should withhold the exercise of its equitable powers (id. at 26a). /6/ The court of appeals denied the Administrator's petition for rehearing with suggestion for rehearing en banc, Judges McKay, Logan, and Seymour dissenting (App. B, infra, 27a-29a). REASONS FOR GRANTING THE PETITION Despite this Court's recent decisions reaffirming the principle that the government may rarely, if ever, be equitably estopped from enforcing a valid statute or regulation, the lower courts continue to disregard that principle and to distinguish the Court's decisions on any available ground. /7/ Here the court of appeals concluded that this Court's decisions did not govern, simply because the facts of this case differ from those presented by previous estoppel cases. It went on to hold that the Administrator of Veterans' Affairs is estopped from asserting a longstanding statutorily authorized defense to liability on a home loan guaranty under circumstances that would not even warrant estoppel of a private party. The court of appeals' ruling cannot be reconciled with the unbroken line of this Court's decisions establishing that the government may not be estopped, at least in the absence of serious affirmative misconduct. See, e.g., INS v. Miranda, No. 82-29 (Nov. 8, 1982); Schweiker v. Hansen, 450 U.S. 785 (1981); INS v. Hibi, 414 U.S. 5, 8 (1973); Montana v. Kennedy, 366 U.S. 308, 314-315 (1961); FCIC v. Merrill, 332 U.S. 380 (1947). In particular, the decision conflicts with this Court's repeated instruction to the lower courts not to use estoppel as a means of circumventing statutorily authorized restrictions on payments from the federal treasury. See Schweiker v. Hansen, supra, 450 U.S. at 788, quoting FCIC v. Merrill, supra, 332 U.S. at 385. For this reason, and because the decision of the court of appeals threatens the sound administration of the VA home loan guaranty program, as well as other federal programs, by preventing recovery of substantial sums of money owed to the government, review by this Court is warranted. 1. a. This Court has repeatedly and consistently held that the government may not be equitably estopped from enforcing the laws, even though private parties may, as a result, suffer hardship in particular cases. See, e.g., Lee v. Munroe & Thornton, 11 U.S. (7 Cranch) 366, 369-370 (1813); Hart v. United States, 95 U.S. 316, 318-319 (1877); Pine River Logging Co. v. United States, 186 U.S. 279, 291 (1902); Utah Power & Light Co. v. United States, 243 U.S. 389, 408-409 (1917); Sutton v. United States, 256 U.S. 575, 579 (1921); Utah v. United States, 284 U.S. 534, 545-546 (1932); Wilber National Bank v. United States, 294 U.S. 120, 123-124 (1935); United States v. Stewart, 311 U.S. 60, 70 (1940); FCIC v. Merrill, supra, 332 U.S. at 384; Automobile Club v. Commissioner, 353 U.S. 180, 183 (1957); Montana v. Kennedy, supra, 366 U.S. at 314-315; INS v. Hibi, supra, 414 U.S. at 8; Schweiker v. Hansen, supra; INS v. Miranda, supra. Indeed, we know of no decision of this Court holding that estoppel lies against the government in any circumstance. /8/ This rule is founded on the doctrines of sovereign immunity and separation of powers. See, e.g., United States v. Testan, 424 U.S. 392, 399 (1976); Dixon v. United States, 381 U.S. 68, 73 (1965); Snyder v. Buck, 340 U.S. 15, 19 (1950); United States v. San Francisco, 310 U.S. 16, 29-32 (1940). The actions of government employees cannot alter the terms and conditions for the payment of money from the federal treasury that are established by statute or regulation. By the same token, if the judiciary were free to impose otherwise unauthorized liability on the government based simply on its notions of equity, the government would be virtually powerless to control and protect the public fisc. Congress has expressly authorized the Administrator to promulgate regulations establishing defenses to liability on a guaranty. 38 U.S.C. (Supp. V) 210(c)(1) and 1821. The regulation providing that the VA shall not be liable on a guaranty if a signature on loan papers is a forgery, 38 C.F.R. 36.4325(a), was first promulgated by the Administrator in 1946 and was approved by Congress when it enacted what is now Section 1821 several years later. /9/ The court of appeals did not suggest that this regulation exceeds the Administrator's powers or is otherwise invalid. By the same token, there is no dispute that Mrs. Durham's signatures on the mortgage and note were forgeries. Thus, the VA was not liable on its guaranty under the terms of the regulation. The decision of the court of appeals that the Administrator should be estopped from recovering payments made in connection with the guaranty disregards a longstanding congressionally authorized limitation on the government's liability and permits unwarranted incursions on the federal treasury. /10/ b. The court of appeals concluded that the Administrator should be estopped from recovering funds expended contrary to the regulation because the VA failed promptly to disclose to respondent that it had received an allegation of forgery and because it took "affirmative actions" on which (in the court's view) respondent was entitled to rely, including acceptance of the sheriff's deed on the day the agency learned of the forgery and subsequent payment of $30,000 to respondent in exchange for conveyance of the property (App. A, infra, 7a). But this Court's decisions plainly establish that estoppel is not warranted by either the VA's conduct or any "reliance" by respondent on that conduct. /11/ Although this Court has indicated that serious affirmative misconduct might warrant an exception to the rule against estopping the government (see page 11, note 8, supra), neither the district court nor the court of appeals purported to find that the VA engaged in any "affirmative misconduct" in this case. The court of appeals concluded only that the VA had failed to disclose the allegation of forgery and that it had taken certain "affirmative actions" in connection with the guaranty. In the absence of any finding of serious affirmative misconduct, there can be no question that the courts below erred in estopping the government. See INS v. Miranda, supra, slip op. 3, 5. Moreover, it is clear that the VA's actions cannot be characterized as misconduct at all. The record does not show, and the district court did not find, that the VA made any misrepresentation of fact or law. As Judge McKay observed (App. A, infra, 23a-24a), the VA has no legal duty to disclose an allegation of forgery. Nor is there any basis for imputing a good faith duty of disclosure to the VA, particularly in the period before the allegation was confirmed through investigation. /12/ In addition, there is no binding requirement that the VA stop all action in connection with a guaranty whenever it suspects forgery. /13/ Thus, nothing the VA did or omitted to do in this case can be described as misconduct. This alone is sufficient to require reversal of the decision below. Estoppel also is improper for the independent reason that there is a complete absence of any showing that respondent reasonably relied to its detriment on the VA's failure to disclose the possibility of forgery or on its actions in connection with the guaranty. The VA's longstanding regulation put respondent on notice that the agency would not be liable on its guaranty if it were discovered that a signature on the loan papers had been forged. By the time respondent received the assignment of the Durham mortgage, the Administrator had for many years interpreted the VA regulation to permit the agency to recover sums already paid out on a guaranty following proof of forgery. See page 13, note 9, supra. Thus, respondent -- an experienced financial institution unquestionably familiar with VA-guaranteed mortgages -- could not have harbored any reasonable expectation that it would be able to recover on the guaranty or retain payments already made if forgery were discovered. /14/ Finally, even if respondent reasonably could have relied on the VA's actions, it offered no evidence that it suffered detriment as a result. As Judge McKay observed (App. A, infra, 24a-26a), respondent already had elected to convey the property to the VA by the time the agency was informed of the allegation of forgery. /15/ There is no reason to believe that respondent would have revoked its election or compelled return of the property if the VA had informed it of the allegation at the earliest possible time. And even if respondent could have obtained the return of the property, there was no proof that respondent would have been able to sell it for a higher price than respondent received from the VA (id. at 7a, 26a n.21). /16/ Thus, to the extent respondent may have "relied" on the VA's actions, it did not suffer any tangible detriment as a result. In such circumstances, even estoppel against a private party would be entirely inappropriate. This case illustrates well the lengths to which the lower courts have gone to avoid the principles set out in this Court's estoppel rulings. The courts below were willing to estop the government in a case that not only does not involve any government misconduct or reasonable detrimental reliance by the private party, but also lacks any real suggestion of unfairness to the private party. The basic question in this case is which party should bear the risk of loss resulting from forgery and default committed by third parties. Despite the facts that a longstanding, statutorily authorized, published regulation expressly relieves the government of liability and that respondent -- a sophisticated financial institution -- was in a position to avoid the risk of loss from forgery (e.g., by agreement with the original lender or perhaps through purchase of insurance), the courts below found that the government nevertheless should bear the loss. The readiness of the lower courts to impose unauthorized financial liability on the government under the rubric of estoppel is directly contrary to the teachings of this Court's decisions. 2. The estoppel issue presented by this case is important. The court of appeals' suggestion that payments, or other "affirmative actions," by a government agency suffice to estop the government from recovering erroneous payments (or, in the words of the court of appeals (App. A, infra, 7a), prevent an agency from "unravel(ing) the yarn") threatens to interfere with the smooth workings of numerous federal programs. Congress has created many funding programs involving grants, loans, guaranties, and other forms of financial assistance. The size and complexity of these programs make it inevitable that agencies sometimes will approve erroneous payments, and agencies are constantly in the process of conducting audits or investigations to determine whether various payments are proper. In the VA home loan guaranty program alone, there have been more than 500 investigations per year over the last few years. During such investigations agencies frequently take steps that could be characterized as "affirmative actions," such as payment, processing of an application, or some other activity that could lead beneficiaries to expect that they may receive or retain benefits. If the government could be estopped from recovering payments that are found to be inconsistent with a statute or regulation whenever it has taken such "affirmative actions," there would be a significant impact on the federal treasury. By the same token, if agencies were to withhold payments or other actions whenever an allegation of impropriety surfaced, the result would harm program participants such as respondent, who might face substantial delays in recovering payments to which they are entitled. As we have noted (see page 10, note 7), the decision below is not the only recent case in which the lower courts have disregarded this Court's estoppel rulings. In Heckler v. Community Health Services, No. 83-56 (filed July 14, 1983), we are seeking review of a decision of the United States Court of Appeals for the Third Circuit holding that the Secretary of Health and Human Services is estopped from recovering excess payments made to a provider of health care services under the Medicare program. Like Community Health Services, this case raises the question of estopping a federal agency from recovering payments made in contravention of a valid statute and regulation. The majority in this case purported to find an absence of guidance in this Court's estoppel decisions (App. A, infra, 3a), while Judge McKay characterized the subject of equitable estoppel of the government as a "confused area of law" (id. at 9a). If the Court grants certiorari in Community Health Services, it may well clarify the principles that confused the court below. Accordingly, we believe it would be appropriate for the Court to hold this case pending the disposition of Community Health Services. /17/ CONCLUSION The petition for a writ of certiorari should be held pending disposition of the petition in Heckler v. Community Health Services, No. 83-56, and then disposed of as appropriate. Respectfully submitted. REX E. LEE Solicitor General J. PAUL McGRATH Assistant Attorney General KENNETH S. GELLER Deputy Solicitor General CAROLYN F. CORWIN Assistant to the Solicitor General WILLIAM KANTER RICHARD A. OLDERMAN BRUCE G. FORREST Attorneys AUGUST 1983 /1/ 38 U.S.C. (Supp. V) 210(c)(1) provides that "(t)he Administrator has authority to make all rules and regulations which are necessary or appropriate to carry out the laws administered by the Veterans' Administration and are consistent therewith * * *." 38 U.S.C. 1821 provides: Any evidence of guaranty or insurance issued by the Administrator shall be conclusive evidence of the eligibility of the loan for guaranty or insurance under the provisions of this chapter and of the amount of such guaranty or insurance. Nothing in this section shall preclude the Administrator from establishing, as against the original lender, defenses based on fraud or material misrepresentation. The Administrator shall not, by reason of anything contained in this section, be barred from establishing, by regulations in force at the date of such issuance or disbursement, whichever is the earlier, partial defenses to the amount payable on the guaranty or insurance. /2/ The payment may have been made to respondent because of a breakdown in communication between the section of the VA that is responsible for investigation of forgeries and the section responsible for payment of claims. June 11, 1980, Tr. 72. /3/ Respondent originally filed its suit in Oklahoma state court in 1976, naming only American First Title and Trust and Oklahoma Mortgage as defendants. In 1978, respondent added the Administrator as a defendant. The Administrator then removed the action to the United States District Court for the Western District of Oklahoma. App. C, infra, 34a. /4/ The district court appears to have been referring to the possibility that the VA could recover its loss on the guaranty from the veteran who had obtained the loan. See 38 C.F.R. 36.4323(e); United States v. Shimer, supra, 367 U.S. at 386-388. /5/ The court of appeals erroneously stated (App. A, infra, 6a) that the parties agreed that the district court had correctly articulated the test for estoppel. The government's supplemental brief in the court of appeals made clear that it is the government's position that principles of equitable estoppel have no application to the United States and that the district court erred in applying to the government the test for estoppel that is applicable to private parties. /6/ Judge McKay noted, however, that he agreed with the majority that respondent's claim of detriment was speculative, since respondent had introduced no evidence that it could have sold the property for more than it received from the VA (App. A, infra, 26a n.21). /7/ See, e.g., Community Health Services v. Califano, 698 F.2d 615 (3d Cir. 1983), petition for cert. pending, No. 83-56 (filed July 14, 1983); Portmann v. United States, 674 F.2d 1155 (7th Cir. 1982); Meister Bros. v. Macy, 674 F.2d 1174 (7th Cir. 1982); McDonald v. Schweiker, 537 F. Supp. 47 (N.D. Ind. 1981); Armstrong v. United States, 516 F. Supp. 1252 (D. Colo. 1981). /8/ In several cases the Court has declined to determine whether the government may be estopped in instances involving serious affirmative misconduct. See, e.g., INS v. Miranda, supra, slip op. 3; Schweiker v. Hansen, supra, 450 U.S. at 788. However, the Court has never identified a case in which the facts established such misconduct. /9/ The VA home loan guaranty program was established by the Servicemen's Readjustment Act of 1944, ch. 268, 58 Stat. 284, 291. In 1945, Congress substantially liberalized the loan guaranty provisions. Ch. 588, 59 Stat. 623, 626; H.R. Conf. Rep. No. 1449, 79th Cong., 1st Sess. 14-17 (1945). Within a few months of the 1945 amendment, the Administrator promulgated the regulation establishing forgery as a defense to VA liability on a guaranty. See 11 Fed. Reg. 2119, 2123 (1946). When Congress in 1948 enacted what is now 38 U.S.C. 1821, which expressly referred to the Administrator's authority to promulgate regulations establishing defenses to liability on guaranties, it indicated its approval of regulations then in effect. In describing the new provision of the statute, the Senate Report stated: "Defenses based upon fraud or material misrepresentation of the holder, or upon regulations of the Veterans' Administration in force on the date of issuance of the guaranty or disbursement of the loan, are reserved." S. Rep. No. 1701, 80th Cong., 2d Sess. 2 (1948). The regulation establishing the defense of forgery has continued virtually unchanged through the reenactment of Title 38 of the United States Code in 1958 (Pub. L. No. 85-857, 72 Stat. 1105) to the present. The Administrator has consistently interpreted 38 C.F.R. 36.4325(a) to authorize recovery by the VA after payment, as well as refusal to make a payment in the first place. See Mt. Vernon Cooperative Bank v. Gleason, 367 F.2d 289, 292 (1st Cir. 1966). The defense of forgery applies against assignees as well as against the original lender. See Century Federal Savings & Loan Ass'n v. Roudebush, 618 F.2d 969 (2d Cir. 1980). /10/ The courts below concluded that estoppel of the VA in this case would not harm the federal treasury because the agency could always attempt to recover from the veteran borrower (App. A, infra, 7a; App. C, infra, 36a-37a). However, such attempts at recovery in themselves may be costly, and it is uncertain whether the VA would be able to recover from a borrower who recently defaulted on mortgage payments. The courts below did not explain why they believed it appropriate to impose the burden and risk of attempting to recover from the veteran borrower on the VA, rather than on the original lender, the assignee of the mortgage, or the company that issued the insurance policy in connection with the mortgage. In fact, Congress has delegated to the Administrator, not to the courts, the task of deciding whether the government or the holder of the guaranty should bear the risks associated with events such as forgery. Congress clearly did not require the Administrator to bear all possible risks in connection with a home loan guaranteed by the VA. See United States v. Shimer, supra, 367 U.S. at 382-383. /11/ To the extent the majority relied on a purported exception to the general rule against estopping the government in the case of "commercial transactions" (see App. A, infra, 5a-6a), it erred, as Judge McKay pointed out (id. at 14a-16a). This Court firmly rejected such an exception in FCIC v. Merrill, supra, stating that an undertaking by the federal government "is not an ordinary commercial undertaking," even when the government engages in an activity such as providing insurance. 332 U.S. at 383 n.1. The majority did not mention any relevant feature of the VA loan guaranty program that would distinguish it for these purposes from the crop insurance program at issue in Merrill. Moreover, as this Court has noted, "(o)ur country has a long standing policy of compensating veterans for their past contributions by providing them with numerous advantages." Regan v. Taxation With Representation, No. 81-2338 (May 23, 1983), slip op. 10. As Judge McKay observed (App. A, infra, 14a-15a), the loan guaranty program is more like a subsidy than an ordinary commercial transaction. /12/ Indeed, if there were any good faith duty to disclose the allegation of forgery, it belonged to Oklahoma Mortgage Company, which originally received the information suggesting forgery and transmitted that information to the VA. Oklahoma Mortgage, the original lender, continued to act as service agent after it assigned the mortgage to respondent (App. C, infra, 31a). It is unclear from the record whether Oklahoma Mortgage in fact notified respondent of the allegation of forgery and, if not, why it failed to do so. See App. A, infra, 3a. /13/ Internal VA guidelines, found in Department of Veterans Benefits Manual M 26-4, Paragraph 2.06(e) (Jan. 20, 1975), indicate that if the VA receives information suggesting a forgery, it should stop all activity in connection with the property (including payment for transfer of the property or payment of any claim on the guaranty) until a determination has been made concerning liability under the guaranty or until review by the VA Central Office. The VA's failure to adhere to these procedures was not cited by the courts below and would not warrant estoppel in any event. See Schweiker v. Hansen, supra, 450 U.S. at 789-790; cf. United States v. Caceres, 440 U.S. 741, 755-756 (1979). Moreover, VA compliance with the guidelines would not necessarily have benefited respondent. Under the guidelines, if the property had not been acquired at the time the VA learned of a possible forgery the agency would both have retained custody of the property and withheld all payments pending resolution of the forgery allegation. The courts below appear to suggest at several points that the VA may have acted in violation of some of its published regulations. See App. A, infra, 6a, 8a; App. C, infra, 35a. Those suggestions apparently are based on a misleading of the cited regulations. /14/ See Woodstock/Kenosha Health Center v. Schweiker, Nos. 82-2375 and 82-2435 (7th Cir. July 19, 1983), slip op. 9-10 (it is particularly inappropriate "to apply the * * * equitable (estoppel) doctrine to protect skilled professionals operating in their area of expertise with the government on an intimate and long-term basis"). /15/ The record does not show the precise date on which respondent elected to convey the property to the VA. However, VA regulations require a holder of a guaranty to make such an election within 15 days of the foreclosure sale. 38 C.F.R. 36.4320(a)(1). In this case, the foreclosure sale took place on January 28, 1975 (App. A, infra, 2a, 25a). Thus, respondent was required to make its election by February 12, 1975 -- almost two weeks before the VA was informed of the forgery allegation (id. at 25a). In fact, the sheriff's deed to the property may already have been recorded in the name of the Administrator by the time the VA learned of the possible forgery. The stipulation of facts entered into by the parties in the district court states (at Paragraph 11) that the sheriff's deed showing the Administrator as grantee of the property was recorded at 10:15 a.m. on February 24, 1975. The VA was notified of the allegation of forgery on "approximately the same date" (App. A, infra, 2a, 11a; App. C, infra, 32a). /16/ Apparently there was no bid higher than the $30,000 respondent offered at the sheriff's sale on January 28, 1975. /17/ We are providing counsel for respondent with a copy of our petition in Community Health Services. Appendix Omitted