KEYWORD: Guideline F
DIGEST: Reliance on the non-collectability of a debt does not constitute a good-faith effort to
resolve the debt within the meaning of the Directive.  The Judge decision did not take into
account record evidence which ran contrary to her favorable decision. Applicant presented little
corroboration for his claims to have been defrauded.  Nor did he demonstrate reasonable efforts
to resolve his delinquent debts including those unrelated to the alleged fraud.  Favorable decision
reversed.
CASENO: 07-16841.a1
DATE: 12/19/2008
DATE: December 19, 2008
In Re:
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Applicant for Security Clearance
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ISCR Case No. 07-16841
APPEAL BOARD DECISION
APPEARANCES
FOR GOVERNMENT
Gina L. Marine, Esq., Department Counsel
FOR APPLICANT
Pro Se
The Defense Office of Hearings and Appeals (DOHA) declined to grant Applicant a security
clearance.  On March 7, 2008, DOHA issued a statement of reasons (SOR) advising Applicant of
the basis for that decision–security concerns raised under Guideline F (Financial Considerations),
Guideline E (Personal Conduct), and Guideline J (Criminal Conduct) of Department of Defense
Directive 5220.6 (Jan. 2, 1992, as amended) (Directive).  Applicant requested a hearing.  On
September 12, 2008, after the hearing, Administrative Judge Mary E. Henry granted Applicant’s
request for a security clearance.  Department Counsel filed a timely appeal pursuant to Directive ¶¶
E3.1.28 and E3.1.30.
The Judge’s favorable decision under Guidelines E and J is not at issue in this appeal.  1
3
Department Counsel raised the following issues on appeal: whether the Judge erred in her
application of the Guideline F mitigating conditions and whether the Judge’s whole-person analysis
was erroneous.   Finding error, we reverse the decision of the Judge.1
Whether the Record Supports the Judge’s Factual Findings
A.  Facts
The Judge made the following pertinent findings of fact: Applicant owns and operates a
company which is a DoD contractor.  He started his business 30 years ago.  In 2005, a real estate
broker approached Applicant about purchasing rental property.  After discussing the matter with the
broker, Applicant agreed to buy 22 rental properties, consisting “primarily of single family homes.”
Decision at 4.  The broker orally promised to sell Applicant the properties at 10% below market
value.  He stated to Applicant that all the properties were rented and that Applicant would not have
any out-of-pocket expenses.  The broker also promised to make the down payments, pay all closing
costs, and cover any shortfall between the loan payments and the rental receipts for a period of one
year.  The broker obtained the services of an appraiser and of a mortgage broker, both of whom he
knew.  He obtained 100% financing for the houses, by means of a primary and secondary mortgage
on each.   
During the settlement process, Applicant learned that the properties were titled in the name
of the real estate broker’s wife.  At the final closings, the wife refused to sign the agreement through
which the real estate broker would pay the difference between the monthly mortgage and the rent
received on each property.  The real estate broker then refused to sign the agreement himself.
Applicant lacked the financial resources to pay the difference.
After settlement, Applicant hired an attorney to review the sale.  “The attorney found serious
irregularities in the overall transaction,” including that the purchase prices had been inflated; that the
properties were not all rented, contrary to representations by the broker; and that the real estate
broker had in the past filed for bankruptcy.  The attorney concluded that the broker, his wife, the
mortgage broker, and the appraiser had employed an elaborate scheme whereby they dumped “poorly
performing properties” on Applicant. Decision at 4.  Applicant was not able to meet the mortgage
obligations after the final closing.
Subsequently, Applicant’s attorney wrote to the lenders holding the mortgages on the homes,
advising them that the broker had refused to pay his promised share of the mortgage amounts.
Applicant offered to work out a financial resolution “to mitigate the damages caused [to] the
mortgage lenders and Applicant by the scheme.”  Decision at 4-5.  Through his attorney, Applicant
offered to pay the net rents on the properties to the lenders, to rent the vacant properties, to cooperate
with selling the properties, and to pursue claims against the broker and the other parties in question.
4
In exchange, Applicant requested that the lenders not “negatively impact” his credit rating.  Decision
at 5.
The lenders chose to foreclose on the properties, all of which had been sold as of the close
of the record.  “Three law firms advised Applicant that he would not be liable for any unpaid
mortgage debt following the sale of these properties under the state’s anti-deficiency statutes because
his loans were purchase money mortgages . . .  The lenders’ only recourse in this situation is to list
the debts on Applicant’s credit report.”  Decision at 5.  
Applicant’s subsequent credit reports show delinquent debt on two corporate credit cards and
on 18 mortgages, “many of which are second mortgages on the rental properties.  His other debts are
timely paid and 24 mortgages have a zero balance (some of these mortgages are related to his own
home.)”  Decision at 5.  Applicant owes a significant amount of money on these two cards.
“Because there are problems with fraudulent charges on the larger debt, the negotiations are not
complete.”  Decision at 5-6.  Applicant has filed complaints against the various parties with the State
Board of Appraisal, the Department of Real Estate, and the Department of Financial Institutions.
These complaints had not been resolved at the close of the record.  He has expressed an intent to sue
these parties in court, but lacks the resources to do so. 
B.  Discussion
The Appeal Board’s review of the Judge’s findings of facts is limited to determining if they
are supported by substantial evidence–“such relevant evidence as a reasonable mind might accept
as adequate to support a conclusion in light of all the contrary evidence in the same record.”
Directive  ¶ E3.1.32.1.  “This is something less than the weight of the evidence, and the possibility
of drawing two inconsistent conclusions from the evidence does not prevent an administrative
agency’s finding from being supported by substantial evidence.”  Consolo v. Federal Maritime
Comm’n, 383 U.S. 607, 620 (1966).  In evaluating the Judge’s findings, we are required to give
deference to the Judge’s credibility determinations.  Directive ¶ E3.1.32.1.
In her brief, Department Counsel argues that the Judge’s decision is not supported by
substantial record evidence.  The Board will address this concern in the discussion below. 
Whether the Record Supports the Judge’s Ultimate Conclusions
 A Judge is required to “examine the relevant data and articulate a satisfactory explanation
for” the decision, “including a ‘rational connection between the facts found and the choice made.’”
Motor Vehicle Mfrs. Ass’n of the United States v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
(1983)(quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)).  “The
general standard is that a clearance may be granted only when ‘clearly consistent with the interests
of the national security.’” Department of the Navy v. Egan, 484 U.S. 518, 528 (1988).  The Appeal
Board may reverse the Judge’s decision to grant, deny, or revoke a security clearance if it is arbitrary,
capricious, or contrary to law.  Directive ¶¶ E3.1.32.3 and E3.1.33.3.  
Directive ¶ E2.18.2
5
Once a concern arises regarding an Applicant’s security clearance eligibility, there is a strong
presumption against the grant or maintenance of a security clearance.  See Dorfmont v. Brown, 913
F. 2d 1399, 1401 (9  Cir. 1990), cert. denied, 499 U.S. 905 (1991).  After the Government presentsth
evidence raising security concerns, the burden shifts to the applicant to rebut or mitigate those
concerns.  See Directive ¶ E3.1.15.  “The application of disqualifying and mitigating conditions and
whole person factors does not turn simply on a finding that one or more of them apply to the
particular facts of a case.  Rather, their application requires the exercise of sound discretion in light
of the record evidence as a whole.”  See, e.g., ISCR Case No. 05-03635 at 3 (App. Bd. Dec. 20,
2006).
In deciding whether the Judge's rulings or conclusions are arbitrary or capricious, the Board
will review the Judge's decision to determine whether:  it does not examine relevant evidence; it fails
to articulate a satisfactory explanation for its conclusions, including a rational connection between
the facts found and the choice made; it does not consider relevant factors; it reflects a clear error of
judgment; it fails to consider an important aspect of the case; it offers an explanation for the decision
that runs contrary to the record evidence; or it is so implausible that it cannot be ascribed to a mere
difference of opinion.  In deciding whether the Judge's rulings or conclusions are contrary to law,
the Board will consider whether they are contrary to provisions of Executive Order 10865, the
Directive, or other applicable federal law.  See ISCR Case No. 03-22861 at 2-3 (App. Bd. Jun. 2,
2006).
The security concern under Guideline F is that an applicant’s failure to meet financial
obligations “may indicate poor self-control, lack of judgment, or unwillingness to abide by rules and
regulations, all of which can raise questions about an individual’s reliability, trustworthiness and
ability to protect classified information.”    Given the extent of Applicant’s financial problems, the2
Judge’s conclusion that Applicant’s case raises Guideline F security concerns is sustainable.  The
issue to be decided upon appeal is whether the Judge properly concluded that Applicant had met his
burden of persuasion as to mitigation.
Department Counsel argues that the Judge’s decision failed to address significant contrary
record evidence.  This argument is persuasive.  The Judge’s favorable decision relied, to a large
extent, on her findings that (1) the broker deceived Applicant into purchasing the houses and (2)  the
state’s anti-deficiency laws prevent a lender from collecting from a homeowner the difference
between the amount realized at a foreclosure sale and the remaining balance of the home loan.  On
the latter point, reliance on the non-collectability of a debt does not constitute a good-faith effort to
resolve that debt within the meaning of the Directive.  See, e.g., ISCR Case No. 07-09966 at 3 (App.
Bd. Jun. 25, 2008).
Moreover, in this case, the Judge’s decision did not take into account contrary record
evidence which is less favorable to Applicant.  The Board notes Applicant Exhibit G, a legal
memorandum from a law office representing Applicant in his real estate dispute.  The memorandum
Government Exhibit 2, Response to Interrogatories, which contains this memorandum as an attachment at p.3
16.
Tr. at 58.4
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acknowledged that state law forbade collecting deficiency judgments.  However, it went on to say,
“the magnitude of [Applicant’s] indebtedness on these transactions may cause the lenders to seek
some other theory on which to recover, such as misrepresentation or a scheme or artifice to defraud,
possibly alleging that [Applicant] and [the broker] collaborated in a scam designed to pay off the [the
broker’s] creditors by duping the present lenders . . . it does not seem likely that the anti-deficiency
statutes would prevent the banks from pursuing that type of claim which could result in a personal
judgment against [Applicant].”  AE G at 4.
Another memorandum, by a lawyer working for a different firm, contains similar language.
While acknowledging the general effect of anti-deficiency statutes, the memorandum goes on to say
that state case law does not conclusively resolve the question of whether such anti-deficiency statutes
relieve a homeowner of debt resulting from fraud.  “Clearly the lenders would be remiss if they failed
to argue that the anti-deficiency statues cannot be used as a shield to prevent recovery of damages
resulting from fraudulent conduct.”   While neither of these memoranda categorically state that3
Applicant actually engaged in fraudulent conduct, at the very least they undermine the Judge’s
finding that Applicant does not owe the banks for the unpaid balance of the mortgages.  However,
even assuming that Applicant did not knowingly participate in a scheme to defraud (Applicant
presented no independent corroborating evidence of his claims that the broker defrauded him.), the
record still raises serious questions about his judgment.  He was offered a business proposition
containing promises by the broker that would have prompted a reasonable person to inquire further
before committing to the deal.  This is especially true in light of record evidence of Applicant’s
extensive business experience.  However, he entered into legally enforceable agreements to purchase
these 22 houses without reducing to writing the broker’s promises to pay down-payments, closing
costs, and the shortfall between rents and amounts owed on the debts.  Neither is there record
evidence of efforts by Applicant to verify other representations made to him by the broker as to the
value of the houses, the extent to which they were actually rented, etc.  As an attorney testifying for
Applicant stated, “[I]f he had done a little more due diligence he wouldn’t have got in this jam.”  4
The Board has considered the entire record, including the matters which Applicant presented
in mitigation.  Applicant provided little corroboration for his claims of having been defrauded.
Neither did he demonstrate reasonable efforts to resolve his delinquent debts, including those
relating to his credit cards.  The Judge herself found that he did not provide evidence of a repayment
plan for the credit card debts.  The record as a whole does not demonstrate that Applicant’s
delinquent debts arose from causes outside his control or that he has taken steps to resolve the debts
sufficient to meet his burden under the Egan standard.  The Judge’s favorable security clearance
decision is not sustainable. 
 
7
Order
The Judge’s favorable security clearance decision is REVERSED.  
Signed: Jean E. Smallin             
Jean E. Smallin
Administrative Judge
Member, Appeal Board
Signed: William S. Fields            
William S. Fields
Administrative Judge
Member, Appeal Board
Signed: James E. Moody             
James E. Moody
Administrative Judge
Member, Appeal Board