DEPARTMENT OF DEFENSE
         DEFENSE OFFICE OF HEARINGS AND APPEALS
          
            
   
In the matter of: )
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---------------------------------- )       ISCR Case No. 10-06354
)
)
Applicant for Security Clearance )
Appearances
For Government: Jeff A. Nagel, Department Counsel
For Applicant: Jesse G. Quinsaat, Attorney At Law
May 16, 2011
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Decision
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LOKEY ANDERSON, Darlene D., Administrative Judge:
Applicant submitted her Electronic Questionnaires for Investigations Processing
(e-QIP) on April 15, 2010.  (Government Exhibit 1.)  On October 19, 2010, the Defense
Officef Hearings and Appeals (DOHA), pursuant to Executive Order 10865 and
Department of Defense Directive 5220.6 (Directive), dated January 2, 1992, (as
amended), issued a Statement of Reasons (SOR) to the Applicant, which detailed
reasons why DOHA could not make the preliminary affirmative finding under the
Directive that it is clearly consistent with the national interest to grant or continue a
security clearance for the Applicant and recommended referral to an Administrative
Judge to determine whether clearance should be denied or revoked.
The Applicant responded to the SOR on November 5, 2010, and she requested
an administrative hearing before a DOHA Administrative Judge.  This case was
assigned to the undersigned on January 4, 2011.  A notice of hearing was issued on
January 13, 2011, and the hearing was scheduled for February 16, 2011.  At the
hearing the Government presented six exhibits, referred to as Government Exhibits 1
through 6 that were admitted without objection.  The Applicant called one witness and
presented nine exhibits, referred to as Applicant’s Exhibits A through I that were
admitted without objection.  She also testified on her own behalf.  The Applicant
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requested that the record remain open to submit additional documentation.  The record
remained open until close of business on March 2, 2011.  The Applicant submitted one
Post-Hearing Exhibit consisting of five pages, referred to as Applicant’s Post-Hearing
Exhibit A.  The official transcript (Tr.) was received on February 23, 2011.  Based upon
a review of the pleadings, exhibits, and testimony, eligibility for access to classified
information is granted.
 FINDINGS OF FACT
The Applicant is 45 years old and married with three children.  She is employed
as a Receptionist with a defense contractor and is seeking to obtain a security
clearance in connection with her employment.
The Government opposes the Applicant's request for a security clearance, on the
basis of allegations set forth in the Statement of Reasons (SOR).  The following findings
of fact are entered as to each paragraph and guideline in the SOR:
Paragraph 1 (Guideline F - Financial Considerations)  The Government alleges that the
Applicant is ineligible for clearance because she is financially overextended and at risk
of having to engage in illegal acts to generate funds.      
The Applicant admits that she was indebted to the respective lenders for three
delinquent loans on real property that are set forth in the SOR.  Credit Reports of the
Applicant dated August 21, 2010; April 24, 2010; and February 13, 2011, collectively
reflect that the Applicant was indebted to these creditors.  (Government Exhibits 4, 5
and 6.)
In 2005, the Applicant and her husband entered into a purchase agreement to
buy a house for her husband’s brother, his wife and their son.  At the time, their family
members were gainfully employed, but they did not have the down payment or the
credit to buy the house on their own.  To assist them with the purchase of the house,
the Applicant and her husband qualified for the loan and put it in their name.  The
Applicant’s in-laws were to live in the house and make the mortgage payments.  For
four years, the Applicant’s in-laws made the house payments without problems.  In
2007, the loan was refinanced.  In about July or August 2009, the in-laws decided they
could no longer afford the house.  In an effort to save her credit, the Applicant applied
for a loan modification, but was unsuccessful.  
The Applicant was indebted to two lending institutions for the first and second
mortgages on the property. The house was eventually placed for short sale and the
process was finalized in October 2009.  (Tr. p. 37.) The mortgage loans for this property
set forth in allegations 1(b) and 1(c) of the SOR have been settled.  See, letter from
lender referencing loan No. 567020988 that has been paid in full.  (Applicant’s Exhibit
A.)  See, a Form 1099 C from a lender which indicates that the loan No. 22435480 has
been cancelled.  (Applicant’s Exhibit B.)  See, letter from lender indicating that the loan
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for loan No. 22435480 may be cancelled for less than full value.  (Applicant’s Exhibit C.)
Furthermore, Applicant’s credit report dated February 1, 2011, reflects that the loans
have been settled.  (Applicant’s Exhibit D, pp. 7 and 8.)     
In July 2005, the Applicant and her husband purchased another investment
house, in conjunction with her husband’s other brother.  Both parties contributed 50% to
the purchase price and they divided the expenses equally.  The purchase price for the
house was $288,000.  They put a down payment of $30,000.  The loan was financed
through one lender and sold to a bank.  The payments were $1,645.00 monthly.
(Applicant’s Exhibit E.)  The loan was an interest only loan for five years, and they
intended to sell the property after four years.  At that time, all the parties felt that buying
the house was a good deal.  The first year, the house was used as a vacation home for
the family.  After that, they rented it to help cover the cost of the monthly mortgage
payments.  By 2009, the real estate market had plummeted, the market price of the
house had fallen considerably, and it was difficult to find tenants that would pay the rent.
The Applicant hired a rental management company to help find a suitable tenant, but
problems continued.  The tenants stopped paying the rent, vandalized the house, and
the Applicant was forced to evict them.  The Applicant cleaned and repaired the house
for new tenants.  Her in-laws decided that they could no longer afford to help pay the
mortgage.  
In an effort to save the house and her credit, the Applicant applied for a loan
modification, but was unsuccessful.  She then hired a realtor and arranged for a short
sale.  There was an all cash buyer, willing to pay $104,000 for the property, but the
bank failed to approve the short sale and the property was eventually foreclosed upon.
The property is currently listed for $94,500.00.  
At one point, the mortgage was past due in the amount of $21,941.00.  The total
loan balance owed on the loan was $260,000.  The mortgage loan for this property is
set forth in allegation 1(a) of the SOR.  Applicant has submitted a copy of a Form
1099-A from the lender.  (Applicant’s Post-Hearing Exhibit A.)  Box 4 of the Form
indicates that the fair market value of the property as stated by the lender is
$285,072.18.  Applicant argues that this establishes that there is no deficiency amount
potentially owed to the lender on the property since the lenders have indicated the fair
market value is greater than the amount owed.  If the fair market value is less and the
debt is cancelled, the debtor may have cancellation of debt income.  In this case, there
is no taxable income.  (See, Applicant’s Post-Hearing Exhibit A.)  The Government has
submitted no evidence to the contrary.      
In 2008, the Applicant’s husband retired from the Navy and their monthly income
decreased.  The Applicant no longer has the obligation of paying either mortgage on the
investment properties.  The Applicant has set up a monthly budget that she is following,
and she is current with all of her other financial obligations.  (Applicant’s Exhibit G.)  Her
current credit rating is relatively high.  (Applicant’s Exhibit D.)  She lives within her
means, is current with the mortgage on her personal residence, and has no intention of
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investing in any other real estate, or purchasing property with family members in the
future.  (Tr. p. 58.)        
 Applicant’s supervisor for the past eight years testified that Applicant’s work
product is excellent, she is honest, trustworthy and loyal.  If at any time she observes
someone violating company policy, she reports it.  (Tr. pp. 83-90)
A letter of recommendation from a Major on active duty in the Marine Corps
indicates that he has interacted with the Applicant in a professional capacity at work and
considers her trustworthy and reliable.  (Applicant’s Exhibit H.)
A letter from the real estate agent who was retained to attempt to short sell the
Applicant’s property describes the great lengths the Applicant went to in order to
prevent foreclosure.  (Applicant’s Exhibit F.)
POLICIES
Enclosure 2 of the Directive sets forth adjudication policies divided into
"Disqualifying Factors" and "Mitigating Factors."  The following Disqualifying Factors
and Mitigating Factors are found to be applicable in this case:
Guideline F (Financial Considerations)
18.  The Concern.  Failure or inability to live within one’s means, satisfy debts, and 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.  An individual who
is financially overextended is at risk of having to engage in illegal acts to generate
funds. 
Conditions that could raise a security concern:
19.(a) inability or unwillingness to satisfy debts; and, 
19.(c) a history of not meeting financial obligation. 
Conditions that could mitigate security concerns:
20.(b) the conditions that resulted in the financial problem were largely beyond
the person’s control (e.g., loss of employment, a business downturn, unexpected
medical emergency, or a death, divorce or separation), and the individual acted
responsibly under the circumstances;
20.(c) the person has received or is receiving counseling for the problem and/or
there are clear indications that the problem is being resolved or is under control; and,
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20.(d) the individual initiated a good-faith effort to repay overdue creditors or
otherwise resolve debts.
In addition, as set forth in Enclosure 2 of the Directive at pages 18-19,  in
evaluating the relevance of an individual’s conduct, the Administrative Judge should
consider the following general factors:
a.  The nature, extent, and seriousness of the conduct and surrounding
circumstances;
     b.  The circumstances surrounding the conduct, to include knowledgeable
participation;
c.  The frequency and recency of the conduct;
d.  The individual’s age and maturity at the time of the conduct;
e.  The extent to which participation is voluntary;
f.  The presence or absence of rehabilitation and other permanent behavior
changes;
g.  The motivation for the conduct; 
h. The potential for pressure, coercion, exploitation or duress; and
 i.  The likelihood of continuation or recurrence.
The eligibility criteria established in the DoD Directive identify personal
characteristics and conduct which are reasonably related to the ultimate question,
posed in Section 2 of Executive Order 10865, of whether it is “clearly consistent with the
national interest” to grant an Applicant’s request for access to classified information.
The DoD Directive states, “The adjudicative process is an examination of a
sufficient period of a person’s life to make an affirmative determination that the person is
an acceptable security risk.  Eligibility for access to classified information is predicated
upon the individual meeting these personnel security guidelines.  The adjudicative
process is the careful weighing of a number of variables known as the whole-person
concept.  Available, reliable information about the person, past and present, favorable
and unfavorable should be considered in reaching a determination.”  The Administrative
Judge can draw only those inferences or conclusions that have reasonable and logical
basis in the evidence of record.  The Judge cannot draw inferences or conclusions
based on evidence which is speculative or conjectural in nature.  Finally, as emphasized
by President Eisenhower in Executive Order 10865, “Any determination under this order
. . . shall be a determination in terms of the national interest and shall in no sense be a
determination as to the loyalty of the Applicant concerned.”
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CONCLUSIONS
In the defense industry, the security of classified industrial secrets is entrusted to
civilian workers who must be counted upon to safeguard such sensitive information
twenty-four hours per day, seven days per week.  The Government is therefore
appropriately concerned when available information indicates that an Applicant for
clearance may be involved in instances of financial irresponsibility, which demonstrates
poor judgment or unreliability.
It is the Government’s responsibility to present substantial evidence to support
the finding of a nexus, or rational connection, between the Applicant’s conduct and the
holding of a security clearance.  If such a case has been established, the burden then
shifts to the Applicant to go forward with evidence in rebuttal, explanation or mitigation,
which is sufficient to overcome or outweigh the Government’s case.  The Applicant
bears the ultimate burden of persuasion in proving that it is clearly consistent with the
national interest to grant him or her a security clearance.
In this case the Government has met its initial burden of proving that the
Applicant has been financially irresponsible (Guideline F).  This evidence indicates poor
judgment, unreliability and untrustworthiness on the part of the Applicant.  Because of
the scope and nature of the Applicant's conduct, I conclude there is a nexus or
connection with her security clearance eligibility.
The evidence shows that circumstances largely beyond the Applicant’s control,
namely, a drastic downturn in the real estate market, coupled with poor decisions to
cosign on a mortgage loan for relatives and invest in real property with them, caused
her financial indebtedness.  The problems that surfaced were completely
unforeseeable, isolated and will not recur.  First and foremost, the Applicant has learned
never to engage in any real estate transactions with family members.  Secondly,
throughout the process, she was extremely diligent in doing her part to prevent
foreclosure.  When the Applicant learned that her relatives could no longer afford the
mortgage, she tried to get the loan modified, and when she could not, she hired a
realtor to sell the house.  She put in considerable effort to sell the property through short
sale.  The Applicant acted responsibly and with integrity under the circumstances.  In
regard to the foreclosed property, the Applicant did everything she possibly could to
avoid foreclosure on the property.  She tried to short sale the property but the bank did
not want to negociate.  She did the best she could under the circumstances.  She has
done as much as is humanly possible to resolve her financial problems. 
Under the particular circumstance of this case, the Applicant has made a good
faith effort to resolve her past due indebtedness.  She has a stellar record
demonstrating that she has always paid her bills on time.  But for her short sale and
foreclosure, her record is unblemished.  She understands the importance of paying her
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bills on time and living within her means.  She also knows that he must remain fiscally
responsible in the future.  There is sufficient evidence of financial rehabilitation.  The
Applicant has demonstrated that she can properly handle her financial affairs and that
she is fiscally responsible.  Considering all of the evidence, the Applicant has introduced
persuasive evidence in rebuttal, explanation or mitigation that is sufficient to overcome
the Government's case. 
Under Guideline F (Financial Considerations), Disqualifying Conditions 19.(a)
inability or unwillingness to satisfy debts; and 19.(c) a history of not meeting financial
obligation apply.  However, Mitigating Conditions 20.(b) the conditions that resulted in
the financial problem were largely beyond the person’s control (e.g., loss of
employment, a business downturn, unexpected medical emergency, or a death, divorce
or separation), and the individual acted responsibly under the circumstances; 20.(c) the
person has received or is receiving counseling for the problem and/or there are clear
indications that the problem is being resolved or is under control; and, 20.(d) the
individual initiated a good-faith effort to repay overdue creditors or otherwise resolve
debts also apply.  Accordingly, I find for the Applicant under Guideline F (Financial
Considerations).    
I have also considered the “whole-person concept” in evaluating the Applicant’s
eligibility for access to classified information.  Under the particular facts of this case, the
totality of the conduct set forth above, when viewed under all of the guidelines as a
whole, support a whole-person assessment of good judgement, trustworthiness,
reliability, candor, and a  willingness to comply with rules and regulations, and/or other
characteristics indicating that the person may properly safeguard classified information.
  
I have considered all of the evidence presented, including the Applicant’s
favorable testimony, recommendations, and dedicated work history.  They mitigate the
negative effects of her financial indebtedness and the effects that it can have on her
ability to safeguard classified information.  On balance, it is concluded that the Applicant
has overcome the Government's case opposing her request for a security clearance.
Accordingly, the evidence supports a finding for the Applicant as to the factual and
conclusionary allegations expressed in Paragraph 1 of the SOR.   
     FORMAL FINDINGS
Formal findings For or Against the Applicant on the allegations in the SOR, as
required by Paragraph 25 of Enclosure 3 of the Directive are:
Paragraph 1: For the Applicant.
        Subpara.  1.a.: For the Applicant.
    Subpara.  1.b.: For the Applicant.
    Subpara.  1.c.: For the Applicant.
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  DECISION
In light of all the circumstances presented by the record in this case, it is clearly
consistent with the national interest to grant or continue a security clearance for the
Applicant.
  Darlene Lokey Anderson
Administrative Judge