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                           DEPARTMENT OF DEFENSE
         DEFENSE OFFICE OF HEARINGS AND APPEALS
          
            
In the matter of: )
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-------------------------- )       ISCR Case No. 10-03903
)
)
Applicant for Security Clearance )
Appearances
For Government: Jeff Nagel, Esquire, Department Counsel
For Applicant: Pro se
January 24, 2012
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Decision
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MOGUL, Martin H., Administrative Judge:
On June 6, 2011, the Defense Office of Hearings and Appeals (DOHA) issued a
Statement of Reasons (SOR) detailing the security concerns under Guideline F for
Applicant. The action was taken under Executive Order 10865, Safeguarding Classified
Information within Industry (February 20, 1960), as amended; Department of Defense
Directive 5220.6, Defense Industrial Personnel Security Clearance Review Program
(January 2, 1992), as amended (Directive); and the adjudicative guidelines (AG),
effective within the Department of Defense for SORs issued after September 1, 2006. 
 
On July 11, 2011, Applicant replied to the SOR (RSOR) in writing, and he
requested a hearing before an Administrative Judge. I received the case assignment on
August 26, 2011. DOHA issued a notice of hearing on November 3, 2011, and I
convened the hearing as scheduled on November 22, 2011. The Government offered
Exhibits 1 through 8, which were received without objection. Applicant testified on his
own behalf and submitted Exhibits A through C at the time of hearing, which were also
admitted without objection. DOHA received the transcript of the hearing (Tr) on
December 6, 2011. I granted Applicant’s request to keep the record open until
December 9, 2011, to submit additional documents, and additional documents that were
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received, have been identified and entered into evidence as without objection as
Exhibits D through J. Based upon a review of the pleadings, exhibits, and the testimony
of Applicant, eligibility for access to classified information is denied.
Findings of Fact
In his RSOR, Applicant admitted all of the SOR allegations, 1.a. through 1.e. The
admitted allegations are incorporated herein as findings of fact. 
After a complete and thorough review of the evidence in the record, including
Applicant's RSOR, the admitted documents, and the testimony of Applicant, and upon
due consideration of that evidence, I make the following additional findings of fact: 
Applicant is 33 years old. He is married, and he has two children. Applicant
received a Bachelor of Science degree in Mechanical Engineering in 2003. He is
employed by a defense contractor, and he seeks a DoD security clearance in
connection with his employment in the defense sector.
Guideline F, Financial Considerations
The SOR lists five allegations (1.a. through e.) regarding overdue debts under
Adjudicative Guideline F. As reviewed above, Applicant admitted all of the allegations in
his RSOR.  The allegations will be discussed below in the same order as they were
listed on the SOR:
1.a. This overdue debt is cited in the SOR as a past due mortgage account in the
amount of $8,000. The account is in foreclosure status with a total loan balance of
$288,000. At the hearing, Applicant testified that this debt, for a first mortgage for his
personal residence, was resolved by a short sale, which was accepted by the bank.
Exhibit B, pages 1, and 22 through 26, establish that the property, upon which this debt
is based, was sold in September 2011. This debt has been resolved. 
1.b. This overdue debt is cited in the SOR as a past due mortgage account in the
amount of $47,000. The account is in foreclosure status with a total loan balance of
$534,000. Applicant testified that this debt is for an investment property owned by
Applicant. He has been trying for a year to negotiate a short sale, but the bank would
not accept the short sale, and although the property is still listed as for sale, it is now in
foreclosure. According to Applicant’s testimony and the credit report in Exhibit C, the
amount now owed on this debt for the first mortgage is $534,900, and for the second
mortgage the amount owed is $107,000. (Tr at 35-36.)  This debt has not been
resolved.
1.c. This overdue debt is cited in the SOR as a past due mortgage account in the
amount of $7,000. The account is in foreclosure status with a total loan balance of
$213,000. Applicant testified that this debt, for an investment property, was resolved by
a short sale, which was accepted by the bank. Exhibit B, pages 1, and 9 through 21,
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establishes that the property, upon which this debt is based, was sold on May 5, 2011.
(Tr at 39.)  This debt has been resolved.
1.d. This overdue debt is cited in the SOR in the amount of $590. Applicant
testified that this debt, which is the second mortgage for the property of which the first
mortgage, listed as 1.a., above,  was resolved by a short sale, which was accepted by
the bank. This debt was also resolved by that short sale. (Tr at 40.) Exhibit B, pages 1,
22 through 26, establishes that the property, upon which this debt is based, was sold on
September 11, 2011. This debt has been resolved.
1.e. This overdue debt is cited in the SOR as a past due mortgage account in the
amount of $10,000. Applicant testified that this property, upon which this debt is based,
is now in foreclosure, and the amount owed is $107,000. (Tr at 42.) Exhibit C shows
$107,000 is owed on this loan. This debt has not been resolved.
Applicant testified that he began acquiring property for investments in 2003. At
one point, he owned eight properties with 14 mortgages. He said things were going well
from 2003 to 2006, when, as he stated, “the mortgage market, in general, in America
sort of fell apart.” He held on to the properties, but as the market continued decline, he
lost renters for his property, the negative cash flow expanded, and he found his financial
situation continuing to decline. 
He testified that for the last two and one half years, he has been attempting to
resolve his mortgages to get loan modifications with the bank, but since he purchased
these properties as an investor, they were not willing to modify his loans. Ultimately, he
resolved his debt from these properties, either by selling the properties in short sales or
returning the deeds to the banks. The banks that would not cooperate foreclosed on his
properties. At the time of the hearing, he continued to retain one property that is
encumbered with two mortgages, and an amount he still owes of $641,000. (Tr at 47-
52.) 
In addition to those eight properties Applicant reviewed above, he also has a
one-third ownership of properties in Mexico and Belize, in which he has invested
approximately $20,000 and $60,000, respectively. Upon questioning, Applicant testified
that at one time he had invested in approximately 12 properties, not including his
personal residence.  Applicant did concede he was not certain if there would be future
taxes owed on all the properties that have been returned by short sale or deed. In
addition to the properties discussed above, Applicant and his two siblings received
$600,000 from their mother, and they purchased additional properties that have not
been reviewed, with the exception of the property listed as 1.a. and 1.e., above. (Tr at
54-63.) 
Upon further questioning, Applicant testified that, for most of the time he was
purchasing these properties, he was the sole income earner, and his income did not
exceed $100,000, yet the debt on these properties far exceeded $1,000,000. He
believed that he had the situation under control until the market had its severe
downturn, and the properties lost much of their value. Also the loss of renters and the
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diminishing amount received for rent contributed to his financial problems. Applicant
indicated that none of his debt came from overdue credit cards or other sources, other
than the properties that he owned. Finally, Applicant testified that he does plan to invest
in properties, again when the market improves, although less aggressively. He
estimated that he might return to investing anywhere from next year to the next three or
four years.
(Tr at 66-79.) 
As discussed above, Applicant submitted several post hearing documents as had
been requested.  Exhibit D included more precise information about Applicant’s
holdings. They show the total of all the property purchased at the time of purchase was
valued at $2,019,800; the total of all real estate loans at the time of purchase was
$1,959,417; the total of the property value at the time of sale was $598,828 (this does
not include the property that is still in foreclosure); the total loan balance due at the time
of sale was $1,546,630 (this does not include the property that is still in foreclosure); the
total debt forgiven (this does not include the property that is still in foreclosure). 
Mitigation
Applicant also submitted five positive character letters, four from people who
know Applicant in his work environment and the fifth from his wife. Applicant was
described by his supervisors and colleagues as “reliable, trustworthy, with a ‘strong
moral compass’ and solid ethical standards.” His wife also wrote about Applicant’s
“honesty, integrity and loyalty.” (Exhibit H.) 
Applicant introduced his personal financial statement showing he had a net worth
of $85,363 with a monthly positive cash flow of $1,276.
Finally, Applicant forwarded his past five Performance Reviews from his
employer for the periods from April 2006 to March 2011. His overall performance was
rated one “Meets Job Requirements,” three “High Meets,” and one “Exceeds Job
Requirements.” (Exhibit I.)   
Policies
When evaluating an applicant’s suitability for a security clearance, the
administrative judge must consider the adjudicative guidelines (AG). In addition to brief
introductory explanations for each guideline, the adjudicative guidelines list potentially
disqualifying conditions and mitigating conditions, which are useful in evaluating an
applicant’s eligibility for access to classified information.
These guidelines are not inflexible rules of law. Instead, recognizing the
complexities of human behavior, these guidelines are applied in conjunction with the
factors listed in the adjudicative process. The administrative judge’s over-arching
adjudicative goal is a fair, impartial and commonsense decision. According to AG ¶ 2(c),
the entire process is a conscientious scrutiny of a number of variables known as the
“whole-person concept.” The administrative judge must consider all available, reliable
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information about the person, past and present, favorable and unfavorable, in making a
decision.
The protection of the national security is the paramount consideration. AG ¶ 2(b)
requires that “[a]ny doubt concerning personnel being considered for access to
classified information will be resolved in favor of national security.” In reaching this
decision, I have drawn only those conclusions that are reasonable, logical and based on
the evidence contained in the record. Likewise, I have avoided drawing inferences
grounded on mere speculation or conjecture.
Under Directive ¶ E3.1.14, the Government must present evidence to establish
controverted facts alleged in the SOR. Under Directive ¶ E3.1.15, the Applicant is
responsible for presenting “witnesses and other evidence to rebut, explain, extenuate,
or mitigate facts admitted by applicant or proven by Department Counsel. . . .” The
Applicant has the ultimate burden of persuasion as to obtaining a favorable security
decision. 
A person who seeks access to classified information enters into a fiduciary
relationship with the Government predicated upon trust and confidence. This
relationship transcends normal duty hours and endures throughout off-duty hours. The
Government reposes a high degree of trust and confidence in individuals to whom it
grants access to classified information. Decisions include, by necessity, consideration of
the possible risk the applicant may deliberately or inadvertently fail to protect or
safeguard classified information. Such decisions entail a certain degree of legally
permissible extrapolation as to potential, rather than actual, risk of compromise of
classified information.
 
Section 7 of Executive Order 10865 provides that decisions shall be “in terms of
the national interest and shall in no sense be a determination as to the loyalty of the
applicant concerned.” See also EO 12968, Section 3.1(b) (listing multiple prerequisites
for access to classified or sensitive information).  
Analysis
Guideline F, Financial Considerations
The security concern relating to the guideline for Financial Considerations is set
out in AG ¶ 18:  
      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. 
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The guideline notes several conditions that could raise security concerns and
could potentially apply in this case.  Under AG ¶ 19 (a), “an inability or unwillingness to
satisfy debts” is potentially disqualifying. Similarly under AG ¶ 19 (c), “a history of not
meeting financial obligations” may raise security concerns. I find that both of these
disqualifying conditions apply to Applicant in this case. The evidence has established
that Applicant has accumulated significant delinquent debt. 
AG ¶ 20 provides conditions that could mitigate security concerns from financial
difficulties: Under AG ¶  20 (b), it may be mitigating where “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.” As noted
above, Applicant testified that his financial problems resulted from the downturn in the
economy, specifically in the housing market, which resulted in his properties being
significantly devalued.  I find that he has acted responsibly, since he has been resolving
his debts through short sales and  return of deeds. Therefore, I find that this mitigating
condition is a factor for consideration in this case. 
Finally, AG ¶  20(d) is applicable since Applicant has “initiated a good-faith effort
to repay overdue creditors or otherwise resolve debts.” I find that this mitigating
condition is also a factor for consideration in this case.
So this case has both disqualifying and mitigating conditions. However, while I
have determined that Applicant has acted responsibly in attempting to resolve the debt,
I cannot conclude that he was responsible in his initially incurring the debt. Applicant,
with an income of approximately $100,000 a year, purchased property valued at
$2,019,800 on loans of $1,959,417. When the market fell dramatically, he had no ability
to resolve the problem outside of giving up all of the properties. At this time, he still
owes on two mortgages for one property in foreclosure in the amount of  $641,000.  It
also is not clear what his tax liability will be for the loans that were defaulted or resolved
in short sale. Finally, what is a great concern is Applicant’s express indication that he
intends to continue this investing in the future, albeit not as aggressively.  At this time I
cannot conclude that Applicant has significantly resolved his overdue debt, and that
there will not be additional financial difficulties in the future. Therefore, he has not
mitigated the financial concerns of the Government.
Whole-Person Concept
Under the whole-person concept, the administrative judge must evaluate an
applicant’s eligibility for a security clearance by considering the totality of the applicant’s
conduct and all the circumstances. The administrative judge should consider the nine
adjudicative process factors listed at AG ¶ 2(a): 
(1) the nature, extent, and seriousness of the conduct; (2) the
circumstances surrounding the conduct, to include knowledgeable
participation; (3) the frequency and recency of the conduct; (4) the
individual’s age and maturity at the time of the conduct; (5) the extent to
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which participation is voluntary; (6) the presence or absence of
rehabilitation and other permanent behavioral changes; (7) the motivation
for the conduct; (8) the potential for pressure, coercion, exploitation, or
duress; and (9) the likelihood of continuation or recurrence.
Under AG ¶ 2(c), the ultimate determination of whether to grant eligibility for a
security clearance must be an overall commonsense judgment based upon careful
consideration of the guidelines and the whole-person concept.  
  
I considered the potentially Disqualifying and Mitigating conditions in light of all
the facts and circumstances surrounding this case. Based on all of the reasons cited
above as to why there are unresolved financial issues in the present and the future, I
find that the record evidence leaves me with significant questions and doubts as to
Applicant’s eligibility and suitability for a security clearance under the whole-person
concept. For all these reasons, I conclude Applicant has not mitigated the security
concerns. 
Formal Findings
Formal findings for or against Applicant on the allegations set forth in the SOR,
as required by section E3.1.25 of Enclosure 3 of the Directive, are:
Paragraph 1, Guideline F: AGAINST  APPLICANT
Subparagraphs 1.a through 1.e.: Against Applicant
Conclusion
In light of all of the circumstances presented by the record in this case, it is not
clearly consistent with the national intetrest to grant Applicant eligibility for a security
clearance.  Eligibility for access to classified information is denied.
                                              
Martin H. Mogul
Administrative Judge