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                           DEPARTMENT OF DEFENSE 
         DEFENSE OFFICE OF HEARINGS AND APPEALS 
           
             
 
 
In the matter of: ) 
 ) 
  )  ISCR Case No. 11-01073 
  )   
 ) 
Applicant for Security Clearance ) 
 
 
Appearances 
 
For Government: Jeffrey Nagel, Esq., Department Counsel 
For Applicant: Joseph Testan, Esq. 
 
 
January 10, 2012 
______________ 
 
Decision 
______________ 
 
 
GOLDSTEIN, Jennifer I., Administrative Judge: 
 
Applicant is a 51-year-old employee of a defense contractor. He was alleged to 
be indebted to eight creditors in the approximate amount of $782,387, which included 
three defaulted mortgages. Applicant mitigated the Financial Considerations security 
concerns by acting responsibly with respect to all of his debts. All but one debt was 
satisfied or is listed as current. The remaining debt was successfully disputed. Eligibility 
for access to classified information is granted.  
 
Statement of the Case 
 
On August 10, 2011, the Defense Office of Hearings and Appeals (DOHA) issued 
a Statement of Reasons (SOR) to Applicant detailing security concerns under Guideline 
F, Financial Considerations. The action was taken under Executive Order (EO) 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 September 1, 2006.  
 
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Applicant answered the SOR on September 16, 2011, and requested a hearing 
before an administrative judge. The case was assigned to me on November 1, 2011. 
DOHA issued a notice of hearing on November 3, 2011, scheduling the hearing for 
November 21, 2011. The hearing was convened as scheduled. The Government offered 
Exhibits (GE) 1 through 7, which were admitted without objection. Applicant offered 
Exhibits (AE) A through M, which were admitted without objection. Applicant testified on 
his own behalf and called four witnesses. The record was left open for Applicant to 
submit additional exhibits and on November 22, 2011, Applicant presented AE N. 
Department Counsel had no objections to AE N and it was admitted. DOHA received 
the transcript of the hearing (Tr.) on December 1, 2011.  
 
Findings of Fact 
 
 Applicant denied SOR allegations 1.a through 1. h. After a thorough and careful 
review of the pleadings, exhibits, and testimony, I make the following findings of fact. 
 
 Applicant is a 51-year-old employee of a defense contractor. He has worked for 
his current employer for the past two years. He is divorced and has custody of his minor 
daughter, age 12. (GE 1; Tr. 45-47, 122.) 
 
Applicant’s credit reports from June 2010, July 2011, October 2011, and 
November 2011, and his answers to interrogatories show that Applicant was indebted to 
eight creditors in the amount of $782,387 as alleged on the SOR. (GEs 1-7.) 
 
Applicant attributes his financial problems to a series of events beyond his 
control. Applicant had been working as a consultant in the defense industry since 
approximately 1985. He worked at approximately eighteen different companies and 
sometimes incurred short periods of unemployment between jobs. The consulting 
positions offered higher salaries than traditional employment arrangements and 
Applicant found he had surplus cash. He testified he made between $120,000 and 
$155,000 annually while consulting. However, he was unable to invest in 401(k) plans 
with the companies he worked for because his consultant positions did not last the full 
year required to start a 401(k). He decided that he should invest in real estate as a way 
to save for his future. He intended to purchase properties and resell them quickly, or 
“flip” them, for a profit. Altogether, he purchased three investment properties, in addition 
to his personal residence, from 2004 through 2007. He researched and read a lot before 
he decided to make his first real estate investment. However, he did not anticipate the 
housing market failure and the declining prices when making his real estate purchases. 
He also did not predict a decline in the need for consultants, which led to longer-than-
anticipated periods of unemployment from October 2006 through April 2007 and May 
2009 through November 2009. (GE 2; GE 3; Tr. 48-55, 69-127.) 
 
The first property Applicant purchased was his residence. Applicant purchased it 
in 2004 for approximately $240,000 to $250,000. He put $17,000 down and secured a 
30-year fixed rate mortgage. He is current on this mortgage and still lives in this 
property.  (GE 7; AE M; Tr. 74-75.) 
 
 
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In 2005, Applicant purchased his first investment property. It was a loft, which he 
purchased for approximately $750,000. He put down $75,000. He financed his purchase 
through a first and second mortgage through the creditors listed in SOR allegations 1.b 
and 1.c. He planned to “flip” the property in one year, so he had a “funny” mortgage, 
with an adjustable interest rate. He did not recall the exact terms of the loan. Applicant 
put this property on the market for sale during the first year he owned it, but it did not 
sell until August 2011. During the first year Applicant owned this property, he would 
sometimes stay in the loft. However, after his first year, he leased it to renters. He was 
unable to rent it for the amount of the mortgage payments, but he was able to pay the 
difference of approximately $400 to $500 per month because his salary was high. 
Applicant defaulted on his payments on his two mortgages for this property between 
June 2009 and March 2010. Applicant sold this property for approximately $450,000 on 
August 11, 2011, in a short sale. Applicant produced documentation from the creditor 
that shows the creditor considers both loans to be settled and waived its right to 
collection of any deficient amounts. He estimated that he owed $819,000 on this 
property at the time of sale. (GE 4; AE N; Tr. 75-80, 87, 91-93.) 
 
Applicant’s second investment property was purchased in 2006 for $700,000 to 
$720,000. He put no money down on this purchase. This mortgage also has an 
adjustable interest rate. He rented this property to tenants, but he incurred a $600 to 
$700 loss on the property each month, which was the difference between the rental 
income and the mortgage payment. Applicant financed the purchase of this property 
with the creditor listed in SOR allegation 1.e. However, the creditor sold Applicant’s loan 
to another creditor and failed to properly record the transfer with the credit reporting 
agencies. Applicant produced documentation to show that this mortgage was now 
serviced by another company and has a “current” status. He challenged the entry on his 
credit report from the creditor in 1.e and it was “deleted.” Currently, Applicant owns this 
property. He rents it for $4,171 per month. His mortgage payments are $4,925 per 
month. He testified that he has budgeted for the difference between the rental payments 
and the mortgage payments and is able to make up the difference without incurring any 
financial problems. He is current on his payments, after obtaining a refinanced 
mortgage. (AE E; AE L; Tr. 69, 94.) 
 
Applicant purchased his third investment property in February 2007 for $629,000. 
It was a single family home. He put $10,000 down and financed the rest. He considered 
the mortgage to be a short-term mortgage, because he planned to sell the property. He 
did not recall the terms of the mortgage. He immediately rented out the property, but it 
rented for $700 to $800 less than he was required to pay monthly on the mortgage. At 
the time Applicant purchased this property he was unemployed, but he believed he had 
sufficient savings to make up the difference between the rental payments and the 
mortgage payments on each of his three properties until he was able to sell them. He 
was exploring the option of changing his line of work from defense consulting to real 
estate investing during this period of time. In May 2009, Applicant sold this property in a 
short sale for $450,000. He estimates that he owed $629,000 on this property. He 
testified that the closing documents included a waiver of his liability for any deficiency 
on the sale of this property. (Tr. 93-94, 118-120.) 
 
 
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In addition to the three SOR debts discussed above (1.b, 1.c, and 1.e), Applicant 
was delinquent on five other accounts. They are as follows. 
 
In SOR ¶ 1.a, Applicant was alleged to be indebted on a cable bill in the 
approximate amount of $18. Applicant testified that he was unaware that this account 
was delinquent after a move and that he satisfied this account. He provided a letter from 
a collection agency that shows this debt was paid in full. (AE B; Tr. 55, 102.) 
 
In SOR ¶ 1.d, Applicant was alleged to be indebted to a creditor in the amount of 
$200. Applicant presented a letter from the creditor stating this account was settled in 
full on August 10, 2010. (AE D; Tr. 58, 103.) 
 
In SOR ¶ 1.f, Applicant was alleged to be indebted to a collection agent for a 
towing company. Applicant testified that he was unfamiliar with this debt. He researched 
it and discovered that the towing company was closed pursuant to an investigation into 
fraudulent credit reporting. Applicant indicated he contested this debt by contacting the 
local consumer protection department, as instructed on documentation he found on this 
creditor on the internet and entered into evidence. The debt no longer appears on 
Applicant’s credit report. (AE F; Tr. 60.) 
 
In SOR ¶ 1.g, Applicant was alleged to be indebted to a collection agent for a 
department store in the approximate amount of $1,769. Applicant presented a letter 
from a different collection agent, bearing the same account number as the original 
creditor, that shows this debt was settled in full on October 31, 2010. (AE A; AE G; Tr. 
61, 104.) 
 
In SOR ¶ 1.h, Applicant was alleged to be indebted to a collection agent in the 
approximate amount of $192. Applicant presented documentation that his account with 
the original creditor has a zero balance. Applicant also presented a copy of his bank 
statement showing a $192.32 payment to this creditor on August 16, 2010. (AE H; Tr. 
61-64.) 
 
When Applicant became unemployed and unable to afford the mortgages in 
2009, he cut back his spending. He withdrew his daughter from private school and 
placed her in public school. He also cut back on his family’s expenses such as eating 
out. He tried to sell his investment properties. He now holds a stable government 
contracting position and has given up the more volatile consulting work. He earns 
$4,171 in rental income monthly. He computed his monthly income, including his salary 
and rental income, to total $10,771 net. His expenses are $9,263 monthly. He indicated 
that he does not intend to invest in real estate in the future. He now has a retirement 
account and has saved $17,248 in this account. (Tr. 74-75, 124-125.) 
 
Applicant is well respected by his supervisor, friends, colleagues, and family as 
expressed in letters and testimony. He is described as honest, dependable, reliable, 
and trustworthy. One friend and co-worker indicated “I can confirm that he is a man of 
great integrity, is extremely dedicated to his family and work, and is entirely a great 
human being.” Another spoke of his “demonstrated honesty, concern for others, and the 
 
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love of God and family.” All agreed that Applicant has exceptional character. (AE K; Tr. 
10-13, 30-44.) 
 
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 to be used 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, administrative judges apply the guidelines in 
conjunction with the factors listed in the adjudicative process. The administrative judge’s 
overarching 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 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.  
 
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 the applicant or proven by Department Counsel.” The 
applicant has the ultimate burden of persuasion to obtain a favorable clearance 
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 EO 10865 provides that adverse 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).   
 
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Analysis 
 
Guideline F, Financial Considerations 
 
The security concern for Financial Considerations is set out in AG ¶ 18, as 
follows:       
 
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.  
 
The guideline notes several conditions that could raise security concern under 
AG ¶ 19. Two are potentially applicable in this case:   
 
(c) a history of not meeting financial obligations; and 
 
(e) consistent spending beyond one’s means, which may be indicated by 
excessive indebtedness, significant negative cash flow, high debt-to-
income ratio, and/or other financial analysis. 
 
 From 2005 to 2007, Applicant purchased three investment properties with 
untraditional mortgages in hopes of flipping the properties and making a profit. His real 
estate investments were made prior to the decline of the real estate market in 2008. 
However, he had difficulties collecting sufficient rent on each of the properties to cover 
the mortgages prior to the decline of the market. Further, he purchased his third 
investment property during a period of unemployment, with the knowledge that his other 
two investment properties were not rented at a rate that would cover his mortgage 
payments on them. While he was making a good living as a consultant, it was not large 
enough to support his mortgages on four properties. Applicant’s investments were 
beyond his means and indicated excessive indebtedness. His three investment 
properties each had a negative cash flow and when he again became unemployed in 
2009, he was unable to sustain payments on his debts. The Government established a 
prima facie case for disqualification under Guideline F. 
 
 Five Financial Considerations Mitigating Conditions under AG ¶ 20 are potentially 
applicable:  
 
(a) the behavior happened so long ago, was so infrequent, or occurred 
under such circumstances that it is unlikely to recur and does not cast 
doubt on the individual’s current reliability, trustworthiness, or good 
judgment; 
 
 
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(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; 
 
(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;  
 
(d) the individual initiated a good-faith effort to repay overdue creditors or 
otherwise resolve debts; and 
 
(e) the individual has a reasonable basis to dispute the legitimacy of the 
past-due debt which is the cause of the problem and provides 
documented proof to substantiate the basis of the dispute or provides 
evidence of actions to resolve the issue. 
 
 Applicant’s financial difficulties are recent. He sold his loft investment property 
approximately three months prior to the hearing through a short sale. Further, he still 
possesses an investment property which is rented for significantly less than the monthly 
mortgage payment. While Applicant’s financial problems were partially due to conditions 
beyond his control, such as his 2009 unemployment and the financial strife of the real 
estate market, Applicant was also responsible for poor judgment in his investment 
decisions. He continued to invest despite his inability to “flip” the first properties he 
purchased, his inability to rent his properties for the amount of his mortgage payments, 
and his unemployment. Thus, neither AG ¶¶ 20(a) nor 20(b) are mitigating. 
 
 However, Applicant has initiated a good-faith effort to repay his creditors and 
there is clear evidence that his financial problems are under control. He presented proof 
that he satisfied each of the debts listed on the SOR, with the exception of the debts in 
1.f, which he successfully contested and 1.e, which has been corrected and now shows 
as current with the correct creditor. Further, it is clear that Applicant learned his lesson 
and will avoid any future real estate investments. He has reduced his expenses, taken a 
secure job, and has started retirement savings. He can be trusted to monitor his 
finances closely and resolve his debts in the future. Clearly, Applicant’s financial 
problems are under control. AG ¶¶ 20(c), 20(d), and 20(e) apply. 
 
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 relevant 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 
 
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individual’s age and maturity at the time of the conduct; (5) the extent to 
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. I have incorporated my comments 
under Guideline F in my whole-person analysis. Some of the factors in AG ¶ 2(a) were 
addressed under that guideline, but some warrant additional comment. Applicant is well 
respected by his supervisor, friends, colleagues, and family. He performs well at his job. 
He made several risky investments from 2005-2007 that failed. However, he has done 
his best to satisfy his financial obligations. He is now able to satisfy his bills, even 
though he still owns one investment property that he subsidizes with his monthly 
income. While Applicant’s financial investment decisions showed poor judgment, he 
acted honorably in settling his delinquent accounts. He has pledged to avoid future real 
estate investments. His witnesses and character reference letters indicate he is a man 
of his word and can be trusted to closely monitor his finances in the future. 
 
Overall, the record evidence leaves me without questions or doubts as to 
Applicant’s eligibility and suitability for a security clearance. For all these reasons, I 
conclude Applicant has mitigated the Financial Considerations 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:   FOR APPLICANT 
 
  Subparagraph 1.a:    For Applicant 
Subparagraph 1.b:    For Applicant 
Subparagraph 1.c:    For Applicant 
Subparagraph 1.d:    For Applicant 
Subparagraph 1.e:    For Applicant 
Subparagraph 1.f:    For Applicant 
Subparagraph 1.g:    For Applicant 
Subparagraph 1.h:    For Applicant 
   
 
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Conclusion 
 
 In light of all of the circumstances presented by the record in this case, it is 
clearly consistent with the national interest to grant Applicant eligibility for a security 
clearance. Eligibility for access to classified information is granted. 
 
 
________________________ 
Jennifer I. Goldstein 
Administrative Judge