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                           DEPARTMENT OF DEFENSE
         DEFENSE OFFICE OF HEARINGS AND APPEALS
          
            
In the matter of: )
)
)       ISCR Case No. 13-00628
       )
Applicant for Security Clearance )
Appearances
For Government: Melvin A. Howry, Esq., Department Counsel
For Applicant: Pro se
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Decision
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CURRY, Marc E., Administrative Judge:
All of the delinquent debts that Applicant incurred related to the failure of his car
dealership in 2006. Since then, he has satisfied or is steadily paying down all of the
debts except the mortgages on a foreclosed investment property. Per state law,
Applicant is not liable for any deficiency between the foreclosure price and any
remaining balance  on either loan. This fact, alone, does not mitigate the security
concern. However, when considered in light of the cause of Applicant’s financial
problems, the steps he has taken to satisfy the other SOR debts, his satisfaction of
multiple unlisted debts, and his current financial stability, I conclude that he has
mitigated the security concern. Clearance is granted.
Statement of the Case
On December 6, 2013, the Department of Defense (DOD) issued a Statement of
Reasons (SOR) to Applicant detailing security concerns under Guideline F, Financial
Considerations. The DOD acted under Executive Order 10865, Safeguarding Classified
Information within Industry (February 20, 1960), as amended; Department of Defense
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Directive 5220.6, Defense Industrial Personnel Security Clearance Review Program
(January 2, 1992), as amended (Directive); and the adjudicative guidelines (AG)
implemented by the DOD on September 1, 2006.
Applicant answered the SOR on December 20, 2013, denying all of the
allegations except subparagraphs 1.e and 1.d. He requested a decision on the written
record instead of a hearing. On February 20, 2014, Department Counsel prepared a File
of Relevant Material (FORM). Applicant received it on February 26, 2014. On April 18,
2014, DOHA received a 52-page response. Department Counsel did not object to the
response or any of the attachments, and it was incorporated into the record. The case
was assigned to me on May 6, 2014.
Findings of Fact
Applicant is a 56-year-old married man with two adult children. He has a high
school education and has earned some college credits. Since February 2012, he has
been working for a defense contractor overseas in a combat theater as a translator. He
worked for another defense contractor from 2010 through 2012 in another capacity.
(Item 6 at 14)
Before working in the defense industry, Applicant sold cars. (Item 3 at 6) In 2001,
he opened a used car dealership. His business was successful until the local economy
began slowing down in 2006. (Item 3 at 6) As consumers reduced spending, his
automobile sales decreased. Applicant “tried [his] best to keep [his] business afloat by
selling cars for minimum profits” while cutting extra expenses, but ultimately had to
close the business in May 2007. (Item 3 at 6)
Applicant was able to find a job as a sales manager for another car dealership;
however, he remained saddled with debts from his failed business. Ultimately, he lost
an investment property to foreclosure, and incurred multiple delinquencies in excess of 
$800,000. Approximately $168,000 of this debt is not listed in the SOR, including
delinquent sales taxes totalling $8,000 (Item 6 at 44; Item 10 at 37), delinquent car
insurance, totaling $8,900 (Item 6 at 45),  two delinquent loans, totaling $24,600 and
$22,500, respectively (Item 6 at 45, 47), and two delinquent credit cards totaling
$100,000 and $5,000, respectively, (Item 6 at 46, 51-52). Applicant satisfied all of these
debts.  (Item 6 at 44-52)
The SOR debts total approximately $632,000, and include the first and second
mortgage loans on an investment property (subparagraphs 1.a and 1.b), a home-equity
line of credit (subparagraph 1.c), a judgment debt owed to an individual who had loaned
him money (subparagraph 1.d), and a judgment that a bank obtained against
Applicant’s car dealership (subparagraph 1.e). Applicant purchased the investment
property in November 2004 for approximately $380,000, with two mortgage loans.
Subparagraph 1.a was the primary mortgage and subparagraph 1.b was the junior
mortgage.  ((Item 7 at 5) In 2006, after Applicant’s car dealership began to struggle, he
decided to sell his investment property. (Item 3 at 6) 
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In July 2007, Applicant sold the house. Applicant and the buyer executed a deed
of trust under which the buyer received title to the house, while Applicant retained
responsibility for the two mortgages. Per the agreement, the buyer was to pay Applicant
a monthly amount equalling Applicant’s mortgage payments.  (Item 3 at 6, 13) The
buyer paid Applicant consistently for two years. Then, she defaulted. Subsequently, the
bank foreclosed on the property and sold it. It is unknown from the record whether there
was a deficiency remaining after the property was resold. Applicant denies
subparagraphs 1.a and 1.b contending that, under state law, he is not subject to liability
for a deficiency, if one exists.  
The home-equity line of credit listed in subparagraph 1.c has a balance of
approximately $140,000. As of March 2014, there was no amount past due, and
Applicant has been making monthly payments as agreed since June 2011. (Response
at  19)
The judgment debt listed in subparagraph 1.d, totalling $28,065, was obtained by
an individual in January 2011. (Item 3 at 10). Since July 2011, Applicant has been
making monthly payments ranging between $500 and $1,000. (Item 3 at 9-10;
Response at 48-49). As of November 2013, the balance was approximately $8,200.
(Item 3 at 10)
 Subparagraph 1.e is a delinquent bank loan in the amount of approximately
$100,000 stemming from the failure of Applicant’s business. The bank obtained the
judgment in October 2008. (Response at 50) By June 2011, Applicant had settled the
account. (Response at 50) It is unknown from the record if this debt was settled by
liquidating the car dealership’s inventory or by making installment payments.
Applicant maintains a budget. Currently, he has approximately $1,400 of monthly
discretionary income, $150,000 in savings, and $42,000 invested in stocks and bonds.
In addition, his home is worth approximately $200,000. (Response at 40)  
Policies
The adjudicative guidelines list potentially disqualifying conditions and mitigating
conditions. These guidelines are not inflexible rules of law. Instead, recognizing the
complexities of human behavior, they are applied together with the factors listed in the
adjudicative process. According to AG ¶ 2(c), the entire process is a 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. 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
Item 3 at 14 and Item 13 discuss the relevant state statute. Item 3 is Applicant’s answer to the SOR and Item1
13 is a submission by Department Counsel. In reaching my conclusion, I reviewed these Items and
independently researched the statute and relevant state case law. Because of privacy concerns, I have not
included the exact citations.  
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“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 for obtaining a favorable security decision. 
Analysis
Guideline F: Financial Considerations
Under this guideline, “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”
(AG ¶ 18). Moreover, “an individual who is financially overextended is at risk of having
to engage in illegal acts to generate funds” (Id.).
Applicant’s financial delinquencies trigger the application of AG ¶¶ 19(a),
“inability or unwillingness to satisfy debts,” and 19(c), “a history of not meeting financial
obligations.” The following mitigating conditions under AG ¶ 20 are potentially
applicable:
(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; and
(d) the individual initiated a good-faith effort to repay overdue creditors or
otherwise resolve debts.
Applicant did not begin experiencing financial difficulties because of any
extravagant spending or reckless business decisions. Instead, his financial problems
occurred after his business failed around the time of his state’s economic downturn. 
Applicant’s largest SOR debts are the two mortgage loans that he used to
purchase his investment property in 2004, as listed in subparagraphs 1.a and 1.b.  In
the state where Applicant purchased the property, there can be no deficiency judgment
after foreclosing on a mortgage that was used to purchase a property.  This law also1
applies to secondary mortgages that are used to secure the purchase of property. The
See n.1, supra.2
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legislative intent of this statute is “to prevent the aggravation of an economic recession
which would result if debtors lost their property and were also burdened with personal
liability” for any resulting deficiency. (Cadlerock Joint Venture, L.P. v. Lobel)  2
The property that Applicant financed with the two mortgage loans was an
investment property. Under the state law where Applicant resides, the statutory
protection for property owners who default on their mortgages typically does not extend
to investment properties. However, in 2007, Applicant transferred equitable title to
someone else, and memorialized this transaction with a deed of trust. The bank then
foreclosed on the home after the person who received equitable title defaulted on her
agreement to pay Applicant, rendering him unable to make the mortgage payments. If a
mortgagee transfers equitable title to a home secured by a mortgage which is
subsequently foreclosed, the mortgagee is shielded from liability for any deficiency, as
he would be if his primary property was foreclosed.
Of course, the negative security ramifications surrounding a foreclosure are not
mitigated depending on whether or not Applicant remains liable for any resulting
deficiency. Applicant defaulted on two debts in excess of $370,000. This is a significant
amount regardless of whether he remains legally responsible. Conversely, Applicant
satisfied $168,000 of unlisted debt, $100,000 of debt, as listed in subparagraph 1.e, and
he has been paying subparagraphs 1.c and 1.d as agreed. He maintains a budget, has
ample monthly discretionary income, and has nearly $200,000 of savings and
investments. Under these circumstances, the seriousness of the defaulted mortgage
loans is outweighed by the surrounding circumstances, as discussed above, and the
strong presence of rehabilitation, rendering the likelihood of a recurrence of these
financial problems minimal. I conclude that all of the mitigating conditions apply, and
that Applicant has mitigated the financial considerations security concerns. 
Whole-Person Concept
Under the whole-person concept, the administrative judge should consider the
nine adjudicative process factors listed at AG ¶ 2(a). They are as follows: 
(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
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.
I applied the whole-person concept factors in my analysis of the mitigating conditions,
and have reached a favorable outcome.
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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
Subparagraphs1.a-1.e: For Applicant
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.
                                             
MARC E. CURRY
Administrative Judge