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ISCR Case 16-00107.h1 — CASE

ISCR Case 16-00107.h1granted

Case Headnote

ISCR Case No. 16-00107.h1

grantedMay 26, 2017· Hon. Francisco Mendez· hearing

Summary

This case concerns a 58-year-old married federal contractor with two children, whose security clearance was initially questioned under Guideline F (Financial Considerations). The primary concern, outlined in the Statement of Reasons (SOR 1.a), involved debt associated with a second mortgage loan. This issue arose from a job loss during a recession, which led to financial difficulties.

Disqualifying conditions under Guideline F, specifically AG ¶ 19(a) and AG ¶ 19(c), were raised due to these past financial issues. However, the applicant successfully mitigated these concerns by demonstrating a strong commitment to resolving his debts. He addressed significant mortgage obligations after regaining stable employment, showcasing responsible financial behavior.

The judge applied mitigating conditions AG ¶ 20(a), AG ¶ 20(b), and AG ¶ 20(d), noting that the applicant had resolved his significant debts and now maintains a stable financial situation. Based on this demonstrated commitment to repayment and current financial stability, the security clearance was GRANTED.

Why the Applicant Prevailed

The applicant demonstrated a commitment to repaying his debts despite financial hardships.
He resolved significant debts, including a second mortgage, after becoming gainfully employed.
The applicant's current financial situation is stable and does not raise security concerns.

Conditions Referenced

Disqualifying

AG ¶ 19(a)raisedInability or Unwillingness to Satisfy Debts
AG ¶ 19(c)raisedA History of Not Meeting Financial Obligations

Mitigating

AG ¶ 20(a)appliedThe 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
AG ¶ 20(b)appliedThe Conditions That Resulted in the Financial Problem Were Largely Beyond the Person’s Control
AG ¶ 20(d)appliedThe Individual Initiated a Good-faith Effort to Repay Overdue Creditors or Otherwise Resolve Debts

Key Rule Quoted

“A security clearance adjudication is not a debt collection process. Instead, an administrative judge examines the way an applicant handles his or her personal financial obligations to assess how they may handle their security obligations.”

Procedural Posture

SOR issuedJun 13, 2016
Answer filed—
Hearing heldApr 11, 2017mutually agreed date
Decision dateMay 26, 2017

Cite For

Mitigation of Financial Issues Under Guideline F
Responsible Financial Behavior as a Factor in Security Clearance Decisions
Impact of Economic Conditions on Financial Obligations

Editorial summary generated for research. Not legal advice; not a prediction. Verify against the full decision before relying on any quoted language.

Standardized Decision Profile

SEAD-4 Guideline F · descriptive summary of a decided case

Posture: Decision on RecordDecided: granted

The judge found that the applicant successfully mitigated financial concerns related to his past debts, particularly a second mortgage loan. The applicant demonstrated a commitment to repaying his debts and has since resolved his financial issues, leading to a favorable decision for his security clearance.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	debt associated with the second mortgage loan (SOR 1.a). $120,000	For Applicant	Mortgage or Home Loan Debt	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	(a) behavior happened long ago / infrequent / unlikely to recur (b) conditions largely beyond the person’s control; acted responsibly (c) received/receiving counseling; problem being resolved (d) good-faith effort to repay or otherwise resolve debts	Documented Debt Paid in Full

Descriptive standardized rendering of a decided public case (Guideline F). The verbatim source decision is shown in full below.

Full decision

The complete, official text — footnotes and signatures included — is in the original PDF.

Decision text, by section

DEFENSE OFFICE OF HEARINGS AND APPEALS

HEARING

APPEARANCES

DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS

In the matter of: ) ) REDACTED ) ISCR Case No. 16-00107 ) ) Applicant for Security Clearance

For Government: Nicole A. Smith, Esq., Department Counsel For Applicant: Pro se

05/26/2017 ______________

STATEMENT OF CASE

______________

MENDEZ, Francisco, Administrative Judge:

Applicant presented sufficient evidence to mitigate security concerns raised by his past financial problems. Clearance is granted.

Statement of the Case

On June 13, 2016, the Department of Defense (DOD) Consolidated Adjudications Facility (CAF) sent Applicant a Statement of Reasons (SOR) alleging that his circumstances raised security concerns under the financial considerations guideline.1 Applicant answered the SOR and requested a hearing to establish his eligibility for access to classified information.

On April 11, 2017, a date mutually agreed to by the parties, a hearing was held. Applicant testified at hearing and the exhibits offered by the parties were admitted into the administrative record without objection. (Government Exhibits 1 – 4; Applicant’s Exhibits A – D.) The transcript of the hearing (Tr.) was received on April 19, 2017, and the record closed on April 28, 2017.

FINDINGS OF FACT

Applicant, 58, is married with two children. For about 15 years, he worked as a federal contractor and held a security clearance before starting his own private company. He submitted a security clearance application in April 2015 in connection with his current job.

From 1997 to 2003, Applicant operated his own business. He sold it to a larger company and was then principally employed as a consultant by the acquiring firm. This arrangement was beneficial to both parties, and Applicant was well compensated for his work, earning between $250,000 and $450,000 from 2003 through 2006.

In 2004, Applicant purchased his home. He financed the purchase through a primary or first mortgage loan. Two years later, he took out a second mortgage loan to finance some home improvements and pay for his children’s college education. At the time, an independent home appraiser valued the home at over 1.5 million dollars.

In 2007, as the U.S. economy slid into recession, Applicant was laid off and was unable to find a job for several years. He started falling behind on his bills, including the mortgage payments. He attempted to sell his home, but its value had decreased markedly with the collapse of the local housing market. He received short sale offers in the range of $750,000, but the lender for the second mortgage loan rejected all such offers. He was advised to let the property go through foreclosure and file for bankruptcy. He rejected this advice, because he wanted to pay his debts. He recently had his home appraised. It is currently worth $750,000.

In 2011, Applicant was hired by his current employer. He reached out to his overdue creditors and steadily one-by-one addressed and resolved his debts, including about $40,000 in credit card debt.

Applicant renegotiated his first mortgage loan in June 2014, agreeing to repay the outstanding balance and any associated fees and interest. (He did so despite knowing that the renegotiated mortgage loan is $200,000 more than the property is currently worth.) He brought the account current and has been paying on a consistent monthly basis for the past three years. His recent credit report reflects that Applicant’s mortgage account is in good standing and he is paying the “account as agreed.”2

Applicant also resolved the debt associated with the second mortgage loan (SOR 1.a). He disclosed this debt on his clearance application. He settled the debt for $120,000, made the initial $50,000 down payment, and agreed to $1,000 monthly payments. Applicant currently earns over $150,000 annually. He does not have any personal credit card or other consumer-related debt. After paying recurring monthly expenses, which includes the $1,000 settlement payments, Applicant has a sufficient net remainder to pay unanticipated expenses. He submitted extensive corroborating documentation about his past and current finances, including voluntarily providing copies of his tax returns going back to 2003.3

At hearing, Applicant explained why he chose to repay the debts he accumulated while unemployed and underemployed, including the mortgages on a home that has lost more than half its value since 2006, as follows:

It's just been my commitment to paying back my lenders. It's the way I believe I should run my life. That's what I've chosen to do versus other courses that I could have taken that were recommended to me at different times by lots of people in the industry as the mortgage, you know, the mortgage crisis happened. Lots of people recommended me taking a different path, which I believe is a short circuit to what I really owed the people who had lent me money. I did not mean to be in this situation with them, but I believe I've worked diligently to resolve that to the satisfaction of every one.

* * *

So, I don't know if this really plays into any of this. I really want to, you know, clear my name or get my clearance on just an honest basis based on my honest attempt to repay all my past debts. But I do [so] for the benefit of my country, [because] you know, at my age I don't need a security clearance [ ] to help me be employed. I think I'm very well employed where I am at. But I do -- I really can't explain technically why it's important, but I have people that are counting on my knowledge to improve the security of our nation. And that's really why I am here and that's why I want to be back inside that security envelope so I can fully use my knowledge and experience.4

POLICIES

“[N]o one has a ‘right’ to a security clearance.” Department of the Navy v. Egan, 484 U.S. 518, 528 (1988). Individual applicants are eligible for access to classified information “only upon a finding that it is clearly consistent with the national interest” to authorize such access. E.O. 10865 § 2.

When evaluating an applicant’s eligibility for a security clearance, an administrative judge must consider the adjudicative guidelines (AG). In addition to brief introductory explanations, the guidelines list potentially disqualifying and mitigating conditions. The guidelines are not inflexible rules of law. Instead, recognizing the complexities of human behavior, an administrative judge applies the guidelines in a commonsense manner, considering all available and reliable information, in arriving at a fair and impartial decision.

Department Counsel must present evidence to establish controverted facts alleged in the SOR. Directive ¶ E3.1.14. Applicants are responsible for presenting “witnesses and other evidence to rebut, explain, extenuate, or mitigate facts admitted by the applicant or proven . . . and has the ultimate burden of persuasion as to obtaining a favorable clearance decision.” Directive ¶ E3.1.15.

Administrative Judges are responsible for ensuring that an applicant receives fair notice of the issues raised, has a reasonable opportunity to litigate those issues, and is not subjected to unfair surprise. ISCR Case No. 12-01266 at 3 (App. Bd. Apr. 4, 2014). In resolving the ultimate question regarding an applicant’s eligibility, an administrative judge must resolve “[a]ny doubt concerning personnel being considered for access to classified information . . . in favor of national security.” AG ¶ 2(b). Moreover, recognizing the difficulty at times in making suitability determinations and the paramount importance of protecting national security, the Supreme Court has held that “security clearance determinations should err, if they must, on the side of denials.” Egan, 484 U.S. at 531.

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. 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 an applicant may deliberately or inadvertently fail to safeguard classified information. Such decisions entail a certain degree of legally permissible extrapolation of potential, rather than actual, risk of compromise of classified information.

ANALYSIS

Guideline F, Financial Considerations

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.

As stated in the relevant portion of AG ¶ 18 quoted above, the security concern at issue is not limited to a consideration of whether a person with financial issues might be tempted to compromise classified information or engage in other illegality to pay their debts. It also addresses the extent to which the circumstances giving rise to delinquent debt and other security-significant financial issues cast doubt upon a person’s judgment, self-control, and other qualities essential to protecting classified information.5

In assessing Applicant’s case, I considered the following pertinent disqualifying and mitigating conditions:

AG ¶ 19(a): inability or unwillingness to satisfy debts;

AG ¶ 19(c): a history of not meeting financial obligations;

AG ¶ 20(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;

AG ¶ 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;

AG ¶ 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

AG ¶ 20(d): the individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts.

A security clearance adjudication is not a debt collection process. Instead, an administrative judge examines the way an applicant handles his or her personal financial obligations to assess how they may handle their security obligations.6 Moreover, the resolution of past financial issues alone without evidence of true reform and rehabilitation is of limited probative value in the security clearance context.7

Here, Applicant’s eligibility for a security clearance was called into question by his past financial problems and, primarily, his failure until relatively recently to address the debt associated with the second mortgage loan on his home. His inability to pay his debts was not the result of a reckless disregard for his financial obligations, living beyond his means, or other circumstance that would raise a security concern. Instead, his past financial problems were largely attributable to matters beyond his control. He addressed and resolved the debts, including the second mortgage loan, after becoming gainfully employed. The responsible manner in which Applicant addressed his financial obligations raises favorable inferences regarding the manner in which he will likely discharge his security obligations.8 His present financial situation does not raise a security concern. AG ¶¶ 20(a) – 20(d) apply.

After a complete and thorough review of the record evidence, while remaining mindful of my solemn obligation to resolve any unmitigated doubt in favor of protecting national security, I find that Applicant met his heavy burden of proof and persuasion in mitigating the security concerns at issue. Furthermore, he clearly established his eligibility for a security clearance.9

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 (Financial Considerations): FOR APPLICANT

Subparagraph 1.a: For Applicant

CONCLUSION

In light of the circumstances presented by the record in this case, it is clearly consistent with the national interest to grant Applicant eligibility for access to classified information. Applicant’s request for a security clearance is granted.

____________________ Francisco Mendez Administrative Judge

FOOTNOTES

1 This action was taken under Executive Order (E.O.) 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) implemented by the Department of Defense on September 1, 2006. 2 Exhibit 3 at 3. 3 Exhibit A.

4 Tr. 53-55. 5 ISCR Case No. 11-05365 at 3 (App. Bd. May. 1, 2012).

6 See generally ISCR Case No. ISCR Case No. 12-09719 at 2-3 (App. Bd. Apr. 6, 2016).

7 Compare, ISCR Case No. 12-04806 (App. Bd. July 3, 2014) (despite the presence of unresolved debt, notably, a second mortgage loan tied to a property that had been foreclosed, Board upheld grant because clear evidence of reform and rehabilitation), with, ISCR Case No. 15-03481 (App. Bd. Sep. 27, 2016) (applicant’s filing of overdue tax returns alone insufficient to mitigate security concerns, where no extenuating circumstances to explain the late tax filing or evidence of financial reform). 8 Of course, security clearance determinations are “not an exact science,” and depend in large measure on the thoroughness of the underlying clearance investigation. See generally ISCR Case No. 01-25941 (App. Bd. May 7, 2004).

9 In reaching this favorable conclusion, I also considered Applicant’s candor on the security clearance application and the level of cooperation he exhibited during the clearance process (i.e., voluntarily providing tax returns going back to 2003). See generally AG ¶ 2(a) (whole-person factors).