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ISCR Case 16-00840.h1 — CASE

ISCR Case 16-00840.h1denied

Case Headnote

ISCR Case No. 16-00840.h1

deniedJun 6, 2017· Hon. Darlene Lokey Anderson· hearing

Summary

The security clearance application of a 54-year-old defense contractor employee was denied under Guideline F (Financial Considerations) due to significant financial issues. The applicant had ten delinquent mortgage accounts, totaling over $300,000, which raised concerns about her judgment and reliability.

Specifically, the Statement of Reasons detailed multiple unpaid and delinquent mortgage debts. These included a $33,060 second trust deed on an investment club property, which was foreclosed upon in 2010. Another delinquent second mortgage, totaling $39,641 and $7,251, also resulted in foreclosure in 2010 after a loan modification was unsuccessful. Two other delinquent second mortgages, amounting to $28,981 and $10,583, were resolved when the lender dismissed the second trust deed after a loan modification on the first.

Further allegations included delinquent mortgage accounts of $29,639, $37,891, and $38,277, all of which led to foreclosure. A $35,297 delinquent mortgage was resolved through a deed in lieu of foreclosure in early 2014. Another past-due mortgage of $38,922 received a slight loan modification. The denial was based on the applicant's admission to voluntarily borrowing money and defaulting on loans, with eight properties ultimately foreclosed upon.

Why the Applicant Was Denied

Applicant had ten delinquent mortgage accounts totaling over $300,000.
Eight properties were foreclosed upon due to inability to pay mortgages.
Applicant admitted to voluntarily borrowing money and defaulting on loans.

Conditions Referenced

Disqualifying

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

Key Rule Quoted

“The protection of the national security is the paramount consideration.”

Procedural Posture

SOR issuedJun 29, 2016
Answer filedAug 4, 2016
Hearing heldDec 8, 2016
Decision dateJun 6, 2017

Cite For

Denial of Security Clearance Due to Financial Irresponsibility Under Guideline F
Impact of Foreclosure on Security Clearance Eligibility
Judgment and Reliability Concerns Stemming From Financial Issues

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: denied

The judge found against the applicant on all financial allegations under Guideline F, citing a history of delinquent mortgage accounts totaling over $300,000, with multiple foreclosures. The applicant's financial situation raised significant concerns regarding her reliability and judgment, leading to the denial of her security clearance.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	a debt owed to a lender for a delinquent mortgage account in the amount of $33,060 was never paid by the Applicant. This was a second trust deed on a property which was part of the investment club. This property was foreclosed upon in 2010. $33,060	Against Applicant	Mortgage or Home Loan Debt	Denied	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.b	and 1(c) are one in the same debt owed to a lender for a delinquent second mortgage account, in the amounts of $39,641 and $7,251 respectively. Applicant was unable to obtain a loan modification, and the property was also foreclosed upon in 2010. $39,641	Against Applicant	Mortgage or Home Loan Debt	Denied	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.d	and 1(e) are one in the same debt owed to a lender for a delinquent second mortgage account in the amounts of $28,981 and $10,583 respectively. Applicant states that she negotiated a loan modification on the first trust deed and was given a deed of release (lender dismissed the second) for the second trust deed. $28,981	Against Applicant	Mortgage or Home Loan Debt	Denied	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.f	a debt owed to a lender for a delinquent mortgage account in the amount of $29,639 was never paid by the Applicant. Applicant was unable to obtain a loan modification, and the property was foreclosed upon. $29,639	Against Applicant	Mortgage or Home Loan Debt	Denied	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.g	a debt owed to a lender for a delinquent second mortgage account in the amount of $37,891 was never paid by the Applicant. The property was foreclosed upon. $37,891	Against Applicant	Mortgage or Home Loan Debt	Denied	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.h	a debt owed to a lender for a delinquent mortgage account in the amount of $35,297 was never paid by the Applicant. Applicant did a deed in lieu of foreclosure and gave the property back to the bank in early 2014. $35,297	Against Applicant	Mortgage or Home Loan Debt	Denied	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.i	a debt owed to a lender for a delinquent mortgage account in the amount of $38,922 was past due. Applicant was able to obtain a slight loan modification on the first trust deed mortgage. $38,922	Against Applicant	Mortgage or Home Loan Debt	Denied	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.j	a debt owed to a lender for a delinquent mortgage account in the amount of $38,277 was never paid by the Applicant. The property was foreclosed upon. $38,277	Against Applicant	Mortgage or Home Loan Debt	Denied	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—

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: ) ) ) ISCR Case No. 16-00840 ) ) Applicant for Security Clearance )

For Government: Adrienne Driskill, Esq., Department Counsel For Applicant: Pro se

June 6, 2017 ______________

STATEMENT OF CASE

______________

LOKEY ANDERSON, Darlene D., Administrative Judge:

Statement of the Case

On June 29, 2016, 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 for cases after September 1, 2006.

Applicant answered the SOR on August 4, 2016, and requested a hearing before an administrative judge. The case was assigned to me on October 3, 2016. DOHA issued a notice of hearing on November 3, 2016, and the hearing was convened as scheduled on December 8, 2016. The Government offered Exhibits 1 through 3, which were marked and admitted without objection. The Applicant called eight witnesses, and offered Exhibits A through P, which were admitted without objection. She also testified on her own behalf. DOHA received the transcript of the hearing (Tr.) on December 19, 2016.

FINDINGS OF FACT

Applicant is a 54-year-old employee of a defense contractor. She is married with three children. She has two Master’s Degrees, one in Business Administration, and the other in Science Systems Engineering and Information Technology Management. She is self-employed and holds the position as President and owner of her own consulting business. She is also working as an acquisition professional or consultant for another defense contractor. She is seeking to retain a security clearance in connection with her employment.

The SOR alleges that Applicant has ten delinquent mortgage accounts owed to a number of creditors totaling in excess of $300,000. In her Answer, Applicant denied each debt, asserting that they have been paid and resolved. Each debt can also be found listed in credit reports dated October 29, 2015; and September 15, 2016. (See Applicant’s Exhibits 2 and 3.)

After graduating from college, Applicant was commissioned an Ensign from the Naval Reserve Officer Training Corps Unit in May 1984. She served on active duty in the United States Navy for 22 years until April 2006 when she was honorably discharged. She has held a security clearance at some level since 1984. She has a stellar military career record. (Applicant’s Exhibit A.)

Instead of a stock portfolio, Applicant and her husband have invested in property over time to establish wealth. Applicant’s father, when he was alive, invested in property and so Applicant was introduced to the concept at an early age. She grew up with paying cash for property, as a way of investing. As a teenager she showed properties, painted, cleaned, and even sucked sewage out of properties. Her father owned as many as 60 to 80 properties at a given time. He brought properties with cash he earned from his trucking company.

Applicant bought her first property in 1989 before meeting her husband. She and her husband, who has a real estate license, bought their first property together in 1995. Over time, Applicant and her husband have continued to purchase properties in an effort to build their retirement portfolio. They currently have 30 properties, comprised of condominiums, single family houses, commercial property and garages. (Tr. p. 120.) These properties are located in various states across the United States. When Applicant’s father died in 2007, Applicant inherited some of her father’s properties and at one time she owned about 50 properties.

Applicant and her husband both retired from the United States Navy in 2006. They both receive military pensions at the commander level. They retired because they have a special needs child. (Tr. p. 23.) After retiring, Applicant started her own consulting company, a small woman-owned, disabled-veteran-owned business, which has been up and running since 2006. She also provides consulting services to another defense contractor.

Prior to the downturn in the real estate market in 2008, Applicant’s properties were fully occupied with tenants, as the real estate business was flourishing. In 2008, the property values started to slip and vacancies rose. Interest rates went up, and Applicant was underwater on a number of her properties. Her father, who died of ALS in 2006, was at that time also in arrearages on federal taxes and maintenance issues for some of his properties that Applicant inherited. She then had the responsibility to pay those debts and straighten out that business. Applicant stated that she was asset rich but cash poor. To get out of her situation, Applicant had to pursue what is known as strategic defaults on the properties that she was unable to keep. Her intention was to keep the properties, but after trying to obtain a loan modification on each one without success, the properties were either subject to a short sale, foreclosure, or a deed in lieu of foreclosure. Applicant was able to retain ownership of approximately 30 of her properties. Eight of her properties were foreclosed upon.

Applicant also testified that in 2002 she and her husband joined a real estate investment club to pursue investments for their children, which they believed led them astray. Applicant’s husband, who handled the particulars of the transactions, testified that they would go to a one-day seminar and could purchase up to six or seven properties in one day. They were offered 5 percent down loans to purchase the properties. Applicant was putting the debt for the down payments on her personal residence. The club promised the buyers that they would be guaranteed a certain amount of rent for each location purchased. Applicant found that this was not the case, and believes that about ten of her properties were impacted by this false guarantee. (Tr. p. 134.)

The following properties listed in the SOR were either foreclosed upon or Applicant was given a release of lien on the second trust deeds for some unknown reason. Between 2008 and 2014, Applicant has had eight of her properties foreclosed upon. Only six of the foreclosures are represented in the SOR.

1(a) a debt owed to a lender for a delinquent mortgage account in the amount of $33,060 was never paid by the Applicant. This was a second trust deed on a property which was part of the investment club. This property was foreclosed upon in 2010. Applicant claims that she is not responsible for the second trust deed once the property goes in to foreclosure. She states that it is no longer reflected as owing on her credit report. (Tr. p.p. 154-157.) She contends that the account is closed out and Applicant owes nothing to the lender. Applicant states that she paid the 1099C taxes on the property. (Tr. p. 158.)

1(b) and 1(c) are one in the same debt owed to a lender for a delinquent second mortgage account, in the amounts of $39,641 and $7,251 respectively. Applicant was unable to obtain a loan modification, and the property was also foreclosed upon in 2010. Applicant claims that she paid the 1099C taxes on the property. It is not reflected as owing on the Applicant’s credit report. (Tr. pp. 160-161.) 1(d) and 1(e) are one in the same debt owed to a lender for a delinquent second mortgage account in the amounts of $28,981 and $10,583 respectively. Applicant states that she negotiated a loan modification on the first trust deed and was given a deed of release (lender dismissed the second) for the second trust deed. (Tr. p. 163-164.) She claims that there is nothing owed on this account and it is not reflected on her credit report. Applicant still owns the property, and is making regular monthly payments on the first trust deed. (Applicant’s Exhibit F, and Tr. pp. 164 -165.)

1(f) a debt owed to a lender for a delinquent mortgage account in the amount of $29,639 was never paid by the Applicant. Applicant was unable to obtain a loan modification, and the property was foreclosed upon. Applicant claims that she paid the 1099C taxes on the property. It is not reflected as owing on the Applicant’s credit report. (Applicant’s Exhibit G.)

1(g) a debt owed to a lender for a delinquent second mortgage account in the amount of $37,891 was never paid by the Applicant. The property was foreclosed upon. Applicant states that she was released from the debt by the bank. Applicant states that she paid the 1099C taxes on the property. (Tr. p. 171.)

1(h) a debt owed to a lender for a delinquent mortgage account in the amount of $35,297 was never paid by the Applicant. Applicant did a deed in lieu of foreclosure and gave the property back to the bank in early 2014. She claims that she paid the 1099C taxes on the property. (Tr. p. 172.)

1(i) a debt owed to a lender for a delinquent mortgage account in the amount of $38,922 was past due. Applicant was able to obtain a slight loan modification on the first trust deed mortgage. Applicant received a release of lien on the property for the second trust deed. Applicant still owns the property and is current on the first mortgage. (Tr. p. 177.)

1(j) a debt owed to a lender for a delinquent mortgage account in the amount of $38,277 was never paid by the Applicant. The property was foreclosed upon. Applicant states that she paid the 1099C taxes on the property. (Tr. pp. 176 -177.)

Applicant’s husband testified that some of their properties received loan modifications. The ones that they could not get loan modifications on, and could not sell, they allowed to go into foreclosure, as there was nothing else they could do at that point. (Tr. p. 178) Applicant plans on keeping the 30 properties she now has with no plan to purchase more at this time. Their future involves an exit strategy from this situation, but there are no specifics as of yet.

Applicant’s husband further testified that they have about $240,000 in mutual funds and other investments, which also include ROTH IRA’s, and TSP’s. Applicant receives about $50,000 annually from military retirement and he receives about $45,000 annually. They also receive about $120,000 annually from their real property. Applicant’s salary from her company is uncertain given the nature of her work and the contracts that may or may not be available. Her husband explained that their income drastically fluxuates based upon the repairs or other necessities required on the various properties.

Seven other witnesses comprised of an attorney and law professor, a lieutenant commander, a master chief, a nun who attends the same parish as the Applicant, a former military officer and coworker, a networking associate who works for the Department of the Navy, and several others attest to Applicant’s trustworthiness and loyalty. They are all friends and or professional associates of the Applicant who have known her in various capacities throughout her life. The collectively profess her reliability, honesty and personal and professional judgment. They all recommend her for a security clearance. (Tr. pp. 23 -115.)

Letters of recommendation were received from various professional associates including a lieutenant commander, a retired Navy commander, four Navy captains, and one staff judge advocate. They all consider Applicant to be an excellent applicant for security clearance with the requisite professionalism, character, and trustworthiness. (Applicant’s Exhibit E.)

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 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 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).

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 concerns under AG ¶ 19. Two are potentially applicable in this case:

(a) inability or unwillingness to satisfy debts;

Applicant voluntarily entered into multiple real estate transactions. She accumulated significant mortgage debt that she was unable or unwilling to pay when the real estate market collapsed in 2008. As a result of her inability to pay her mortgages, eight of her properties have been foreclosed upon. The evidence is sufficient to raise the above disqualifying conditions.

None of the Financial Considerations Mitigating Conditions under AG ¶ 20 are potentially applicable. Applicant denied the allegations under this guideline, but essentially admitted the underlying conduct. She admits to voluntarily borrowing money from the respective lenders to purchase the properties in question. She also admits to defaulting on the loans. Her plan was to rent to tenants and have them pay the mortgages. It is well understood that the real estate market, like the stock market, is a gamble and not a guarantee. Applicant’s situation did not go as planned, and in 2008, the real estate market collapsed. Applicant was not prepared for the consequences and found herself underwater with many of her properties, unable to pay the mortgages. In fact, she was so financially extended that eight of her properties were foreclosed upon. As previously mentioned, she maintains that a few of the second trust deed loans have been forgiven and removed from her credit report.

If the delinquent debt is legally unenforceable under a state law, the Government can still consider Applicant’s judgment in acquiring the debt and whether she handled the debt responsibly after its acquisition. Clearly Applicant had demonstrated a great degree of poor judgment in acquiring such a large number of properties, which she could not realistically afford. Applicant’s involvement in these real estate transactions casts doubt onto her current reliability, trustworthiness, or good judgment. She has not acted responsibly under the circumstances. There are no indications that the problem is resolved or under control, nor has there been a good faith effort to resolve her debts. The concern remains unmitigated.

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 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 her friends and professional associates. She is also commended for her long and dedicated service to the Navy and our national security. Yet, she still remains in a constant state of juggling the payments for 30 separate properties each month. This is excessive and well beyond what is affordable. She has already had eight property foreclosures, which she strategically allowed in order to maintain her other properties. This conduct places the Applicant and the Government at a significant risk for pressure, coercion, exploitation, and duress. Applicant has made several questionable financial choices that do not demonstrate the judgment, reliability, or trustworthiness needed to hold a security clearance. There are significant unresolved concerns about Applicant’s finances and judgment.

Overall, the record evidence leaves me with questions and doubts as to Applicant’s eligibility and suitability for a security clearance. For all these reasons, I conclude Applicant has not 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: AGAINST APPLICANT

Subparagraph 1.a.~1.j.: 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 interest to grant Applicant eligibility for a security clearance. Eligibility for access to classified information is denied.

________________________ Darlene Lokey Anderson Administrative Judge