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ISCR Case 10-00133.h1 — CASE

ISCR Case 10-00133.h1denied

Case Headnote

ISCR Case No. 10-00133.h1

deniedJun 30, 2011· Hon. James F. Duffy· hearing

Summary

A 37-year-old defense contractor employee was denied a security clearance due to significant financial concerns under Guideline F. The Statement of Reasons detailed that the applicant defaulted on five mortgages, totaling approximately $838,841, which were foreclosed in 2007. One of these mortgage debts has since been cancelled.

The applicant acknowledged her financial difficulties, which included five delinquent mortgages totaling about $285,478. However, she did not provide sufficient evidence that these problems resulted from conditions beyond her control, nor did she demonstrate that she received financial counseling.

Ultimately, the applicant failed to mitigate the security concerns. Her financial problems were deemed recent and ongoing, and she did not present adequate evidence that these issues were being resolved or were under control. Consequently, the security clearance application was denied.

Why the Applicant Was Denied

The applicant failed to mitigate financial considerations security concerns due to ongoing delinquent debts.
She did not provide evidence of financial counseling or responsible actions to resolve her debts.
The applicant's financial problems were recent and ongoing, raising doubts about her reliability and trustworthiness.

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)rejectedBehavior Happened so Long Ago, Was Infrequent, or Unlikely to RecurThe applicant's financial problems are recent and ongoing.
AG ¶ 20(b)rejectedConditions Largely Beyond the Person's ControlThe applicant failed to demonstrate that her financial issues were beyond her control.
AG ¶ 20(c)rejectedReceived or Receiving CounselingNo evidence of financial counseling was provided.
AG ¶ 20(d)rejectedGood-faith Effort to Repay CreditorsThe applicant made minimal payments and did not provide evidence of ongoing repayment efforts.
AG ¶ 20(e)appliedReasonable Basis to Dispute Legitimacy of DebtOne mortgage was canceled, but the applicant remains responsible for others.

Key Rule Quoted

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

Procedural Posture

SOR issuedDec 2, 2010
Answer filedDec 22, 2010
Hearing held—Case decided on written record.
Decision dateJun 30, 2011

Cite For

Denial of Security Clearance Due to Unresolved Financial Obligations
Insufficient Evidence of Responsible Financial Management
Impact of Financial Issues on Reliability and Trustworthiness Under Guideline F

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 that the applicant had unresolved financial issues, including multiple delinquent mortgages and a history of defaults. While one mortgage was canceled, the applicant's overall financial situation raised significant concerns about her reliability and trustworthiness, leading to a denial of her security clearance.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	Applicant defaulted on five mortgages totaling about $838,841, which were foreclosed in 2007.	Against Applicant	Mortgage or Home Loan Debt	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.b	One of the alleged mortgage debts has been cancelled. $80,557	For Applicant	Mortgage or Home Loan Debt	Admitted	—	(e) reasonable, documented basis to dispute the debt	Claimed Debt Paid in Full
1.c	The applicant has not provided sufficient evidence to conclude that her financial problems resulted from conditions beyond her control.	Against Applicant	Unspecified Financial	Denied	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.d	The applicant has failed to provide evidence that she received financial counseling.	Against Applicant	Unspecified Financial	Denied	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.e	The applicant's financial problems are recent and ongoing, and insufficient evidence has been presented to conclude those problems are being resolved or are under control.	Against Applicant	Unspecified Financial	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. 10-00133 ) Applicant for Security Clearance )

For Government: Braden M. Murphy, Esq., Department Counsel For Applicant: Pro se

June 30, 2011 ______________

STATEMENT OF CASE

______________

DUFFY, James F., Administrative Judge:

Applicant has not mitigated financial considerations security concerns. Eligibility for access to classified information is denied.

Statement of the Case

On December 2, 2010, 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) implemented by the Department of Defense on September 1, 2006.

Applicant answered the SOR on December 22, 2010, and elected to have the case decided on the written record in lieu of a hearing. Department Counsel prepared a file of relevant material (FORM) on March 8, 2011. On March 14, 2001, Applicant was mailed a complete copy of the FORM and advised that she could file objections or submit other material for consideration within 30 days of its receipt. Applicant received the FORM on March 23, 2011. As of May 11, 2011, she had not submitted a response. The Government’s exhibits included in the FORM are admitted. The case was assigned to me on May 12, 2011.

FINDINGS OF FACT

Applicant is a 37-year-old employee of a defense contractor. She has worked for her current employer since May 1998. She obtained a bachelor’s degree from a major university in 1997. She married in September 2007 and divorced in March 2009. Her Questionnaire for National Security Positions (SF 86), submitted on September 1, 2009, does not list any children. She is applying for a security clearance for the first time.1

The SOR alleges five delinquent mortgages that were either charged off or past due in the approximate total amount of $285,478 and had balances totaling about $919,499. In her Answer to the SOR, Applicant admitted each of the alleged delinquent debts, but denied the paragraph setting forth the Guideline F security concern. Her admissions are hereby incorporated as findings of fact.2

In 2005, Applicant was dating her future husband/ex-husband. At that time, they discussed marrying and moving to another town. They were also planning for her to take time off work so that they could begin a family. Based on the advice of her brother- in-law who was a real estate broker, she purchased four townhomes (Properties A through D) in 2005 with the intent of renting them. The townhomes were located in Town X (approximately 120 miles from her residence). After the purchase of these townhomes, she and her boyfriend changed their minds about moving. This was the first time that she purchased property and was unaware of the expenses (e.g., property taxes and homeowners’ association (HOA) fees) that were involved. Her brother-in-law handled the leasing arrangements and picked the property manager. The property manager was also one of the tenants in the townhomes. She claimed the property manager turned out to be a criminal who stole money from the tenants (apparently the HOA fees were stolen, but the amount stolen is unknown). She also provided documentation showing that other people claimed they were defrauded by the property manager.3

In 2006, Applicant started falling behind on her mortgage payments. She was sued by the HOA and hired an attorney to represent her. From approximately October 2006 to March 2007, she contracted with a real estate company in an attempt to sell the townhomes. No offers were submitted for these properties. She also contacted the mortgage companies seeking to dispose of the townhomes through Deeds in Lieu of Foreclosure and short sales. Due to the slow housing market, she was unable to sell or otherwise dispose of the townhomes.4

Due to HOA fee deficiencies, the HOA instituted legal action to auction the townhomes and transfer title pursuant to Assessment Lien Deeds. On February 6, 2007, the four townhomes were auctioned at the county courthouse and sold to the highest bidder. Property A was sold for $7,500, Property B for $7,000, Property C for $100, and Property D for $100. After the auctions, Applicant was given right to redeem the properties from the purchasers. No evidence was presented that Applicant redeemed the properties.5

During an interview with an Office of Personnel Management (OPM) investigator on November 24, 2009, Applicant indicated that she does not owe any money to the mortgage companies and that she has received Form 1099-A’s for the mortgages. She also indicated that she was informed that the mortgages will continue to appear on her credit report until the allotted time has passed for them to be removed. Furthermore, she indicated that purchasing the townhomes was a terrible financial decision that she will never make again.6

In responding to interrogatories in June 2010, Applicant provided four Form 1099-A’s (Acquisition or Abandonment of Secured Property) and one Form 1099-C (Cancellation of Debt). Each of these forms was for tax year 2007. These forms contain the following information:

a. Form 1099-A for Property A 1. Date of lender’s acquisition or knowledge of abandonment: 03/06/07; 2. Balance of principal outstanding: $332,000; 3. Fair market value of property: $413,000; and 4. Was borrower personally liable for repayment of debt? Yes.

b. Form 1099-A for Property B 1. Date of lender’s acquisition or knowledge of abandonment: 08/27/07; 2. Balance of principal outstanding: $324,000; 3. Fair market value of property: $440,000; and 4. Was borrower personally liable for repayment of debt? Yes.

c. Form 1099-C for Property B 1. Date canceled: 04/17/07; 2. Amount of debt canceled: $80,557; 3. Interest if included in box 2: [blank]; and 4. Fair market value of property: $00. d. Form 1099-A for Property C 1. Date of lender’s acquisition or knowledge of abandonment: 03/07/07; 2. Balance of principal outstanding: $331,539; 3. Fair market value of property: $354,755; and 4. Was borrower personally liable for repayment of debt? No.

e. Form 1099-A for Property D 1. Date of lender’s acquisition or knowledge of abandonment: 03/06/07; 2. Balance of principal outstanding: $349,605; 3. Fair market value of property: $375,000; and 4. Was borrower personally liable for repayment of debt? Yes.7

Based on a review of the SOR, Form 1099-A’s, and credit reports, I find that the Form 1099-A for Property B is for the mortgage alleged in SOR ¶ 1.c, the Form 1099-C for Property B is for the mortgage alleged in SOR ¶1.b, and the Form 1099-A for Property D is for the mortgage alleged in SOR ¶ 1.d. There were first and second mortgages on some of these properties. From the information provided, the remaining Form 1099-A’s above cannot be equated to specific allegations in the SOR.

In the interrogatories, Applicant stated, “I feel overwhelmed and embarrassed and that I feel I can’t afford to make repayment.” In May 2010, a debt collection agency for Property D contacted her, and she paid that agency $150 in June 2010. Evidence of further payments to that debt collection agency has not been provided. She also provided a canceled check showing a payment of $165, but it is unknown for which debt that payment was made. She provided a personal financial statement (PFS) dated June 11, 2010, that reflects a monthly income of $4,885, monthly expenses of $2,717, monthly debt payments of $395, and a net remainder of $1,773. On the PFS statement, she listed a monthly payment of $150 to the debt collection agency, but no payments to the creditors holding the defaulted mortgages.8

In the interrogatories, Applicant also provided her federal income tax return for 2007. This return reported the sales (i.e., foreclosures) of the four townhomes for losses. Furthermore, she provided an Internal Revenue Service Final Determination dated April 2010 that states:

We considered your Form 8857, Request for Innocent Spouse Relief, and have made our final determination. . . .

For TAX YEAR(S) 2007

You are granted relief. You will not be held liable for the balance owed. No explanation was provided as to why she submitted these tax documents.9

Applicant provided no evidence concerning the quality of her professional performance or her level of responsibility at work. She submitted no character references or other evidence tending to establish good judgment, trustworthiness, or reliability. I was unable to evaluate her credibility, demeanor, or character in person since she elected to have her case decided without a hearing.

POLICIES

When evaluating an applicant’s suitability for a security clearance, the administrative judge must consider the adjudicative guidelines. 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 safeguard classified information. Such decisions entail a certain degree of legally permissible extrapolation of 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:

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; and

In 2006, Applicant defaulted on five mortgages. The properties were foreclosed in 2007. One of the alleged mortgage debts (SOR ¶ 1.b) has been cancelled. Contrary to her earlier assertion, a FORM 1099-A is not evidence of cancellation of a debt.10 Based on the evidence presented, she is still financially responsible for the four alleged mortgages totaling about $838,841. The evidence is sufficient to raise the above disqualifying conditions.

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; (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 has been continually employed since 1998. As an inexperienced homebuyer, she purchased four townhomes in 2005. The total amount of these properties was over $900,000. The properties were located about 120 miles from where she lived. She relied on others to manage the properties. This was a risky venture that failed. When she started to have problems in meeting the mortgage payments, she attempted to sell the properties. Due to a slow housing market, she was unable to sell or otherwise dispose of them. In 2007, the four townhomes were sold at foreclosure auctions. One mortgage (SOR ¶ 1.b, apparently a second mortgage) has been canceled. She remains financially responsible for four defaulted mortgages.

Although she claimed her property manager was a criminal, Applicant has failed to explain how his behavior negatively impacted her. Both her marriage and divorce occurred after the properties were foreclosed. Currently, she has about $1,773 in disposable income each month. In June 2010, she made one payment of $150 to a debt collection agency seeking payments on one of the mortgages. Evidence of further payments to that collection agency has not been provided. She has failed to provide sufficient evidence to conclude that her financial problems resulted from conditions beyond her control or that she acted responsibly under the circumstances. Additionally, no evidence was presented that she received financial counseling. Her financial problems are recent and ongoing and insufficient evidence has been presented to conclude those problems are being resolved or are under control. Based on the information provided, I am unable to determine her financial problems are unlikely to recur and that they do not cast doubt on her current reliability, trustworthiness, and good judgment. AG ¶¶ 20(a), 20(b), 20(c), and 20(d) do not apply. AG ¶ 20(e) applies to SOR ¶ 1.b.

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 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. The limited information in the record has not convinced me that Applicant’s finances are sufficiently in order to warrant a security clearance.

Overall, the record evidence leaves me with questions and doubts about Applicant’s eligibility and suitability for a security clearance. I conclude Applicant has not mitigated 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: Against Applicant Subparagraph 1.b: For Applicant Subparagraphs 1.c-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 interest to grant Applicant eligibility for a security clearance. Eligibility for access to classified information is denied.

________________________ James F. Duffy Administrative Judge

FOOTNOTES

1 Item 4. 2 Items 1, 3. It is unknown whether Town X is where her boyfriend was then living. 3 Item 7. MapQuest was used to determine the mileage between her residence and Town X. 4 Item 7. 5 Id. 6 Id. 7 Id. 8 Id. 9 Id. 10 See ISCR Case No 09-05252 at 4 (App. Bd. Dec 3, 2010) (IRS Form 1099 A Applicant received is not evidence of the cancellation of mortgage debt).