ISCR Case 13-00453.h1

Case Headnote

ISCR Case No. 13-00453.h1

grantedSep 27, 2013· Hon. Rita C. O'Brien· hearing

Summary

A 53-year-old certified public accountant with a master's degree in finance was granted a security clearance despite initial concerns under Guideline F (Financial Considerations). The issues stemmed from financial difficulties related to a business downturn and real estate investments.

Specifically, the applicant purchased two houses in June 2006 for rehabilitation and rental. House A, bought for approximately $77,000, incurred about $40,000 in rehabilitation costs. After tenants stopped paying rent and the property was vandalized, the applicant continued mortgage payments for about three years before stopping during a business downturn. A loan modification was declined, and a proposed deed in lieu of foreclosure was not finalized before the lender foreclosed in July 2013. House B, purchased for about $62,000, also incurred $40,000 in initial rehabilitation costs. After tenants stopped paying and the property was vandalized twice, the applicant continued mortgage payments despite no rental income. A deed in lieu of foreclosure was initially considered but later refused by the lender. A short-sale offer was received shortly before the hearing.

The applicant admitted to the allegations and demonstrated responsible financial behavior, including paying off a tax lien. The judge concluded that the applicant's financial issues were unlikely to recur, citing good-faith efforts to resolve debts, a stable current financial situation with substantial monthly income and assets, and the fact that past difficulties were largely due to circumstances beyond his control, such as a business downturn and real estate market crash. The security clearance was granted.

Why the Applicant Prevailed

The applicant demonstrated a good-faith effort to resolve financial issues, including paying off a tax lien.
The applicant's financial situation is currently stable, with substantial monthly income and assets.
The applicant's past financial difficulties were largely due to circumstances beyond his control, including a business downturn and real estate market crash.

Conditions Referenced

Disqualifying

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

Mitigating

AG ¶ 20(a)appliedBehavior Happened Long Ago or Infrequently
AG ¶ 20(b)appliedConditions Largely Beyond the Person's Control
AG ¶ 20(c)appliedReceived Counseling or Problem Is Under Control
AG ¶ 20(d)appliedGood-faith Effort to Repay Overdue Creditors
AG ¶ 20(e)appliedReasonable Basis to Dispute Legitimacy of Debt

Key Rule Quoted

“A security clearance decision is intended only to resolve the questions of whether it is clearly consistent with the national interest for an applicant to either receive or continue to have access to classified information.”

Procedural Posture

SOR issuedMay 2, 2013
Answer filedJun 17, 2013
Hearing heldSep 4, 2013
Decision dateSep 27, 2013

Cite For

Mitigation of Financial Issues Under Guideline F
Consideration of Circumstances Beyond an Applicant's Control
Good-faith Efforts to Resolve Debts and Financial Obligations

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

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	specific text not stated in this decision	For Applicant	Unspecified Financial	Admitted	—	—	—
1.b	In June 2006, Applicant bought two houses (House A and House B) in a run-down urban area. He planned to rehabilitate the homes and rent them. House A (allegation 1.b): House A cost about $77,000. Applicant put down $17,000. His monthly payment was approximately $535. After spending about $40,000 to rehabilitate the property, he rented it for $1,100 per month. After paying from September to November 2006, the tenants stopped making their monthly payments. The eviction process lasted nine months. Shortly after the house became vacant, it was vandalized. Applicant testified, “You know, my 40,000 in cash that I invested in it was ‘down the drain’ too. Everything. They just took everything.” Applicant continued paying the mortgage for about three years. However, he stopped during the financial downturn in his business. Applicant contacted the lender and applied for a loan modification, but was declined. He proposed a deed in lieu of foreclosure. The arrearage is about $21,000. Subsequently, he offered to restart the payments. However, the lender required all arrearages to be paid at once, which Applicant could not afford. He retained a real estate agent, who eventually found a buyer. However, before the offer was finalized, the lender foreclosed in July 2013. Applicant has not been informed of a deficiency balance. He testified that if a deficiency results, he has the funds to pay it. $21,000	For Applicant	Mortgage or Home Loan Debt	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	(b) conditions largely beyond the person’s control; acted responsibly (d) good-faith effort to repay or otherwise resolve debts	—
1.c	House B (allegation 1.c.): Applicant purchased House B for about $62,000 and made a $15,000 down payment. His monthly payments were approximately about $430. Applicant spent $40,000 to rehabilitate the property. He secured tenants, with a rental charge of $900 monthly. They paid the rent for the first three months and then stopped paying. The eviction process took nine months. One week after they were evicted in about 2007, the property was vandalized. The thieves took the plumbing, air conditioning, carpeting, refrigerator, and other fixtures. Although Applicant had no income from the property after 2006, he continued to make the mortgage payments. He boarded up the property for about one year. He then rehabilitated the property a second time, spending about $30,000. The property was vandalized a second time. At about that time, the real estate market crashed, affecting his ability to sell the properties. His loans were “under water”: the market value of the houses was less than the balance on his loans. Then his business declined substantially from 2009 to 2010 because of the U.S. recession. Applicant stopped making mortgage payments, and accrued arrearages of approximately $18,000. He retained a real estate agent in 2011, who sought buyers for House B and helped Applicant deal with the lender. Applicant requested the House B lender to approve a loan modification or participation in any available assistance program. The lender declined, but did agree to consider a deed in lieu of foreclosure. Applicant spent several months providing documentation to finalize it. However, after viewing the vandalized property, the lender reneged, and refused to accept the deed in lieu of foreclosure. After trying to sell the property for years, Applicant applied to the lender to short-sell the property. In August 2013, a few days before the hearing, Applicant received a short-sale offer of $11,000. He is hopeful the lender will accept the offer, which is more than the current fair market value of the property. $18,000	For Applicant	Mortgage or Home Loan Debt	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	(b) conditions largely beyond the person’s control; acted responsibly (d) good-faith effort to repay or otherwise resolve debts (c) received/receiving counseling; problem being resolved	—

Allegation

Finding

Type

Response

Disqualifying (¶19)

Mitigating applied (¶20)

Mitigation

1.a

specific text not stated in this decision

For Applicant

Unspecified Financial

Admitted

—

1.b

In June 2006, Applicant bought two houses (House A and House B) in a run-down urban area. He planned to rehabilitate the homes and rent them. House A (allegation 1.b): House A cost about $77,000. Applicant put down $17,000. His monthly payment was approximately $535. After spending about $40,000 to rehabilitate the property, he rented it for $1,100 per month. After paying from September to November 2006, the tenants stopped making their monthly payments. The eviction process lasted nine months. Shortly after the house became vacant, it was vandalized. Applicant testified, “You know, my 40,000 in cash that I invested in it was ‘down the drain’ too. Everything. They just took everything.” Applicant continued paying the mortgage for about three years. However, he stopped during the financial downturn in his business. Applicant contacted the lender and applied for a loan modification, but was declined. He proposed a deed in lieu of foreclosure. The arrearage is about $21,000. Subsequently, he offered to restart the payments. However, the lender required all arrearages to be paid at once, which Applicant could not afford. He retained a real estate agent, who eventually found a buyer. However, before the offer was finalized, the lender foreclosed in July 2013. Applicant has not been informed of a deficiency balance. He testified that if a deficiency results, he has the funds to pay it.

$21,000

For Applicant

Mortgage or Home Loan Debt

Admitted

(a) inability to satisfy debts

(c) a history of not meeting financial obligations

(b) conditions largely beyond the person’s control; acted responsibly

(d) good-faith effort to repay or otherwise resolve debts

—

1.c

House B (allegation 1.c.): Applicant purchased House B for about $62,000 and made a $15,000 down payment. His monthly payments were approximately about $430. Applicant spent $40,000 to rehabilitate the property. He secured tenants, with a rental charge of $900 monthly. They paid the rent for the first three months and then stopped paying. The eviction process took nine months. One week after they were evicted in about 2007, the property was vandalized. The thieves took the plumbing, air conditioning, carpeting, refrigerator, and other fixtures. Although Applicant had no income from the property after 2006, he continued to make the mortgage payments. He boarded up the property for about one year. He then rehabilitated the property a second time, spending about $30,000. The property was vandalized a second time. At about that time, the real estate market crashed, affecting his ability to sell the properties. His loans were “under water”: the market value of the houses was less than the balance on his loans. Then his business declined substantially from 2009 to 2010 because of the U.S. recession. Applicant stopped making mortgage payments, and accrued arrearages of approximately $18,000. He retained a real estate agent in 2011, who sought buyers for House B and helped Applicant deal with the lender. Applicant requested the House B lender to approve a loan modification or participation in any available assistance program. The lender declined, but did agree to consider a deed in lieu of foreclosure. Applicant spent several months providing documentation to finalize it. However, after viewing the vandalized property, the lender reneged, and refused to accept the deed in lieu of foreclosure. After trying to sell the property for years, Applicant applied to the lender to short-sell the property. In August 2013, a few days before the hearing, Applicant received a short-sale offer of $11,000. He is hopeful the lender will accept the offer, which is more than the current fair market value of the property.

$18,000

For Applicant

Mortgage or Home Loan Debt

Admitted

(a) inability to satisfy debts

(c) a history of not meeting financial obligations

(b) conditions largely beyond the person’s control; acted responsibly

(d) good-faith effort to repay or otherwise resolve debts

(c) received/receiving counseling; problem being resolved

—

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Case Profile

Summary

Why the Applicant Prevailed

Conditions Referenced

Key Rule Quoted

Procedural Posture

Cite For

Full decision

DEFENSE OFFICE OF HEARINGS AND APPEALS

HEARING

APPEARANCES

STATEMENT OF CASE

PROCEDURAL RULINGS

FINDINGS OF FACT

POLICIES

ANALYSIS

WHOLE PERSON ANALYSIS

FORMAL FINDINGS

CONCLUSION