Homeowners have rights when dealing with tax-debt collectors
The Internal Revenue Service collected its own bills until 2005, but then it contracted with two companies to do much of the work. Most homeowners and recent sellers who are facing an audit would be wise to deal directly with the IRS.
Q. I sold my duplex in 2004 and declared my profit on my tax return, but have been fighting the IRS ever since then about some deductions that I took on the sale. I did nothing wrong, but everything came to a head last week when I received both a letter and a phone call from a collection agency that said it would place a lien on my current home if I do not pay the back taxes I supposedly owe. What can I do, considering that I'm still fighting the IRS?
A. For decades, the Internal Revenue Service waged its own battles against taxpayers it thought were delinquent, and then would either slap a lien on their property or garnish their wages if a judge ruled in the agency's favor.
All that changed in 2005 when the IRS contracted with two companies - Iowa-based CBE Group and New York-based Pioneer Credit Recovery Inc. - to help collect on past-due bills.
Your case is unresolved, so the collection agency cannot legally place a lien on your house or garnish your wages without a judge's approval. Your best bet now might be to exercise your legal right to demand that your case be sent back to the IRS: That's because the agency can offer you a settlement agreement, which neither CBE nor Pioneer is authorized to do.
Q. We are buying our first house, but the bank won't approve the loan until we first purchase a hazard-insurance policy on the house that we want to purchase. This seems ridiculous, because we don't think we should have to pay for an insurance policy before the sale closes. Is the bank trying to rip us off?
A. No, the bank isn't trying to rip you off. Lenders routinely demand that potential borrowers first get an insurance policy before a deal closes, in part because a mover might get hurt while unloading the truck or, God forbid, the house that you and your spouse are buying is damaged or destroyed by fire, hail, hurricane or other disasters that are listed in the policy.
To complete the purchase, call your insurance company or agent and ask for a "binder" that guarantees that your home will be insured from the day you take possession. Also get more information from one of my favorite Internet sites, www.iii.com, which is operated for free by the nonprofit Insurance Information Institute.
Q. My husband and I put our home up for sale in January, but so far we have received no offers. The problem is that we are scheduled to close on the new home we want to buy on June 1, but we can't purchase it if our current home doesn't sell first. If our home doesn't sell, we will lose the $6,000 good-faith deposit we made on the house we want to purchase. What can we do?
A. First, make sure that your current home is appropriately priced. According to a recent study, more than half of all homes that are for sale today are being marketed for at least 20 percent more than they are worth.
Think about dropping your asking price in order to make a quick sale. Also make sure that your home is perfectly clean and is in great structural shape, because buyers today have become pickier than ever and will quickly skip past your house to look at other properties if your place is not in mint condition.
Then there's the matter of the $6,000 deposit that you have made on the house you want to buy on June 1. Most real estate contracts state that if the buyer can't get a mortgage to finance the rest of the deal, the purchase can be canceled and the seller must return the deposit. Banks aren't anxious to make loans right now, so you can probably call the proposed lender or your mortgage broker, and they'll likely be happy to decline your loan, which means that you should get your deposit back.
• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.
© 2009, Cowles Syndicate Inc.