William H. and Jo Anne Lindley - Page 9

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          compromised due to the longstanding nature of the case; (4)                 
          petitioners were defrauded by Hoyt; and (5) the offer-in-                   
          compromise should be accepted based on equity and public policy             
          grounds.                                                                    
               On February 22, 2005, a telephone section 6330 hearing was             
          held between Mr. Owens and Ms. Gellner.  During the hearing, Mr.            
          Owens requested more information regarding changes in income and            
          expenses reported on the Form 433-A, a second mortgage on                   
          petitioners’ house obtained in May 2001, and refinancings of                
          petitioners’ house in June 2002 and February 2004.  Because she             
          did not have the requested information, Mr. Owens allowed Ms.               
          Gellner additional time to confer with petitioners.                         
               On February 28, 2005, and March 3, 2005, petitioners sent              
          additional letters to Mr. Owens explaining the changes in income            
          and expenses, the second mortgage, and the refinancings.  With              
          regard to the second mortgage and the refinancings, petitioners             
          stated:                                                                     
               The Lindleys obtained a second mortgage for $110,500.00                
               in May 2001 at 12.02% interest. * * *                                  
               The June 2002 refinance absorbed all of the remaining                  
               $110,500.00 second mortgage except for $35,000.00,                     
               which could not be included because that amount                        
               exceeded 80% of the appraised value.  Thus, $35,000.00                 
               was still at the high interest rate of 12.02% when the                 
               June 2002 refinance was complete.                                      
               The February 2004 mortgage for $45,000.00 was used to                  
               pay the high interest $35,000.00, a $7,500.00 note with                
               Telco Credit Union, and $2,500.00 toward credit cards.                 






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