IRS Agent Beverly Hood testified in federal court Tuesday against a gaggle of mortgage-fraud defendants she had investigated.

What didn't come up was that she had once been investigated for mortgage fraud herself.

Ms. Hood and her husband filed for bankruptcy in December 2009, and they lived in a half-million-dollar home in Greeley, Colo., for nearly two years without making a mortgage payment.

At the IRS, Ms. Hood supervised several agents. One of them, she said, filed an internal whistleblower complaint against her and she was summoned by investigators.

"I had no idea why I was being called in," said Ms. Hood, who is 49 years old. "I couldn't figure out what I could have possibly done wrong on my tax return...They said, "You're being investigated for mortgage fraud.'"

Ms. Hood was surprisingly candid about her family's financial disaster. I had approached her in the courthouse hall during a recess in the mortgage-fraud trial where she'd been called to testify. I was expecting a "no comment." But she not only spoke with me in the hall, but later on the phone for an hour.

"I hate that this happened, but it happened," she said. "I'm embarrassed, but it is what it is."

The mortgage-fraud investigation didn't go anywhere, she said, because there was no fraud. But her bankruptcy filing and skipped mortgage payments naturally raised questions.

After all, one reason many people get investigated by the IRS is that they are in financial trouble. So agents should take care to avoid financial trouble.

IRS spokesman Dean Patterson said federal privacy laws prohibit the IRS from commenting on individual employees.

"The IRS expects its employees to meet high ethical and conduct standards, which includes meeting their tax and financial obligations," he said. "Any allegation of employee misconduct is taken seriously and reported to the Treasury Inspector General for investigation."

Ms. Hood knows this well. Over a quarter century, she has worked in IRS offices across the country, from Florida to Hawaii, investigating hundreds of fraud cases. She has interviewed more suspects than she can count, including real estate agents, appraisers, title companies and home buyers. She is a law-enforcement officer, and it's her job to recommend fraud cases for prosecution, including mortgage-fraud cases.

"It's really not my job to pass judgment on people," she said. "It's my job to gather the facts, and if it looks like there should be a recommendation for prosecution, move it forward."

It is clear from Ms. Hood's bankruptcy filing that most of her financial problems stem from her husband's enterprises. He was a partner in a couple of Greeley restaurants that simply got wiped out in the financial crisis. The restaurants stopped paying him a salary in July 2009, according to bankruptcy records. He then worked for a percentage of profits, but when the business shut down in November 2009, there were no profits.

The couple also bought a 5,000-square-foot home in 2007--the exact wrong point to buy in real estate history.

All through the bankruptcy, Ms. Hood maintained her six-figure income at the IRS, and her family lived mortgage-free as the bank initiated mortgage-foreclosure proceedings. In addition to her income at the IRS, bankruptcy records show she held more than $200,000 in a government employee 401(k).

The Hoods had two Bank of America home loans that required combined monthly payments of nearly $4,700, according to bankruptcy-court records, compared to average monthly income that totaled less than $5,700.

"We were calling the bank, trying to get them to deal with it, but nobody wanted to talk to us," said Ms. Hood, who is a mother of three.

A Bank of America spokeswoman declined comment on the case.

It's often been reported that banks have been slow to foreclose and that people can miss payments for a year or more before they finally are evicted. It's a trend that been dubbed "squatting in your own home." Banks have not only been overwhelmed by a wave of foreclosures but stymied over the years by foreclosure moratoriums and delays from a robo-signing scandal.

A bankruptcy filing can complicate the process further, putting lawyers between the bank and the borrower.

Ms. Hood said she eventually received approval for a short-sale. Her home sold last April, and the foreclosure was withdrawn, according to Weld County records. Her bankruptcy was discharged in November 2010.

She is now in the middle of a move to Washington D.C., where she has become a senior analyst of planning and strategy for the agency. Her husband, she said, is working for an East Coast restaurant chain, and they are slowly recovering after shedding their debts in bankruptcy court.

Ms. Hood seemed eager to lay the facts on the table as I interviewed her. "I am telling you the truth because that's what I do," she explained. She said she has been completely transparent about her financial problems, informing her supervisors and the agents she supervised from the beginning. Much of her story is documented in bankruptcy-court records, but it is not a tale she ever wanted to see in print.

"I'm pretty confident I'm not the only IRS agent that has run into financial problems because of the economy," she said. "The economy affects all of us."

(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at al.lewis@dowjones.com or tellittoal.com)