How to Avoid Last Minute Grief When You Need a Mortgage

There’s a new trend that has raised its ugly head – tax return fraud. Now, before your eyes glaze over, listen up.

Back in the day, before the “meltdown” of 2008, lenders were so anxious to make loans they didn’t focus on the borrowers’ income. Frankly, they didn’t seem to care as long as they, the lender, made their numbers for the month.

Hello meltdown – times have changed. Lenders are very distrustful of everything. With “stated income” loans being a thing of the past, lenders anticipate their clients 4506-tmight “fudge” their income. The only way to be certain this is not the case is to request copies of the borrowers’ tax return directly from the IRS. Enter the IRS form 4506-T. This form is filled out with every loan application. The lender sends it to the IRS and gets back a transcript of the borrowers’ tax return(s). It must match exactly with the tax returns that were submitted with the loan.

That was fine for a while, but in the past few years, more and more tax transcripts came back different than the one submitted with the loan file. Now, I can state unequivocally that my clients do not make up false tax returns in order to get a mortgage, so there had to be an explanation. In each case, the borrower contacted the IRS to find out why.

We have come to learn that tax fraud has become an epidemic. There are tax scams galore. One of the most prevalent is that a criminal, using your social tax-refund-fraudsecurity number, files in your stead. The IRS doesn’t know it’s not you so they issue your refund to the fraudster. There are numerous other ways for criminals to use your information with the IRS to their benefit. It behooves you to check each year after you file to be certain the tax return the IRS has on file is the legitimate one. It’s a very simple process. Go to the IRS website and download Form 4506-T  and fill out the form completely. You can ask for up to 4 years on a single 4506-T form.

Be sure the form is accurate. If you handwrite it do not erase and rewrite anything or use white-out or cross anything out – it must be free of errors or mistakes or the IRS will send it back to you. (There is a fax number right on the 4506-t)

Within a couple of weeks, you’ll receive a copy of your tax transcript(s) in the mail. Match them up line by line with your tax return to be sure they are accurate. If you find inconsistencies, call the IRS. One tip: when you file your taxes wait 4-6 weeks to give the IRS time to put your file into their system. If you place your request too soon, they may show your return hasn’t been filed yet even though you know it has.

Note: The lender doesn’t request this form until shortly before your loan funds.  By then, if it comes back with anything incorrect, your loan closing will be delayed while you’re trying to get the problem sorted out.

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