The Real Estate Paper Storm and the IRS Form 4506-T

The pendulum of reason has swung from easy money given out to most anyone to purchase real estate, to the present day paper storm of verification after verification to even be considered worthy.

Major banks are cherry picking the best borrowers and turning down many for various reasons.  Big brother is watching!

Massive changes are afoot with lender guidelines, appraisal procedures, and income guidelines.

One of the more concerning changes is outlined in a recent article in the Los Angeles Times titled Home buyers should pay attention to IRS Form 4506-T.

The form authorizes a loan officer or mortgage investor to get electronic transcripts from the Internal Revenue Service covering multiple years of your federal income tax filings. The IRS has supplied private tax return information to lenders for years, but the data typically were requested only at the close of escrow, and mainly for self-employed applicants or those with unusual income patterns.

But Fannie Mae recently directed lenders to obtain two sets of electronic transcripts for all borrowers, regardless of income sources — a 4506-T upfront at application and another at closing. Fannie told lenders the move was part of its efforts to spot fraudulent income claims and limit loan losses.

So if you want to borrow money for a real estate loan there is not much you can do to avoid signing two 4506-T forms.  There are a few things you should be careful about when doing so.

First be sure to date the form next to your signature.  The date that you provide is important since the IRS won’t provide transcripts unless it receives the request within 60 ays of the signing date by the taxpayer making the loan application.  There was a practice of having borrowers sign but not date the form, leaving the lender the ability to order the transcripts whenever they chose – many times long after closing.

The form includes boxes allowing for up to 4 years of tax data to be accessed, but you may be able to specify fewer years be available.  Filing of tax returns on time is critical otherwise the lender may be able to access additional returns.

IF YOU DESIRE LEGAL OR TAX ADVICE, CONSULT AN APPROPRIATE PROFESSIONAL.

Photo Credit: Flicker - Pink Sherbert Photography