Posted by Anonymous on 11/28/05 8:32pm
Msg #78956

transcript of tax return

I did my first signing today, and there was a form that said transcript of tax return but no years were listed. I was asked by borrower why did they need their tax returns and also wasn't it illegal for the lender to have their tax returns. I answered that the lender wanted to these transcripts to see if the borrower had in informed them correctly about their earnings and about it being illegal, I said to ask a lawyer. Did I answer the tax return question correctly to borrower?

Reply by Simpson/VT on 11/28/05 8:45pm
Msg #78957

go ask a lawyer....

Reply by GEN_LEE on 11/28/05 9:36pm
Msg #78961

loan docs sometimes have a seperate page that the borrowers sign permitting the lender to fill in those dates at a later time. Usually, when this page is not included, then there is a limited power of attorney form that can be used to later add these dates.

Reply by PAW_Fl on 11/28/05 10:00pm
Msg #78962

Re: transcript of tax return - IRS From 4506

Illegal for the lender to have their tax returns? Quite often, the borrowers must supply copies of their 1040's to the lender as part of their application. Even if they didn't, the from 4506 comes form the borrower allowing the lender to request the copies. Nothing illegal about it.

IRS 4506 and 8821 are forms which allows the lender to receive an electronic abstract of the borrowers tax returns. It this day of scanners, laser printers, and tax preparation software it is easy to prepare a set of "phony" tax returns to submit to the lender. This form's purpose is to keep everyone honest. If the borrowers give the lender tax returns they better be the same one's that were sent to the IRS. The borrowers will not get a loan if they're unwilling to sign this form. This is not open for discussion. Please understand that this does not mean that any information is being provided to the IRS. The information comes **from** the IRS.

Also note that this form is usually invoked only if the loan is audited. And by the borrowers dating the form on the signature line, the request to the IRS must be made within 60 days of signing.

This information is available online at the IRS website and most of it is included in the instructions on page 2 of the Form.

Reply by DonR_NYC on 11/28/05 10:11pm
Msg #78965

(And before someone jumps on me the following information is taken directly from a Loan Processing Course that I attended.)

No. The IRS Form 4506 is used by the lender when auditing their loan officers, not to see if the borrowers correctly stated their income. This is to ensure that the LOs are not overstating the borrower's ability to qualify and repay the loan. Audits of LOs is done at random so no one knows when a file of theirs will be audited. Most lenders only keep the form on file for one year.

Reply by DonR_NYC on 11/28/05 10:13pm
Msg #78966

Should have said "usually when auditing their loan officers, not to see if the borrowers correctly stated their income however a lender may also verify the borrower's truthfullness."

Reply by TitleGalCA on 11/28/05 10:23pm
Msg #78967

Don, I think form 4506 can be used for more than one reason - either to monitor loan officers, or verify the borrowers information, and it's quite "legal".

Bottom line is - it's borrowers permission to request the information directly from the IRS. You and PAW are both right.

Reply by ReneeK_MI on 11/29/05 3:50am
Msg #78979

Adding to the excellent descriptions of this document ...

Occassionally, a borrower obtains a loan without documenting their income (commonly called "Stated Income" or "NINA" products). Occassionally ... a 4506 is erroneously included in their closing pkg. This has been known to cause spontaneous combustion at the closing ...

In the event that this happens, I certainly don't offer any opinions but contact the lender, who invariably says "oops"

Reply by CrystalT_FL on 11/29/05 9:04am
Msg #78991

What do you do if you cant get in touch with lender etc at closing, in that situation? Make a note that the borrower refused since it was a stated income loan? TC's and SS's in the past have just told me "well if its in the package it has to be signed." Then the borrower feels like their loan may not fund if they dont sign, which feels kind of coercive (sp?) when there wasnt supposed to be any verification.

Reply by ReneeK_MI on 11/30/05 4:25am
Msg #79162

Borrowers in this scenario, in my own experience, have been pretty unnerved by the document - not for me to surmise the reason! Fortunately, they've all had recission periods with which they can iron out their issues - I simply remind them of that, and I always have THEM write their OWN 'refused to sign' note ON the doc they are refusing to sign. (Except for one gentleman who refused to do that, didn't even want his handwriting on it! I gave him a blank piece of paper ...) There is a very clear line between what I might have knowledge of or experience with, and what I can/will say to a borrower. I will then pull the doc in question from his/her copy pkg, place on top so they can easily access, and write the number of whomever they should contact in the morning regarding it.