Elvin Lorenzo

Note: Just because you've filed your taxes, doesn't mean it's registered with the IRS!

When it comes to verifying income of home loan applicants (buyer), accepting the face value of W-2's and Tax Returns presented at the time of application is simply not enough. As an added measure of verification, virtually every bank and lender has been requesting for tax transcripts (4506) from the IRS to verify the income that has been filed by the applicant. Sounds simple enough, right? Well, believe it or not, this has caused funding delays because of people who are not in the know.

Yes, there are actually people out there applying for home loans, making offers on homes and going through the whole process and have not filed their tax returns in the last 2 years OR have filed but have not verified with the IRS that their returns are received and processed in the system! What's worse is even though this form is signed and collected up front at the begining of the application, the lender doesn't usually request for a copy of the transcript from the IRS until before or after loan documents have been signed at title!

My goal today is to help everyone involved in the transaction (customer, realtor and loan officer) to be in the know to avoid any headaches and grief in the home buying process.

Folks, let me first of all introduce you to the 4506-T Form (seen here above). This should be one of many forms signed along with many loan disclosures after submitting a loan application. What exactly does signing this form do? Signing this form gives the lender permission from you to obtain a copy of your tax transcript(s) from the IRS for the sole purpose of applying and obtaining a home loan.

Sound a little excessive? It does sound a bit excessive, but believe it or not, even in this lending environment where everything is scrutinized to the T, there are still people out there submitting falsified income documents.

My customers are W-2'd, fully documented borrowers! Is this really necessary? I understand that having to take this measure does sound a bit redundant, but you'd be surprised of what comes back on those tax transcripts from the IRS that can adversely affect the whole loan process! Things like an Amway Business that was supposed to be a secondary source of income on the side for about 6 months that didn't do so well and ended up with $10k worth of losses and write-offs - this now has to be deducted from the overall income and this could result in no longer qualifying for the loan.

Any other reasons why the tax transcripts (4506) just might not come back from the IRS? As a matter of fact, yes - the IRS just doesn't have your tax returns in their system!!!

Here's a story of a horrible experience that one of my customers had to deal with who we will call, Bob:

I have been filing my taxes electronically with my tax preparer and even with his dis-trust with technology, he has still insisted in me mailing out a copy with my wet ink signature to the IRS anyway. Well, guess what? The one time I need my 2008 tax transcript, the 4506 comes back saying my returns were NEVER filed. Needless to say, I made a phone call to the IRS and spoke to an agent and here's how it went:

IRS Agent: "Oh, yes, your electronic filing was rejected..."

Bob: "Well, i sent out a hard copy by mail, as well - did you receive that?"

IRS Agent: "no, sir. we've got nothing."

Bob: "ok...well, it's 2010 now. When were you all planning on letting me know that you never received my 2008 Tax Returns?"

IRS Agent: "I apologize, sir. I've got nothing here. If you want to re-submit your 2008 returns, we'll go ahead and put it into the system."

Bob: "well, i'm in contract to buy a home and now it's not going to go through because of this. I'd love to send you my tax returns for 2008 but all my things are in boxes and my tax preparer is on vacation. can you at least send me a transcript of the income i reported for 2008 so i can at least try doing my tax returns myself and send it back to you guys?"

IRS Agent: "Actually, sir. I'm not going to be able to do that. Our system is currently being updated and we won't be able to access that information for another 2 to 3 weeks."

Bob: "So....you can't help me?"

IRS Agent: "No, sir."

Bob: "Is there anyone else there...a supervisor...anyone else there that can help me?"

IRS Agent: "No, sir. Our system is being upgraded and worked on. January is considered our down month so they're doing all the work right now."

Bob: "Well, if you can't do anything for me and no one else there at the IRS can do anything, then what you are you doing there working and answering the phones? You're wasiting tax dollars - my tax dollars!

Folks, do yourself a favor! Call this number: 1-800-829-1040

This number is to the IRS. Call there to verify that your 2 years tax returns are not only received but is completely processed in the system. Do this as early as possible to save yourself from any grief and headaches!

follow me on twitter: @elorenzo5

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