There’s an old joke that there are only two things in life a person has to do. Everyone has to pay taxes and we all have to die eventually. Well, today we’re finding that more and more homebuyers DO NOT file their federal tax returns with the IRS, which often means they’ve not paid their taxes.
Some of you may not know this, but a normal part of the verification process of a mortgage loan is to check the filed tax returns of all borrowers. Due to increased tightening of underwriting guidelines, most mortgage investors order a copy of the filed tax returns for each borrower from the IRS. This is done using the 4506 Form which borrowers are required to sign at the time of loan application.
Mortgage underwriters are reviewing the tax returns to see if you (the borrower) are writing off any business expenses. Even on salaried borrowers, the underwriting rules require that borrower’s income for qualifying purposes be reduced by the amount of the business expenses they are writing off on their tax returns.
Many salaried people write off unreimbursed employee expenses on Schedule A of the 1040 tax form. Other salaried people have business expenses that they write off on Schedule C for a side business.
In addition to business expenses which can reduce the borrower’s income for mortgage loan qualifying purposes, mortgage investors are finding that an alarming number of borrowers have either not filed a tax return or that the tax returns they filed with the IRS do not match the tax returns they provided as part of their mortgage loan application. Yes, they’ve created two sets…. and yes, this is attempted mortgage fraud.
Both of these actions are serious federal violations. In the state of Georgia, mortgage fraud is a felony.
Maybe the moral of this story is this is no joke and the consequences of being found guilty of either of the above violations may not be death, but the possible consequences are definitely no laughing matter.
Don’t try this at home.