Q. I just signed the documents for my new loan. One form I was required to sign was an IRS form 4506. The escrow officer told me that it would enable my lender to obtain a copy of my tax returns. I already gave the lender a copy. Why do they need this form?
A. Since loan fraud is extremely prevalent, lenders require a couple of forms to be signed for audit and verification purposes. A new IRS form 9501 signed by the borrower allows the lender to verify adjusted gross income stated on the borrower's tax return. This form is faxed to the IRS and within 24 hours the IRS will respond as to your income. Also, IRS form 4506 can be sent by the lender and the IRS will send a copy of your tax returns to the lender.
A copy of the borrower's tax returns sent to the IRS will be matched to the tax returns submitted to the lender by the borrower for loan qualification. This was taking approximately two weeks and often the loan was funded before the tax returns could be compared. Many lenders now employ a service that communicates with the IRS utilizing form 4506. The service, within 48 hours, can now place in a lender's hands a line item printout of your tax returns for comparison purposes.
A couple of lender auditors have told me that the IRS has issued subpoenas to their companies requesting entire loan packages once an inconsistency has been discovered. The IRS, after issuing the subpoena, may take up to one year or more to audit the file and notify the borrowers that their loan file is under review for fraud.
Q. I am confused. My accountant tells me I cannot deduct some of my interest on the second mortgage I got last year.
A. Undoubtedly you have heard or read about the loans available today allowing you to finance your property up to 125% or more of its value. If you have taken advantage of the equity buildup of your property in the past and now pull additional cash out of your home, you may not be able to deduct the entire interest charged on your loan(s). The law changed in 1986 limiting an individual's interest deduction to the first $100,000 of equity withdrawal. The interest paid on an equity loan after the first $100,000 would not be deductible. So, if you withdrew more than $100,000 out in equity refinancing, the difference between the interest on the total equity withdrawn and the interest on the allowable $100,000 equity loan is not deductible. It is always advisable to confer with your tax advisor.
Q. I applied for a loan and was turned down. Do I have a right to the appraisal the lender did on my home?
A. Lenders are covered by both Federal and State law as to the release of appraisals. You did not state in your question whether you paid for the appraisal. If you paid for the appraisal, you are entitled to receive a copy of the appraisal. You must make your request to the lender in writing.
If you did not pay for your appraisal and want a copy, you must notify the lender and pay for the appraisal. Under both Federal and State law, you must notify the lender in writing within 90 days after credit denial that you want a copy of the appraisal. Once the lender receives your request, the appraisal should be sent to you within 15 to 30 days.
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