absolutely they can verify your tax return....if they require you to sign form 4506...that said, it would appear that actually using it is done randomly as a quality control mechanism
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Question: My mortgage lender has this IRS Form 4506 at closing. Do I have to sign it? What is it for?
Read on...
First of all, here is a copy of the forms in question: Download 4506_4506T.pdf
What are the IRS Forms 4506 and 4506-T for?
These two forms are used by the mortgage lending industry for audit purposes. It used to be, many years ago, that to verify a borrowers income we had to send written verification forms to your employer. This was a time consuming and often confusing process.
To speed up the collection of this data, the mortgage industry today relies on the borrowers pay-stubs and W-2 forms. Because everyone today has the equipment, with home computers, to produce forged documents the industry relies on IRS Forms 4506 and 4506-T as a back up audit tool.
When you sign a mortgage application you are signing a pledge that everything stated on your application is accurate to the best of your knowledge. The information given is then backed up by your pay-stubs, W-2 Forms and potentially your tax returns.
The IRS Form 4506 and 4506-T simply allows the lender to compare what you told the Internal Revenue Service your income was with what you told the lender your income was. The mortgage lending industry knows that you will tell the IRS that you make as little as possible to avoid paying income tax. On the other hand, it is a temptation to some to tell lenders to stretch their income to qualify for a mortgage loan.
The 4506 is the great equalizer. If a borrower lies about their income on the mortgage application then that is mortgage fraud. Because most mortgage loans are securitized by the Federal Government that becomes a Federal Offense. Mortgage Fraud is a very bad thing. Don't do it!
What is the difference in the two forms?
The IRS Form 4506 allows the servicing mortgage lender to obtain a complete copy of your tax return to compare it with the information that you put on your mortgage application.
The IRS Form 4506-T allows the servicing mortgage lender to obtain a "transcript" of what is contained on your Federal Tax Return. This is fairly common because this information is available electronically and still gives the mortgage lender the information that they need.
Do I have to sign these forms?
Yes. Because the lender is relying on information that is provided by you for your income verification they are going to require this form to be signed. If you don't, they don't approve the loan. Simple as that.
Precautions
The "Stated Income Loan", or as I call it, "The Liars Loan" many times will require this document to be signed. Remember, if you told the IRS that you make $50,000/year and you tell your lender that you make $80,000/year that is a little thing called mortgage fraud. The 4506 will bring it to light. Don't let anyone talk you into stating that your income is higher than it really is. Otherwise, you may find your wardrobe is of the black and white stripped variety.
The 4506 and 4506-T both require that you complete some information on the forms. DO NOT SIGN THESE FORMS BLANK! The lender should only be able to obtain your tax information for the last two years at the most. You need to state this on the form. Otherwise, you are giving the lender carte blanche. |
