The Smooth Loan Process #2010-28

Fake Tax Returns-What Could Possibly Go Wrong?

Fortunately, I've never had the pleasure of dealing with somebody that has provided me fake tax returns with their loan application. But there are people who would do this and those people suck.

These days, every piece of documentation that is provided has to be verified. Pay stubs are verified with the employer. Bank statements are verified with the bank and tax returns and W-2's are verified with the IRS. For the vast majority of us, verifying this information is not a problem. If you have purchased a house recently, you probably don't even know that this happened. If you are purchasing and you are aware of the IRS validation, you are probably not happy right now.

The problem is that taxes were just due on April 15 and millions of people file at the deadline. The IRS records all of the data from your tax returns and it can take several weeks for that to happen. If your closing is going to occur within a month or so of April 15, waiting for the IRS to process your tax returns could cause a delay.

If you're buying a house during this time of year, the best thing you can do with your taxes is to file electronically. Tax returns that are filed electronically are available for validation within a day or two. If you're not going to file electronically, the next best option is to hire a CPA to prepare your taxes. Sometimes we can have the CPA verify that the copy of your taxes we have are the same as what was filed with the IRS.

So why is all of this done? It's been discovered that one of the highest incidents of loan fraud involves tax returns. A self employed buyer might have a lot of deductions and expenses that makes his net income too low to qualify for the loan. There were many cases of self employed borrowers giving the bank tax returns without the deductions for qualifying but giving the IRS tax returns with the deductions to reduce his tax liability.

Also, we all have access to the software to produce W-2's and tax returns with any amount of income you want. There's even a website that will produce real looking pay stubs and you can put in any salary you want. They advertise that it's for entertainment purposes to "impress your friends." Come on!

This probably goes without saying but if you provide documentation that is not accurate for home loan, chances are your loan will not be approved.

The Smooth Loan Process lesson for today: Give your loan officer your real tax returns and W-2's. It's easier that way.

Harold Perkins
Galaxy Lending Group, LLC
602-595-1233
Harold@HaroldPerkins.com
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