Earlier this week, it was revealed that over 100,000 tax payers may have had their personal information stolen from the IRS. This data breach is potentially causing hiccups with real estate transactions currently in process too.
With every mortgage, a borrowers income is verified with tax transcripts from the IRS. The tax transcripts are compared to other income documentation that is provided to the mortgage company as a step to prevent fraud. During busy tax times, it may take weeks to obtain the tax transcripts and it’s not unusual to have transcripts to come back as “rejected” if the borrowers information submitted to the IRS does not match their filed tax returns (this is one reason why lenders bug you for your tax returns).
With this recent data breach, the IRS is rejecting some request in order to deter fraud. Lenders may receive a response from the IRS that states:
“Due to limitations, the IRS is unable to process this request. The IRS will mail a notification to the borrower to explain the reason; please contact your borrower.”
Ellie Mae reports that they’re seeing about 2-3% of request for tax transcripts receiving this “limitations rejection”. Because of the data breach, no third parties will be allowed to have access to an impacted borrowers information.
However, if you or your clients receive this rejection, waiting for the IRS to mail a notification may obviously cause delays to a real estate transaction. Lenders will require acceptable transcripts and waiting on the IRS, U.S. Mail and the borrower may be an issue for on time closings for those impacted by the IRS data breach.
This may not only impact closing dates… it may also cause locks to expire if the mortgage rate lock is set to expire prior to the lender receiving an acceptable tax transcript.
What a mess!