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This month, we are introducing a new column for questions relating to starting a business, managing a business, training, networking, tax-related issues, corporate security policy, fraud alerts and compliance. All answers are for informational purpose only, and are not intended to practice law, or are meant to provide tax advice or tax opinions. After reviewing our information, we both recommend seeking legal counsel or the advice of a tax professional. Please e-mail us at [email protected] to voice any questions or problems. We are here for you!
Bertha Biggs from Owen Mills, Md. asks …
I'm dealing with a “builder/seller” who just told me the that my buyer agreed to pay for his transfer tax fees, but I do not see it anywhere in the purchase agreement, and even their agreement titled "Oral Statements" did not list this agreement. So I assume my client is NOT obligated to pay. I also checked with the real estate agent who is unaware of this fee being charged to my clients.
I just don't want to be hit with violating the 10 percent tolerance cure on my Good Faith Estimate (GFE) as my disclosed "transfer taxes" was only $4,000 per title company, and this $1,600 for seller's taxes is coming out of nowhere.
Eric’s reply to Bertha …
Ouch! That can be major problems. First, verify with the title company that is actually the case and it is the buyer’s responsibility. There may be an addendum to the contract you do not have. I have had that happen to me in a Maryland-based deal where the transfer taxes are usually split, but I did not pick it up until later.
If it is true, then you need to contact the lender and figure out what to do since your GFE is really screwed up now. A Change of Circumstance Letter” might not do it. You might even have to cancel the deal and then re-app the deal with a new application date. Most lenders will let you transfer the lock.
Laura’s reply to Bertha …
Wow, this is a difficult situation. I believe Eric has good strategic information in his response.
First off, verify it is true. Then, handle it exponentially as you may need to rewrite the loan application, but don’t panic. Staying calm will help others involved to stay calm. Since this is a purchase, I would assume there is an attorney representing the buyers, the sellers need to contact the attorney immediately to help clarify the situation. Best of luck to you!
Val A. Gurl from San Bernardino, Calif. asks …
One of my future clients, who is also my friend, is self-employed because she's a totally independent contractor and gets a 1099. She has obtained a business loan under her business name/tax ID. Will her business monthly loan debt count against her? I assume that it will, because she's the only owner and guarantor of her business loan, which is set up as an S Corporation that we will have to factor in her business loan debt in to her DTI ratios correct?
Eric’s reply to Val …
Actually, if the business has a different name and pays with business checks, you don’t have to count the debt if you can show 12 months of cancelled checks showing the business pays the debt. It’s the same thing as if she had co-signed for her brother’s car loan.
It’s best to double check with the account rep, as some banks have different rules.
Laura’s reply to Val …
When an independent contractor is filing as an S Corporation, the loans of the business are typically shown on the S Corp 1120S tax return. If the loan shows on the tax return as an expense, and there is a 12-24 month history of the business paying for the loan (each lender has their own rules, some may be okay with 12 months, while others may require 24 months) it shouldn’t be counted as personal debt.
If it is clearly on the tax return, the lender may not require cancelled checks, but they could require proof that the loan is paid for by the business. Be prepared to show two years of S Corp tax returns, in addition to two years of personal tax returns. The income or loss from the corporation is transferred to the personal return via a K1.
Rochelle Favor from Chicago asks …
I am wondering if all FHA lenders require Social Security Cards at closing, and what if my borrower lost theirs. Is there another document that can be exchanged for the Social Security Card?
Laura’s reply to Rochelle …
The U.S. Department of Housing & Urban Development (HUD) requires evidence of your Social Security Number. It doesn’t specify having a Social Security Card, but I think each lender will make their own call on this. What other documentation maybe used to verify a Social Security Number?
Perhaps a letter stamped from local Social Security Office stating the borrower has applied for a replacement card. They are getting cards out in seven to 10 business days, so if the borrower is aware prior to closing as they should be, they could request reissuance of a card right away.
I’m trying to think of what may contain a borrower’s Social Security Number that maybe used, perhaps if they are a veteran they will have documents from the VA with their Social Security Number.
I would say it would have to be a card or document issued by a government agency, a school, possibly an employer. I don’t think a tax return, even though the number would clearly be on return, would be allowed as authentication of a Social Security Number.
Eric’s reply to Rochelle …
Look up OMB Form No. 0960-0760, “Authorization for the Social Security Administration (SSA) to Release Security Number (SSN) Verification.”
I have had wholesalers tell me that don’t like to use this form because it costs them money so that is why they require copies of the actual Social Security Card, but in a pinch, when the card looks suspicious or the borrower lost their card, it can be used. Personally, I think I lost my Social Security Card when I was 16, and that was about 40 years ago. Back then, all you needed to know was the number, no one ever asked you for the card. Who knew it would grow to be so important?
Here is a “tidbit” of information what the U.S. Social Security Administration (SSA.gov/history/ssn/geocard.html) has to say on Social Security Numbers:
The nine-digit SSN is composed of three parts:
►The first set of three digits is called the Area Number
►The second set of two digits is called the Group Number
►The final set of four digits is the Serial Number
The Area Number is assigned by the geographical region. Prior to 1972, cards were issued in local Social Security Offices around the country and the Area Number represented the State in which the card was issued. Within each area, the group number (middle two digits) range from 01 to 99, but are not assigned in consecutive order. For administrative reasons, group numbers issued first consist of the ODD numbers from 01 through 09 and then even numbers from 10 through 98, within each area number allocated to a State.
The serial numbers (last four digits) run consecutively from 0001 through 9999. Apparently due to the fact that the middle digits of the SSN are referred to as the "Group Number," some people have misconstrued this to mean that the "Group Number" refers to racial groupings. So a myth goes around from time-to-time that encoded in a person's SSN is a key to their race. This simply is not true.
Eric & Laura welcome your questions, please send your inquiries to [email protected].
Disclaimer: All answers are for informational purpose only, and are not intended to practice law, or provide tax advice or tax opinions. After reviewing our information we recommend seeking legal counsel or the advice of a tax professional.
Eric Weinstein worked in banking, on the commercial real estate side until 1991, when he fell in love with residential lending. He may be reached by phone at (703) 505-8692 or e-mail [email protected]. Laura Burke is an author and trainer with 20-plus years of experience in the mortgage marketplace. She may be reached by e-mail at [email protected].
This article originally appeared in the September 2015 print edition of National Mortgage Professional Magazine.
