Property taxes are deductible anyway.

Wow! Somebody either erred/misled big time. Was the possibility of wrapping prepaids into a tax deductible point presented to you by a mortgage broker or a loan officer from the lender? Was this arrangement written down anywhere? At any rate, the scenario is not allowed by the IRS and I would think most lenders and settlement companies would be completely aware of this. Your HUD-1 settlement sheet is your document of record and the one the IRS would review in the case of an audit/question.

I'd pursue it with a higher up at the lender and,depending, on what I heard report it to the lender's regulatory authority.

The deductibility of points can be a bit confusing so I'll let the IRS explain it:

___"Topic 504 - Home Mortgage Points

The term "points" is used to describe certain charges paid to obtain a home mortgage. Points may be deductible as home mortgage interest, if you itemize deductions on Form 1040, Schedule A (PDF). If you can deduct all of the interest on your mortgages, you may be able to deduct all of the points paid on the mortgage. For information on deducting interest, refer to Topic 505.

You can deduct the points in full in the year they are paid, if all the following requirements are met:

-Your loan is secured by your main home (your main home is the one you live in most of the time).
-Paying points is an established business practice in your area.
-The points paid were not more than the amount generally charged in that area.
-You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
-The points were not paid for items that usually are separately stated on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, or property taxes.
-You provided funds at or before closing, that were at least as much as the points charged, not counting points paid by the seller. You cannot have borrowed the funds from your lender or mortgage broker in order to pay the points.
-You use your loan to buy or build your main home.
-The points were computed as a percentage of the principal amount of the mortgage, and
-The amount is clearly shown on your settlement statement.

Points that do not meet these requirements may be deductible over the life of the loan. Points paid for refinancing generally can only be deducted over the life of the new mortgage. However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six requirements stated previously, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Points charged for specific services, such as preparation costs for a mortgage note, appraisal fees or notary fees are not interest and cannot be deducted. Points paid by the seller of a home cannot be deducted as interest on the seller's return, they are a selling expense which will reduce the amount of gain realized. Points paid by the seller may be deducted by the buyer provided the buyer subtracts the amount from the basis, or cost, of the residence. Points you pay on loans secured by your second home, can be deducted only over the life of the loan. You may be subject to a limit on some of your itemized deductions, including points, for more information on the adjusted gross income limitations please refer to the Form 1040 Instructions.

For more information on points, refer to Publication 936, Home Mortgage Interest Deduction."

Is it on your good faith estimate?

Yes, property taxes are deductible, but a deduction on a year of homeowner's insurance in Florida sure is a nice thing. We had the feeling this point deduction would amount to something close the property tax deduction and therefore were happy to have this offset.

Good point: no, the deduction wasn't on the good faith estimate because she said it was a new program for the bank and the paperwork for it would be put together by closing.

The offer was presented by a loan officer at a bank, and though it wasn't on this good faith estimate, the bank just last week sent a VERY detailed letter of apology for specifically what they had offered and what they in the end were unable to do for us, complete with a heartfelt $25 gift card to Applebee's. :) So for sure now documentation certainly does exist!

I should say that I don't feel that the loan rep was truly pulling a bait and switch, that perhaps the bank really did make the proposal in good faith. I think my issue is the way they've handled things since they found that they couldn't do it. I think that more than a gift card was called for in the name of good business practice, and they should have felt obligated to make good on their mistake.

Jane

Are we talking real "bank" here or are you referring to a "mortgage banker"? There's a huge difference.

If what you experienced was from a real bank...they most certainly did know they could not do as you've described.

/t

I love Applebees, what bank is that? LOL

Hmm, the bank we dealt with was indeed a real full-service bank. So they should have known better?? Argh!

Jane

Yes Jane, the bank knew. Now, whether the individual loan officer did or not I don't know. But, I know for sure sure he/she does now!

/tricia

You might find the answer to some of your questions at this site.

A link that might be useful:
www.refiadvisor.com

Refinance Mortgage Loan: Why You Should Never Take a Mortgage From Your Bank
October 26th, 2006

When RESPA legislation was passed to protect homeowners from predatory lending practices, the banking industry intensely lobbied to be exempt from mandatory disclosure laws, and they succeeded. Because of this lobby, your bank is not required to disclose to you what their profit margin is on your new mortgage loan. Banks in the United States are guilty of padding their mortgages with excessive fees and no one knows the extent of the overcharging; no one knows, except for the banks.

RESPA legislation paved the way for a hybrid lender to take advantage of the newly created bank loophole. This type of lender functions as a broker-bank. Broker banks are a hybrid lender: part bank, part mortgage broker and exist solely to take advantage of loopholes in RESPA legislation. These broker-banks specialize in correspondent loans which affords them the same disclosure exemptions as your local Banks and Credit Unions. It is difficult for the average homeowner to distinguish a broker-bank from a normal mortgage broker other than the fact the mortgage broker is required to disclose what the broker-bank is not.

If you are dealing with a legitimate mortgage broker that charges you a $1,000 fee, the mortgage broker will have to disclose that fee to you. The broker-bank will pocket $1,000 of your money without you even know it. Banks and broker banks rely on unsuspecting homeowners to make their money. After you close on your mortgage with your local Bank, they will immediately turn around and sell your loan to the secondary market in order to double or triple their profit. The more the bank overcharges you for the mortgage loan, the more your loan is worth on the secondary market. This is how greedy mortgage bankers make a living.

Because banks and broker-banks are exempt from disclosure laws in the United States they are often not willing to negotiate over interest rate and lender fees. They pad their mortgage offerings to make them seem less expensive while fleecing their borrowers on interest rates and terms.

How can you tell if the broker you are working with is a broker-bank? The easiest way to tell is to ask your broker. Ask your broker if they close the loans in their own name. If your broker answers that they do not, you have an actual broker and not a broker-bank. "

Holy cow! The things I'm learning! The 'bank' did indeed sell our mortage within the week after closing! Their fees were low, and their rate competitive, so we didn't think twice even if they sold it. I see now that they're definitely a broker-bank from this description. Boy, I didn't even know such a thing existed; I feel so stupid... I suppose since they're masters of loopholes there's probably nothing we can do to get them in trouble for offering us that bogus points arrangement. Do any of you think we have any recourse? After reading everyone's responses I'm not looking for $$ for us, but to stick it to this broker-bank for playing dirty pool!

Jane