united-states tax-law mortgage
Is a mortgage lender liable for missed tax credits?
<p>I bought a house in Iowa in July 2016 and got a mortgage loan through a local lender. As part of the loan application, the lender applied for a tax credit program known as the 'Take Credit Mortgage Credit Certificate'. I paid $350 to the lender for the application, and met all qualifications. Link to tax credit:  <a href="http://www.iowafinanceauthority.gov/takecredit" rel="nofollow noreferrer">http://www.iowafinanceauthority.gov/takecredit</a>. </p>

<p>Now that it is tax time, I need information from the credit approval to receive the credit on my taxes. When following up with the lender (my loan originator no longer works for the lender), they tell me that the credit was applied for, but was neither approved nor denied before the closing date. I was never told about this prior to closing, so I had assumed everything was approved.</p>

<p>My question is, is the lender on the hook for the potential tax credits lost? The credit would have applied every year for the life of the 30-year loan. I cannot retroactively apply for the tax credit. Without this credit, I believe I am technically losing about $2000 a year, and that is just for the first 10 years. Can I sue for these potential losses? </p>

<p>It is likely that you could sue, both for a refund of the fee charged and for the economic harm caused by not getting the credit.</p>

<p>At face value, this is a case of negligence or professional malpractice, with significant damages, not unlike a lawsuit against an accountant who failed to include an obvious deduction or checked the wrong box somewhere causing you to incur higher tax liability.</p>

<p>But, it wouldn't be uncommon for there to be elaborate waivers of liability in such a transaction, which might eliminate this liability. Also, this error probably wouldn't rise to the level of gross negligence or willful misconduct that would be impossible to waive in advance contractually. So, you would need to carefully review any agreements with the company before bringing suit to confirm that a right to sue over this mistake has not been waived.</p>

<p>You would also want to be sure about the relationship between the now departed individual who screwed it up and the firm that remains. If the individual was an independent contractor, your claim might be limited to that person and not to the larger entity that remains in business.</p>

<p>It does not appear that the lender is at fault, though you would need to verify that. The lender charges a processing fee, but this is a program administered by the state, and the fund are exhausted. That could explain the limbo status of the application. There is a manual of sorts <a href="http://www.iowafinanceauthority.gov/File/DownloadFile/5843" rel="nofollow noreferrer">here</a>. I am assuming that the lender did submit the paperwork: if not, that's a source of (major) liability. They might have also been negligent in saying that you are eligible if in fact you are not (since they are supposed to screen for eligibility). However, if you are not eligible then the liability would be less or zero. You should be able to recover the application fee, if they screwed up the vetting. But they would be entitled to charge for their processing, if it turns out that your inelligibility was not immediately obvious (the investigation seems to be fairly thorough, not a short "free service").</p>
