As I understand the lenders are not looking at any 2007 tax returns in the short sale packets because they are not yet due however I have a question. My client has completed and filed her 2007 return which she provided and she is going to receive over 5k - is there a way the lender will find this out and it will cause a problem with ss approval? Is this going to play any role in the transaction at all? I’d rather forget I ever saw it but I don’t want to lose a deal either.
It depends at what stage your SS negotiation is at. If you have an active offer and the lender is now gathering financial statements on the seller, then it’s ok to leave out the 2007 tax return. However, if you are asking the bank to approve a bid that is very very low, they will need tons of justification for the SS approval.
If your bid is good and you can justify that it is still cheaper to their bottom line than foreclosure, then stick to your guns. If this stretches out to past April 15, and they ask for the return, you will have to provide it. If the client’s $5000 erases her “hardship,” then you may be denied, but if her hardship still exists, the SS is still sound and you have strong grounds for approval.
Did the lender ask the borrower to include a tax return or a financial statement in the short sale package?
If not, then don’t offer anything they did not ask for. Don’t give the lender any more ammunition than they already have to seek a deficiency judgement against the borrower.
Yes they did ask - this is why I was concered. They didn’t ask for 2007 though.
Deficiency Judgements are not allowed in my state 
They can however include a promisory note in the docs but I don’t see that happen. Typically happens if the homeowner has more assets than liabilities. I haven’t seen a client yet that even has a stable bank account.
If they didn’t specifically ask for 2007, don’t provide it. However, be ready to prove that even after the $5K refund, your client still has a legitimate hardship.
If the lender has asked for a recent tax return, then have the owner provide the either the 2006 or 2007 tax return. Pick the one that shows the lower amount of income.