SAN DIEGO (CN) – Bank of America under-reports to the IRS its customers’ tax-deductible “deferred interest” mortgage payments by “millions, if not billions, of dollars,” to decrease its reportable income, homebuyers say in a federal class action.
Named plaintiff Richard Horn claims Bank of America’s intentional misrepresentation prevents borrowers from filing correct tax returns and getting the deductions they deserve.
Horn says he is “one of millions of consumers” who were hurt “by BOA’s wrongful accounting practices.”
Horn, whose mortgage loan is serviced by Bank of America, says he received inaccurate tax forms from the bank which, under-reported the mortgage interest he paid in 2009, 2010 and 2011 by more than $23,000.
Horn says his adjustable rate mortgage loan (ARM), one of millions of such loans serviced by Bank of America, allows him to make minimum monthly mortgage payments and defer some of the interest due on the note, which is added to the loan balance.
“The issue presented in this action arises when the ‘deferred interest’ is paid by the consumer, and how BOA then characterizes those payments,” the complaint states. “Unlike other national banks, BOA is not treating the consumers’ payments of the ‘deferred interest’ or ‘unpaid interest’ as mortgage interest at all. Rather BOA mischaracterizes these payments as a ‘reduction of principal.’ As a result, BOA knowingly and deliberately fails to report the consumers’ payment of ‘deferred interest’ as a payment of ‘mortgage interest’ on the consumer’s IRS Form 1098 BOA files with the IRS.”
Horn says Bank of America owns or services millions of adjustable rate loans which are worth billions of dollars.
The bank took over most of those loans from other lenders, such as Countrywide Financial, which BofA acquired for $4.1 billion in 2008, according to the complaint.
Horn says the bank makes a distinction between principal and deferred interest on its monthly loan statements, but still treats the deferred interest payments it receives as “a reduction in principal.”
He says he and other borrowers relied on the bank’s tax forms and did not deduct from their taxes the full amount of mortgage interest they paid to BofA.
“Having first realized the under-reporting of mortgage interest by BOA in March 2012, plaintiff contacted BOA about the discrepancy in ‘mortgage interest’ payments on the IRS Form 1098 issued to him by BOA,” the complaint states. “BOA informed plaintiff that the $10,628  ‘deferred interest’ payments were a ‘reduction in principal’ and therefore not reportable on IRS Form 1098 as ‘mortgage interest.’ Plaintiff disagreed with this characterization and requested a corrected IRS Form 1098. BOA refused.
“As a result of BOA’s mischaracterization of deferred interest payments as principal reduction payments, plaintiff is informed and believes, and thereon alleges that class members are and were similarly affected by BOA’s under-reporting of mortgage interest and are and were deprived of the ability to adequately prepare their tax forms and deduct from their taxes the full amount of mortgage interest they paid to BOA in 2011.”
Horn claims the bank filed hundreds of thousands, if not millions of inaccurate tax forms, which under-reported borrowers’ mortgage interest payments.
He claims the bank “has engaged in this wrongful accounting practice solely to benefit itself by reducing its public debt exposure and to avoid reporting interest income and payment of income taxes on such earned income.”
He says other mortgage lenders with similar loans do report the receipt of all mortgage interest paid to them.
Horn seeks class certification, compensatory and punitive damages for breach of contract, negligence, negligent and intentional misrepresentation and unfair business practices, and wants the bank to issue corrected tax forms for the years for which it failed to report all interest payments.
He is represented by David Vendler with Morris Polich & Purdy of Los Angeles.