OT: CPA Letter for Mortgage

[Snaggletoof]

Worthless

Anyone with a grain of sense would realize there is nothing of substance in Hoffman's letter to bear responsibility away from the lender.

It is common for a lender to require an independent audit, or at a minimum an audit review, from a public auditor/CPA. This costs money, much less for a review than for an audit. The attest function should remain in the domain of a CPA, not a tax preparer.

I am an EA only, and will reveal only historical reported tax information for a bank. And then, only with the consent of the client. Sometimes that will suffice -- if they are more nervous than that they need the services of the attest function.

[BHoffman]

Dany - Here is the only "comfort letter" I will give to any mortgage lender, and only in very extreme circumstances will I ever give it out.


"To Whom It May Concern:

Corporation, Inc. has been my client since January, XXXX. I have not audited or reviewed any financial information that was used to prepare the tax returns. All information included in the financial statements and tax returns is the representation of the Management of Corporation, Inc.

As you know, a credit decision should be based on a lender’s exercise of due diligence in obtaining and considering multiple factors and information. Any use by you of this letter is solely a matter of your responsibility and judgment, and this letter is not intended to establish a client relationship with you nor is it intended to establish any obligation on my part to provide any future information to you with regard to Corporation, Inc.


Yours truly,"

[Davc]

Dany, even a CPA wouldn't write such a letter. And I say this because financially speaking, CPAs are more depended upon for the attest function than EAs and Attorneys. The only broad-based future forecasting they attest are things such as 10-K statements for publicly traded companies.

If you haven't read a 10-K statement, take a few minutes if you can find a brief one. These are so full of caveats and qualifiers by CPAs that potential investors are scared off before a CPA will give assurance, even for a stable company.

Even an audit letter boils down to "We think these statements are a reasonable reflection of the relatively perverted version of reality allowed by GAAP. But if they aren't it's not our fault!"

[geekgirldany]

Wow I tell you the mortgage companies are getting desperate.

I had a new client several years ago that wanted me to do a letter stating that I had prepared his tax returns for the past five years. I had only prepared one year. Former preparer passed away. Mortgage person was related to client and called to tell me "only I (mortgage company) need this". Told him no way. I would do a letter for the one year but that was it. He then actually tried to "negotiate" me down to two years.... what a nerve. He got huffy and so did the client. Client never came back and glad he did not.

Dany

[luke]

Last week

I had a "client" make the same request of me this week - let me explain - this "client" was an individual that came to me for advice on forming an LLC - he paid and left - never came back to pick up state business applications etc - His mortgage company wanted me to state that he was NOT using LLC money for his down payment - Now I had NOT done a tax returnnor ANY other financial/tax work - He acted like he got mad when I WOULDNT do it! Oh Well.....

[DTS]

...Asked him where her got the sample letter from and she said the mortgage company sent it. Had a CPA name and signature on it. Did not look up to see if it was a real company or not. How handy they already have a letter setup for me to copy and add my signature.

Dany,

Years ago, I did a letter similar to this where I all I stated was I prepared the Sch C and had been doing so for X many years, period. Maybe a month or so later, some strange person is calling asking if I prepared the C for Mr. Buyingahomethaticantafford, not my client. I took the company's information to the police and then called the company to tell them Sgt. Soandso would be calling. That took care of the problem and I never wrote one of those again.

[JohnH]

Maybe you should find out if it's a real CPA firm or not. If it is, show it to the cient and tell them another reason you don't want to write the letter is because the lender is so careless with what should be confidential matters.

[geekgirldany]

Told client that I would not write the letter. Was understanding about it.

Asked him where her got the sample letter from and she said the mortgage company sent it. Had a CPA name and signature on it. Did not look up to see if it was a real company or not. How handy they already have a letter setup for me to copy and add my signature.

[kpangelinan]

On one hand one hates to lose a good client because one does not feel able to comply with a request the client is getting from what the client views as a friendly and ethical loan officer. On the other hand, one hates the idea of being sued by a loan company after a loan becomes a loss. The client is probably gone or at the very least has a less expensive return and less ability to pay for it and the court case will cost time and energy even if the E & O insurer picks up the lawyer's fees and all of the judgment except one's deductible. All in all I am making changes in my behavior. I will attest that I prepared the return but I will stop pointing out that by signing it I asserted to the government that it was complete and accurate to the best of my knowledge and belief and I will stop asserting that I continue to hold that belief. (I've never had that belief change based on new information so I've never had to think about what to do if such a changed client asked for a letter.) I will start pointing out that I am not an auditor and I based the return on information from the client which I did not audit. I will advise the lender to do an examination of the credit worthiness of the client because I am not in a position to comment on that.

If a client is going to leave because you made a professional recommendation not to adhere to something, they are not a "good" client and in my experience, there will be more trouble than profits down the road for these people. Most of my clients trust my professional judgments on matters and those that try to know more than me on tax matters or think they're response is a more correct one, will end up costing you money in the end.

I pretty much agree with most people on this board as to not writing the letter exactly as the bank has requested.

[taxxcpa]

Attest sttements

Dany, even a CPA wouldn't write such a letter.
And I say this because financially speaking, CPAs are more depended upon for the attest function than EAs and Attorneys.
If you haven't read a 10-K statement, take a few minutes if you can find a brief one. These are so full of caveats and qualifiers by CPAs that potential investors are scared off before a CPA will give assurance, even for a stable company.

If a non-CPA writes a compilation letter, they could be accused of practicing accounting without a license.
Any CPA or non-CPA should generally avoid any form of assurance as to accuracy unless they are a CPA that has performed an audit.

[Snaggletooth]

Absolve Yourself

Dany, even a CPA wouldn't write such a letter. And I say this because financially speaking, CPAs are more depended upon for the attest function than EAs and Attorneys. The only broad-based future forecasting they attest are things such as 10-K statements for publicly traded companies.

If you haven't read a 10-K statement, take a few minutes if you can find a brief one. These are so full of caveats and qualifiers by CPAs that potential investors are scared off before a CPA will give assurance, even for a stable company.

[JON]

Comfort letters

are for the underwriter and should be their problem. 5 years ago I had a client who moved to Vegas and build a home. I get a last minute call from the mortgage broker saying they need a letter from me telling them that she has plenty of money in IRAs to pay the mortgage payments. I gave them the number of the brokerage firm that handled all her stuff and said get a copy of any statements they needed from them (with her permission). The other end became very anger and said she would not be able to close on her house and the fault would be mine. I just said I would not feel that way. The next day I get a call from Charlotte, NC - the mortgage compnay's headquarters telling me what a bad CPA I was that this was done all the time. I said that should make it easy for you to get it done then. Again I had someone on the phone telling me things about my family that I had never known. She somehow closes and remainded my client.

The "no doc" loans of the 90s and 2000s any comfort letter we sent was followed by the statement we had not audited or verified any information and believe it to have limited help in the mortgage loan process. When what they are asking does not make sense usually means it does not make sense and we limited to years we prepared the return and self employment meant a Schedule C (they hated that also).

[ChEAr$]

Only if client would pay me to do a cash flow analysis for previous year AND a projected (pro forma) one for this year would I feel comfortable in sending some communication to a bank referencing the attachments IF the current projection shows positive figures.

But then mortgage officers probably wouldn't even know what a
cash flow statement is.

[BP.]

Just say no to the banker . . .

you prepared the client's tax return tell them to look at page two of the Form 1040 where you signed as preparer.

Yes, I agree.

[taxxcpa]

Mortgage letter

I've never been asked to vouch for the accuracy of information. I have been asked to state that I have prepared Joe Sixpack's return for ____ years, and he has always reported income in excess of $____. Also, I've been asked to confirm that Joe Sixpack is self-employed according to his tax return.

I explain, if necessary, that I do not do audits and doing just one audit could require me to spend almost as much on a peer review as I could reasonably charge for the audit.