OT: CPA Letter for Mortgage

[geekgirldany]

Client is trying to get a second house. She is wanting me to send a letter to the mortgage company that states:

"My client, owns Their Company, Inc. and therefore her business asset accounts are available to be used at her discretion, and since she is operating the business responsibly, use of those assets would not negatively impact her business."

Client said that mortgage company wants it in case she uses money from the business account on the down payment.

I've never wrote a letter such as this and not sure I should. It seems like I am giving permission for them to use the business account for personal reasons.... which they can not. They can take distributions.

Would appreciate any input on this.
thank you
Dany

[erchess]

Gut Reaction

My gut reaction is to say no on the grounds that you don't know how much she can afford to take out of the business or whether she can comfortably afford a second home. I would be comfortable stating that she is the owner of the corp and if true that you prepare the financial statements and tax returns of the corp and you believe them to be substantially correct as to their statements of income assets and expenses.

If you have E & O coverage you could consult with the lawyers from your insurer about this and if you don't I definitely would not write this letter.

[geekgirldany]

Thanks so much for posting.

I have no problems doing a letter that I prepared the returns. But geez a letter like they are wanting.... my gut also tells me not to do it. I have E&O Insurance but I just feel like I should not write this letter. Not comfortable doing it.

Dany

[Jesse]

I think more and more of the credit/mortgage companies are trying to shift the responsibility to someone else - accountants have deep pockets after all!

I wouldn't write the letter and I make it very clear in any letter I do write that:

"You should perform your own independent procedures and tests as you deem necessary for approval of credit".

[jimmcg]

Just say no to the banker. They are simply trying to find someone else to share the responsibility for the determination of the creditworthiness of the borrower. This is their responsibility as lender and theirs alone. As to a statement that you prepared the client's tax return tell them to look at page two of the Form 1040 where you signed as preparer. Make them do their job!

[erchess]

I don't normally sign the copy for the client's records that I give out. Should I?

[joanmcq]

Do a search for 'comfort letters' or 'mortgage letters' and see what people have said in the past. You are being asked to attest to something you cannot know. Check with your E&O company; I'm going to bet they either have a generic letter that attests to nothing or will advise you to not agree to any type of letter.

I won't do one, can't under CPA rules, and a lot of other people don't want to be a deep pocket that the lenders can put blame on if the loan goes south.

[JG EA]

When the client really wants one of these (after the third party thing has been signed) I write what kiind of tax return they had and so on and then take the advice of someone on this board and add a bit. I'm at home now so don't remember the exact wording, but something like

I have prepared this return from the information provided by my clients. I have not audited any information on the tax return and can not make assurances that they qualify for a mortgage.

It's better than that but you get the idea.

[erchess]

Pulled in two directions

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.

[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.

[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.

[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.

[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).

[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.

[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.