Sole Proprietor/ Investor?

[jainen]

in the future

>>Before I put my name on this letter<<

Do NOT put your name on such a letter. As you can see from these responses, there is a great deal of disagreement about what is investment and what is business, and you don't know how the bank will use your evaluation. "Investor" is just too vague a term. If the loan defaults after it was made on YOUR assurance, you could be liable to the bank.

Unless the bank is hiring you to audit the borrower, the request is unreasonable. You can only attest to what was included on tax returns in previous years, with a disclaimer that they were prepared solely on information provided by the taxpayer with no independent verification. Do not attempt to draw any conclusions from those returns concerning the taxpayer's business status. Filing Schedule C does not mean he was self-employed, and filing Schedule D does not mean he was an investor, and neither of those forms for previous years says anything about a new property he wants to construct in the future.

[Brian EA]

[QUOTE=jainen]>>Before I put my name on this letter<<

Thanks Jainen. I think this is the best way to go.

However for future postings I still think it is necessary to clarify the difference .


brian

[Kram BergGold]

More opinion

In 2005 he sold 2 lots and reported capital gains on Sch D.
He now has 2 buildings under construction.One would be completed at the end of this month and he intends to put it on the rental market.

If the above were the total picture, and I am assuming little or no improvements were made to the lots between his purchase and sale of them, I think most of us would be ok with calling him an investor not in the building of real estate.

BUT
In 2004 he filed a Sch C showing expenses as a real estate investor- for the last 2 months of the year. His primary occupation was Mortgage closing agent.There was no income from his investment.

To what were the above 2004 expenses connected? If it was the lots, then he is trying to have his cake and eat it to and in this case that does not fly. As Phil Esterhouse used to say "Be careful out there".

[Unregistered]

Jainen's Advice

He is correct. Stay away from letters of this sort. Sometimes they want a letter that the person is self employed. Regarding 2004, how in the world did he qualify for a Sch C.

[Black Bart]

What's that all about?

...Sometimes they want a letter that the person is self employed...

I've had a couple of customers tell me this past year that their bank wanted a statement that they were self-employed and have been for X number of years. Do you know why they want the income classified one way or another?

[jainen]

nothing but numbers

>>Sometimes they want a letter that the person is self employed<<

It's really kind of funny, you know. The REASON they want documentation from the accountant is so they can qualify for a no-doc loan. They want you to back up the claim that they have this source of income that they can't actually prove.

The result is a loan they can't really afford. That's not a problem when the property goes up in value and they can sell or refinance. But after so many years of bidding up prices with fiat money, the country has a problem. If prices can't or don't keep going up indefinitely, some borrowers will jump or fall out of the market. They will be looking for people to blame about the numbers, and accountants are nothing but numbers.

[Brian EA]

The whole Story

I've had a couple of customers tell me this past year that their bank wanted a statement that they were self-employed and have been for X number of years. Do you know why they want the income classified one way or another?

BB, your clients do not want to tell you the whole story. They need the letter to verify that they are self employed. In this way they can apply for a loan for the business or they are refinancing their residence. They use the SISA and therefore the letter suffices it
(SISA) stated income stated assets. They do not have to provide tax returns or W2's

brian

[OldJack]

>> In 2004 he filed a Sch C showing expenses as a real estate investor- for the last 2 months of the year. His primary occupation was Mortgage closing agent.There was no income from his investment. <<

So he filed 2 Sch-C's?

One for real estate investor for 2 months and one for Mortgage Closing Agent?

Or, was the items on the Sch-C a combination of the 2 businesses?

Maybe the 2 lots sold in 2005 were purchased as an investor (Sch-D) before the last 2 months of 2004 when he started a real estate Sch-C?

[Black Bart]

Shaky loans

The REASON they want documentation from the accountant is so they can qualify for a no-doc loan. They want you to back up the claim that they have this source of income that they can't actually prove.

The result is a loan they can't really afford...They will be looking for people to blame about the numbers

Yeah, I kind of figured it was something like that. I did it for one client who I know is solid and actually is in business -- turned down the other guy.

Talking about qualifying people for loans -- I got a strange call several years ago from the vice-president of a local bank about our mutual client, Son-X, who wanted a personal loan, but had previously borrowed money with Father-X on their construction biz. VP was hot for the deal since Son-X was a good sort who would pay his bills if he could. But, as jainen pointed out and VP was aware, the good times don't last forever. Just in case they didn't, the VP wanted me to write a letter stating that SX was not responsible for that first loan.

I could hardly believe what I was being asked to do and replied something like this -- "First, you're asking me who's responsible for a loan which you have already made and disbursed proceeds? And you don't know? Secondly, he's on the note, but you want me to certify in writing that he's not liable -- otherwise his/your numbers won't percolate? Well, I have to say I'm stunned at the audacity of this request, but to give you a quick and direct answer; NO!"

I'm still miffed about it and that dopey VP probably still thinks I was "unreasonable."

[Black Bart]

Sissy Loans

(SISA) stated income stated assets. They do not have to provide tax returns or W2's

Brian / I didn't know that's what the bankers called it, but lots of people apply for them by simply making up a "good" balance sheet. I wonder what the approval rate is?

[Brian EA]

Thank You

Thank you all for the terrific contributions made to this post.

I always believe in giving "Jack his Jacket"

brian

[veritas]

Brian

you were gone from the message board a long time?

[Brian EA]

Looking from the outside

Brian

you were gone from the message board a long time?

Veritas, I was just looking from the outside. Nothing important to post.


brian