Letters to Lenders - Does anyone do what I am doing?

Client: "Dear tax pro - my lender needs a letter yesterday please".

Me: "Dear client - If you write the letter, we will sign it and return it on our letter head for no charge. If we write the letter, we charge $59 plus tax.

Please understand the fee is to protect our time. We get many letter requests, and often they need to be re-written. We cant write letters all tax season and not do tax returns - we would go out of business - I hope you understand."

Do you think this is reasonable?

Me: "Dear client [b]- If you write the letter, we will sign it[/b] and return it on our letter head for no charge. If we write the letter, we charge $59 plus tax.

That is a risk I am unwilling to take. Have you checked with your E&O carrier?

Why would you sign a letter written by someone else? I don't do these "Lender Letters" ever! Let the bankers do their job of risk analysis themselves and don't push that on me!

Well, if I don't agree with the letter of course I wont sign it. I have them write it to save time.

It's usually something like, "I confirm that John Doe has had self employment income for the last 2 years of doing his taxes".

Are lenders not just checking the boxes? Can they really hold a tax preparer liable for a derelict borrower? Has anyone ever actually been sued by a bank for writing a letter like this?

You really tell all of your clients "no" just like that? I get so many of these requests, is it just me?

Maybe I should stop.

I am not sure about your area but my area the lenders want more than "My prepared the tax return for so and so for tax year xxxx". They want me to verify their income. I tell them that I am not an auditor and that the tax return was prepared from information supplied by the taxpayer that has NOT been verified by me.

Most banks will order a tax transcript anyways so I don't see the point of requiring such letters.

The lenders should be able to look at the tax return for the last two years and see if there was self-employment reported. They should not need us to confirm that. I do not prepare these letters for clients. I repeatedly tell them that I will not, and that a letter from me should have no bearing on whether they are approved for a loan.

I would never put what lenders want on my letterhead. I'll tell them I prepared their return, but that's it. Way too much liability to do anything more.

The "comfort letter" you are talking about was part of what caused the 2008 collapse!!! I had a standard final paragraph after that I told them how many years they were self employed - then I said I do not see how this can possible help in any consideration for a mortgage, and I would supply copies for the previous three years if the client would give permission. I received some great telephone calls about that. I have not seen any requests like that for ten years. I was told by the mortgage community there is no such product that would require just that anymore.

We are still seeing too many of these!

We first explain to the client that we will write a letter that does not "verify" anything, and that the lender will try to blame us if the loan does not get approved.

We then explain that the lender already has the tax returns (that they provided) and that they, likely, also signed Form 4506 allowing the lender to get return transcript. We write a letter based on the AICPA and CAMICO recommendations and charge $75, and give to client.

After pushback, we direct client and lender to AICPA position paper from 10/2013 (https://www.aicpa.org/InterestAreas/FRC ... cation.pdf)

Client: "Dear tax pro - my lender needs a letter yesterday please".

"Dear client: My E&O carrier absolutely prohibits me from participating in these letters. Lenders use them to cause me to share liability if at some point you don't make the payments. I prepare the tax return based upon information provided by you, and if I attest to the accuracy of information that I have not verified, then I have stepped beyond what I do as a tax preparer."

I would never put what lenders want on my letterhead. I'll tell them I prepared their return, but that's it. Way too much liability to do anything more.

Precisely. E&O carrier is going to frown at anything on a firm letterhead going to a lender. All I will acknowledge is that I prepared the tax return(s) based on the information made available to me. Do not doubt for one second that if the loan is in default, the lender will not come after you, too.

Wow - I'm so glad I asked. I had no idea I was the only sucker doing this.

Here is my new canned response. Jad, send me a W9 so I can send you royalties...

Dear client:

Our E&O carrier absolutely prohibits us from participating in these letters as lenders use these to cause us to share liability if at some point a borrower does not make payments.

We prepare the tax return based upon information provided by the client, and if we attest to the accuracy of information that we have not verified, then we have stepped beyond what we do as a tax preparer.

Please explain to your lender that there is nothing we can write in such a letter that verifies anything that is not already on the tax return.

Thanks for your understanding.

I'd steer.

Lenders use these letters to make them "qualify" for something that they are probably not qualified for.

I like your additional wording. Be prepared for the client to tell you that the lender says the client will lose the loan without the letter. Be assured that although threatened, none of my clients have lost the loan. Good luck.

I like your additional wording. Be prepared for the client to tell you that the lender says the client will lose the loan without the letter. Be assured that although threatened, none of my clients have lost the loan. Good luck.

I'd just like to chime in on Jessica's thought here. I, too, get these letters and have a "nothing" response I will send.

More importantly, I have yet to have a client lose the loan because of a lack of a letter from me. The lender will find an alternative.
On many occasions, I've encouraged my client to find another lender. At the prospect of losing the business, they "miraculously" come up with a reasonable solution.

Please explain to your lender that there is nothing we can write in such a letter that verifies anything that is not already on the tax return.

But you haven't verified information on the tax return have you? It's prepared with information the client provided that has not been audited or examined for accuracy?

I think the implication is that the information in the tax return is the only information we, as tax preparers, can speak to. In that what is shown on the tax return is what was reported, on the tax return. The paragraph prior to that clearly states nothing was audited.
These lenders often ask: "Can you send me a letter saying that the money being taken out of the business for the down payment on this loan won't negatively affect the business in the future?"
Not just no, but HELL NO. Professional standards prohibit me, as a CPA, from making and statement on future transactions or the credit worthiness of anyone.

Agree, and I think it seems to be novice or shady lenders that typically request these letters in the first place.

I have prepared a couple of letters confirming current employment (not on my letterhead), and limit it to "As of the date of this letter, so-and-so is currently employed by X with compensation equal to _____."

@CaptCook I cannot tell you how many requests I have had for the letter saying that taking money from their S Corporation would have no negative impact. Really? I do not issue Comfort Letters. I know I had a presenter at a CPE conference a few years ago that talked about one of the big firms who were sued in Miami because of a "comfort letter" and the client defaulted and the CPA firm was sued and they lost.

It is a touchy situation we are put in as we do not want to upset or lose a client because we refuse to do something.

In addition to these, there are all sorts of requests from Lenders. Personally, I think there is a checklist and some data entry person is going down it and tells the client that they cannot move forward or will lose the loan or cannot close without it. And funny how it is usually the day before or morning of closing.

"Failure to properly plan on your part does not constitute and emergency on mine."

Most recent was a mortgage refinance, client has owned the house since the 80s, $70k loan, and they need the LLC Operating Agreement for an LLC he is a minor owner in that is basically a shell as they have not done anything with it and only shown a minor loss on Schedule E.

I think the implication is that the information in the tax return is the only information we, as tax preparers, can speak to. In that what is shown on the tax return is what was reported, on the tax return. The paragraph prior to that clearly states nothing was audited.
These lenders often ask: "Can you send me a letter saying that the money being taken out of the business for the down payment on this loan won't negatively affect the business in the future?"
Not just no, but HELL NO. Professional standards prohibit me, as a CPA, from making and statement on future transactions or the credit worthiness of anyone.

I like to keep my clients happy, if possible. I just received this exact request. I'm considering this as a response. I think it's fair but shouldn't put me on the hook for anything. Thoughts?

"Client Bob has represented to me that the money being taken out of the business for the down payment on this loan won't negatively affect the business."

Sincerely,
basisschedule, CPA