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Comfort Letters

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#1
COGS  
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Going to vent. Why do mortgage brokers think that CPAs can write letters saying that "it will not cause any financial burden" if so and so takes the working capital out of their company and all the other inappropriate requests that the put on us.

I am thinking that our profession really needs to push back. I am tempted to draft a letter to send to the SEC and the real estate licensing board stating that these businesses should be investigated for inappropriate underwriting by thinking a BS comfort letter is a good idea to request.

I don't write them in general. Granted if they just want to know how long they have been our client or something I do. Below is what our insurance carrier said to put on those letters. But really, we need a unified push back against the crap they think they can ask us to put on our letter head. Any lender that requests a comfort letter should be banned from lending for some number of years in my humble opinion.

We make no warranty or representation express or implied as to the accuracy or veracity of this information. You are not entitled to rely upon the information provided by us as either accurate or truthful and may not make release of this information to you a component of your reliance for purposes of extending credit to XXXX. By providing this information to you, we do not establish any independent relationship with you or between you and us upon which you may later make claim that you extended credit [or other financing decisions/options] to XXXXX in reliance upon our having provided you with this information.
 

#2
sjrcpa  
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#3
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Professional standards preclude CPAs from issuing letters with such language, see AT 9101. A few years ago my client's banker requested such a letter from me with wording regarding implications to solvency for the loan. When I declined, he told my client it was common practice and offered the name of several other accountants who he thought would be happy to issue such a letter. Fortunately my client sided with me, but the entire experience served to further lower my opinion of most lenders, both consumer and commercial.
 

#4
Andrew  
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What a terrible experience. I'm not saying this goes as far as blackmail ... but in effect the lender tried to have your client go elsewhere because you didn't want to do what the lender wanted you to do: writing a letter for your client and taking up a potential liability in case client defaults on loan. I wish the AICPA would take a firmer stand against these practices of lenders which try to make the CPA responsible for a loan default instead of the lender.
 

#5
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Oh boy have I had this request a time or two. I always find it ridiculous because essentially they're wanting to put the blame on someone in case the company becomes ineligible to pay back their obligation. I always tell them I can't write that but I am willing to write a letter explaining how the company has performed in congruence with their P&L with also saying I cannot express an opinion or guarantee the company will be able to satisfy any future obligations.

There may be other accountants out there who will do that but that 1)doesn't make it right or ethical 2) wait until one of those companies defaults and they come after the accountant. I bet that accounts E&O insurance isn't going to like the fact that they basically guaranteed the loan for them...
 

#6
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My engagement letters now state bankers and third-parties other than tax agencies are negligent for relying on tax returns for any purpose since the information reported on tax returns, as a result of the Internal Revenue Code and State Tax Codes, are often not representative of actual financial position or results.

I'll say the same if I ever issue another letter to a lender simply confirming I prepared a return. I place all burden of due diligence back on them.
 

#7
deniz  
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I find giving a hard no to strategic clients difficult. A foreign client wanted a $30 mil. US insurance policy. I wrote a letter saying I prepared a tax return according to US tax law and make no representation whatsoever as to whether it can be relied upon by third parties as I was not engaged in an audit. The insurance company wanted me to change the language, which I did not, but it got me through the politics of the situation. Just give them an audit fee order of magnitudes higher than your preparation fee and tell them you will be happy to audit them, they will go away.
 

#8
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deniz wrote:I find giving a hard no to strategic clients difficult. A foreign client wanted a $30 mil. US insurance policy. I wrote a letter saying I prepared a tax return according to US tax law and make no representation whatsoever as to whether it can be relied upon by third parties as I was not engaged in an audit. The insurance company wanted me to change the language, which I did not, but it got me through the politics of the situation. Just give them an audit fee order of magnitudes higher than your preparation fee and tell them you will be happy to audit them, they will go away.


I have a client trying to obtain a mortgage and the lender wants a CPA expense statement letter.
• CPA to provide an Expense Statement specifying business expenses as a percent of the gross annual sales/revenue (not a profit and loss nor balance sheet)
o Must include the following
 Preparer’s name
 How long has the preparer been completing the client’s financial statements
 Expense Factor percentage
 Preparer’s signature


I said no and now the lender wants to see a letter stating that "They're a strong growing business with steady income growth and expenses estimated not to exceed ( INSERT EXPENSE % ) of revenue".

Anyone seen anything like this before? This is on top of the usual self-employment verification.
 

#9
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Lenders will ask for all kinds of idiotic statements that they want "signed" or "certified" by a CPA, which is, of course, not something CPAs actually do.

Tell them to go pound sand.
Last edited by CaptCook on 21-Jan-2022 12:38pm, edited 1 time in total.
~Captcook
 

#10
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Zootematix wrote:I said no and now the lender wants to see a letter stating that "They're a strong growing business with steady income growth and expenses estimated not to exceed ( INSERT EXPENSE % ) of revenue".


I wouldn't hesitate to respond to the lender that assertions regarding solvency is a violation of AICPA professional standards and an ethical violation. What they're asking me to do might bring sanctions down on me or cost me my license.

They're way out of line. They need to do their own due diligence but they don't want to put in the time or shoulder the cost.
 

#11
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Zootematix wrote:
I have a client trying to obtain a mortgage and the lender wants a CPA expense statement letter.


Double HELL no. I would respond to both the client AND lender and suggest they find a new lender with ethical and reasonable expectations if alternative methods of obtaining underwriting information cannot be identified by current lender. The current lender is asking you to do something that is unethical and puts your license at risk.

I have done this in the past and it is amazing how quickly the lender responds with "we have what we need, thanks." And I have yet to have a loan denied by a lender for me not providing information. :roll:
 

#12
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CornerstoneCPA wrote:
Zootematix wrote:
I have a client trying to obtain a mortgage and the lender wants a CPA expense statement letter.


Double HELL no. I would respond to both the client AND lender and suggest they find a new lender with ethical and reasonable expectations if alternative methods of obtaining underwriting information cannot be identified by current lender. The current lender is asking you to do something that is unethical and puts your license at risk.

I have done this in the past and it is amazing how quickly the lender responds with "we have what we need, thanks." And I have yet to have a loan denied by a lender for me not providing information. :roll:


I want a letter from your doctor saying he believes you will live another 30 years as that is the length of the mortgage.

These brokers are scum of the earth.
 

#13
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Had a call from a lender last week, which went to voicemail (I don't answer the 'phone whilst at lunch). I wrote to the client - a good B client - to tell him I'd need formal permission and that I charge for my time. Suddenly the lender found other ways to verify whatever they needed me to verify. I felt uncomfortable quoting a fee but the client is good with it. What concerned me is that the voicemail said that they only needed to "verify on the telephone." If the call had been recorded, I wonder where that would have ended up.
 

#14
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SumwunLost wrote:Had a call from a lender last week, which went to voicemail (I don't answer the 'phone whilst at lunch). I wrote to the client - a good B client - to tell him I'd need formal permission and that I charge for my time. Suddenly the lender found other ways to verify whatever they needed me to verify. I felt uncomfortable quoting a fee but the client is good with it. What concerned me is that the voicemail said that they only needed to "verify on the telephone." If the call had been recorded, I wonder where that would have ended up.


I've had those calls. Wells Fargo, if memory serves.
Until I have authorization from a client, my response on the phone was: "Yes, that is my client. I can't provide any other information until they provide me authorization to speak with you."
~Captcook
 

#15
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southparkcpa wrote:
CornerstoneCPA wrote:
Zootematix wrote:
I have a client trying to obtain a mortgage and the lender wants a CPA expense statement letter.


Double HELL no. I would respond to both the client AND lender and suggest they find a new lender with ethical and reasonable expectations if alternative methods of obtaining underwriting information cannot be identified by current lender. The current lender is asking you to do something that is unethical and puts your license at risk.

I have done this in the past and it is amazing how quickly the lender responds with "we have what we need, thanks." And I have yet to have a loan denied by a lender for me not providing information. :roll:


I want a letter from your doctor saying he believes you will live another 30 years as that is the length of the mortgage.

These brokers are scum of the earth.


New update.

Lender emailed my client stating that this expense request will not be audited by anyone at the bank and will not be shown to anyone. I pushed back very hard and the lender says the deal will not fund without me expressly stating that the expenses of the business will not be over X and the revenue of the company is increasing and the company is financially strong.

I'm ready to lose the client because they will lose their rate lock. I offered other lenders and they are adamant about not losing the rate lock. I had a frank conversation with the client stating that it's a absurd that a CPA letter is the reason the lender won't underwrite the deal.

Any advice?
 

#16
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I would explain the situation and offer to connect the client with the other lenders you mentioned. Make the situation as easy and quick as possible for the client.

If I had a lot of free time and felt strongly enough, I might file a formal complaint. The lender is effectively demanding that you provide assurance regarding solvency, which is a violation of AICPA professional standards and therefore an ethical violation.
 

#17
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ManVsTax wrote:I would explain the situation and offer to connect the client with the other lenders you mentioned. Make the situation as easy and quick as possible for the client.

If I had a lot of free time and felt strongly enough, I might file a formal complaint. The lender is effectively demanding that you provide assurance regarding solvency, which is a violation of AICPA professional standards and therefore an ethical violation.


Client didn't want to talk to other lenders because they are self employed.
It's just frustrating being the roadblock to a client's loan because the lender is terrible.

How did this become a thing to force a CPA to take responsibility for underwriting?
 

#18
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You're not the roadblock,the lender's unreasonable request is.
Make that real clear to your client and the lender. There is a possibility they don't want to fund the loan and have made you out to be the scapegoat by making a request you can't fulfill.
~Captcook
 

#19
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Zootematix wrote:Client didn't want to talk to other lenders because they are self employed.


You and the lender are at an impasse. The client is either going to need a new tax advisor (moreover one willing to meet the lender's demands) or a new lender.

You should put the ball in the client's court. Here's what I'd do...email the client, explain that what the lender is asking me to do is a violation of AICPA professional standards, and that I can't write such a letter. Include a link to the relevant authority. Offer to connect the client with other lenders. If that is not an option or the client doesn't want to do that, suggest that we part ways.

Ultimately you want to convey that you have the client's best interest in mind and want to provide him with the information necessary to make a decision as quickly as possible.
 


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