Comfort Letters

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#21
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SlipperyPencil wrote:
CaptCook wrote: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."
That sounds like an unallowed client disclosure.


It's not.
~Captcook
 

#22
MikeH  
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In California, it is an unallowed client disclosure.
Mike Hartfield
Bullhead City, Arizona
Cell: 818/433-5359
 

#23
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MikeH wrote:In California, it is an unallowed client disclosure.


This sounds a bit strong; can you provide a cite?
 

#24
AlexCPA  
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The sooner we stop responding to these ridiculous requests, the sooner they'll stop asking.

Dear Lender:

I hope all is well. As discussed per conversation with Client on XX/XX/XX22, in accordance with guidance issued by the American Institute of Certified Public Accountants (AICPA) and per consultation with our professional liability insurance provider, XXX CPA Firm does not currently, as a matter of policy, issue comfort letters (also referred to as "CPA letters") or provide written or verbal confirmation and/or verification of financial or other information.

Per the position paper issued by the AICPA on 5/30/2014, please note the following:

“Bank lenders and brokers often seek to assess a borrower’s creditworthiness and verify the accuracy of information provided to them by requesting that the borrower’s CPA corroborate certain financial information presented on a tax return. In most cases, the CPA is asked to corroborate tax return information by providing:

- a confirmation letter containing specific language;
- a verification statement certifying certain information presented on the tax return; or
- certain information on a designated form.

Tax returns are prepared by a CPA based on the client’s information and representations, which are neither audited nor verified by the CPA. Tax return preparation standards for due diligence under both Treasury Department Circular No. 230 and the AICPAs Statements on Standards for Tax Services generally allow the CPA to rely on information furnished by the taxpayer. However, these standards are not sufficient if the CPA is being asked by a lender or broker to validate the information furnished by the taxpayer, or to provide confidence in the accuracy or sufficiency of the information provided by the taxpayer for reporting on the tax return. For a CPA to validate or certify information reported on a tax return without performing additional procedures would constitute a violation of professional standards, resulting in licensure implications for the CPA.”

Please note that select lenders do not require comfort letters and/or verifications/confirmations to be provided for purposes of underwriting. Accordingly, if you encounter issues in moving forward with your current loan application, it may be prudent to seek out the services of an alternate lender.

Thank you for your attention to this matter. Please contact us with any questions that you may have.

Very truly yours,
CPA
Even more of my antics may be found on YouTube:
https://www.youtube.com/channel/UCXDitB ... sMwfO19h7A
 

#25
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Spoke to a lender today who demanded I write an expense ratio comfort letter stating my client will keep expenses under 10%.
No idea what that means. I told the lender no way I'm writing that and no CPA will. He told me he every lender requires it and has a network of 1500 CPAs who will write it. I responded that my friend a competitor hard money firm will fund the deal without it. He responded that he can get the letter requirement waved.
freaking ridiculous to even ask me. Worst part, my client pays every month late.
 

#26
Eduardo  
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Have a relatively new client (young guy) who currently owns three operating businesses, is starting another business, and also has an entity that owns both commercial and residential real estate. He got in with a lender who wanted me to write a letter stating that taking funds from the business accounts won't affect the operations of the businesses - told him there's no way that I can write that letter, and sent him the relevant authority detailing this. He was real cool about it and found another lender who's local.

Didn't want to piss the guy off as he's going to be a real good client, but he understood where I'm coming from and told the other lender to pound sand.
 

#27
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Zootematix wrote:Spoke to a lender today who demanded I write an expense ratio comfort letter stating my client will keep expenses under 10%.


Dear Lender,

I am in receipt of your request. In my current capacity of being a contracted advisor to X Company, I am not involved in management decisions and therefore cannot make any representation that the company will be in future compliance with this proposed mortgage covenant. However, if Y Lending Company hired me to be the CFO of X Company, I would be able to perform these management duties for you. I will require a base salary of $180,000 per year with three weeks' paid vacation, a 20% bonus payable on meeting said covenant, and we will need to negotiate a golden parachute payment in case of termination.

Please let me know when the employment agreement has been drafted so that my attorney can review it.

Love,
Zootematix

--
All joking aside, as you recognized, these letters aren't a requirement. Of course, the less ethical ones will wait until the last minute to get this letter in the hopes that we'll concede to the "deadline". Just be professional and make sure you have a couple alternative lenders in your pocket so that you return the pressure to the person fighting for the commission.
 

#28
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I have not had a SINGLE client lose out on a loan due to my refusal to provide a comfort letter. They're empty threats by bankers that are complete morons and if they do allow a loan to fall through from it, you need to escalate it to their superiors--there are ALWAYS alternatives.

Here is what I now include in my engagement letters:

You agree to indemnify and hold us harmless with respect to all claims arising from the use of the tax return(s) prepared under this engagement for any purpose other than filing with Federal and/or state and local revenue agencies. Tax returns are not suitable documents for obtaining credit since tax regulations may cause tax returns to not adequately or correctly reflect the actual income and cash flows of Client. It is the sole responsibility of a lender or other third-party to perform proper and sufficient due diligence and it should be deemed an act of absolute negligence for any party other than a tax agency to rely solely or heavily on any tax return for any purpose.

...

No “lender comfort letters” will be issued by this Firm, including but not limited to confirmation or attestation of amounts, financial position of Client, ability to pay, etc. With an added non-refundable fee of $400 (four hundred dollars and zero cents) payable in advance, Firm will confirm having prepared a specific tax return, and such acknowledgement to a lender will contain all necessary language to indemnify and protect Firm against legal action by the lender. Lenders only ask for “comfort letters” to have as many parties as possible to hold legally liable if a loan goes into default or because of their own incompetency as lenders. Any such correspondence with a lender requesting such information will clearly communicate such negligence in relying on a tax return in determining, in whole or in part, the credit worthiness of applicant(s) or their ability to repay a debt."
 

#29
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missingdonut wrote:
Zootematix wrote:Spoke to a lender today who demanded I write an expense ratio comfort letter stating my client will keep expenses under 10%.


Dear Lender,

I am in receipt of your request. In my current capacity of being a contracted advisor to X Company, I am not involved in management decisions and therefore cannot make any representation that the company will be in future compliance with this proposed mortgage covenant. However, if Y Lending Company hired me to be the CFO of X Company, I would be able to perform these management duties for you. I will require a base salary of $180,000 per year with three weeks' paid vacation, a 20% bonus payable on meeting said covenant, and we will need to negotiate a golden parachute payment in case of termination.

Please let me know when the employment agreement has been drafted so that my attorney can review it.

Love,
Zootematix

--
All joking aside, as you recognized, these letters aren't a requirement. Of course, the less ethical ones will wait until the last minute to get this letter in the hopes that we'll concede to the "deadline". Just be professional and make sure you have a couple alternative lenders in your pocket so that you return the pressure to the person fighting for the commission.[/quote

I actually had one loan fall through because I refused to write that the down payment would not affect operations.
Worst part besides not being allowed, the down payment obviously significantly impacted operations.
Nearly lost a great client over this.. Honestly having backup lenders saves me. But how is this even a normal thing? You can't tell me attorneys have to deal with this. ]
 

#30
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Zootematix wrote:I actually had one loan fall through because I refused to write that the down payment would not affect operations.
Worst part besides not being allowed, the down payment obviously significantly impacted operations.
Nearly lost a great client over this.. Honestly having backup lenders saves me. But how is this even a normal thing? You can't tell me attorneys have to deal with this.


I would imagine that a mortgage broker would be less likely to do this to an attorney... think of the type of letter an attorney could reply with. Allegations made were untrue and defamatory against the attorney, that the lender must cease making further untrue statements, and that the attorney will consider whether their statement has been retracted to the client in writing before X date when making their next course of action. They could probably write that letter in their sleep, to be honest.
 

#31
LDCPA  
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CA
Zootematix wrote:
missingdonut wrote:
Zootematix wrote:Spoke to a lender today who demanded I write an expense ratio comfort letter stating my client will keep expenses under 10%.


Dear Lender,

I am in receipt of your request. In my current capacity of being a contracted advisor to X Company, I am not involved in management decisions and therefore cannot make any representation that the company will be in future compliance with this proposed mortgage covenant. However, if Y Lending Company hired me to be the CFO of X Company, I would be able to perform these management duties for you. I will require a base salary of $180,000 per year with three weeks' paid vacation, a 20% bonus payable on meeting said covenant, and we will need to negotiate a golden parachute payment in case of termination.

Please let me know when the employment agreement has been drafted so that my attorney can review it.

Love,
Zootematix

--
All joking aside, as you recognized, these letters aren't a requirement. Of course, the less ethical ones will wait until the last minute to get this letter in the hopes that we'll concede to the "deadline". Just be professional and make sure you have a couple alternative lenders in your pocket so that you return the pressure to the person fighting for the commission.[/quote

I actually had one loan fall through because I refused to write that the down payment would not affect operations.
Worst part besides not being allowed, the down payment obviously significantly impacted operations.
Nearly lost a great client over this.. Honestly having backup lenders saves me. But how is this even a normal thing? You can't tell me attorneys have to deal with this. ]


Since you're in LA area, can you share or PM some reputable lenders to refer clients?
TIA
 

#32
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I met with a mortgage broker client of mine today and asked him about these letters.
His first response was: "Well, I don't ask you any more because I know you won't provide one."
He did go on to say that the broker asks for it to illustrate that they've performed greater due diligence and he'd never heard of any CPA being pursued because of it. He did say that for those loans where they couldn't check the "CPA letter rec'd" box, they have had to repurchase those loans from the underwriter on occasions.

That all makes sense to me, but doesn't compel me to change my approach. Just thought you all might be interested in another perspective.
~Captcook
 

#33
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I appreciate you sharing that perspective.

It sounds like your mortgage broker is confirming that the letters are definitely a part of the underwriting decision. Even if these letters haven't been used to pursue CPAs in the past, it is no guarantee that it won't happen in the future -- and the mortgage broker can't promise that in the same way that we can't write a letter promising that our client's future expenses will be less than 10% of revenues, etc.

I'm in the same boat... I'm not going to change my approach to these requests.
 

#34
LDCPA  
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CA
I almost got burned on a comfort letter.
A big client with multiple entities asked for a comfort letter. He was an asshole all around, but brought in a lot of fees, so I tolerated him for a while which in retrospect was a mistake. He was very pushy and wanted wording in the letter that I wasn't comfortable with. I almost caved, but decided it wasn't it. I ended up issuing a standard boilerplate letter that I pulled from my insurance company website saying that I prepared the tax return for such and such and that was it. The client wasn't happy, but accepted it.
A year later this idiot tried to get out of paying my fees (unrelated to the comfort letter) by threatening to report me to the state board. I told him he can report all he wants, my work was up to the standards and I stand behind it. Had I issued the comfort letter the way he wanted it, then I would be worried.
Obviously he's no longer a client. After this experience I will never issue a comfort letter unless I'm engaged to do the necessary work to back up any statements in the letter.
 

#35
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CaptCook wrote:He did go on to say that the broker asks for it to illustrate that they've performed greater due diligence and he'd never heard of any CPA being pursued because of it.


I think that statement is BS and I certainly would not rely on their statements. If our professional society (AICPA) and insurers are adamant that we do not respond to comfort letters, obviously it HAS become a matter of legal dispute on numerous occasions.
 

#36
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missingdonut wrote:I would imagine that a mortgage broker would be less likely to do this to an attorney... think of the type of letter an attorney could reply with. Allegations made were untrue and defamatory against the attorney, that the lender must cease making further untrue statements, and that the attorney will consider whether their statement has been retracted to the client in writing before X date when making their next course of action. They could probably write that letter in their sleep, to be honest.


As could I, and I'm not even a lawyer. I guess I have just been very well trained by a lawyer I quite respect. I suspect lenders somehow think tax preparers, including CPAs, will just cave and not fire back with legal action.

Check PFZ--it is apparent some tax preparers here do not like the wording I include on this matter in my tax engagement letters, but I am doing it for a reason--to be proactive and make it very clear to clients that they signed to it well in advance of me preparing tax returns. If they failed to read, that is not my issue (just like ignorance of the law is not an excuse).
 

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