Discussion:"comfort" letter for first time homebuyer?

"A client purportedly named Joan Smith came into my office and was breathing." That would seem about the extent of what you can confirm, and you'd probably have to hold a mirror under her nose to make sure of the last bit.

I wouldn't think you could provide assurance in this area without doing credit checks, property searches, etc., especially if you don't know the person.

But, many times I've been asked to write similar letters and responded that my hands are tied, and that I can only write letters stating what I personally know are facts, such as what tax returns I prepared. Plus I included a pretty obnoxious disclaimer stating "as you know, you should use other methods to determine creditworthiness", etc. Strangely enough, this type of letter seemed to suffice.

But, as D&T said, since they are not even your clients yet, I can't imagine what you could write in terms of only stating facts that you have personal knowledge of that would make any sense at all. If you're still interested in taking on the client, perhaps you can print out the relevant sections of the Code and send a letter advising the mortgage company to inquire of the client whether they have met the requirements as stated in the printout you are sending.

Oh my, we seem to have gone from mortgage companies being willing to loan to gerbils to them actually taking some care in their procedures, but all the while trying to put tax preparers on the hook.

Worst of all, the client and the mortgage company have been trained to think that they can ask for, and expect to receive, such letters from tax preparers.

Hopefully, it's not too late for TM to change his mind.

I know you're no longer engaged to do the work, but how could you have even considered "certifying" such a statement? Did you know with absolutely certainty that this was the case? This is nothing more than the underwriter trying to make the preparer responsible for a loan if it gets into trouble. No different that similar certifications relating to no-doc (i.e. liar's) loans. -- Larry Hess, CPA | Albuquerque, NM

If so, the Virginia legislature surely has it in for Virginia CPAs if what we read is indeed true.

further reading:

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TexCPA 19:37, 25 June 2009 (CDT)

We are not making a personal criticism of you Taxman. Glad you came here and asked.

It should be a rare thing indeed when a tax preparer goes about verifying facts outside those provided by the client. As far as I'm concerned, the duty to question these facts only arises when we think something clearly does not pass the smell test; and even then, it's to aid US in properly preparing the return.

We are not auditors or private investigators. For one thing, they don't pay us enough to be those things.

In this case, you could state that you have reviewed Client A's tax returns, which they provided, for the previous 3 years <you should actually see them> and you could state that there was no Mortgage interest deduction taken.

I would definitely add the wording from the article cited and this would protect you since you are simple regurgitating facts and this should help your client and protect you as well.

I would also charge the $125 and not apply it to the next year tax fee.

The wording would protect us, and the brokers would continue to request them. I see no reason to not provide these letters as long as we only state the facts and give the cautionary wording that we are only reporting what the clients give us.

I can almost guarantee that had the wording above been used that the broker would say fine. Yay, works for him.

From our standpoint, we have provided our client a service without doing anything wrong. We have simply regurgitated facts on our letterhead.

It is our clients sole responsibility to borrow what they can afford to pay and it is the banks responsibility to do their due diligence. If my letter helps a client and I state nothing but facts, I am all good with that.

Illini, how can the following statement come back to bite us if we state nothing but the facts.

"The client filed their income tax returns the past three years and no mortgage interest deduction was taken."

If the brokers are that dumb, let them deal with the consequences.

I don't think you are wrong in your choosing to not do this, I just don't see where it can bite me in the arse if I am simply stating verifiable facts.

I wonder also, if anyone is aware of anyone being "dragged" into court because of a comfort letter which was presented in the way in which I describe. Simple fact statements.

My problem is that what appears to start as a trickle, ends up with tax preparers in general being called to carpet for the underlying truth of matters reported on a return.

Also, I personally DO see a difference between a CPA and an EA or JD.

The CPA is the only profession (essentially) that is qualified under law to do attestation work. EAs and JDs are not trained or licensed for this work.

Now, if the tax preparation business is going to turn into the attestation business, let's all go into it with eyes wide open, and not slither into it unawares.

If I state that I have been Client A's accountant for the past three years and during that period I have electronically filed his tax returns and that those tax returns included a Schedule C, I am simply regurgitating facts. I would also add the disclaimer that I have prepared the tax returns based on information given to me by the client.

Wheer do I open myself up for liability if a broker cannot understand the wordings.

And you were aware that one of the requirements was that your client not have a primary residence for the prior three years? Yes.

And you were also aware, were you not, that your client would be giving your letter to the mortgage broker so they could get this loan? Yes.

On your letter you indicated they did not take a mortgage interest deduction on their returns? Yes.

Isn't it true, Mr. Stein, that it is possible for someone to own a primary residence and not have any indication of that on their tax returns? Yes.

Your honor, and members of the jury, Mr. Stein is an experienced tax preparer. My client is not. When my client asked whether his client had a primary residence in the prior three years and received this letter from Mr. Stein stating that no mortgage interest deduction was taken, my client relied on this information and Mr. Stein's knowledge and experience regarding this issue. We believe Mr. Stein was negligent in not doing a complete job in providing this information.

I prepared the tax forms from information that was provided to me by the Clients. As is normal in this type of professional service by my office, I was not hired to perform and did not perform audit or other types of verification of the information provided to me. Thus, I cannot make any professional representation or assurance of the accuracy of this information or the sufficiency of the tax form for your credit decision-making purposes.

I prepared the Client tax forms in accordance with the applicable IRS rules and regulations solely for filing with the IRS. The tax forms thus do not represent any assessment on my part as to the creditworthiness of the Clients. The tax forms do not include any statement of financial position or income and expense for these years in accordance with generally accepted accounting principles (GAAP), and should not be construed to do so. I can provide a GAAP report, but it will require additional time and resources to prepare and will result in a significant fee to the Clients. The standards of my profession prohibit me from making assurances relating to solvency; however, I am permitted to present prospective or pro forma financial information. These, too, would require additional work and fees to the Clients.

As you know, a credit-granting decision should be based on a lender’s exercise of due diligence in considering many factors. Your use of this letter from me, and the tax forms, in the exercise of your due diligence is solely a matter of your responsibility and judgment. This letter is not intended to establish a client relationship with you but is a response to a request from my clients, the Clients.

This letter gives you all the information I can provide to you according to my professional standards. If you need additional information relating specifically to the tax forms prepared by me, please let me know.

Yes, I knew that my client wanted this letter to obtain a loan. My client informed me that they have not had a home in the past and that in the letter I informed you that there was no mortgage interest owned. I stated simple facts, it's amazing that the mortgage industry hasn't gone bust sooner when you have uneducated individuals in positions where they can dole out money based on unverifiable facts.

Simple, true statements of facts for these stupid letters which are totally useless. You know it, I know it, and if the bankers don't know it, then good lord, our economy is going to be in even worse shape than it is now.

So again, I cannot see how my statement of facts can become an issue.

I could see if they asked for a compiled personal financial statement and the numbers on their were out of kilter with what is usually filed, then yeah, I wouldn't do it.

I even had a mortgage broker request a letter from me stating that using the money my clients had in the bank would not prevent a hardship for them in terms of paying back the loan. Now for that, I said whoa nellie. I mean seriously, they wanted me to predict the future cash low viability based on the use of client funds for down payment.

So, I write statements of verifiable, indisputable facts and laugh at these morons, cause really, that's what they are, morons, when they request this stuff.

And like I said before, I haven't heard of someone being sued because of this. There are too many others coming first. I guess I just don't see it as big of a liability issue as some of you do.

That's what makes this place great, the discussions of differences of opinion.

And even tho you're wrong nat, you can still be my internet chick. <EG>