I have been asked by one of my sole trader clients to provide a reference to a mortgage lender (Northern Rock). The amount of the monthly repayments represents a reduction from the client's existing repayment amounts and I therefore said I would be willing to oblige and let the lender write to me.
The letter from the lender contains the sentence "Please confirm, based on their current financial standing, their ability to meet the mortgage payment of £nnn per month".
My first reply to this letter did not respond directly to this sentence, merely following the guidance given by the Institute - ie sticking to facts, including "Whilst we have no reason to believe our client would enter into a commitment they did not expect to be able to fulfil, we can make no assessment of our client's continuing income or future outgoings", and the "without acceptance of responsibility" statement.
This prompted a phone call from the mortgage broker ("Why don't you just sign the letter? Everyone else has done!") and the proposed lenders have rung me to basically reiterate this.
Does anyone have any useful advice on this as to a way forward? My current feeling is that I may have to walk away from this and lose this client rather than have Northern Rock try to use me as someone to sue if things go wrong.
Lynda
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Other wordings
I always enjoyed the wording which I was required to use when I worked at Touche Ross - "this reference is given in good faith, but without responsibility", which gave such a wonderful impression of a totally cavalier attitude.
stick to ICAEW
I'd stick to the guidelines
Most if not all lenders should be aware of our standard letter.
why risk being roped into a repossession case often for no extra fee?!
Stick to your guns
I have had this letter and I have explained to my client that, whilst I am happy to provide figures etc, I am not prepared to underwrite their mortgage on to my PI insurance in this way. Northern Rock are asking you for way more than you are in a position to give. It is up to them to decide what your client can afford.
I posted a very similar query here a while back and some helpful sole gave me the following paragraph to put in my letter.
"Because we act in respect of business matters only, we do not have access to full information on private expenditure and therefore we cannot comment on the affordability of a specific regular payment. Nothing untoward should be read into this, and we have no reason to believe the client would enter into any commitment which they felt unable to fulfil”.
ditto
I too have had similar problems - sometimes you just wonder do these lenders actually really expect an accountant to confirm repayments can/will be made.
I NEVER do so and tell lenders just that.
Mortgage reference
I have never had to confirm that our client will be able to meet a commitment of £xxx per month, and I don’t think any lender would realistically expect an accountant to 'confirm' such a commitment. It would appear that the broker is trying to shift the onus on you.
If you deny any financial responsibility, or make it clear that any projections/figures provided are based on information and explanations provided by the client/director, for which he/she is solely responsible, it would satisfy both parties.
Loosing a client over a mortgage reference is rather peculiar. I would phone the client and explain to him/her that the loan doesn’t have to be secured against our PI Cover and his would-be property.
You might find educating the broker (as to the inherent weaknesses of predicting and confirming future financial circumstances) to your benefit!
Reality is...
... you will lose the client to an accountant who is prepared to stick his neck out. Brokers I'm friendly with use a local Chartered Certified who provides instant references at £300 - £500.
I suspect he exercises just the right combination of caution with brevity with his disclaimers. eg in answer to a lender's question:
"Can you confirm at the time of writing that the business is solvent and that in your opinion your client's business / company is likely to continue trading as a going concern for the forseeable future?"
he might typically reply:
"I can confirm the above to be true to the best of my knowledge".
Lynda, could you answer Northern Rock with something similar? "I confirm, based on their current financial standing and to the best of my present knowledge, their ability to meet the mortgage payment of £nnn per month."
Don't forget to bill your client £100 for the reference!
I would not agree.....
...that brevity is necessarily the answer for disclaimers.
As a specific, stating that a something is true "to the best of your knowledge" immediately begs the question "how good should your knowledge have been in the circumstances of this financial commitment you are knowingly helping progress?" , NOT "how good was your knowledge as a matter of fact". My opinion is that such a statement is really dangerous.
But don't lose a client over a foolishly formatted bank request - 99% of them are foolishly formatted, and we'd all lose all our clients on that basis !!!
Just write a sensible letter with full disclaimer, specifying inter alia that you "give no express or implied opinion, representation, undertaking, assurance, warranty or guarantee whatever in respect of any future financial performance or fulfilment of any financial contract, for any reason whatever, and that no information given should be taken to be an expression of any such opinion, representation, undertaking, assurance, warranty or guarantee".
Never had a bank come back to me on such wording, never had a client queried or turned down because of a long, strong disclaimer.
Loan update
Many thanks to all of you for sending in your suggestions and advice.
The matter was resolved (and the client received the loan advance) once the broker had gone away on holiday! I made more progress by corresponding directly with N Rock and setting out the position exactly as laid out using the Institute's approved wording. The only "concession" required was a statement of fact about income declared to HMRC in the tax year.
I cannot help but feel that the problem was largely due to the broker wanting to cut corners and have someone to hang a potential liability on in the future. The bank themselves seemed perfectly aware of what I could and couldn't say in a letter and (in a telephone call) said that it was their decision to make, dependent upon what their underwriters told them.
Thanks once again to all of you for responding and providing moral support.
Lynda
To The Best Of My Knowledge...
... could lead to all manner of potential defences should your client default and the lender actually wheel you into court - as Martin has rightly spotted. Surely it would extend you scope to disclaim any intimate knowledge of your client's personal finances - and your contention that your best knowledge amounted to little or nothing more than what was already apparent from the accounts.
It's not perfect, but if the lender's going to reject lengthy disclaimers then at least it's brief and should slip by their scrutiny.
Nicola, the guy selling references at £300 - £500 a shot doesn't do much else - to the best of my knowledge.
Is £100 really too much for a mortgage reference? I've an idea many banks might charge heavily for a financial reference - financial advisers often want up front arrangement fees, and surveyors poke their head around the door on a "valuation"; all charge large sums - why should your client mind paying you such a drop in the ocean for a reference - you have to eat too!
It would surely...
...be unprofessional, not to say unethical to confirm "to the best of one's knowledge and belief" unless - to use the lawyers' phrase that usually accompanies - " a reasonable enquiry has been made into the subject matter of the confirmation".
A Court might well assume such reasonable enquiry if the confirmation came from a professional in public practice.
Andrew, I fear you may have ....
...misinterpreted my posting. Far from recommending "to the best of my knowledge", I was trying to suggest it is potentially dangerous, most especially if you have skimped on enquiry or due care.
I am also wholly against the idea of "slipping something past scrutiny" as a good way round the issue. It isn't. No bank will actually baulk at a proper full disclaimer, since they actually know the exact score. Playing the game by trying to "slip past" is unnecessary and potentially dangerous.
No third party can give any asssurance as to future financial performance - the banks know that full well.
So it is best to ensure (without fuss or drama or any lack of transparency) that you are not the unwitting guarantor by use of a proper disclaimer, not by trying to fudge the issue or try to slip anything by anyone.
Yasir, you would be surprised ....
.......at what lenders will try to get accountants to say.
Two months ago I had a lender request I confirm that a client would be in a position to make monthly payments of £XXXX (which, as an aside, happened to be a very large sum in the context of the client's finances, and the broker was highly concerned as to whether the loan would be granted) for the next twenty five years.
Yes, you read correctly, 25 years. Presumably the lender was also concerned as to whether the loan would be granted, and wanted a guarantor. Me. Without actually asking me to sign a guarantee.
I wrote to the lender to give factual info in my possession, my factual experience of the client's attitude to contractual obligations, and a full (a very full ) disclaimer.
Rather than ignore their requested wording, or try to finesse it, I started my letter with a paragraph on exactly (in words of one syllable) what I thought of their requested wording.
I heard nothing further from the bank.
The client got the loan.
The broker gave birth to kittens.
Andrew, one simply ignores .....
...the banks/lenders "instructions".
As we agree, they are not appropriate.
(I have responded to several Northern Rock requests for info in the last year. I always ignore their "instructions", and no further comment has ever been made, nor any loan turned down, nor queried with me).
To ensure that neither the lender nor the broker mess about, you simply write (in large manuscript) "This questionnaire / form/ certificate (or whatever name they place on the offending document) must be read in conjunction with the attached letter dated XXXX).
You can then say what you want in the attached letter, without worrying about space restrictions, or indeed any other restrictions the lender attempts to impose.
If the lender puts on the form a statement that no other info or comments can be made, as some do, you clearly cross this out and initial the crossing out!!.
If all this sounds a lot of fuss, it is not - as with anything, once set up, it takes but a few minutes. The client is happy. Lynda, you, me all sleep at night.
(p.s. Lynda, I realise that this does not help directly insofar as N Rock have contacted you. But stick with it - the call from Northern Rock surprises me greatly and I suspect the broker is being feeble with them. Just stick with the facts you have given, and I would be amazed if they do not move on, and even more amazed if they query the loan for this reason.)
Just A Tort...
I see your point Martin. Of course, I agree that a full disclaimer would be best - it's just impractical for Lynda to fit anything quite so lengthy on Northern Rock's standardised application form. Given that any disclaimer letter you might attach to that form will in practice be removed and "lost" by the broker, the chances are you would be left to rely on the condensed disclaimer squeezed into the line or so of space allotted on the form.
N Rock are big on sub-prime lending - I've come across other sub-primers who pull a similar stunt by disallowing any space for disclaimers on their standardised forms. I liked Geoff's (earlier) condensed Touche Ross disclaimer: "this reference is given in good faith, but without responsibility" but have an inkling that might have been formatted pre- the effects of the Unfair Contract Terms Act which effectively negated wide-ranging or unreasonable disclaimers.
So "..to the best of my knowledge" is equally condensed and affords some legal scope to duck a future pasting in court. I'm not sure that I view it as quite so dangerous as you do, Martin: I most certainly would skimp on enquiry - in my book it's up to the lender to make their own enquiries; as for due care, that is the real issue - negligent mis-statements - as in Hedley Byrne v Heller. Assuming your statement is neither reckless nor negligent, qualifying it "to the best of my knowledge" would at least allow you to argue that your "knowledge" was no better than the lenders' (why should it be? - after all, you are both looking at the same set of accounts).
I know it's far from a perfect defence - and beefing it up eg "... to the best of my knowledge; please rely on your own enquiries" would be stronger, but would no doubt exceed the space on the form as well as eliciting cries of "foul" from the broker, packager, or lenders' underwriters.
I think Martin we both agree that its shocking that secondary lenders attempt to bully accountants, who may be nervous of losing their clients, into assuming liablity in this way - how annoying for Lynda to be faced with making that decision. Would making reference in the small space on the lender's form to say her accompanying "standard letter" (containing her ICAEW disclaimers) be a sound-legal solution?