Financing in 02421>Question Details

Pibs, Home Buyer in 03054

How can you prove dissolution of a sole proprietorship business to an underwriter?

Asked by Pibs, 03054 Thu Jan 26, 2012

I am currently renting a large horse farm. I no longer wish to teach riding lessons so I am in the process of purchasing a house and will leave the rental property once I can secure a home. I have a full time job outside of the riding lesson business and I am only using the normal job to qualify for the loan. However, my taxes, of course, show a loss from the business for last two years. The underwriter wants proof of dissolution or they will add on my business loss to my salary and I will no longer qualify for the loan. The business was a sole proprietorship. I do not see any tangible way to show dissolution of a sole proprietorship. I sold off my asserts (the horses) and showed bill of sales and finances going into my bank for the sales of these horses. I have no outstanding debts I am carrying forward with me from the business. I did not have any licenses or permits to operate the horse business. What can I do to prove to the bank that I am not going to continue business?

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That's tough. If you were incorporated then there would be a record with the Secratary of State and it would show a dissolution date.
I'm thinking the only way to do this is to write a long detailed letter of explanation saying you ran the business because you were renting the property and with the supporting docs you will no longer be doing this. Is there enough time to get your taxes filed immediately? You could dfile your 2012 returns with no Schedule C to show the business is no longer.
2 votes Thank Flag Link Thu Jan 26, 2012
If it was me I would start by asking the Underwriter for a specific list of possible proofs that would be acceptable. An underwriter may have something specific in mind that we may or may not be able to guess properly because, as consumers, we are not in the business of evaluating lender's risk tolerance so each lender may have slightly different guideline...

I would attempt to guess that it might be helpful to show bank accounts, vendor accounts or other business relationships have been properly disolved (which can be verified by getting a confirmation note from Vendor, Bank, etc. if no other record of closure exists).

I'd be curious to know how it worked out for you, since I might have a similar situation with my client and appreciate you sharing this with me. I can be contacted at (617) 869-5987 or zelda@castlesunlimited.com. Good luck!
Web Reference: http://boc-re.com
1 vote Thank Flag Link Thu Jan 26, 2012
OP- We were able to quickly file our 2011 taxes and show the sale of my assets (the riding lesson horses). The show an S next to them on the taxes indicating they were sold in that year. This solved the issue. We did, however, lose that house purchase as it was a bank owned property and that would not grant us an extension. Thank you all for the input.
0 votes Thank Flag Link Tue Apr 3, 2012
This should not be an issue. You are moving from the property and have a full time job. I believe FNMA will accept this situation as is. We sell to them directly. I am double checking with underwriting.

Mike
Salem Five Bank
7813898026
michael.cincotta@salemfive.com
0 votes Thank Flag Link Mon Jan 30, 2012
I would ask the underwriter for an example of proof they have received from other sole proprietors.
0 votes Thank Flag Link Thu Jan 26, 2012
Thank you for your great suggestions:

Richard- I have now submitted a profile showing the current facility which has all of the horse amenities, vs the property I am moving to which does not have an operational farm. We will see how it goes.

Zelda- I am going to see if the underwriter will come back with anything I could show. As of yet, they did not list something specific just keep saying "proof of dissolution". So far, I have forwarded them a copy of the letter that was sent to clients notifying them of the business closure. I sent a coy of my bill of sales selling off the lesson horses, with copies of my bank statements showing the cash going in from the sales of those horses. I don't have any vendor accounts, and my bank account is required to stay open until I have finalized my taxes for 2011- since I will still have to file a schedule C for the half of 2011 that I was in operation. I still pay my farm rent through my business account, as I don't want to give up my rental unless I know for sure that I have somewhere to move. Therefore, my business bank account does still have some activity in it. I wish I had know this would be a problem, as of course, I would have stopped using that account six months ago- but here it is.

I will keep you informed. If you think of any other ideas, please keep them coming. =)
0 votes Thank Flag Link Thu Jan 26, 2012
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