# Wtf BMO?



## Mensa (Oct 19, 2010)

Does anyone here have any experience with BMO's "self employed vs. employed" policy?

My brother, who is a T4'd employee and a 50% shareholder of our corporation is purchasing a new (to him) house. BMO is insisting that they must receive copies of our corporate financial statements in order to qualify him for a conventional (PERSONAL) mortgage. They tell me that if anyone owns more than 10% of the shares in a business they are considered "self employed". They also asked for them one day before his financing condition needs to be removed, which I find pretty sharp practice. He's too late to go elsewhere now without risking losing the deal.

I've raised an unholy fuss about it. His T4s clearly demonstrate that there is more than enough income to service the debt, which is not in ANY way connected to the corporation. They've tried telling me that it's government regulation, which I know very well it isn't. In my experience "self employed" simply means "greater risk" as a lender. Do you suppose this is in order to charge a higher rate?

I've suggested to my bro that he consider making a complaint to the ombudsman. Is there somewhere else he should go? Does the ombudsman oversee individual bank's policy? If not, who does?

Can anyone shed some light on WTF this is all about? Is it just BMO that has bullshit policy like this, or is it all the banks?


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## birdman (Feb 12, 2013)

I'm not sure on BMO's policy but it does seem to make some sense. In this regard, if your brothers main source of income comes from a business in which he is an owner the bank probably wishes to ensure the business generates sufficient income to pay his salary. I guess the point I am try to make is that there is nothing stopping the company from paying him a salary of "x" dollars and the company losing money. The bank probably just wants to be sure that the business is viable from an operating standpoint and the foregoing is not the case. I also don't agree that self employed means "greater risk" and perhaps a higher rate.
The banks should have certainly requested the statement info at the initial interview and it seems someone dropped the ball big time.


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## marina628 (Dec 14, 2010)

My husband owns 51% and i own 49% of our Business .We provide 2 years personal tax assessments for our mortgage applications and never been asked for corporate returns.I believe they may just want to show his business is not in tax arrears , a simple letter from his accountant should be enough for them.We use to deal with BMO until 2009 when we shifted to TD.


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## MRT (Apr 8, 2013)

this practice is not unusual, and it makes sense if you think about it.

I'm even surprised BMO was accepting T4 documents in the first place, since anyone can type up a T4. Many lenders want pay stubs (or direct deposit confirmation) + income tax assessments. While NOAs are not hard to forge either, there are ways to verify them much more easily than a T4. A T4 also doesn't confirm what is salary/hourly, overtime, bonus, etc. 

I'll play devil's advocate here. If you are a major/majority shareholder, you generally have access to the books. Even if you don't have direct access, you probably have some (if not full) control over your salary, bonuses, etc. The lender wants to know how healthy is the company, to ensure that income is reliable and consistent. If their is a significant downward trend of company performance, little to no retained earnings, debt far exceeds assets, etc...that suggests the income is not sustainable and likely to drop (if not cease). That can't really happen with 'regular' employment (generally speaking).

No system is perfect, but there has to be some additional due diligence when someone is self-employed or a business owner who has access to the books and control to adjust their income.

Many lenders will ask for two years of professionally prepared corporate financial statements, in addition to personal income documents. For anyone self-employed, they may want to see a history of income for 2-3 years.


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## marina628 (Dec 14, 2010)

NOA is usually what they want because in a program like quick books I can make myself a paycheck in any amount to show the bank and then immediately void it out.This is why they want to see the NOA and will only accept this as income.If for whatever reason you do not have updated books they may accept a letter from the Corporate bank disclosing the average balance and deposit history.Sometimes I wonder why I pay so much to my accountant then questions like this come up and I remember lol. She comes in every 2 months and does all the reports and our budget.


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## MRT (Apr 8, 2013)

Yep...and I've seen underwriters not be happy with pay stubs for any number of reasons, so they will then go a step further and ask for a few months of personal bank statements to further verify pay stub info. There are quite a number of additional measures they can and do take when reviewing applications.

Even NOAs are often not enough, as they alone don't tell you the source of the income. Is it from employment, investment, social assistance, alimony/support, disability, overtime or bonus? Is the person even currently employed? Did they switch jobs recently or get laid off? Current pay stubs + NOAs (and sometimes T1 Generals too) are often requested, to paint a clearer picture and to ensure that income will reliably continue.

As an aside, if someone has additional savings or a sizeable portfolio, providing a current statement to show that you have a solid 'fallback position' can be extremely helpful, especially for self-employed or newly employed people. 

I guess the thing to keep in mind is that underwriters are there to mitigate risk for the lender (and for CMHC, if applicable), which can sometimes conflict with 'keeping the customer happy'. Never mind just seeking accuracy and clarity, they have to deal with a TON of fraud too.


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## coptzr (Jan 18, 2013)

Having seen forged/manipulated employee payment information, I agree with the bank doing their part to bring these people back to the level they belong on. I have seen some make huge purchases and made full payment, but have also seen those who were given huge loans and allowed to make luxury purchases only to default on them, move on, and do it over again several years later. They own nothing, live in the moment, but cost all of us money in the end. If your brother has a solid foundation he should be able to provide investment/savings portfolio along with personal banking statement history to show steady income, BMO may cancel the request for your business financial statements.


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## Mensa (Oct 19, 2010)

Guess I should've been more specific.

I'm sure that he has provided them with NOAs, etc. and there is no worry of fraud.

Maybe I'm off the hook here, but "self employed" has always meant sole proprietorship in my mind, where risk to a lender is far greater because there is no separation of ownership of assets (ie a sole proprietor's house is at risk to business creditors because the business is not a separate legal entity from the owner of the business). Part of the point of incorporating is to create this separation.

Calling an employee "self employed" because he owns 10%+ shares in a corporation is not the same thing at all. In the outrageously unlikely event of corporate failure, the mortgage is secured by an asset that the lender could repossess should payments not be made. This is exactly the same as everyone with an employment income who finances his/her home. 

The logic behind the request doesn't add up to me...every employee is at a varying degree of risk that their employer may fold. If the request made sense, then everyone with income should have to produce statements from his/her employer. Just because someone CAN produce their employer's financial statements doesn't (or shouldn't) mean that they MUST produce them. That's what's getting my goat. Well, that and the timing of the request - especially since he was told his financing was approved. The request came while he was in the lender's office to sign the papers.


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## kcowan (Jul 1, 2010)

The offer has a condition of attaining financing. Why not ask for an extension so he can evaluate alternative providers?

If BMO is alone in this level of due diligence, then he might be better off with another source. Or try a mortgage broker. They often deal with credit unions that are less sophisticated.


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## fraser (May 15, 2010)

BMO recently got stung badly in a multi year mortgage fraud in Calgary...more than they are admitting to. They, like others, were not completing the basic due diligence. Perhaps they have some revised practices that over compensate for their previous practices.


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## Mensa (Oct 19, 2010)

kcowan said:


> The offer has a condition of attaining financing. Why not ask for an extension so he can evaluate alternative providers?


This was my suggestion, but he's hesitant to risk losing the deal. 

CRA makes "self employed" very clear on their site - it does indeed refer to sole proprietorship/partnership. I'm interested to find out where to go to protest this "policy". We also noticed that BMO doesn't require him to prove he's a shareholder in any way. It just seems opportunistic to me. 

But then, I'm a bit of a curmudgeon...


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## lifeliver (Aug 30, 2010)

The institution that I do mortgages for requires two years of notice of assessment and T1 generals and also Business financial statements if the company is incorporated. We don’t accept T4s at all. Just get them the documents and they will get you the mortgage.


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## MoneyGal (Apr 24, 2009)

What lifeliver said. BMO doesn't give two hoots what the CRA definition of "self-employed" is, nor would any other financial institution.


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## birdman (Feb 12, 2013)

Please don't get too upset but I spent a liftetime in all aspects the financial services industry including consumer and corporate lending at senior levels and would have insisted on seeing the corporate financial statements for the company youo own and work for to ensure they are capable of paying you. However, as mentioned previously, they should have advised you of this initially. Sorry.


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## marina628 (Dec 14, 2010)

If he does not want to deal with his bank terms , maybe go to the bank who has the business account since they know all the history of the business anyway.We own our business and we take pay cheques as employees except for the fact we do not qualify for the EI Deduction.But our bank knows who we are and who the Business is ,there is a clear definition of assets even though we own 100%. They don't need to see a huge balance as long as you have stable revenue flow through the business account .Rather than risk losing the deal just produce the docs ,it is not like they want the company to sign for the mortgage or you co-sign as joint owner.


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## marina628 (Dec 14, 2010)

BTW I now realize that both BMO and TD never ask us for the company docs as in all situations we applied for mortgages my Husband had a job outside of the business and we have always maintained a Business account at both banks so probably they can just get whatever info they needed by reviewing our corporate accounts.We only ever show our NOA and copies of the leases we have on our rentals ($7000 a month rental income helps too)


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## jnorman5 (Aug 21, 2011)

Mensa said:


> Guess I should've been more specific.
> 
> I'm sure that he has provided them with NOAs, etc. and there is no worry of fraud.
> 
> ...


As a little background, I am a commerical lender with a financial institution, and as other people have said here, it is completely normal to request corporate statements on a company in which you have a large portion of ownership. The two main reasons are:

1. If your T4 income is coming from your corporation, the lender needs to verify that the corporation is in good health and will be able to continue to pay your wage. As you are the person managing the day to day operations, you are ultimately responsible for its success; therefore, we often consider you self employed even if the business is incorporated.

2. If the corporation has a large amount of debt, there is a good chance that the principal has guaranteed some of that debt to the lender. If this is the case, the lender may wish to make an allowance for that debt in the personal borrower's ratios, especially if the corporation appears to be in some form of financial hardship. This "guarantee" may very well affect the repayment capacity of the individual borrower even though they have set up the corporation. Although the lender will still have priority over the mortgage, a guarantee can be enforced by various methods that can affect repayment capacity.

As others have said, I do agree that it is a little scummy to pop this on your brother a day before closing. Best of luck with it all.


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## Guban (Jul 5, 2011)

It sounds odd to me too. If his T4 income is sufficient and stable to carry the debt everything should be ok. As a shareholder of a corporation, (and not just self employed) he should not be on the hook for any corporate debts unless he has personally guaranteed loans, or I understand that some professional corporations don't allow the professional to escape corporate liabilities. BMO may just be being very careful with loans these days.


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## MoreMiles (Apr 20, 2011)

Guban said:


> It sounds odd to me too. If his T4 income is sufficient and stable to carry the debt everything should be ok. As a shareholder of a corporation, (and not just self employed) he should not be on the hook for any corporate debts unless he has personally guaranteed loans, or I understand that some professional corporations don't allow the professional to escape corporate liabilities. BMO may just be being very careful with loans these days.


As an owner of the company, the salary or dividends give no meaning. Some corproation owners decide to take very little salary and keep the retained earnings inside corporation to enjoy the coporate tax rate and small business deductions. Some people don't even recommend taking any salary for RRSP because it's not worth the extra taxes.

In other words, you can decide to pay yourself $200,000 one year and $20,000 the next year... you are the boss, you get to make that "salary" up as you wish. Yes, you have another 50% family member partner... but you still get a big say on how to run and divide up the money right?


So why should a bank evaluate your fincial health on an arbitrary T4 slip number? It would be more realistic to look at the true revenue.


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## Guban (Jul 5, 2011)

I interpreted the T4 as coming from a separate company! If the T4 income is from the corporation which he is a significant shareholder, then it makes complete sense that BMO takes a closer look at the health of his employer.


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## MoreMiles (Apr 20, 2011)

Guban said:


> I interpreted the T4 as coming from a separate company! If the T4 income is from the corporation which he is a significant shareholder, then it makes complete sense that BMO takes a closer look at the health of his employer.


The OP wrote: *My brother, who is a T4'd employee and a 50% shareholder of our corporation...*

Unless I misunderstood from his statement, he is a business owner (ie, shareholder) writing himself a salary cheque every month to draw the retained earnings of a corporation.


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## Mensa (Oct 19, 2010)

Yes, MoreMiles, this is correct.

Someone upthread suggested my brother go to the bank which holds the corporate account to seek financing. BMO holds our operating account and can clearly see that there is plenty of cash flow. They also held the financing when we purchased the business, though that was paid off years ago.

I have sent the financials. Obviously I didn't want to jeopardize my bro's deal for a point of principle, but I'm still feeling like this is a bullshit request. I appreciate everyone's input on this, but still can't bring myself to agree. I know, stubborn much???? 

I guess the underlying thing is, why has this never come up before - my last 2 houses (2008 & 2009) and my brother's last house (2007) were bought under the same employment circumstances and this request has never been made before. It must be, as suggested upthread, that there is more scrutiny being done.


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