How To Write a Hardship Letter So You Get What You Want From the Lender

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What Is a Hardship Letter?

As the name implies, when a person owning a property with a mortgage on it faces difficult times that result in an impact on their ability to pay the loan, the need to communicate to the lender arises. Regardless of whether the loan can no longer be paid in a timely manner or if it is difficult to pay most of it – there are some avenues other than leading to foreclosure that the homeowner can pursue.

LOAN MODIFICATION HARDHIP LETTER

There are two types of hardship letters that are commonly written in light of the nation’s challenged real estate market these days. First, a loan modification hardship letter which is the initial communication between the homeowner and lender, notifying them of the financial hardship but with the intention to manage most of the loan. The goal of a loan modification is to hold on to the home, only reduce the amount owed or in other words, adjust the loan. The basic language in this type of hardship letter states the type of hardship the property owner is facing, their intention to continue living on site and the expected amount sought to be modified in order for the owner to manage.

SHORT SALE HARDSHIP LETTER

Unlike a loan modification, where the property owner is able to continue living in the residence with the provision of a smaller loan, a short sale request entails the bank accepting less money than what is owed on the home, through a sales transaction. This occurs when the value of the home is worth less than the amount owed on the mortgage. A common occurrence lately, short sales are an alternative option to many homeowners who are unable to maintain their mortgage payments due to job loss, medical situations or anything else.

Given the state of our current economy, there are many cases of short sale applications and each begins with a hardship letter stating that the homeowner’s financial situation does not seem to be improving anytime soon and the only viable option is to move out to avoid foreclosure. Banks prefer this to foreclosures since the latter often result in legal fees and other costs that would not necessarily occur in a short sale transaction. Making that determination, however, is what impacts the amount of time that goes into a short sale application and approval or denial process.

What Should Be Included?

Not too much information is needed in a hardship letter but it should be enough that the reviewer is able to make an informed decision about your case and determine next steps. You will need to include the property address, reference a loan number or numbers if multiple loans are involved and name all persons or parties that are named on the loan. If the motivation for seeking relief from the lender is due to extreme conditions in your life that have hindered your income or caused unemployment, provide supporting documentation and outline the relevant specifics in the letter. Over-exaggerating will frustrate the loan officer and possibly impede processing so it’s important to remain straightforward and write in a clear manner.

Things to Keep In Mind When Writing

Be sure to write clearly, without the use of unnecessary jargon and be as direct as possible. Avoid overly emotional statements, without missing the boat entirely on explaining your financial hardship. Do not write more than one page, as the hardship letter’s purpose is to notify the lender of your current financial state and request review of the loan. The briefer the letter is, the easier it will be for the loan officer to review it. Make sure you are able to corroborate the statements you are making in the letter with documentation.

Why Does This Matter?

Despite news reports, the mortgage industry is very busy and with the influx of short sale applications on many lenders’ tables, the processing times are very long involving arduous and tedious paperwork. When a short sale reviewer receives a short, simple, succinct and to-the-point hardship letter, not only does it make their job easier but it also eliminates the need for further clarification and consequently more time wasted.
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Of course, depending on how complex the situation may be – a longer and more detailed hardship letter may be necessary, but once an application moves forward additional information can be provided. The key is to communicate your request to have your loan reviewed, the reasons for such and relevant specifics that would be needed in order for the application to be considered.