Why do I Need a Hardship Letter?

If you find yourself in a financial bind, a well-written hardship letter directed to the bank or mortgage company is essential. Although the hardship letter is most often associated with borrowers facing foreclosure, it can be used and is beneficial in other borrower-lender situations. If you are unable to make payments on credit cards, car loans, or other major loans, the hardship letter is vital. This letter is the first proactive step a borrower must take in the quest for cooperation and assistance from the lender. In the current economy, the most common situation is the borrower attempting to avoid foreclosure. Most of these borrowers are seeking a loan modification or a “short sale.” Most lenders require a hardship letter from the borrower.

In a nutshell, the hardship letter explains why you are unable to make payments and offers a solution. The explanation should include exactly what happened to create the situation. Lenders will view some situations more favorable and worthy of assistance. For example, worthwhile situations include job loss, a major decrease in salary, a serious medical condition that prevents employment, or a single parent struggling without child support. Lenders may frown on reasons that include: divorce, legal issues, you are overextended, you are now a student, or you are threatening to file bankruptcy. If the financial problems are simply the result of mismanagement and/or poor decisions, the lender may not view your request in a favorable light. As you compose the letter, remember that you are not in the driver’s seat, and the lender is not obligated to assist you.

The importance of a well-written hardship letter cannot be over-emphasized. Although it may seem basic, be sure to include your full name, address, lender’s name, and your loan number. The letter should be concise. Your letter is not a top priority on the busy lender’s agenda. Be sure you provide a specific explanation for the arrearage, but do not whine and complain. As you describe the circumstances of your hardship, be sure to include the date the situation developed. You need to let the lender know if the hardship circumstance is temporary or permanent. Do everything you can to make the review of your request easy for the lender. Attach copies of documents that evidence your situation. For example, copies of bank statements that reflect a decrease in income or letters that support your inability to work because of a major medical condition. Anything that documents and supports your situation should be copied and included with the hardship letter. Provide the lender with your suggestion for a solution which, of course, is the outcome you are seeking. For example, “We feel that a loan modification (or short sale) would be beneficial to both of us.”

As you write the hardship letter, be sure you are honest and sincere; express your desire to keep your home if you are seeking a loan modification.

As you close the letter, be sure you thank the lender for their time and anticipated cooperation. This may seem silly to mention, but be sure you spell check the letter and read it aloud to be sure it makes sense. Remember the importance of the hardship letter as you strive to save your home from foreclosure. This letter is worthy of your time and attention.

If you feel that you need some extra guidance in crafting the hardship letter, you can do a search on the Internet, and you will find many samples, both free and for a fee, that provide examples you can follow. Here’s one example:

James has worked for over 25 years in management in the mortgage banking industry and title insurance industry. She has started web sites and written articles providing information and resources for those struggling in the current economy. As job losses increase, the foreclosure rate goes up. Hopefully, this information will assist borrowers facing financial difficulty and possible foreclosure. The hardship letter is one key when requesting the lender’s assistance.

Tips to Avoid Mistakes in a Hardship Letter for Short Sale

Whatever is the reason for your hardship, you will have to write a hardship letter to your lender in order to ask for a short sale. So, it is very important to avoid mistakes while writing the letter.

Here are some mistakes that should be completely avoided while writing a hardship letter for short sale:

1. The hardship letter should always be written in a business format wherein you mention you’re the date, name, mailing address, and contact number in the beginning and then your loan details.
2. Discuss and decide a compelling reason for your hardship that you would be mentioned in the letter to convince the lender to accept your proposal. Do not just write reasons like insufficient funds, lack of financial management, etc. These reasons will just get your application rejected. You can choose from the number of reasons mentioned above and also contact your broker.
3. Do not ever pinpoint or blame the lender on its policies and stuff. Always remember that it is you who needs their help and so keep your calm while writing a hardship.
4. Your hardship letter should be a reasonable one. Don’t just keep on adding unnecessary information but only keep it to the point. You just have to make the bank aware of your situation so that the lender feels pity for you.
5. You do not have to polish your letter and make it neat on formatted. A raw letter would work, provided it is meaningful.
6. You must always make your signature at the end of a hardship letter.
7. Always write a hardship instead of getting it typed. If you cannot write a proper letter, ask your broker to do it for you.
8. Make sure that there are no spelling mistakes and grammatical errors in your letter.

With these tips, you will be at the apposition of writing a good hardship letter that will help you get the funding that you need, and please avoid making the above mistakes.