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What is a Hardship Letter?

By Gloria Smith

It is hard to lose a home these days when prices of good and gasoline are going up. But for those whose homes are in danger of being foreclosed due to non-payment of mortgage, there are ways to stop the process or declaring bankruptcy. One option is to apply for a short sale wherein the lender is willing to accept an amount lesser than the total amount owed to the loan and one document required is the hardship letter.

When an individual has difficulty meeting his financial obligations with a mortgage company, he or she is required to submit a hardship letter. This letter will then allow the firm to consider you for a so-called work out and gives the homeowner the opportunity to appeal for another chance. For the letter to be convincing, it has to be honest and should present the facts clearly.
A hardship letter is vital in the success of a short sale. This explains the reasons why the homeowner is not able to make his payments in a timely manner and why creditors or mortgage firms should accept the proposal of the homeowner of a short sale.

Valid reasons

A homeowner must provide a legitimate reason for falling behind. Keep in mind that stating only financial woes as the cause of not being able to pay on time is not a sufficient excuse.
Acceptable reasons include loss of a job, death in the family and a prolonged personal illness. Extra care in writing the letter should be observed and finger-pointing should be avoided so the lender won't be forced to deny your request.

It is also important to note that the hardship letter is only one part of the workout process that the mortgage company requires. A homeowner still needs to prove other things before they can approve a repayment plan or a loan modificator.

Who should write the letter?

The person responsible for writing the hardship letter is the homeowner himself. He or she should be the one to write the content and ensure that all information is accurate. However, he or she could hire somebody or ask for help from a real estate investor. A real estate investor can provide samples of this type of letter.

The letter should be well composed in order for the short sale to push through. Its goal is to convince the creditors that the homeowner is really in a distressing situation and that the banks should accept the lesser amount instead of pursuing the foreclosure.

The short sale package submitted to the banks normally states the amount the banks will lose if they foreclose the property and the amount they will gain by pushing through with the short sale.

A sample introduction would be: "I am writing this letter to inform you of my unfortunate circumstances and the reasons that have caused us to be delinquent on our mortgage. We have done our best to make both ends meet but unfortunately, we have fallen short and my husband lost his job. We now would like you to consider working with us to modify our loan. Our foremost priority is to keep our home and we hope you will give us the opportunity to do that."