How to write a Hardship Letter for a Short Sale – A sample you can use!

Posted by Owen McGab Enaohwo on Jul 9, 2010 | View Comments

In a previous blog post, I mentioned that one of the documents required by lenders in order to begin the short sale process is a hardship letter. I will now take some time to explain what it is, why you need it and how to write one. I will even include an example that you can remodel to suit your own true situation.

In my opinion, the hardship letter is one of the important documents you’ll be expected to submit to your mortgage lender because it gives them a snapshot of the financial distress that you are experiencing. It is basically is a signed and dated one page letter (handwritten or typed) through which you explain the reasons why you are having a difficult time making payments. You can also include information on what you have done so far to resolve the situation and why you need the lender to approve the short sale in order for you to avoid foreclosure. Of all the other required documents, the hardship letter leaves the most room for creativity, and therefore the most potential to confuse people as to what it should contain.

Tips that you should keep in mind as you prepare the hardship letter:

• You cannot use someone else’s letter as your own; your letter must be truthful.
• However, you should try to make the letter dramatic. Tell a dramatic story in a dramatic manner.
• The letter should evoke emotions and sad feelings from the person who reads it.
• Most importantly, the letter must present at least one documented, valid reason why you’re no longer able to afford your home.  Some acceptable reasons could include sudden unemployment after you’d already bought the house; large, unexpected medical bills; incapacitation and an inability to work because of an accident or illness; skyrocketing interest rates which have left it impossible for you to make payments. (Generally, reasons such as bad buying decisions, pregnancy, moving into an apartment or smaller home, or being unhappy with the neighborhood will not suffice.)
• A timeline of events that led to your inability to pay the mortgage.
• An explanation of the steps you’ve taken to try to correct your financial challenges.

Remember that your hardship letter should be concise yet thorough. The lenders want to have enough information to help with making a decision, but they don’t want to know every minute detail of your life.

Below is a sample hardship letter. I have included it as a means to guide you on how to write yours, because, as I said above, your letter should be totally your own, with your own personality, your own life story, and your own challenges given. Remember that I’m only showing you this letter so that you have an idea of how to put all of the elements together.

Dear Loss Mitigation Officer:

I am an electrical engineer by trade. Recently, I was laid off from a job that I’ve had for 19 years due to the recession. I was one year away from retirement, yet there was nothing they could do to take care of me. That means I’m at a loss now to take care of my family.

My wife has taken a job to try to help out with our situation.  Unfortunately, all she managed to get is a minimum-wage job at a local convenience store. Our life savings is drained, and even with my wife’s new income of $325 a week, we are far short of being able to afford our mortgage payments.

As a result, I am embarrassed to tell you that we’ve had to move in with my brother, who has given us one bedroom and a small study to turn into our “living room.”

We have hired a real estate agent, and fortunately, he found a buyer for our property. Their purchase agreement offer is $____________ (the property’s current market value). The offer is less than what we need to pay off our first and second loans for the property. Still, the offer is a good one, but I must have the first and second lenders agree to work with us on a short sale and accept short payoffs

I have attached my authorization for my real estate agent and escrow officer to speak with you.  The real estate agent is _________________ and the escrow officer is ________________. with (Title company). I’ve also enclosed this with this letter all the other required documents needed for you to approve the short sale.

Thank you for your time and consideration in this matter.

In conclusion; while your letter should be considerably different from this, hopefully you understand the elements that your lender will want to see in it.

Questions for you:

Given the chaos that is going on in the homeowner’s life at the time, do you think the process of requesting a short sale is too complicated? If so, how could it be streamlined? I will like to hear your thoughts!

Visitors who read this post also read:

• Short Sale VS Foreclosure VS Deed-In-Lieu of Foreclosure; which of these represents the best choice for a homeowner in distress
• Documents required by lenders in order to begin the Short Sale process
• How does a short sale affect my taxes? The two answers to your question