One of the requirements of applying for a short sale is writing a hardship letter. The goal of the hardship letter is to convince your lender that a short sale is necessary in order to avoid foreclosure. If this is your first time drafting such a letter, this guide will come in handy. We’ll discuss the do’s and don’ts of writing your hardship letter so that you can have a better chance of getting approved for your short sale.
What Exactly is a Hardship Letter?
The hardship letter is one of the most important components of your short sale proposal to your lender. Its purpose is to explain your changed financial circumstances and why you are no longer able to afford your mortgage.
In some cases, lenders provide a hardship form (or affidavit) for you to fill out. Whether it’s your own written letter or a lender-supplied form, the goal is the same – to plead your case for a short sale.
You may also need to explain why your home equity has fallen short of your mortgage balance. For instance, have local real estate values declined since you bought your home? This isn’t usually something you can control, but if it’s become a widespread trend, your lender may be more sympathetic to your case.
Sketch out the main events that led to your financial difficulties. You don’t need to go into minuscule detail, but you need to give a substantial reason why you are unable to make your mortgage payments and why a short sale is the best solution for both parties involved.
Keep in mind that you need to back up the statements you made in your letter by providing a financial statement, bank statement, contract termination letter, medical bills, or other documents.
The attorney or short sale negotiator you hire to manage your case will guide you to write an impactful and appropriate statement and advise you on what supporting documentation you’ll need to provide along with your letter.
What Is Considered a Hardship?
Everyone has their own notion of what constitutes a hardship, but only your lender’s definition matters here. A “hardship” is a situation beyond your control that prevents you from being able to pay your bills.
Here are situations that usually qualify for a short sale:
- Employment-related hardships such as job loss, job transfer, pay reduction, or reduced work hours;
- Marital status changes like separation, divorce, or a spouse’s death;
- Severe medical reasons that caused increased medical expenses (for either you or a family member);
- Military service;
- Natural disaster or an unforeseeable circumstance (e.g. COVID-19 pandemic).
Don’t assume that less seemly reasons like incarceration, drug addiction, or gambling debts prohibit you from a short sale. For these and other less socially acceptable hardships, consult with your short sale attorney on how to elicit empathy from your lender while persuading them that you could not control the outcome, despite your best efforts.
This type of explanation requires a little more strategy, but your attorney will be equipped to make your case resonate.
The Do’s of Writing a Hardship Letter
First, you should provide your personal details in the header of your letter. Include your first and last name, your address, phone number, loan number, the name of your lender, and the date.
Next up is the introductory paragraph(s). Start off by explaining the purpose of your letter. This should be brief and to the point.
After this comes the most important part — explaining your hardship and what led to it. The key here is to add enough detail to paint your picture, but also to not tip off into overly dramatic and flowery language. You want to be taken seriously.
In the final paragraph, explain how this circumstance affected your life and how a short sale presents itself as the only solution in order to avoid foreclosure.
Remember to be concise and not to veer off into detailed explanations; your letter should be about one page long. You can also mention anything you’ve done to try to improve your financial situation and why those efforts fell short. Finish off your letter with a polite request for a short sale and sign it off (both signature and printed name).
The Absolute Don’ts of Composing a Hardship Letter
Now that we covered what should be included in your letter, here are also a couple of tips on what should be avoided.
The biggest no is expressing resentment or pointing fingers. This is not an opportunity to blame your company for firing you or your ex-wife for leaving you. Don’t blame politics or legislation, and, above all, do not blame your lender.
Another red flag for a lender is when a client promises that their situation will soon get better. This can be interpreted like you’re expecting a windfall and will soon be able to repay your debt. The lender will see this as a reason to reject your short sale or approve it on the condition that you pay back the mortgage balance over time via personal loan.
Something that also should be avoided in the letter is mentioning any future plans, such as applying for a new, better-salaried job, receiving an inheritance, and similar situations. This can also be a sign to the lender that your financial situation is not dire.
In short, hardship letters are not the time to be optimistic about the future or to exude any sort of frustration or cynicism about your situation.
Sample Hardship Letter for a Short Sale
Here is a sample hardship letter to give you an example of the concise and matter-of-fact way that you should write yours:
RE: Hardship letter for Short Sale Documentation
To Whom It May Concern,
I am writing to explain how my financial circumstances have deteriorated and why I am no longer able to afford my mortgage.
My family and I moved to our home at <address> in <month year> during the height of the COVID-era real estate market. At the time, I worked for <company name> in a management position with a good salary and excellent benefits that afforded us a bigger home and higher expenses.
In <month year> I was told that my position would be eliminated due to corporate restructuring. I was formally laid off on <full date>. After failing to find a comparable job, I attempted to find steady freelance employment, but the growing trend to outsource my skill set to international workers has put downward pressure on what I am able to charge.
As a result, I’ve been unable to keep up with my mortgage payments and rising healthcare, grocery, childcare, and utility costs. We also have a newborn at home and two toddlers in daycare part-time. Despite her best efforts, my wife has been unable to find steady and flexible work in her niche field to supplement my freelance income.
We love our home but are no longer able to afford it. We have gotten behind on monthly bills and will not be able to make our next mortgage payments. Our only recourse at this time is to sell our home in order to prevent foreclosure and further damage to my credit.
However, because of the recent downward shift in real estate values, our mortgage balance is now higher than what we could reasonably sell our house for.
Please accept this letter as my formal request to approve our short sale. Enclosed is a fair offer to purchase our home by a pre-qualified buyer, along with supporting documentation as requested.
I sincerely appreciate your consideration and understanding in this matter. If you have any questions, please contact my attorney, <attorney’s name> at <phone number>.
I attest that the above information is true and accurate to the best of my knowledge.
Short Sale Hardship Letter Template
Here is a sample hardship letter template to help get you started. Don’t copy it word for word – your lender will know when a letter does not sound genuine.
(Your Lender’s Name)
RE: Hardship Letter
Dear (Your Lender’s Name) or Dear Sir/Madam,
I am writing to you about (explain in one or two sentences about the purpose of your letter, give an overview of your hardship/s).
The situation I found myself in is due to (go into a little more detail about your circumstances and the ways you tried to avoid or solve your financial problems).
Therefore, I believe that (explain how you feel that a short sale would be the best solution and politely request to be approved for it).
Thank you for your time and consideration.
If you live in the Washington, DC metro area, call Marc Dosik and the Fed City Team to discuss your options for a short sale. Marc and his team have rescued over 130 homeowners from foreclosure proceedings. They help you sell your home and work with your lender to get the mortgage deficiency forgiven, all at no cost to you. They even negotiate with the lender to pay your relocation costs, giving you $3,000 or more cash-in-pocket to help you get back on your feet.
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Disclaimer: Every homeowner’s situation is unique, and local, state and federal laws change regularly. As such, this information should not be considered as legal, tax, financial or investment advice. Consult a qualified professional before making any financial decisions.