Mortgages & Creative Financing

Writing a Hardship Letter: Questions that Sellers Should Consider

Expertise:
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I review short sale packages for a living. It’s what I do. One part of the package that is interesting to me is the hardship letter.

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In order to participate in a short sale, a borrower must have some sort of hardship. The bank actually requests a copy of a hardship letter.

The reason that the hardship letter is interesting to me is because it’s a tell—like in poker. It shows exactly where the seller is at with regard to their mortgage, their home, and even their emotional state. Some hardship letters are longer than my kids’ book reports, and others do not share enough information.

There needs to be a middle ground. The hardship letter for the short sale package does not need to be a novel, or even a short story. It is a short letter that explains what has happened to the borrower or what has changed since the borrower purchased the property. Essentially, why can’t the borrower afford the property any longer?

Here are some questions that sellers should consider when writing a hardship letter:

  1. What is the hardship? (i.e., job loss, mortgage rate increase, decrease in hours, divorce, illness, etc)
  2. What has changed about the situation from when the property was purchased or the mortgage was obtained?
  3. What are the borrowers’ assets and will they be used towards the short sale? (Why or why not?)
  4. Has the borrower explored loan modification or bankruptcy or any other options for avoiding foreclosure?

A strong hardship letter is short and succinct. It explains the situation in five to seven sentences in such a way that the bank employee can understand and empathize. It is legible and, of course, it is in English. (yes, I’ve seen hardship letters in Spanish, French, and even Tagalog).

Photo: flickr creative commons by adamcroft

    MH
    Replied about 9 years ago
    As depressing as that must be, it must also be fascinating to read a person’s big financial tragedy boiled down to 5-7 sentences. Out of curiosity, and you don’t have to answer this of course, is there much variety in the description of hardship? Or are most of them the product of one or two biggies – like divorce/bankruptcy, etc?
    Joe Manausa, MBA
    Replied about 9 years ago
    Nice and neat, just like you recommend the hardship letter be. Thanks for the primer Melissa. I was going to write this in Tagalog, but …
    Paul Caparas
    Replied about 9 years ago
    Thanks for the list of questions. I will start providing these questions to my clients and give the tips that you mentioned!