What Is A Hardship Letter?

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A hardship letter is a letter or form that a homeowner produces as part of the loan modification application. This letter gets sent to the lender, usually with other supporting documentation. The letter outlines the financial picture of the borrower and shows the reasons why the financial situation leading to the default occurred. The short answer is that a borrower writes this hardship letter in an attempt to convince the bank to stop or pause the foreclosure process on a property, usually a home.

What Does a Hardship Letter Contain?

A hardship letter should be factual and outline the reasons how to borrower became delinquent.  Many failed hardship letters attempt to play on sympathy instead of focusing on the reasons for the default.  A lender, however,  is not typically a sympathetic entity.  They are investors with a plan to make income from every loan. The lender may claim that they are sympathetic to your situation, but ultimately their goal is to receive loan payments. Also, because every situation is different, and because every lender is different, the information you need to include might vary. Most will ask you for:

  • The Hardship Letter
  • Financial statements that support your financial claims and situation
  • Supporting documents that help to show that you are in a position that will allow you to solve your current financial situation in X number of months.
  • Supporting documentation that helps to show how the financial hardship occurred. This can include letters of termination, health records, documents that show the disparagement between disability and income payments, etc.

It is important to understand that while some of these documents are similar, they may not fit your situation. Having a lawyer that specializes in foreclosure on your side is a good start to successfully submitting the loss mitigation application.  If you do not submit a proper application, you may not have a second chance to convince the lender to stop the foreclosure process.   Submitting the application correctly the first time is important. Most lenders will require that the letter be personally written rather than created from a form.

The Goals of a Hardship Letter

You want to show:

  1. What happened – Tell the lender how your financial situation occurred. A hardship is the result of an event or events that are outside your control. This is a situation that is not specifically your fault – It is just something that happened, and it had a negative financial effect. Examples can include – The unexpected death of a spouse, a car accident with injuries that prevent you from working, the loss of your job due to a business closing, unexpected medical reasons, etc. If you are not sure if your situation is valid, ask a foreclosure attorney.
  2. The Supporting Documents – financial documents, medical statements, letters from your employer or past employer, etc. These are things that make your explanation of your financial situation true. For example, “I was making $5,000 per month and the business closed. I am now receiving $400 per week in unemployment. We’ve used our savings account to pay the mortgage, but that money is now exhausted.” Then show documents that prove this example.
  3. Show a positive outcome – What are your plans to remedy your financial situation? Are you getting a new job that starts in ten days? Are you selling the house to pay off the mortgage, but you need more time? The lender wants to see that there is hope that you can get back on track to pay back your loan. It is usually much better for them if you catch up on payments rather than for them to foreclose.

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