How To Stop A Foreclosure With A Hardship Letter

When discussing foreclosure prevention options with your lender, many homeowners will receive a request from their lender’s loss mitigation department for a hardship letter to stop foreclosure. Though this letter will not stop foreclosure per se, it can open opportunities for homeowners to prevent foreclosure proceedings on their home through lender-approved options, such as forbearance periods, loan adjustments, loan modifications, and loan refinancing, as well as other applicable options in the case of certain homeowners. For this reason, many homeowners in default or facing default should learn more about what goes into creating a hardship letter and how it can help them.

How the Hardship Letter Works into the Foreclosure Prevention Process

Typically, a lender will contact a homeowner facing default on their mortgage or deed of trust agreement. In other cases, a homeowner may be proactive and contact their lender once they realize a mortgage or deed of trust may soon face default. In any case, once a lender and homeowner are in contact, foreclosure prevention discussions can take place. Homeowners should not ignore or avoid contact with their lender or their lender’s loss mitigation department. These two entities are probably a homeowner’s best and only conduit to foreclosure prevention options involving keeping one’s home.

After a basic understanding between the lender and homeowner is made regarding the impending default or foreclosure, why non-payment is occurring, and other pieces of case-specific information, the lender’s loss mitigation department will likely request a hardship letter from the homeowner. The hardship letter will outline the current state of financial affairs for the homeowner, the equity held within a home, the potential sale value of a home, and the reasoning for missed payments, or hardship. From a lender’s perspective, the hardship letter allows them to gather all facts pertinent to a given home loan, and determine if the risk of allowing foreclosure prevention actions is worthwhile, when compared to the potential foreclosure sale value of a home. From a homeowner’s perspective, the hardship letter allows homeowners to plead their case with a lender, explain their current financial situation, express how they plan to meet future obligations, and state the desired foreclosure prevention actions they seek.  

What Constitutes Hardship

When pitching your case to a lender concerning them prolonging the life of your home loan in default, homeowners really should attempt to convey that their current financial difficulties are temporary, and if possible, prove their ability to meet future obligations in the long term. With so many different reasons for missed payments and default, many loss mitigation departments will consider any of the following as reasonable hardships, including:

• Lost income earning ability, whether through job loss, illness, or business failure

• Lost income earning in the household, such as through divorce, death, or separations

• Unexpected expenses, such as medical bills and emergency property repairs, typically stemming from natural or unnatural disasters

• The resetting of a variable rate mortgage, in many cases, constitutes a viable hardship claim as well

Getting Legal Help

While the hardship letter is the first step in gaining lender approval for foreclosure prevention methods, an attorney can advise homeowners on the long-term implications of any decision or proposed loan modification. In addition, an attorney can guide homeowners into foreclosure prevention routes that support their best interests alone, and not the lenders, while negotiating the terms of these agreements on behalf of homeowners with their lenders.