How To Stop Foreclosure With A Hardship Letter

An integral part to any foreclosure prevention action is the foreclosure letter. Once a homeowner realizes they face default or their lender contacts them about default, a number of potential hardship-based solutions may be suggested by both parties, lender and homeowner. For a homeowner, solidifying the ability to take advantage of hardship-based foreclosure prevention options offered by their loan servicer is often done via a hardship letter.

When to Use a Hardship Letter

Typically, a loss mitigator with your lender will request a hardship letter before approving any foreclosure prevention actions, especially any action based on hardship or financial difficulties. Commonly, homeowners seeking short sale deals, loan modifications, forbearance periods, relief under state or federal anti-foreclosure programs, or refinancing will forward a hardship letter to their lender at the request of the loss mitigation department. This letter will be reviewed by the homeowner’s personal loss mitigator at the lending company, who will decide whether to approve a pre-discussed foreclosure prevention action.

The foreclosure prevention process is often one that involves close contact between a struggling homeowner, their lender, and their lender’s loss mitigation department. However, using the hardship letter, which will most likely be required in any case, a homeowner can truly drive home the financial impact of their current financial hardship. Even though these items may have already been discussed in person or over the phone, documenting them in one concise letter is helpful.

What to Include in a Hardship Letter

Each hardship letter is unique in both content and format. Templates and other samples can be found online, and in many cases, lenders and legal counsel often advise their clients to use business format when crafting their letter. Keep in mind that the person reviewing your hardship letter often has many others to review; remain concise and stick with financially documentable claims of hardship in an organized and coherent fashion. 

Included in most hardship letters are facts probably already know to your lender, including your current income, expenses, and the amount of equity in your home. Additional considerations to include in your hardship letter include the current appraisal value of your home, as well as document your current income and expenses. All of these figures, when organized in the hardship letter, will outline your current financial standing, the status of your home loan, and your inability to meet financial obligations currently.

Next, a homeowner should explain and document the following facts related to their own foreclosure prevention actions, including:

• The reasons behind payments in default or facing default, including documentation showing lost income or increased expenses, as well as documentation of other remedies taken by you to address the income versus expenses deficit

• Detail whether your inability to meet current payment obligations is a temporary or long term issue, and if applicable, what alterations in income or expenses would alter the current circumstances for better or for worse

• Define what you would like to see happen regarding your home, such as whether you’d like to remain in your home, wish to sell, and what you believe is a financially feasible payment arrangement

Commonly Accepted Hardships by Lenders in Foreclosure Prevention Actions

The goal in any hardship letter is to explain the reasoning behind missing outstanding home loan obligations, which may have been outside of the homeowner’s realm of control. Lenders are understanding to an extent, especially if the inability to pay is short term, and in turn, may agree to different methods of foreclosure prevention to remedy a situation. However, not all hardship claims or hardship letters are the same. The following list outlines some of the most commonly approved hardship claims used by struggling homeowners, which must be documentable, including:

• Having an adjustable rate mortgage reset

• Reduced income from unemployment, illness, divorce, or death of co-borrower

• Failure of business or other income generating business venture

• Increased expenses due to illness, divorce, separation, or property damage from disasters, whether natural or unnatural

Getting Legal Help

Before filing a hardship letter, homeowners could benefit from consulting with an attorney. Though not necessarily to prepare or file the letter itself, a lawyer can advise clients on how to best adjust their existing home loan agreement to prevent foreclosure. In addition, an attorney can represent your interests in negotiations with lenders, as well, which may prove beneficial.