Your lender will require a financial hardship letter and documentation to support your hardship before the lender will agree to speak to you about alternative foreclosure prevention options. Acceptable financial hardships include the following:
- Loss of employment
- Reduction of salary
- Divorce
- Death in the family
- Disability
- Illness
- Natural disaster
The more compelling you write your letter, the better chance you have for your lender to stop foreclosure proceedings and try and work out some other financial arrangement with you. Since your financial hardship letter is the first step towards saving your home from foreclosure, you should consult with an attorney to help you write it.
What You Should Include in Your Letter?
Your financial hardship letter should state that you can no longer afford to make your current mortgage payments as a result of a financial hardship. Be sure to state the financial hardship clearly. You should tell the lender how much you can afford to pay, and when you anticipate your financial situation improving. Attach a financial statement listing your assets and liabilities. You will also need to provide certain financial information such as:
- Last two paycheck stubs
- 1099 or W-2
- Tax returns for the last two years
- Recent bank statement
If you want your attorney or other third party representative to have access to your mortgage information, you will also need to provide your lender with an authorization letter. Depending on what foreclosure prevention options are available to you, you may need to provide additional information. Each lender has different guidelines and requirements.
Options
The following are options that your lender may offer you depending you your financial situation:
- Mortgage modification. If you want to stay in your home, the lender will reduce your interest and extend your loan term so you have more affordable payments.
- Reinstatement. If you are working and your financial situation has improved, you may be able to reinstate your mortgage by paying all past-due payments and any fees or costs incurred.
- Forbearance. Forbearance is a good choice if you are upside down on your mortgage, and want to get caught up on payments.
- Short Sale. Short sale is a good alternative if you must sell your home, but owe more on your mortgage than you can sell it for. Your lender has to approve the sale, and you should negotiate that you owe nothing after the sale.
- Deed in Lieu of Foreclosure. If you cannot afford to keep your home, you sign the deed over to the lender and walk away owing nothing.
- Refinancing. You obtain a new loan at a lower interest fixed rate to pay off the old loan and have more affordable payments.
- Selling your home. If you have enough equity, you can sell your home and use the sale proceeds to pay off your mortgage.
Work with an Attorney
Whenever there is a threat of foreclosure, it is best to work with an experienced foreclosure defense attorney. The attorney can explain the foreclosure process to you, help you draft a hardship letter and other required documentation and negotiate with your lender to save your home from foreclosure.
