Not every foreclosure hardship letter is the same. In fact, every homeowner’s specific hardship and current financial difficulties will be different, but more notably, the proposed remedy, otherwise known as workout in the lending industry, in each hardship letter will differ per homeowner as well. In general, the requests made by homeowners in a hardship letter often revolve around two different proposed paths of action, including actions to make meeting future mortgage obligations feasible or actions to prevent foreclosure, while still allowing a homeowner to get out from under their current mortgage obligations entirely.
Hardship Letters to Prevent Foreclosure
In the event a homeowner has suffered hardship, cannot meet their current mortgage payments, and is facing foreclosure, sometimes the best decision is to sever the ties between the homeowners’ unmanageable mortgage debt and their home. After trying other options, a homeowner may require lender approval to undergo a short sale transaction or deed in lieu deal to prevent foreclosure on their home. Once a homeowner has determined the route they want to go regarding a given mortgage debt and home, they will typically be required to send their lender’s loss mitigation department a hardship letter, which outlines their request, documents the current affairs of a homeowner, and explains the financial aspects of a hardship.
However, the content of the hardship letter to prevent foreclosure, but not save a mortgage, will differ in the following ways:
- From the onset of the letter, a homeowner will request their chosen path of foreclosure prevention, be it requesting a short sale or requesting a deed in lieu of foreclosure deal
- A homeowner must also document the hardships they have faced to bring them to the point of requesting such drastic measures to prevent foreclosure. A cursory overview of finances, including income and expenses should be documented and included, but more importantly, a homeowner should document all other foreclosure prevention actions they have taken or how other workouts may not fit their needs
- A homeowner must outline the value of their home, including current market value, the amount of equity in an existing mortgage versus the outstanding debt attached to a property, including second mortgages and other liens
- A homeowner must convey how other less invasive foreclosure prevention methods will not work in the long term given their hardship. For example, a list of income and expected income versus existing expenses should outline that even forbearance periods or moderate adjustments will not allow a homeowner to stay in their current mortgage
- A homeowner must show they have taken steps to sell their home, or exhibit that the resale value of a home will not cover the amount of debt owed. In the case of a requested short sale deal, the homeowner should provide the details on a proposed sale, including the price and other buyer information
Hardship Letters to Prevent Further Default of Mortgage
Alternatively, some homeowners feel it is feasible to retain their home in spite of the recent inability to meet mortgage payment obligations. These individuals will be tasked with promoting the following ideas in their hardship letters to a lender, which will most likely request loan modifications, forbearance periods, refinancing, or other methods to allow a homeowner to remain in their home, including:
- Propose and request a hardship-based workout from the lender, including the terms and timeline of the proposed hardship remedy
- Demonstrate and document that a viable hardship exists or existed, as well as how this hardship affected the household from a financial perspective
- Outline the current expenses and income of the household and document this. Additionally, include any information on current assets, as well as any other outstanding debts. Provide documentation and explanation on other methods one has taken to prevent default through managing assets and debts, seeking alternative sources of income, or slashing expenses
- Define why a proposed hardship workout will allow a homeowner to payout the life of their mortgage in the future, such as documenting how income is expected to increase, how expenses will decrease, or how the proposed workout itself will bring a homeowner into a financially feasible range of payment obligations without adjusting their current expenses or income
Getting Legal Help with a Hardship Letter
The true question of any hardship letter revolves around the requested relief from the lender. As a homeowner, understanding your options for relief, as well as how each one may benefit or hurt your intended plan of action, is crucial. Having an attorney can help one understand all potential solutions to an impending default or foreclosure, as well as if necessary, prepare and file the important hardship letter that must be sent to your lender in certain cases.
