When seeking a deed in lieu of foreclosure, your lender will more than likely require submission of a hardship letter to their loss mitigation department. Through the hardship letter, a homeowner will not only request a deed in lieu of foreclosure from their lender, but also, provide information supporting financial hardship as the cause of their inability to meet existing mortgage or deed of trust payments. Specific to the case of hardship letters requesting deed in lieu of foreclosure, a homeowner will also seek to show how they will not be able to make future home loan payments, in either the short or the long term.
What to Include in the Hardship Letter
In your hardship letter, which should be prepared in no more than one page, typed, and in business format, a homeowner will detail their current financial situation, including both income and expenses. Furthermore, a homeowner will also need to provide information detailing the reason for the current financial hardship, as well as describe how this hardship will prevent meeting future loan obligations. Acceptable reasons for hardship most lenders will consider include:
- Job loss, underemployment, or business failure
- Illness preventing employment
- Divorce
- Loss of spouse or other co-borrower
- Other scenarios causing lost income or,
- Other scenarios causing large unexpected and unpreventable expenses
In most cases, a lender will not consider fluctuations in the value of assets as a reasonable hardship. In addition, lenders like to see documented efforts by homeowners filing a hardship letter that prove their previous attempts to prevent default through liquidation of assets, slashes in spending, and exhausting all potential income streams.
On the hardship letter itself, homeowners should clearly label identifying information relevant to their mortgage or deed of trust, including their name, address, the loan number, and a signature of the homeowner. In addition, a hardship letter should include documentation to support all claims made within the letter itself.
How to Prove Financial Hardship
A deed in lieu of foreclosure hardship letter will require documentation supporting claims of hardship. This will include a number of items that should be included alongside a hardship letter, including:
- Financial records, such as bank account statements
- Proof of unemployment or pay documentation, if employed
- Medical bills and other medical-related expenses
- Applicable tax filings and returns
- Decree of divorce or death certificate to confirm loss of co-borrower
- Bills confirming estimates in household expenses
- Documents detailing lists of all other debts, as well as assets
Getting Legal Help with a Deed in Lieu of Foreclosure Hardship Letter
Deed in lieu of foreclosure, if approved by your lender through a hardship letter and other negotiations, will allow a homeowner to get out from under a burdensome mortgage, although at the cost of losing their home. Homeowners should understand the implications of such decisions, as well as be informed about other options applicable to their specific foreclosure prevention case. Having legal counsel assist in these matters helps homeowners ensure they are making the correct decision.
