The first step a homeowner must complete in the short sale process is the submission of a short sale hardship letter to his lender. A hardship letter should make a compelling argument for why the lender should approve the homeowner’s short sale request.
What Goes Into a Good Hardship Letter?
A hardship letter should be no more than one page long. It should include the borrower’s name, mailing address, property address, and loan number. The hardship letter must also be signed by the homeowner.
If the homeowner has already listed the property for sale, the hardship letter should state this fact along with the listing price. The hardship letter should also state the date the property was placed on the market.
An effective hardship letter should explain exactly what the homeowner’s situation is and why he is unable to make his mortgage payments. The explanation of the hardship should not be vague; it should present an honest, yet succinct picture of the homeowner’s financial situation.
Acceptable Hardships
A key factor in a lender’s decision to accept or deny a short sale request is the type of hardship being faced by the homeowner. Unfortunately, most lenders do not view depreciation or loss of value as an acceptable hardship. Moreover, the fact that a homeowner is underwater (owes more than the property is worth) is not viewed by most lenders as an acceptable hardship.
Most acceptable hardships directly impact a homeowner’s ability to pay. The following are typically viewed as acceptable hardships:
- Unemployment;
- Underemployment;
- Illness;
- Job Transfer;
- Divorce;
- Death of a spouse or co-borrower; and
- Prolonged vacancy of a rental or investment property.
The hardship letter should conclude with a statement that the homeowner wants to avoid further damage to his credit that would result from a foreclosure and that he also wants to avoid bankruptcy if at all possible.
Documenting a Hardship
A homeowner must provide the lender with documentation which supports his claim of financial hardship. Among the documents most lenders will want to review are:
- Paystubs;
- Bank statements;
- Tax returns;
- Property tax bills;
- Mortgage statements for all junior mortgages, if applicable;
- Divorce decree, if hardship is related to a divorce;
- Death certificate; if hardship is related to death of a spouse or co-borrower;
- Evidence of unemployment, if hardship is related to a job loss;
- Financial statement which sets forth the homeowner’s assets and liabilities; and
- Any other documentation which may be relevant to the homeowner’s claim of financial hardship.
Getting Legal Help
If you are unsure of how to write a hardship letter, you should contact a qualified real estate attorney. For a nominal fee, most real estate attorneys will gladly assist you in writing an effective and compelling hardship letter.
