A well-crafted and ironclad hardship letter is probably one of the biggest components to getting a short sale approval from the bank. Without clear description of the dire straights the borrower finds themselves in, no lender will willingly short the loan. So how do you go about writing a letter that will get the banks attention? Whether you are writing your own letter or helping a homeowner write a letter, here are some things to consider:
1. The Reasons for the Hardship
Be CLEAR about what your hardship reasons are! It could be a number of things, including (but certainly not limited to)
- Loss of a job
- Illness
- ARM adjustment
- Property tax hike
- Divorce
In any case, you first need to compile and assess what the most compelling reasons for hardship are. Put yourself in the bank’s position as a lender. If there is a way you can make the mortgage payment,they are not going to allow a short on the loan. So be very clear what circumstances have are making it impossible to keep up with the mortgage payment.
2. Be Specific about your Hardship
Once you have established your reasons for hardship, you need to put in the effort to understand how that hardship has impacted you specifically. For example;
- Job loss, and family income has dropped by $2400 per month
- Medical Bills due to “X”, which total over $50,000
- A divorce which puts child support and alimony burdens of $1200 per month
- My ARM has increased my mortgage payment by $800 per month
Secondly, you need to demonstrate how this hardship impacts your ability to make a mortgage payment. If you make $8,000 a month and your mortgage went from $1000 per month to $1500 per month; good luck getting them to approve a short sale! You need to show how the hardship pushed you outside of your ability to make the payment.
Banks often think of mortgage payments in terms of percent of gross income, so you might consider using this. Let’s demonstrate with an example. Assume your mortgage payment is $1700 per month. Your household income was $5000 a month and then you lost your job, and the new household income is $2200. This means that your mortgage payment went from a reasonable 34% of your income to a whopping 77% of your income. Any bank will look at that number and say, “Yikes!”
3. Gather supporting information and Market Conditions
Think about circumstances outside of your own that are impacting your market area. Remember, the bank will want to be certain other options have been exhausted – such as selling your house. You will need to show that this is also not an available option. This can be done by doing things like:
- Showing a recent appraisal of your home
- Understanding comparable sales and the general market in your area
- Itemizing pieces of disrepair on the house that negatively impact the properties market value (i.e. an old roof or broken A/C unit)
- If the house is on the market, how long it has been one
4. Writing the Letter
ONE PAGE ONLY! Make sure you keep it concise – no lender wants to read a 4-page hardship letter. Get it into a single page!
Keep it in easy to read paragraph format.
The layout of your letter should look something like:
- At the top of the letter, put the bank’s name and address. You might want to address it directly to the loss mitigation department. Each bank has unique ways of handling transactions so it helps to do some research ahead of time.
- In the RE: line, put in “Request for Short Sale”, and your loan number
- Your first paragraph should describe what happened briefly and make it clear you are unable to afford the mortgage. Don’t be ambiguous here – you can’t afford it!
- RIGHT: “My family has gone through significant hardships recently that make it impossible for me to afford my mortgage.
- WRONG: “I recently lost my job and we have had to cut out cable TV and gourmet dinners…. it’s getting really tough to afford our payments!
- Your second paragraph should talk about the market conditions that have driven down your home value
- 3rd and possibly 4th paragraphs are details, details, details. Use the information you gathered up above to make your case more clearly.
- Closing a- restate that you cannot afford the mortgage, and there are no other options besides a short sale.
- Make sure to sign and date the letter, and include your own contact information.
5. Distribute!
Send the letter to the appropriate party (bank, attorney, investor, or real estate agent you are working with).
Once the letter is with the bank, you can feel confident that you built the best possible case towards convincing the bank to accept a short sale!
What do you think?
Do you have other tips or advice on what makes a successful letter? Go ahead and share in the comments!
