Now with the Wachovia model around, I have to say MOST lenders require a valid and genuine hardship when considering a short sale. After all, they are releasing the mortgage for less than what is owed.
Perhaps the borrower lost a job they had been working at for the last 20 years, transferred to another state, facing divorce, serious illness or other loss of income. These are all perfect reasons to list in the hardship letter.
A good hardship letter should bring tears to the reader's eyes. I'm not joking; this is where you want to really spell out all the details of the trouble your family is facing. Don't hold back on the reasons you can no longer afford the payments.
Persuasive Short Sale Hardship Letters
Most lenders require homeowners applying for a short sale to write a hardship letter, which is a written explanation describing why a borrower is not able to make his or her mortgage payments. The thought of writing a letter sometimes causes fear and anxiety in homeowners, but it's really quite simple and if written properly, a good letter can help a homeowner make a powerful case to their lender. Certain elements written into your letter can help make your case to the bank while others can hurt your chances of getting a short sale approval.
The borrower should write the letter in their own words, but they need to make sure that there is a clear picture of their financial condition, and back up their claims to hardship with documentation, such as pay stubs, medical bills, job layoff letters and more. The numbers should clearly illustrate that the borrower is headed for foreclosure or bankruptcy.
The following is what I would give a Seller to use as a guide.
7 tips to writing a persuasive hardship letter:
1. Write it yourself. This is your story, only you can tell it convincingly, so make sure you write it.
2. Explain the events and personal circumstances that contributed to your inability to make your mortgage payments. Examples include: tenant problems, a medical condition or illness, job loss, job relocation, death in the family, divorce etc. Also, describe any additional circumstances currently making your financial situation difficult. An apology for not being able to continue to pay your loan (be sincere). Don't blast the lender for charging you too high a rate after all, you did accept this loan.
3. Describe all attempts previously made to sell your home either by you personally or through a real estate agent. Be sure to include all previous price adjustments. If you've already tried to sell your home, this helps make a more compelling case to your lender that your financial hardship is real and that you are not just trying to walk away from your financial obligation. How you were previously able to pay; both my wife and I were working and healthy. What you have done to try to continue to pay: exhausted savings, cash advanced credit cards, gotten part time work, borrowed from family.
4. Don't blame the bank for your financial trouble in your hardship letter. Scape-goating the people that you are trying to convince to reduce your mortgage does not work to your advantage, so don't do it! (Do not say I stopped making payments because the property you sold me dropped 50% in value) Just because the value of your property has dropped below what you owe does not mean you will have the ability to do a SHORT SALE.
5. Make sure your letter makes logical sense. More specifically, make certain your letter does not contradict any of the other personal documents your bank is examining as part of your short sale application (i.e. your bank statements, personal financial worksheet, pay stubs, tax returns).
6. Tell your lender that you want to avoid bankruptcy. If the bank believes that you intend to file bankruptcy, it will be less likely to seriously consider your short sale application. If bankruptcy is being considered dropping the B word, it gets their attention (DO NOT call them the B word)
7. Tell the bank what you want them to do. Although your ultimate goal in pursuing a short sale may seem obvious to you, it may not be to your bank. In your letter, don't forget to ask your lender to accept your buyer's sales contract, approve your application and forgive any deficiency that may arise as a result of the short sale. DO NOT lie. Simply spell out, politely and sincerely the reasons you need assistance.
Thank them for their understanding and assistance.
And, of course call me if you need further guidance.
Lenders have to look at numbers, so the letter (sob story) about the borrower's difficulties will not be the only factor. It should be a factual description of a financial situation that is leading up to a bankruptcy or a foreclosure on their home, or both. The lender must be convinced that their only other option is foreclosure, and then they can analyze the numbers to see if a short sale is a preferable alternative.
Different sources quote different numbers, but the average seems to run around $50,000 in costs to the lender for the average foreclosure process. Then there are the reserves that are required to be held to back up non-performing loans. The lender must tie up resources that could be invested elsewhere to back up these loans. So, they are open to alternatives.
A well written hardship letter will continue to be of benefit in the process of loans not affected by Governmental red tape, HEMP or HAFA.
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