Three Tips To Help You Write An Effective Hardship Letter

Written by Christi Hayes and Fact Checked by The Law Dictionary Staff  

There are many homeowners in the United States who are struggling to make their mortgage payments. One option available to people is government programs that offer borrowers the opportunity to modify their current mortgages to reduce their interest rates and, in some cases, forgive part of the outstanding principal balance. Another option is to sell the home in a short sale in which lender is asked to agree to accept less than the principal balance owed on a mortgage. Under either option, banks require a hardship letter as part of the process.

A well-written hardship letter can help you to avoid foreclosure and obtain a fresh start. Poorly written letters can cause a lender to deny a borrower's request for a loan modification or for a short sale. The following three tips could make your hardship letter stand out and lead to a favorable response from your lender.

Tip 1: Don't harp on the obvious

Writing a hardship letter that explains how the value of your home has declined and your mortgage balance exceeds the value of your home is not going to convince your lender to accept less than the full amount you owe when you sell the home. Equally ineffective is asking a lender to modify your loan to reduce your monthly payments with a hardship letter that merely asks for a modification because other people you know got them from their banks.

  • Explain how your financial circumstances have changed since you took out the mortgage. Examples of situations that banks might consider as being hardships include:
  • Loss of a job or a reduction in your income
  • Serious illness or physical injury that resulted in lost income or mounting medical bills
  • The company you work for is relocating and you will lose your job if you do not sell your home and move
  • Divorce, separation or annulment
  • Imprisonment
  • Death of a spouse

Interest rates have been relatively low in recent years, but if rates begin to rise, homeowners with adjustable-rate mortgages might use that as a factor in their hardship letters. Depending upon the terms of the original mortgage, higher interest rates could lead to unaffordable monthly payments.

Tip 2: Modification of a loan or a short sale should not be your first option

Banks want to read that you have tried to resolve your financial difficulties before coming to them for help. If your hardship is unemployment, give your lender the details about your efforts to find a new job. Someone who went back to school to train for a new career after losing a job should explain the circumstances in the letter.

Tip 3: Keep it simple, but don't leave anything out

The purpose of your hardship letter is to show your bank that you are on the brink of total financial collapse. You also want the letter to sound as though it was written by someone in such a dire situation. Forget the Thesaurus and the fancy words, and write it using your own language. Write it so it sounds like you talking directly to your banker.

If you are experiencing financial troubles, you want to explore all of the options that are available to you to resolve them. Loan modifications and short sales are only two options, but there could be more depending upon your circumstances. A consultation with an attorney might be helpful to learn about your options and to get help with your hardship letter.

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