Loan Modification Hardship Letter
The financial hardship letter explains to your creditor why you are in financial trouble and requests a specific remedy to help you through the crisis. The most common reasons for writing a foreclosure letter, as a result of the subprime meltdown and continued job losses are to request a loan modification or loan restructuring or requesting a short sale to avoid foreclosure.
The hardship letter is a primary requirement in the loan application process, and it is vital in the foreclosure prevention process. When proposing a loan modification or negotiating a loan workout, your loan modification attorney will ask you to submit it along with your other financial documents, so that they can evaluate your situation and present a strong case to your lender. Mortgage lenders need to know why you (the borrower) have been delinquent on your mortgage payments. The hardship letter should paint a picture of your economic or medical hardships.
Use a business format when writing your hardship letter. Include your name, address, city, state, zip and phone number at the top of the paper. Next, include the name of the loss mitigation specialist, lending institution, address followed by the current date, then your loan number (each on its own line). The body of your letter should be about 4 to 6 paragraphs long and should:
- Be concise. A loss mitigation representative will end up with your letter, along with several others. He or she typically has about 5 minutes to spend reading your letter. So, keep only the details specifically relevant to your case.
- State the purpose of your letter. Get straight to the point and make the purpose of your letter immediately clear to them. If you have the financial means to get back on track, the purpose of your letter should be to get a loan modification. If there’s no way you can get current on your mortgage payment, it’s probably better to request a short sale. Assess your situation realistically before stating your letter’s purpose.
- Explain your hardship. Make sure your hardship qualifies as a valid hardship first. Then, work on convincing your bank that you have no other means of mortgage assistance. You also need to convince them that if they do grant your request that you will be able to get back on track. Examples of valid hardships include:
o Recent or impending rate adjustment of adjustable rate mortgage (ARM)
o Reduced or lost income (loss of employment, demotion, etc.).
o Failed business.
o Natural disasters.
o Illness that caused a borrower to miss work.
o Unexpected medical expenses.
o Divorce, separation, or other legal expenses.
o Military service.
o Death of co-borrower or spouse.
Once you’ve established your hardship, provide details that will help bolster your claim. Make sure to tell them how you got into the situation and why it’s out of your control. Keep in mind that the lenders really want to see why you have fallen behind with your mortgage payments. It should be clear, honest, and contain just the right amount of detail.
Restate your request by briefly reiterating your letter’s purpose. Explain that a loan modification (or short sale) is the only way to stop foreclosure. Make it clear that you intend to get back to your regular payments once the loan has been modified. Lastly, thank them in advance and tell them you’re looking forward to continuing to do business with them. Make sure you are humble when writing your letter. Never even hint that your situation is your lender’s fault. Lastly, close the letter with by signing and printing your name.
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