In a "short sale," homeowners sell their property for less than the total balance remaining on their mortgage loan. The lender agrees to accept the sale proceeds and release the mortgage lien from the home. The proceeds from the sale pay off a portion of the loan balance. Short sales are one way for borrowers to avoid foreclosure.
When applying for a short sale or another loss mitigation option, like a loan modification, your lender might ask you to write a hardship letter or fill out a hardship affidavit.
A "hardship" is a circumstance that's beyond your control that resulted in a situation where you can't afford to make the required mortgage payments. Hardships that usually quality for short sale consideration often include:
A "hardship letter" is a letter that you write to your lender explaining the circumstances of your hardship. The letter should give the lender a clear picture of your current financial situation and explain what led to your financial difficulties. The hardship letter is a normal part of the loss mitigation process. It's often something you must provide along with pay stubs, tax returns, a financial statement, bank statements, and any other information that the lender wants.
Some lenders will have you fill out a hardship form (a hardship "affidavit") or a hardship statement instead of writing a letter. So check with your loan servicer before preparing a letter.
Often, people don't spend much time thinking about their hardship letter or simply copy a sample letter from the Internet. It's okay to use a template to help you get started, but you should include some personal information that's relevant to your situation. Loan servicers have to review thousands of these letters, and the ones that aren't genuine are easily spotted.
Here's what your letter should generally include:
Be sure to include your name, address, phone number, loan number, and the date on the top of the letter.
Start your letter with a sentence that informs the lender of the purpose of your letter. For example, "I would like to be approved for a short sale."
In the body of the letter, state the hardship that led you to fall behind on your mortgage payments. Explain to the lender what happened and why it was beyond your control. Keep your explanation brief. The goal of the hardship letter is to explain to the lender the nature of your hardship.
To end your letter, let the lender know that you want to live up to the financial obligation of the mortgage, but you can't and that a short sale could be your only solution to avoid foreclosure. If you're working with a HUD-approved housing counselor, include the counselor's name, agency, and contact information. Providing this information lets the lender know you've explored all avenues to avoid foreclosure. You can end the letter with a simple statement such as "a short sale appears to be the only reasonable alternative to foreclosure."
The letter shouldn't exceed one page in length—shorter is fine. The letter should be concise, including only the facts that are relevant to making your case.
When you write the hardship letter, don't include anything that would hurt your case. Here are some examples of things you shouldn't say in the letter:
Filling out a hardship affidavit form is pretty easy. You usually just have to attest that you're having difficulty making the mortgage payments and check the box that best describes your hardship. For example:
□ My household income has been reduced due to reduced pay
or hours, a decline in business earnings, death, disability, or divorce.
□ My monthly debt payments are excessive, and I'm overextended with
my creditors.
□ My expenses have increased due to monthly mortgage payment
reset, high medical or health care costs, uninsured losses, increased
utilities or property taxes.
□ My cash reserves, including all liquid assets, are insufficient to maintain
my current mortgage payment and cover basic living expenses at the
same time.
□ I am unemployed, and (a) I am receiving/will receive unemployment
benefits or (b) my unemployment benefits ended less than six months ago.
□ Other. ____________________________________________________
With a short sale, the main thing the lender will evaluate is whether the amount they'll receive in the short sale is as much as they expect to get from selling the property following a foreclosure. If it is beneficial for the lender to do a short sale and you meet the criteria, you'll be approved. The hardship letter or affidavit is merely part of the process.
If you need help arranging a short sale or more information about the process, consider talking to a foreclosure attorney, a realtor, or a HUD-approved housing counselor.