Having helped many Rochester NH home sellers work through short sales on their homes with their lenders, I know how important it is to understand this complicated process. It can be VERY beneficial to a home owner to sell their home via short sale and thus, avoid foreclosure. One important aspect to a successful short sale is writing a hardship letter. This well written article details all the aspects of writing a hardship letter. As always, I'm more than happy to assist you through any aspect of the home selling or home buying process in Rochester, NH or any other NH Seacoast town. I'm only an e-mail or phone call away.
Rob Gagnon
The Hardship Letter:
Learn More about this Important Piece of the Short Sale Package
By Lauri Waddell
When a short sale is negotiated with the lender, a hardship letter from the homeowner is requested in the 
short-sale package. There are several purposes for the submission of the hardship letter which we will explore.
The hardship letter is a letter to be written by the homeowner detailing the events that led up to the default and preforeclosure of the mortgage. The letter should detail, in chronological order, the events that caused hardship which ultimately led to financial duress and the default of the loan. As investors, we must always keep in mind that "Life happens to good people." No one intentionally chooses foreclosure. Our job as investors is to assist the homeowner in documenting the events that led to the preforeclosure of their home. We do this with an empathetic and professional approach that gives the homeowner dignity in the process of letting them tell their story.
Many students ask in the Short Sale training if they should write the letter for the borrower. This letter should be written by the homeowner, in their words, and in their handwriting. We may be able to assist the borrower in detailing the events that led to the preforeclosure, but ultimately the letter should be written by the homeowner.
The lender requires the hardship letter to validate its decision in negotiating a short sale or reduced pay off. The charter that governs the incorporation of the lender and its lending practices will govern the decisions made on the short sale of the package.
The hardship letter will also assist the lender in determining if the property qualifies for a tax liability (a 1099 form will be filed against the homeowner if it does qualify). This tax liability may be assessed by the lender on properties that are not owner-occupied or the primary residence of the borrower. The lender has the ability to not file a1099 due to the financial hardship and duress of the borrowers.
In reviewing the hardship letter, the lender is able to assess the borrower's situation and determine if the borrower will be able to reinstate the mortgage payments and/or continue to satisfy the mortgage with regular payments.
The hardship letter should be handwritten or typed by the borrower. If the borrower handwrites the hardship letter, the investor may want to retype the letter and send a typed version along with the handwritten letter. This will ensure the hardship letter is read accurately and easily by the loss-mitigation department. The loss-mitigation department will determine if a short sale is allowed. Making sure the hardship letter is legible and in proper order will facilitate a more timely evaluation and processing of the short sale package.
The hardship letter will be part of the stacking order requested by the lender. All hardships listed in the letter should be fully documented and any verification should be added as an addendum to the package.
For example, if a car accident resulted in injuries that prohibited the borrower from working and ultimately lead to the default, then any documentation related to the car accident and subsequent incapacities should be included in the hardship letter. "See addendum A" in parenthesis is a simple and common method used. Multiple addendums should be added at the back of the package under a tab listed "Addendums." For example, addendum A might be a copy of the accident report, addendum B may be a copy of the emergency room visit after the accident, addendum C may be a doctor's report, and addendum D may be a copy of the employer's notification of laying off the borrower. The hardship should be explained in detail, in chronological order, and with proof of the events added as specific labeled addendums to the Addendum section.
The hardship letter should be factual and accurate without exaggeration or emotional influence. The short sale package should be presented in a professional manner. Accurate and thorough documentation is important to create a professional, first-class hardship letter that stands out among the rest.
The hardship letter is an important piece of the short-sale package. Your job, as the REALTOR, is to assist the homeowner in documenting the hardships in a factual and professional manner. Do not write the letter for the homeowner. Offer your assistance in detailing the chronology of events as well as assisting the homeowner in gathering the documents or items that will verify the hardships. A strong, professionally documented hardship letter is a key component of the lender's decision to negotiate a successful short sale.
Lauri Waddell is an instructor of the Wealth Intelligence Academy® Short Sales and Mortgages Advanced Training.
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