A short sale hardship letter is critical to your client’s short sale process.
Essentially, they write a letter to the lender outlining why they can’t keep up with their mortgage payments. As a real estate agent, you already know how vital this step is to approve a short sale.
The hardship letter is your client’s chance to explain their financial situation to show the lender why a short sale is the best option.
Why is this letter so important?
Lenders want proof your client is facing a legitimate financial hardship before they’ll consider a short sale.
A well-written hardship letter can provide that evidence, helping you get the lender on board and moving the sale forward. It often becomes the key factor in whether a short sale is approved or rejected.
To help you guide your clients through this process, we’ll break down how to write an effective hardship letter, along with three templates you can provide to your clients.
Whether they’re dealing with job loss, medical expenses or other personal crises, these templates will give you and your clients a head start to draft a compelling letter supporting the short sale process.
Key Takeaways:
- A well-crafted hardship letter is critical to the short sale process. It explains the financial hardship and can be a deciding factor in approval.
- The letter should be concise, clear and professional. Your client needs to focus on the facts, avoid emotional language and include financial details and supporting documentation to back up claims.
- If the short sale is denied, don’t give up. Reassess the situation, revise the short sale hardship letter with additional information, and get professional help to strengthen the case if needed.
What Is a Short Sale?
You may or may not have worked with a client on a short sale. It’s when a homeowner sells their property for less than what’s owed on the mortgage. As a real estate agent, you’ve probably encountered this situation with clients who are financially struggling and unable to keep up with their mortgage payments.
A short sale offers them a way to avoid the hit to their credit rather than going through foreclosure.
A short sale can be a major lifeline for homeowners, helping them escape a home they can no longer afford without the long-term financial fallout of a foreclosure.
For lenders, while they don’t get the full loan amount back, a short sale is often less costly and time-consuming than the foreclosure process, so it can be a win-win for all the involved parties.
That said, the approval process can take time and effort. The homeowner has to prove to the lender that they’re in financial hardship, and both the buyer and lender need to agree on the sale price. That’s where the hardship letter becomes relevant.
Once that’s in place, the lender reviews the offer and decides whether to approve the short sale.
As an agent, you guide your clients through the process and help them gather everything they need for the best chance of approval.
The Importance of a Hardship Letter
The hardship letter is crucial to getting a short sale approved. In this letter, your client tells the lender in their own words why they can’t keep making mortgage payments. It’s not just about saying, “I’m broke.” It’s about explaining how they ended up in this tough spot.
The letter is important because it helps the lender see the full picture. A compelling short sale hardship letter gives the lender confidence that your client isn’t just trying to offload their home without a real reason. It shows they’re facing a genuine financial crisis, making the lender more likely to approve the short sale.
Plus, a well-written letter showcases sincerity and a willingness to cooperate. It’s saying, “I’m willing to work with you to find a solution.”
Lenders appreciate it because it shows your client isn’t trying to escape their responsibilities. They’re asking for help to get out of an impossible situation.
As their real estate agent, guide them through crafting this letter and ensuring it hits all the right notes.
Key Elements of a Compelling Hardship Letter
You want to help your client strike the right balance between personal storytelling and cold, hard facts.
Here are some key elements that make a hardship letter stand out for results.
Personal Narrative
This is where your client tells their story.
Encourage them to be clear and concise, laying out exactly what led to their financial hardship. Whether it’s job loss, unexpected medical bills or a divorce, the lender needs to understand how things went south.
The story doesn’t have to get too emotional, but should be honest and to the point.
Financial Details
Once the story is told, it’s time to back it up with numbers. A clear breakdown of your client’s income, debts and expenses becomes crucial. Lenders want proof your client genuinely can’t afford their mortgage.
Including specific figures like current income, monthly expenses and other debts paints a clear financial picture.
This section is the proof behind the personal story, so it should be detailed.
Supporting Documentation
Finally, your client needs to include any relevant documents to support their story. These might consist of pay stubs showing loss of income, medical bills explaining healthcare expenses, or a divorce decree if that’s the reason for their financial issues.
Real-Life Examples of Hardship Letters
A well-written hardship letter can make a huge difference in short sales. Below are some examples of hardship letters for your clients’ situations. Each template is tailored to specific hardships, giving your clients a strong starting point to explain their situation to the lender.
Letters for Job Loss Situations
Template:
Dear [Lender’s Name],
I am requesting your consideration of a short sale for my home at [Property Address]. Due to unforeseen circumstances, I lost my job at [Company Name] on [Date]. Since then, I have been actively seeking employment but have been unable to secure a new position. My income has drastically decreased, and I can no longer keep up with my mortgage payments.
I have explored all other options, but unfortunately, I cannot continue paying my mortgage. I would like you to approve a short sale so that I can avoid foreclosure and settle my debt.
Thank you for your time and understanding. I am happy to provide any additional information or documentation as needed.
Sincerely,
[Your Client’s Name]
Explanation: This template explains the job loss clearly and concisely. It highlights the client’s efforts to resolve the issue and expresses a willingness to work with the lender.
Letters for Medical Emergencies
Template:
Dear [Lender’s Name],
I am writing to explain my current financial hardship and request your approval for a short sale of my home at [Property Address]. Over the past [time frame], I have experienced significant medical issues, which have resulted in overwhelming medical bills. These unexpected expenses and a reduced income during my treatment have made it impossible to maintain my mortgage payments.
Given these circumstances, I respectfully request that you consider my situation and approve a short sale to prevent foreclosure.
I appreciate your consideration.
Sincerely,
[Your Client’s Name]
Explanation: This letter outlines medical hardships, specifically pointing out the financial burden caused by medical bills and loss of income. It’s respectful and focuses on the facts.
Letters for Divorce Circumstances
Template:
Dear [Lender’s Name],
I am writing to inform you of my current financial situation and to request a short sale for my home at [Property Address]. Following my recent divorce, I have experienced a significant change in my financial stability. The household income has been cut in half, and I am now solely responsible for several previously shared bills.
Despite my best efforts, I cannot keep up with my mortgage payments, and a short sale is the best solution to resolve this situation.
I appreciate your understanding and am happy to provide any additional documentation you may need.
Sincerely,
[Your Client’s Name]
Explanation: In divorce situations, explaining how the separation has impacted finances and the household budget is essential. This template does that clearly and respectfully.
Common Mistakes to Avoid
Writing a hardship letter can be tricky, and it’s easy for clients to slip up without realizing it. As a real estate agent, here are some common mistakes you can help them avoid:
- Not maintaining professional tone and clarity: One of the biggest mistakes is letting emotions take over in the letter. While your client may naturally feel frustrated or upset, the letter has to stay professional. Encourage clients to keep it respectful and clear. The goal is to explain the hardship, not venting.
- Including excessive details that detract from the main point: Some clients may need to share everything that’s happened, but too much detail can cloud the main point. The letter should focus on key events leading to the financial hardship and why they can’t keep up with payments. Going off on tangents or giving too much backstory can make it hard for the lender to see the real issue.
- Not providing enough financial information to back up claims: It’s not enough for your client to say they can’t afford their mortgage. Lenders need to see the numbers. A lot of hardship letters fail because they’re vague about finances. Backing up with documentation helps strengthen the case.
Strategies for Handling Rejection
Unfortunately, not every short sale gets approved right off the bat. If your client’s request is denied, it’s not necessarily the end of the road.
Here’s how to guide them through the rejection so they can come up with a new plan:
Reassess the Situation
First, step back and review why the short sale was denied.
Look at the situation objectively.
Was there something missing from the hardship letter? Did the lender feel your client’s financial situation wasn’t dire enough to approve the sale?
Understanding the exact reason for the rejection is key to moving forward.
Encourage your client to contact the lender for clarity if they don’t provide a detailed explanation.
Drafting a Follow-Up Letter
Once you know why a request was rejected, it’s time to regroup and revise. That could mean tweaking the original hardship letter to address gaps or concerns from the lender.
If the issue was a lack of documentation, include whatever additional paperwork the lender requested.
The follow-up letter should be clear and respectful and demonstrate your client is still committed to finding a solution. It can help to acknowledge the rejection and provide any new information or updates to the situation that could change the lender’s mind.
Get Professional Help
If the rejection feels like a dead end, it might be time to get more help. This is where a real estate attorney, financial advisor, or even your own agent expertise could make a difference.
Your client might need to explore other options, like renegotiating with the lender, researching different loan modification programs, or appealing the decision.
Sometimes, having an expert on board can smooth over the rough spots and help your client make a stronger case.
The Power of Honesty and Conciseness
When writing a hardship letter, the key is to be transparent, concise and clear. Lenders don’t have time for long explanations or emotional stories. They want the facts laid out simply and honestly.
Encourage your clients to tell the truth, keep it short, and ensure they address the lender’s main concerns.
To recap, a strong short sale hardship letter should:
- Tell the personal story briefly and get to the point.
- Break down the financial situation with specific details.
- Include supporting documentation to back everything up.
- Stay professional and avoid letting emotions take over.
With these key elements in mind, your clients can create a hardship letter that stands out.
The templates we provided are a great starting point but remind your clients to make them personal and tailor them to their specific situations.
If you’d like to become the expert agent for short sales, check out KeyLeads’ in-depth Short Sale Playbook for 2024. It’s available if you purchase KeyLeads, and it walks you through every aspect of being an agent for short sales.