How to Write a Financial Hardship Letter

This article addresses how to write a financial hardship letter for loss mitigation, whether you’re seeking a modification, deed-in-lieu of foreclosure, or short sale. If you fall behind on your mortgage, you will have to submit a lost mitigation package to avoid foreclosure. Part of the loss mitigation package is the financial hardship letter (or “letter of hardship”). You must complete a loss mitigation packet if you want to be considered for a loss mitigation option, whether modification, short sale, or deed-in-lieu of foreclosure. In most cases, it is better to pursue one of these options than to allow your mortgage company to foreclose on the property.

You must request a loss mitigation packet from your lender. Most packets request various financial information, which the lender uses to determine if you qualify for one program or another. All loss mitigation submissions must be accompanied by a financial hardship letter. A hardship letter explains the circumstances that caused you to fall behind on your mortgage payments. Click on the picture below for a sample hardship letter in PDF format.

financial hardship letter
Click the image for a PDF version.

Financial Hardship Letter Basics

The first paragraph states that the letter is a financial hardship letter and requests a mortgage modification (or other option). You should explicitly declare your intentions toward the property.

The second paragraph describes the actual hardship that you faced, whether job loss, benefits expiration, illness, divorce, death of a spouse, or expiration of the teaser rate on your adjustable rate mortgage (ARM).

The third paragraph (optional) contains a thinly-veiled threat of bankruptcy.  Mortgage companies usually do not prefer that their borrowers seek bankruptcy protection.

The fourth paragraph reiterates your request for loss mitigation and invites the company to contact you should they need more information.

Adjust this example financial hardship letter to your specific facts. Try to keep the letter short and simple. If you follow the format outlined in this article, you should be able to explain your situation briefly, but specifically. Pursuing loss mitigation can be time-consuming and complicated, but may well be worth your effort.

Loss Mitigation Options

If your hardship was temporary, you likely want to request modification. If your hardship is ongoing, then you will probably want to request a deed-in-lieu of foreclosure or short sale.

Lee Legal routinely represents clients facing foreclosure. It is strongly recommended that you have an attorney review your financial hardship letter. Your attorney can also review your complete loss mitigation package prior to submitting it to your lender. Mortgage lenders do not hesitate to reject any loss mitigation packet that contains errors or deficiencies, and it is far easier to make a perfect first submission than it is to subsequently correct errors or cure submission deficiencies.

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