Training for Short Sales & Mortgage Loss Mitigation to Stop Foreclosure

Do a Compelling Hardship Letter

March 7, 2009 by  
Filed under Short Sale Do's & Don'ts

poverty-70x70Short sales is all about helping people who have had hardship. I get lots of calls from well heeled investors who want the bank to take the loss that they should be taking. A short sale is for people who have had a financial hardship, not the wealthy who want to reallocate their loss. Short sales can be done on investor owned property as well as owner occupied property. But, there has to be a financial reason why the owner cannot pay the rest of what is owed to the bank.

The way you express that is in the hardship letter. Some seminars give you a list of hardships, but do not limit your thinking to a simple list. Anything that causes a change in the financial condition from when the loan was taken out which results in the inability to pay the monthly payments and the impossibility of bringing the rest of the money owed to the closing of the sale is a financial hardship. The obvious are having a business fail, losing a job, medical bills, death in the family, divorce or separation. Less obvious is forced need to move such as having to relocate to get a job or military service when your reserve unit is called up. If your payments adjust on the loan to an impossible level, describe that, but also look for dramatic tax, insurance or other monthly payment increases. One of my easiest discussions to persuade the loss mitigation negotiator that the seller had a financial hardship was when the seller was in jail. Don’t just look at a checklist, look at the curve balls that life throws that cause financial disaster.

The owner should write it personally, with enough detail that the loss mitigation negotiator can feel the pain. The letter needs to describe what has happened to create the financial setback. I have clients where the wife has breast cancer and their insurance does not cover nearly enough of the expenses. Other clients have seen their company go out of business, so being the best salesman of a product that no longer exists will ruin a family financially. Others have watched their restaurant fail completely, shut its doors, and take all their money with it. Do not just say, “we cannot afford to pay you”. You need explain why in vivid detail so that a hardened loss mitigation negotiator who reads these letters all day long can feel sympathetic to your client.

Do not stop with the description of the problem. Explain what you have done to try to eliminate the problem, deal with it, or make it better. The clients with breast cancer have a payment plan for their medical expenses. The salesman has sought work everywhere, but is working at a low hourly wage to put food on the table while he is still looking for a sales job. You do not want the negotiator to just see that your client has fallen down, you want to describe the efforts to get back up again.

At the end of the letter, tell the negotiator that the owner wants to sell the house so that they can pay back as much of the debt as possible. In areas where the market is going down, the owner can emphasize that this is the best way to honor the obligation to repay the bank, because waiting longer or going through foreclosure will yield less and less money for the bank as the value of the house declines.

The hardship letter has to be signed by the seller, and preferably by both sellers.

Do not try to be brief, because brevity leaves out the detail that makes the story poignant. Do not write the letter for your client, as it will sound like a Realtor instead of a person in trouble. Do not let your client lie, as this is a representation made in writing to a bank. Just let your client tell their whole tale of woe.

The hardship letter is not the place to vent all the seller’s frustration with the lender. If there are some things the lender has done that violate the law, you can raise them in negotiating with the lender. The seller is looking for sympathy in the hardship letter and the best way to get no sympathy is to antagonize the loss mitigation negotiator who works for the lender being criticized.

This should be on top of the short sale package, setting the stage for why this owner deserves to be allowed to pay less than what is owed to the bank. It is probably the most important document in the entire package, so give it the attention it deserves.

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