Many homeowners who are facing foreclosure choose to sell their home in a real estate short sale. Once they have made this decision, the primary goal is to obtain approval from the lender. Before the bank will agree to a real estate short sale, they will request that the borrower send them a hardship letter. This letter should be written in a clear and convincing manner in order to help the lender understand why a real estate short sale is the best choice to avoid foreclosure.
What Qualifies As a Hardship?
Banks are not under any obligation to agree to a short sale of the property and just because the home may be worth less is not a convincing reason. There are several reasons that may qualify for a hardship and some of those include:
• Short or long-term unemployment due to economic tough times
• Reduced income due to cutbacks at work
• Unexpected illness or medical emergency
• Increased expenses due to rising food and gas prices
• An involuntary or voluntary job transfer
• Marital difficulties resulting in separation or divorce
• A death in the family
• Cost of home repairs and maintenance of the property
• Military service
• Incarceration
The bank will also want to know the current market value of the property and if it has substantially decreased from the original value.
What Should Be Included in the Letter?
Lenders will only consider a short sale if they believe that a foreclosure is imminent. The homeowner will need to include several key points in the hardship letter, such as:
• How the homeowner got into their current situation
• What remedies the homeowner has tried to improve their financial situation
• Why the situation is not likely to change in the near future
The first thing the bank will do is to pull the homeowner’s credit report to determine the extent of their hardship. Therefore it is important not to have any recent luxury items purchased that may show up on the report, such as vacation costs, jewelry, spa treatments, home electronics or a new vehicle. The homeowner does not necessarily need to be poor or broke to qualify. A hardship letter should also include all of the details about the homeowner’s financial situation, even if it seems embarrassing. Remember that the bleaker the picture, the better chance the homeowner has. In addition, supply supporting documentation that proves the homeowner has maxed out their credit cards to make the monthly mortgage payments.
Mistakes to Avoid
There are several things that will kill a homeowner’s chances of getting a short sale approved. Make sure to avoid these common mistakes:
• Don’t Blame Others—Take responsibility for the situation and stress how some event occurred that led to the current financial situation.
• Make it Brief—The letter should explain why a short sale is necessary. It should be succinct and to the point. Do not ramble on because the bank sees hundreds of letters like these every day.
• Include Vital Information—Don’t forget to include account numbers, contact information, address of the property and other important details.
Make sure to send the letter by certified mail with a return receipt requested and include all supporting documentation.
Tracey Louis actively invested and researched the real estate market during the boom and current downturn and has worked in the foreclosure industry. She likes to share real estate market trends with other people interested in current market conditions.
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