How to write an effective hardship letter [and prevent foreclosure]

Homeowners can experience events over which they have no control such as injury, illness, divorce, death, layoff, new or worsening disability, incarceration and more. This may result in financial hardship, making payments on bills, mortgages and other debts a challenge. If a homeowner begins to miss mortgage payments, they might need to write a financial hardship letter to their lender/loan servicer to get those payments back on track and prevent foreclosure. In this blog, I’ll describe the components of an effective hardship letter. 

Why a hardship letter is needed

The first step when you miss a mortgage payment, or even anticipate missing a payment, is to contact your servicer. All mortgage lenders/servicers offer some form of “loss mitigation,” which are options to prevent foreclosure. However, loss mitigation options are not automatically put into place when a payment is missed; you must contact the servicer to apply. Missing a payment or two that can be brought current within a few months will likely be resolved with a call to the servicer and verbal promise to pay. 

If the financial hardship is more permanent and will result in three or more months of missed payments, the servicer will require completion of a loss mitigation packet. This “workout packet” includes an application for mortgage assistance, documentation to verify income and expenses, and an explanation of the hardship and why it is preventing you from making payments. Some servicers ask for a description of the hardship on the application itself, while others require an actual letter. The hardship explanation is needed so the servicer can assess your financial situation and determine any suitable solutions. A hardship letter is also a great way to organize your information and thoughts to best state your case.

What to include in a hardship letter

The letter does not have to be long, detailed and complicated. As my mom always used to say, “KISS!” (Keep It Simple, Sweetie.) It should be short — a few paragraphs to a page at the most. It is a chance to explain to the servicer what happened, any effort made to resolve the hardship and the requested solution. 

Here are the specifics on what to include:

• The date, your name, address and phone number.
• The lender/servicer and loan number.
• The date or approximate time frame when the hardship started.
• The expected timeframe of hardship — short term (six months or less) or long term.
• Describe your goal. Is it to keep your home or sell it?
• State the facts, not emotions. Tell the truth about what happened. Keep it brief, but be sure to add all necessary details. Focus only what has currently happened and how that has impacted your ability to make the payments.
• List what you have done to try to resolve the hardship. For example, you reduced your expenses, picked up a second job, etc.
• Explain why you need help from the lender to avoid default. List the options have you explored to address the delinquency and why they haven’t worked. For example, refinancing is not possible due to poor credit, there is not enough equity in the house so selling is not an option (and explain why not).
• Avoid stating there might be help from family or friends, which could hurt your chances of a workout option and receiving assistance from the servicer. A workout option (also known as a workout agreement) is any alternative solution or combination of alternatives a lender might be willing to offer the borrower to avoid foreclosure. These options could include forbearance, repayment plan, modification, deferral of payments, or partial claim (which applies to FHA mortgages only).
• Specify what solution you are requesting from the servicer. Is it a lower payment, lower interest rate, pause in payments, deferral of missed payments to the end of the loan?
• State how the desired solution will impact your financial situation if approved. What is your long-term plan with the house if foreclosure can be avoided?

View our hardship letter example for additional guidance and to get started.

After writing the hardship letter, review it carefully. Does it state the situation clearly and include just the facts? Consider having someone else read it over.

We offer free Foreclosure Prevention Services to assist you!

Do you want assistance with writing your hardship letter? Or do you have other questions about strategies to avoid defaulting on your mortgage? If so, our nonjudgmental, HUD-certified foreclosure prevention counselors can help — at no cost to you! Call 888.577.2227 to schedule a free, confidential appointment, or get your support online.

Author Marjorie Klimek is a certified financial counselor with LSS Financial Counseling. One of her areas of expertise is foreclosure prevention.