How to Write an Effective Loan Modification Hardship Letter to Avoid Foreclosure

Falling behind on your mortgage payments can be stressful and frightening. However, submitting a well-written loan modification hardship letter to your lender is often the first step to finding a solution and avoiding foreclosure. This comprehensive guide will provide tips and strategies for crafting an effective hardship letter that gets results.

What is a Loan Modification Hardship Letter?

A loan modification hardship letter is a personal letter you write to your mortgage lender explaining your current financial hardship and inability to pay your monthly mortgage. The letter requests that the lender modify or change the terms of your loan to make it more affordable and help you avoid foreclosure

Specifically, a hardship letter asks the lender to consider options like:

• Lowering your interest rate
• Extending your repayment period
• Adding missed payments to the loan balance
• Reducing loan principal

By modifying the loan terms, your monthly payments can become more manageable based on your financial situation. A compelling hardship letter is your chance to persuade the lender that you deserve a second chance and are committed to keeping your home.

When Do You Need a Hardship Letter?

A loan modification hardship letter is required anytime you are seeking mortgage relief from your lender. Common scenarios that may lead you to submit a hardship letter include:

• Loss of income due to job loss, reduced hours, pay cuts, or temporary unemployment
• Loss of income due to disability, illness, or death of a spouse
• Increased expenses due to medical bills or family emergencies
• Divorce or separation that results in loss of income
• Predatory lending or mortgage terms you didn’t fully understand
• Natural disaster, fire, or other property damage
• Permanent disability, long-term illness, or other hardship

Essentially, if you are facing financial challenges that make paying your mortgage difficult or impossible, a hardship letter is the way to request an alternative solution from your lender.

What Should You Include in a Hardship Letter?

Your hardship letter needs to demonstrate to the lender that you’re facing legitimate financial hardship and deserve their help. Here are key elements to include:

• Your name and loan account number
• A statement that you are requesting mortgage relief options like a loan modification
• Brief overview of the hardship circumstances affecting your finances

Explanation of Hardship

• Details about your specific hardship such as job loss, medical emergency, death in family, etc.
• Date the hardship began
• Whether the hardship is temporary or permanent

Financial Details

• Breakdown of your current income sources and amounts
• List of current expenses with dollar amounts
• Specific changes in income, expenses since hardship started

Request for Modification

• The exact mortgage relief you are requesting
• How the modification will help make payments affordable
• The plan to resume regular payments with modified loan

Supporting Documentation

• Evidence to prove and quantify your hardship such as medical bills, job termination notice, etc.

• Thank the lender for their consideration
• Express desire to work together to modify loan and keep your home
• Contact information and signature

Aim to keep your hardship letter concise, honest, and 1-2 pages maximum. The more precise details you can provide, the better.

7 Tips for Writing a Persuasive Hardship Letter

Follow these tips and strategies to craft the most effective hardship letter possible:

1. Highlight the Hardship Early

Don’t bury the lead. Introduce and summarize the hardship itself in the first paragraph so the lender immediately understands your situation.

2. Focus on the Financial Impact

Provide clear numbers explaining exactly how the hardship has impacted your income, expenses, and ability to pay. Quantify the financial strain.

3. Take Responsibility

Acknowledge that you fell behind and take ownership of the situation. Don’t blame the lender. They want to see you’re committed to a solution.

4. Remain Professional

Be honest but avoid overly emotional language. Keep the tone professional not confrontational. You want the lender’s empathy.

5. Propose a Plan

Present a proactive loan modification plan that demonstrates you know what options are available. Don’t put the burden on the lender.

6. Express Willingness to Repay

Emphasize that you intend to repay the loan and all missed payments if the lender will modify the terms.

7. Add Supporting Documents

Provide evidence like financial statements, hardship causes (job loss letter, medical bills, etc.) to back up your claims.

What Types of Loan Modifications Can You Request?

There are a few common mortgage loan modifications worth requesting in your hardship letter:

• Interest rate reduction – Lowering your interest rate lowers your monthly payment.

• Extended loan term – Increasing the repayment timeline from 30 to 40 years reduces individual payments.

• Principal forbearance – Lender postpones collecting a portion of principal, usually what is overdue.

• Principal reduction – Permanently reduces the total amount owed on the mortgage.

• Balloon payment loan – Adds missed payments to loan balance due as one future balloon payment.

• Partial claim loan – Lender covers missed payments by taking a subordinate lien on the home until repaid.

Discuss the options with your lender to decide which modification suits your situation best. Then formally request it in the letter.

What Happens After You Submit a Hardship Letter?

Once you submit your mortgage hardship letter, here’s what happens next:

1. Lender Review – The lender will review your letter, documentation, and overall financial situation to verify hardship. This may take several weeks.

2. Request for Information – If the lender needs additional verification, they will request more documents from you. Be responsive to these requests.

3. Approval or Denial – The lender will either approve your request for a loan modification program or deny your request. Approval rates are around 60%.

4. Loan Modification Terms – If approved, the lender will present the new modified loan terms for you to sign. Be sure to read the terms closely and understand all modified payments.

5. Appeal a Denial – If your request is denied, you can appeal the decision by providing more documentation or information. Don’t give up.

With a detailed hardship letter and persistence, many homeowners going through financial challenges can qualify for mortgage relief and avoid foreclosure. Be sure to seek additional help from a housing counselor or attorney if needed. Open communication and collaboration with your lender is key. If you strategically request a loan modification in writing, you have an excellent chance of overcoming hardship, saving your home and your credit.