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Tuesday, August 26, 2008

More Advice on Hardship Letters

by Tanta on 8/26/2008 09:43:00 AM

Loyal readers, or just people with too little mental stimulation in their lives, will remember a post I did way back in May on how not to write a hardship letter. In that post, I suggested, quite explicitly, that anyone writing a hardship letter to a servicer in aid of getting a workout proposal approved should:

*Focus on establishing that a workout is necessary, meaning establishing that you cannot afford to pay your mortgage under its original terms.

*Not focus on explaining why all this happened or seeking sympathy, since it doesn't matter why it happened--servicers do workouts when they make sense for the servicer, not when they are moved to feel sorry for anyone.

*Write in your own voice about your own situation, rather than relying on elegant form letters or rhetorical flourishes. Nobody cares about polish; they care about your verified monthly budget and the terms of the workout you are requesting. If the math is correct there, you can misspell most of the words and dangle all the modifiers and you'll still get your workout. This is not an essay contest.

*Present a proposal that will work. You may be the most sympathetic borrower ever to cross Loss Mit's desk, but if your proposal does not work out, it is not a "workout" (did you wonder where that term came from?).

So what did I find in my inbox this morning?

The following missive:

Hi, Tanta.

I read your article "How Not to Write a Hardship Letter" on the website Calculated risk. I am finding writing my hardship letter to be the most challenging part of my short-sale package. I can't help but laugh at that things that have led up to my hardship, and it seems that one thing leads to another and it's just a big can of messy worms that I've somehow opened and can't get cleaned up to figure out how to articulate concisely in the letter in a way that will make an impact in my favor to get the short-sale approved.

I need help, and am wondering if I could hire you to hear out my story and write mine? If not, do you have any advice on how I can go about finding someone to write it?

Thank you very much!!!
As I am committed to the notion that names should be changed to protect the unwary, I left that part off. We shall refer to my correspondent as Ms. Short Sale. Sure, I could have written the following to Ms. Short Sale personally, but apparently the public service message I was trying to get across in the original post didn't work for everyone, so as a public service I shall repeat some of it again in hopes that it will take this time.

Dear Ms. Short Sale:

I am happy to hear that you are in one of those hardship situations that is actually pretty amusing. Most people who write to Loss Mit aren't exactly chuckling.

However, if you had read my post with a bit more attention, you would have noticed that my advice is not to spend any time "explaining" your circumstances. Whether they are funny or not. I pointed out that your purpose in a hardship letter is to 1) document the financial necessity of a workout and 2) propose a plan that will work. You are caught up in the idea of making an "impact" on your servicer. You need to ditch that idea right now. This is not a resume cover letter. It is not a sales pitch. It is not an essay-writing contest. It is a business letter that needs to be concise and to the point.

Sadly, you could not possibly afford what I would charge to hear your story and write your letter. If you could, I suspect you could bring cash to closing to settle your loan for the full amount due. Since you are requesting a short sale, I must believe that you don't have that kind of money sitting around.

I will, however, once again give you some good free advice. It may not be what you want to hear, but this is a chronic problem in the advice-giving gig.

You want the servicer to approve a short sale. You therefore need to establish that:

1. You cannot afford to keep the home or you must move for some good reason and cannot afford to pay the difference between the sales proceeds and your loan amount. It does not really matter at this point why this situation has arisen. You simply need to document that it is what it is. Explain what your income is, what your expenses are, what savings you have, why you have to move, etc. If you are asking for a short sale because you have to move, simply say that. For example, say that you have been relocated by your employer or you need to move closer to family in order to reduce your expenses. This is not an invitation to open your funny can of worms and tell everyone all about your situation that is totally unique and high-impact and all that. If you cannot document that you cannot afford to repay your loan--and you don't actually have to move--then I don't know what business you have asking for a short sale.

2. Provide evidence that you have attempted to list your property at a price at least equal to your indebtedness, and that this has not been possible. Your realtor can supply your listing history, a price opinion, or other information to establish that you will have to list the property for less than the loan amount in order to get it sold. If you are not working with a realtor, your servicer will question how hard you are trying to sell this house.

3. Propose a sales price that you wish the servicer to approve. No one will give you "blanket approval" for a short sale as such; you will only get approved to sell at a specified minimum price. The servicer will not suggest this price; you have to. That is how negotiations work in this case. Do not expect the servicer to put any cards on the table until you have. They are not that stupid. Your requested price should be backed up by a broker price opinion. The servicer will probably get one, too, if it takes your request seriously.

4. If you already have an offer on your property, as long as this offer came out of some good-faith effort to market the property for as high a price as the market will bear, then request approval to execute a sales contract at this price. If you have never listed the property and the offer is from your brother-in-law, you are not likely to be approved. You need to demonstrate that you have made all practical attempts to fetch the highest sales price possible, in order to protect the lender's interests as much as possible. If you cannot demonstrate that, there's no point in writing your letter at all.

5. Explain clearly that either you have no subordinate liens on this property, or you are seeking approval from any second mortgage holder for the short sale as well. If the existence of a second lien is part of your "can of worms," you will have to address that. If you want your first mortgage servicer to negotiate on your behalf with your second mortgage servicer, you will need to say so. You will need to bear in mind that this negotiation may not be very successful if you are simply asking the second lien lender to wipe out its entire loan with no cost to you. Offering to pay the second lien lender a couple thousand dollars for its trouble--or to sign a note so that you can pay a couple thousand in installments--would be appropriate. If you cannot possibly afford to contribute anything to the junior lien, your first mortgage servicer may have to do that in order to get the deal approved. This will increase the first servicer's loss. You will have to take that into account when you propose your sales price.

6. If you must use exclamation points, one is sufficient.

It is possible that you are having trouble drafting your letter simply because you are not clear about the purpose of the letter. The above advice should help you get clear on that. It is also possible, of course, that you are having trouble drafting your letter because what you want doesn't actually make much sense or because you haven't actually tried listing your property or talking to a realtor and are just trying to float a trial balloon to see what the servicer will do. You want to be very honest with yourself if this is the case, because you won't get anywhere with your servicer if it is. As I said in my original post, you are writing a business letter with a business proposition in it, and you need to demonstrate that you are doing your part to resolve this situation.

Sadly, the world is full of people who would take your money to write a letter for you. You are actually probably quite fortunate that you asked someone who won't. If you have money to spend, get yourself an appraisal or a broker price opinion from a reputable RE agent who has experience with short sales. Once you have that, you'll know how to write your letter because you will have the basis for a concrete proposal. And that is all the "impact" you need to have on your lender.

Good luck and best wishes,


I need to know this. What did you find in your inbox?