How to Write a Hardship Letter

What to Say to Make a Lender See Things Your Way

Mature couple writes letter at table in restaurant
••• Nancy Brown/Photographer's Choice/Getty Images

A hardship letter is like a lawyer's brief. This written explanation to your mortgage lender, detailing why you wish to do a short sale or to modify the terms of a loan or mortgage, has to build a case for a decision in your favor. Basically, you want to cover three areas:

  • How you got into your present situation—what has changed in your life and in the residential real estate market since your original financing
  • What you have done to try to get out this situation
  • How nothing you can do can improve the situation

What Constitutes Hardship

Before you start writing, you must first decide if you are truly in a hardship situation. There have to be circumstances that literally make it impossible for you to stay in your home given the current rate and terms of your mortgage. Just about any changes in your life that have made it difficult for you to continue meeting those mortgage payments might qualify:

  • Unemployment
  • Reduced income (furloughs, new job, partner's loss of job, pay cut)
  • Illness or medical emergency
  • Job transfer (voluntary or involuntary)
  • Divorce, separation, or marital difficulties
  • Extreme change in mortgage terms (such as an adjustable-rate loan)
  • Military service
  • Death in the family
  • Incarceration
  • Increased expenses and excessive debts
  • Unexpected catastrophes necessitating major repairs or maintenance

Lots of people think hardship is just a question of numbers: "My home was appraised at $400,000 when I got the mortgage, and now it's valued at $220,000 at best." Wrong. While being underwater—in other words, when a residence is worth less than the mortgage principal on it—is one of the qualifications for a short sale, a bank is under no obligation to agree to one on that basis. In fact, lenders are notoriously unsympathetic to homeowners who want to walk away, or renegotiate loan terms, simply because the property is no longer worth the amount they paid for it.

How to Word the Hardship Letter 

If you're on the brink of bankruptcy or headed to foreclosure, you have a terrible story the lender should hear. Share it, as painful as doing so might be.

Write simply but evocatively. Be succinct when you describe the unfortunate events, but be specific in describing their impact. Use numbers and percentages to explain the loss of income or negative cash flow. Instead of just saying you're borrowing money to make the mortgage payments, disclose the dollar amount and source of that debt, such as: "I've borrowed $10,000 against my VISA card to make my payments over the past six months, and I have tapped my cards to the max."

If your car needs a total overhaul, if the cat has cancer and your vet bills are mounting, if your kids are eating nothing but peanut butter sandwiches and your fingernails are worn to the quick scrubbing other people's floors for pennies a day because your mom has moved in with your family and needs round-the-clock medical care, put all of this into your hardship letter. Paint the worst picture that you honestly can and lay it on thick.

Hardship Letter Mistakes

Writing a hardship letter can be downright depressing: Many people have no idea how bad their lives have become until they start to describe things in black-and-white. Keep the sad song playing, though, and strike any optimistic notes from your explanation.

It may seem counterintuitive, but don't attempt to show you're making an effort to turn things around. If there is a chance for you to become whole again, if there is a hint of other sources of income or aid, or if you suggest anything along the lines that you'll someday have the financial means to repay your debt, the lender will jump on it. It might ask for a seller contribution to grant a short sale or deny your loan modification.

Certainly, you can say you've tried other financial avenues and explored every possibility. Now, though, you're at the end of the road. Circumstances won't improve; in fact, they will only get worse—unless the lender helps you.

Remember, the lender doesn't care about you or protecting your credit score. It only cares about recouping its loan, or as much of it as it can. Your hardship letter must show why granting your request is the best way, the only way, it can do that. Play on the heartstrings in a truthful, targeted manner. If you don't feel sorry for yourself by the time you have finished it, the lender certainly won't.