In order to prepare an effective hardship letter, you must first understand your mortgage related objective, i.e., what assistance are you seeking? A home loan modification? Short sale? Deed-in-lieu of foreclosure? Installment payments for back amounts? Your letter should reflect your intention.

Second, you must understand the position of the mortgage servicer or lender. Your lender generally wants to enter into a modification with you so long as you appear as a good investment or your lender may at least want to provide alternatives to foreclosure. For example, under the Making Home Affordable Program (MHA), your lender has the opportunity to enter into contracts with the federal government to modify homeowners’ mortgage loans or provide foreclosure alternatives and then receive incentive payments in return. Usually, your lender wants these incentive payments, but you must be eligible before your lender may receive those payments. In other words, it may be in your lender’s best interest that you are eligible – your lender may not be your enemy. Unfortunately, not all lenders participate in MHA; however, your lender usually will have their own internal program in order to avoid a costly foreclosure and possible foreclosure defense.

The most common mistake with a hardship letter is when a borrower attempts to portray the borrower’s financial situation in such a dire way that the borrower appears destitute and entirely unreliable for future business. This will make several assistance programs unavailable to you. For example, if you were seeking a home loan modification, the lender would not recommend a modification if you appear totally bankrupt since the lender will view you as a bad future investment – in these circumstances, foreclosure or a foreclosure alternative becomes the better option.

Instead, for modification purposes, you would demonstrate a temporary, past, or partial inability to make the mortgage payments. For example, a job loss led to your financial difficulties, but you were recently hired at lower pay, but will be able to pay a revised mortgage.

In contrast, if you are seeking a short sale or deed-in-lieu of foreclosure, then detailing your total inability to pay is valid argument – you definitely would not want to appear collectible. Again, it all depends on what you are seeking. Become familiar with the federal programs available to you. See Nonparticipating lenders often mirror these programs as well. Decide for yourself what your best alternatives are and present your argument as to why you qualify.

Continue with the hardship letter form structure.