Twenty Six Commonly Used Hardships for Loan Modifications and Short Sales

A hardship letter explains to a lender's representative the borrower's (homeowner's) reason that he cannot make his mortgage payments.
This letter becomes a part of the lender's file on the case to justify the reason(s) the homeowner has been granted a loan mod or a short sale.
I suggest that you never lie about your hardship as it could be grounds for legal action in the future by the lender.
The most requested reason is that the property has declined in value and the borrower no longer wants to pay on his mortgage.
If the homeowner can make the mortgage payments despite the market value decline, his request for a loan mod or a short sale will likely be declined.
The reason a lender requests a financial statement is both to see how much money the homeowner has and where to find the money if the lender gets a judgment that will be collected from the borrower.
Here are reasons for hardships that I have seen:

Loss of employment for one or both borrowers (homeowners) and no income to pay the mortgage.
While a lender may request you raid your retirement funds, this is unreasonable and detrimental to your financial well-being.
Involuntary job transfer where there are suddenly two homes to support on the same or lesser income.
Instead of a loss of your job, you are kept on by your employer, but your income is substantially reduced.
Illness resulting in your inability to earn a living.
Substantial recurring medical bills that must be paid or the loss of medical attention will result in severe medical issues or death.
A disability caused from an accident or from medical reasons that result in the only source of income being state or federal disability income payments.
A disability of a family member such that the primary or secondary bread-winner has to stay with the disabled person instead of having a salaried job and a steady income.
Death of the primary breadwinner, his/her spouse or a family member.
Divorce or separation resulting in the loss of a substantial portion of the family's income.
One or more income earners in the family who are suddenly incarcerated, resulting in a substantial loss of income to support the mortgage payments.
Extremely depressed real estate market where your neighborhood is being decimated and becoming unsafe to live in.
Notice or decision to leave the country (America) for a foreign land and with no intention of returning anytime in the future.
Decision to investigate or file bankruptcy.
This may be an excuse, but do not file until your short sale or the foreclosure have been completed.
You are facing a "reset" of your interest rate that will not allow you to continue to make the new mortgage payments.
You would think it would be easy for the lender to make a decision to hold on the interest rate to keep you in the property, but this favorable offer by the lender only happens about 5% of the time.
The rest of the time, the property goes to foreclosure.
Massive numbers of foreclosures are happening in your community and the neighborhood is decaying rapidly.
The lender may not want to hear this but you can show the proof by getting the statistics from your local newspaper or a local realtor who can do research on your neighborhood.
Inability to maintain the property so much so that it becomes a health hazard living there.
You used "stated income" on your original loan application and you lied at the mortgage broker's direction (or your own).
Now the resetting terms of the mortgage have caused your real income to be insufficient to pay your mortgage.
I mention this because your lender may ask you to sign an "Authorization to Release Information" from the IRS regarding your last two years tax returns.
Actually the lender wants your tax returns from the years when you filed for the mortgage to check what your real income was.
If you "cheated" about the amount of your income, this is serious mortgage fraud.
An inability to pay increasing property taxes, HOA (Homeowners' Associations) fees or assessments, or skyrocketing insurance premiums.
Inability to pay income taxes due - this reason is important to the lender because of a possible IRS tax lien on the property that is NOT wiped out by a foreclosure.
Inability to pay massive credit card debt or other monthly payments for revolving credit that is impossible to pay because of accelerated interest or penalties.
Inability to pay for property maintenance or for damage from an act of nature, specifically because of no insurance coverage for a natural disaster.
Inability to pay for routine monthly bills because of a loss of income or an increase in the cost of the homeowner's monthly bills.
The mortgaged property is vacant for whatever reason and cannot be properly maintained.
Inadequate cash reserves when the property was purchased so any income stream change results in an immediate inability to make mortgage payments.
Inability to pay real estate taxes which may or may not already be delinquent.
This is a major issue with lenders because a tax deed sale can extinguish their first mortgage.
Lenders will usually pay the delinquent taxes to avoid a tax certificate being sold on the property and ultimately a tax deed sale.
Insolvency of the developer so that basic services and maintenance are no longer provided to the community and the HOA is put into receivership.
This can result in electric and water service interruptions.

The above commonly used hardships can also be combined into a finalized letter of your particular situation.
It is important that if you are doing a hardship letter, that you really have a hardship.
If you have financial reserves and are employed, unless your bills exceed your income, you likely will not be granted the short sale approval or loan modification.
Usually it is best to try a loan modification first before a short sale.
The document package you'll need for the loan mod and the short sale are nearly identical.
While the lender's package will stipulate what is needed, it is "advisable" to add proof of your hardship if it can be documented in photos, piles of medical bills, or other ways to reinforce your case.
Look at the requirements carefully before you simply fill in the blanks and send in your loan mod application or short sale request.
Especially with the loan mod, you are giving up your rights to contest a foreclosure by signing.
Lenders usually require this as a stipulation when granting a loan mod because 75% to 80%+ of all loan modifications are defaulted on within eight months.