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A hardship
letter to creditors is one of the key ingredients to
successful settlements with short sale
transactions, mortgage loan modifications, credit cards, IRS taxes and business
debt. However, most letters of hardship are improperly
written. Most hardship letters do not fully explain the entire hardship
being experienced by the debtor and the debtor’s family. A letter of
hardship has to contain certain information and portray a real hardship being
experienced which matches the debtor’s credit profile which the lender or debt
collector will access to verify. The most
effective hardship letter to use
with all your creditors would be a hardship short sale letter explaining
financial hardship. The reason you want to send this letter is because the
creditor or debt collector realizes you are close to a possible bankruptcy.
Basically a sample hardship letter is written with a
similar format and or template
whether you are trying to settle debt for a short sale transaction, mortgage
loan modification, credit cards, IRS taxes and business debt. The key to a
hardship letter is communicating your hardship in an organized format with the
right tone and correct usage of verbiage. You don’t want to come across as
an intellectual scholar with perfect
wording and complex words. You have to understand who is
reading your letters and what needs to be said and in what way which will make
them want to help you and offer you fair settlements. Every debtor
explains they make less money, have excessive debt obligations and or had an
illness in the family. So you have to explain how each of these situations
affects you and your family. We provide you several sample hardship
letters in our #1 selling Consumer E-Book “My hardship letter eBook.” We
provide you sample verbiage to use for every conceivable hardship situation.
We further show you how to go into detail in to how the hardship truly affects
your every day life.
The hardship
letter writing Wizard will automate writing a hardship letter for you and
deliver a winning letter for you in less than 10 minutes. You can use the
Wizard to complete your letter of hardships whether you are trying to complete a
short sale and loan modification or trying to settle high credit card balances,
high business debt or IRS taxes. While any debt settlement is never easy,
you will have the opportunity to achieve more favorable settlements with an
effective hardship letter. The two situations where your hardship letters
are extremely important are short sale and loan modifications.
DO NOT EVER LET ANY AGENT OR PERSON CONVINCE YOU
THAT YOUR LETTER FOR HARDSHIP IS NOT ONE OF THE MOST IMPORTANT STEPS TO BE
SUCCESSFUL FOR A SHORT SALE TRANSACTION OR LOAN MODIFICATION.
If they do, RUN!
A Hardship
letter is one of the most important aspects in negotiating short sale
transactions. An Effective hardship letter can save a homeowner in having
to pay thousands of dollars in deficiency
balances or promissory note agreements. Effective
hardship letters can also determine whether the short sale contract is approved in 30 days
or whether it will take 3-4 months. Many short sale real estate
agents and short sale investors overlook the importance of a letter of hardship
in getting deals closed. If the lender doesn’t think the seller had a true
hardship, many times the lender will request the
seller to pay a higher deficiency.
Many times when the seller is requested to pay high deficiency balances and or
sign high promissory notes, the seller begins to question the process and could
get cold feet. Sometimes this can
push sellers into a Bankruptcy filing even though it may not be the best
decision. As the lenders get more sophisticated and more
experience with short sales, lenders will begin to manage this aspect at a
higher level and will require better and more accurate hardship letters in order
to prevent sellers from having to pay high deficiency balances.
New Government
HAFA Program-Hardship Letter HAFA
The main reason homeowners need
to complete very detailed hardship letters is due to the
new government sponsored HAFA programs and HAFA
guidelines. A homeowner has a chance of completing a short
sale transaction and walking away with no
further deficiency balance owed. In addition, under the HAFA
short sale program the primary lender and all secondary lenders or lien holders
have to relinquishing any rights to pursue you with a promissory note
agreement. All of the lenders agree not to pursue any deficiency balance
forever. This could change at any time as all government programs can;
however, this is the newest government solution called the HAFA Program.
While the HAFA program is new and not tested, all homeowners are encouraged to
at least discuss this option with an experienced negotiator. HAFA short
sales program is not recommended for all homeowners and may only be recommended
in certain situations. Only an experienced negotiator who knows the
lender’s policies who can weigh this option against the
homeowner’s financials, income generating
potential, homeowner’s age, homeowner’s debt obligations and other factors
should help you make this informed decision. Experts who understand HAFA
program guidelines as they currently stand, realizes a homeowner will basically
have one shot in many cases to complete a short sale. Therefore, it might
not be a good idea to apply to HAFA HAMP until time is running out and you have
to in order to avoid the foreclosure auction. The
HAFA program
is a voluntary program by the lenders and will require the second lien holder to
make concessions of giving up their ability to collect the deficiency balance.
Simply put, if you have a deficiency balance of more than $15,000.00 and above,
it might be unlikely the second lien holder will agree to the HAFA guidelines
unless you have a compelling Hardship letter
(HAFA approved) with an underlying financial collection risk. This is where the
homeowner better have the best negotiators handling their file. Many homeowners
believe HAFA programs will allow them to come out ahead and pay less money
upfront which is simply not true for many homeowner situations. Most
homeowners will pay more money to be in a HAFA program than a traditional short
sale program offered by the lender.
Another
major announcement also has put the spotlight on the importance of the Hardship
Letter for a short sale. MGIC (Mortgage Guarantee Insurance Corp.)
recently announced they are implementing a fast track short sale approval
process. Their announcement makes the foreclosing lender’s BPO or
appraisal and the short sale hardship Letter the two most important steps in the
short sale approval process. In fact, the short sale
Hardship Letters will drive their entire short
sale process of whether you are accepted, have to pay high deficiency balances
and or if your short sale contracts gets approved quickly (30 days and less) or
takes the traditional 3-4 long process. Most homes going thru the pre
foreclosure process are upside down by 30-60%. Mortgage insurance
companies like MGIC insures lenders against losses such as when there is a
completed short sale transaction. Several of the Mortgage insurance
companies are tightening controls on what is approved and or disapproved since
they will have to make up for many of the losses. In many situations, the
Mortgage insurance company has become the investor of the loan requiring
approval as well. MGICs new announcement demands servicers (which are
usually the banks) must first determine
credible hardships before they can proceed any further in the file.
A hardship letter that doesn’t convince a negotiator you had a true hardship is
going to at the very least cause your file to be processed thru the long
process. Many industry experts did not understand this announcement.
What this means is if you have convincing hardship situations, the negotiator
may have the authority to approve your
short sale offer without having to pay a deficiency balance or sign a promissory
note agreement. If the negotiator doesn’t believe you had a
true hardship, then your file is
indirectly flagged to see how much money they can get you to pay in a deficiency
balance or promissory note contract. So it is so important
that your letter is the absolute best description of your entire hardship.
To help you
understand why it is important to have the financial hardship letter very
detailed and include all related hardships you are enduring, you need to
understand how your letter is being reviewed and determined. A Few years
ago, you could get by with a one paragraph overview of your hardship.
Today that is not the case. In most lender data computer systems, the
negotiator is now required to read your
financial hardship letters and review your file. This is
another reason why you don’t handwrite
hardship letters anymore. If your letter is handwritten and
it was faxed to a Real Estate Agent who faxes it to the negotiator who then
faxes it the lender’s negotiator then the letter might not be legible to read.
A negotiator who has 300 files on their desk, basically stamps your file that
the hardship was not credible and goes to the next one. Your file just got
put in the lengthy processing cycle where they are going to
ask for more money from you.
The
negotiator next has to summarize your financial hardship letter and input the
summarization into the computer system for the investor to review. The
negotiator has to determine if they believe you have a real hardship situation
and give their opinion. If your financial hardship letter example is
written quickly and it shows you didn’t take the time to do it, then the
negotiator is going to look at this that
you must not have to bad of a hardship. They will believe
if you couldn’t take the time to explain it to them and risk having to pay high
deficiencies then it must not be true. Your hardship letter for a short
sale has to basically sell the negotiator
you had a true hardship. Remember these are everyday people like you and
I. People are willing to help others when they see them struggling and need
help. In addition, if you do most of the work for them and have a very
good written letter, they will take most of what you write and just paste it
into their notes.
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