A short sale is a type of real estate transaction that occurs when the seller owes more money to his or her mortgage company than what the property is selling for. Typically, this occurs when a property value has declined and when the homeowner must relocate rather than wait for home values to improve.
Often, the borrower is attempting to move forward with a short sale as a means to avoid foreclosure. With a short sale, the mortgage company will agree to accept less money from the homeowner than what is owed, and the company will write off the additional money that is owed.
In order to move forward with a short sale, the homeowner typically must write a short sale hardship letter and submit it to a lender. Because the lender is not required to accept less money than what is owed, it is important that the short sale letter is properly formatted and explains all of the circumstances related to the sale. This will provide the homeowner with the best overall results from this request.
Outline The Circumstances
Before a homeowner begins drafting the short sale hardship letter, it is important to outline the circumstances and details of the event. The letter should clearly outline the homeowner’s current financial situation and include an explanation regarding why the homeowner has fallen behind on mortgage payments.
For example, this may include job loss, a serious illness, a divorce, a natural disaster or other unfortunate circumstances. Generally, the reason for the hardship should be significant and should clearly explain why the homeowner may continue to struggle financially. A homeowner may include dates and dollar amounts in this letter to provide the lender with concrete details about the circumstances.
Opening the Letter
After the homeowner has gathered all of the details related to the hardship, he or she can begin drafting the letter. The letter should be headed with the homeowner’s name, address and phone number, and it also should include the property address and loan number for the property in question. In addition, the letter should be dated.
The Body of the Letter
The first sentence in the letter should specifically identify what the homeowner is requesting, which is approval for a short sale. Then, the letter should quickly transition into the reason why this request is being made.
When drafting the letter, focus on the factual circumstances, but attempt to evoke some emotion by adding personal details into the letter as appropriate. This will keep the reader’s attention and appeal to their softer side.
The specific details regarding the hardship that has resulted in financial challenges should be listed, and a focus should be made on the point that the circumstances were beyond the control of the homeowner. In addition, point out that a short sale will prevent a foreclosure.
A homeowner may also point out other efforts that are being made or that have been made to avoid foreclosure but that the short sale is the only solution that remains to avoid foreclosure at this point.
Details About the Sale
While appealing to the emotional side of the reader with factual details about the circumstances surrounding the hardship is important, the lender ultimately will look at the short sale request from a financial perspective.
The lender will need to determine how much money they will lose by agreeing to the short sale, and this will need to be considered in relation to what a foreclosure may cost the lender. With this in mind, it may be wise to show the lender details about the proposed sale, which may include selling the property for current market value.
Keep in mind that a lender will have foreclosure expenses, make-ready expenses and sales expenses if the foreclosure takes place. In addition, with a foreclosure, the lender may sell the property for less than the current market value. By showing that the property will be sold on a short sale for market value, this may give the lender financial details that show that the short sale is the best option for both parties.
What to Avoid When Drafting the Letter
When a homeowner is drafting a short sale hardship letter, it is important to focus on keeping the length of the letter short. Ideally, the entire letter will be a page in length or less.
While it is important to provide enough detail so that the short sale request is approved, the homeowner should avoid providing so much information that the reader is confused or loses interest in what the letter is saying. The homeowner should also avoid personal attacks on the lender or the lending company’s staff members.
In addition, it is important to avoid any details that may indicate that the homeowner has other options available. For example, the homeowner should not mention that other assets are available that could be used to pay down the outstanding balance on the mortgage or that the homeowner could borrow money from a family member. The goal of the letter is to show that there are no other options available to the homeowner.
A short sale hardship letter is typically part of the short sale process, and this is the formal request that the homeowner makes to obtain the lender’s approval. While most lenders do want to see a short sale request letter, some may have a specific form that the homeowner may need to fill out. Therefore, it is wise for homeowners to inquire about the lender’s needs and requirements before taking time to draft the letter.