How to Write a Short Sale Hardship Letter

By Stevie Duffin Updated on 7/28/2017

When seeking approval for a short sale, borrowers must persuade the lender to accept less than the full amount of the mortgage loan. Often, borrowers present a letter explaining the financial or other hardship which contributed to the necessity of the sale. 

While banks consider various factors, a well-expressed short sale hardship letter can make the difference between approval and rejection. 

This article will examine the basic elements of writing a hardship letter for short sale, such as items to include, items to omit, and helpful tips.

Defining Short Sale Hardship

To persuade a lender through a hardship letter, the seller must have a legitimate reason which, while not directly linked to finances necessarily, impedes the homeowner’s ability to continue making mortgage payments. 

Typically referred to as extenuating circumstances, this hardship must be beyond the control of the seller, excusing him or her from complete responsibility for the short sale.

It requires no stretch of the imagination to understand why banks are hesitant to let borrowers “walk away” from a property which has decreased in value. While short sale qualifications require that the property is considered “upside-down,” with a lower value than the debt owed on the mortgage, banks will not grant short sale approval based solely on this factor.

Regarding approval, here are several examples of short sale hardship reasons for which banks may accept as adequate justification for short sales:

• Loss of employment
• Reduced income (furloughs, partner’s unemployment, pay cut, lower paying job)
• Medical emergency or illness
• Transfer of job (whether voluntary or involuntary)
• Divorce, separation, or marital complications
• Adverse mortgage terms (adjustable-rate loans)
• Military duty
• Death in the family
• Incarceration
• Excessive debt
• Unanticipated repairs or home maintenance

Short Sale Hardship Letter Basics

• How the present situation developed
• What attempts have been made to fix the problem
• Why the circumstances should be considered permanent

Fundamentally, a hardship letter should convey how the seller has ended up in the present situation, what attempts have been made to improve these adverse circumstances, and an explanation as to why the case should be regarded as permanent, due to the seller being unable to fix the problem. 

While a well-written hardship letter does not guarantee approval of the short sale, if these three ideas are conveyed, the hardship letter will be effective.

Short Sale Hardship Letter Missteps

When writing a short sale hardship letter, the tone of the letter should correspond to both the unfortunate hardships which the letter depicts and the hopelessness of this situation. 

Essentially, drafting this letter may be a depressing reminder of current circumstances, and sellers should simply attempt to convey this depression truthfully and accurately.

Although some may be tempted to inject some hope into the hardship letter, doing so is highly discouraged; if the bank detects any reason to believe that the seller has a hope of regaining control of the situation or the means to continue paying the mortgage, the short sale will most likely be denied. 

Furthermore, if the bank determines that the seller has disposable income, it may demand that seller contributions be made before granting the short sale, or it may simply reject the sale altogether.

While sellers hoping to short-sell their property should not misrepresent the facts or lie, the presentation of the hardship circumstances makes a tremendous difference, especially regarding what hope exists between the lines. 

As such, borrowers should avoid looking on the bright side when writing a hardship letter.

Additional Considerations for a Short Sale Hardship Letter

Hardship letters should be as thorough as possible without becoming irrelevant. When possible, include figures and percentages to reinforce your explanation of your specific loss of income or negative cash flow. 

Rather than simply stating that you have resorted to borrowing money to cover mortgage payments, divulge the specific dollar value which you have borrowed, including the source of the debt. 

Whatever your situation, the hardship letter should illustrate that you have a genuine need for the short sale, both in the description of the events as well as numerical justification.