One step of the loan modification or refinancing application that borrowers usually mess up is the hardship letter.
Every bank that is considering giving the borrowers an option to avoid the foreclosure process will request a detailed letter documenting what first caused the decrease of monthly payments, as well as what actions have been taken to fix the problem.
Many homeowners, though, include very minimal hardship letters that explain almost nothing about what transpired, what has been done to remedy the situation, and why the financial crisis was only temporary in nature.
In reading dozens of these letters over the years, it seems that many borrowers do not understand what to include when writing the bank.
The most important part of the letter is the description of what happened to cause the crisis.
This should be as detailed as possible, because lenders will want to make sure that it was an actual hardship that caused the homeowners to fall behind in payments.
Something like a job loss or huge medical expense will be given more credibility than a sick cat or broken TV that was repaired.
It is also important that homeowners include dates and time frames during which aspects of the situation were experienced.
Banks do not want vague stories of losing a job and then finding one.
They want to know what month the problem happened, then what was done in the meantime while payments were being delayed, then when exactly a new job was begun.
Finally, buyers should include a specific call to action that they want their bank to take.
Whether it is changing the terms of a mortgage or accepting a deed in lieu of foreclosure, unless the bank knows exactly what the borrowers want, they may not know what to do with the workout package.
Being transparent about their intentions with the property is the best way for owners to communicate with banks.
The hardship letter is a vital piece of the package of documents that banks require before dealing with homeowners.
Debtors should use the opportunity to document what happened to cause them to fall behind in as specific a manner as they can.
This is their opportunity to explain that they are not bad clients and deserve a second chance to keep their house.