This Financial Hardship Letter is for use by a person who is experiencing financial hardship, and who is having difficulty meeting their financial obligations as a result of that hardship (the 'Sender'). The letter can be sent to a person or organisation to whom repayments are owed (such as a bank or other lender) (the 'Receiver').
Using this letter, the Sender may provide a clear explanation of their situation, and how this has caused them financial difficulty. The Sender may then request a variation to the repayment structure, and may propose a structure that is more manageable for the Sender. The Sender can then explain how the proposed new structure would enable them to repay all of the money owed.
By getting on the front foot and proposing a realistic solution to the Receiver, the Sender of the letter presents a responsible and professional image to the Receiver. In turn, the Receiver may be more likely to agree to the Sender's requested variations, and in doing so, to refrain from imposing interest or late fees, or commencing legal action.
Unlike our Letter to Debt Collector, this letter can be used to notify anybody of the Sender's financial hardship, whether or not that person has been in contact with the Sender to demand payment.
How to use this document
Enter enough details to enable the Receiver of the letter to understand the Sender's circumstances, and to be satisfied that the debt will be repaid if the Sender's requests are granted. This may include information about the Sender, the nature of the hardship, the proposed change to the Sender's repayment obligations, and an explanation of how this will enable the Sender to repay the debt.
Generally, a Receiver of this letter is more likely to agree to any requested variations if the requests are reasonable, and if they can realistically be expected to result in the Sender of the letter repaying the entire debt within a reasonable timeframe.
In addition, if the Sender of this letter requests variations to their repayment schedule, and then also fails to meet those new payment obligations, then the Receiver of the letter may be more likely to take aggressive debt recovery action against the Sender. Therefore, many Senders of this letter find it preferable to find the middle ground, requesting a repayment structure which the Receiver of the letter will think is reasonable, while also being something that the Sender can actually manage.
Once the letter has been prepared, print several copies. One copy may be sent to the person or organisation to which the money is owed, and from which the Sender is requesting a variation in the repayment obligations. Most lending institutions will have an internal dispute resolution department. The letter may be sent to this department. The Sender of the letter may keep a copy of the letter for their own records.
Applicable law
The National Credit Code, which is contained in Schedule One of the National Consumer Credit Protection Act 2009 (Commonwealth)applies to consumer credit in Australia. Sections 72-75 of the Code specifically deal with hardship variations.
In addition, general principles of contract law, as provided by the common law, may apply to any loan contract.
How to modify the template
You fill out a form. The document is created before your eyes as you respond to the questions.
At the end, you receive it in Word and PDF formats. You can modify it and reuse it.
Using this letter, the Sender may provide a clear explanation of their situation, and how this has caused them financial difficulty. The Sender may then request a variation to the repayment structure, and may propose a structure that is more manageable for the Sender. The Sender can then explain how the proposed new structure would enable them to repay all of the money owed.
By getting on the front foot and proposing a realistic solution to the Receiver, the Sender of the letter presents a responsible and professional image to the Receiver. In turn, the Receiver may be more likely to agree to the Sender's requested variations, and in doing so, to refrain from imposing interest or late fees, or commencing legal action.
Unlike our Letter to Debt Collector, this letter can be used to notify anybody of the Sender's financial hardship, whether or not that person has been in contact with the Sender to demand payment.
How to use this document
Enter enough details to enable the Receiver of the letter to understand the Sender's circumstances, and to be satisfied that the debt will be repaid if the Sender's requests are granted. This may include information about the Sender, the nature of the hardship, the proposed change to the Sender's repayment obligations, and an explanation of how this will enable the Sender to repay the debt.
Generally, a Receiver of this letter is more likely to agree to any requested variations if the requests are reasonable, and if they can realistically be expected to result in the Sender of the letter repaying the entire debt within a reasonable timeframe.
In addition, if the Sender of this letter requests variations to their repayment schedule, and then also fails to meet those new payment obligations, then the Receiver of the letter may be more likely to take aggressive debt recovery action against the Sender. Therefore, many Senders of this letter find it preferable to find the middle ground, requesting a repayment structure which the Receiver of the letter will think is reasonable, while also being something that the Sender can actually manage.
Once the letter has been prepared, print several copies. One copy may be sent to the person or organisation to which the money is owed, and from which the Sender is requesting a variation in the repayment obligations. Most lending institutions will have an internal dispute resolution department. The letter may be sent to this department. The Sender of the letter may keep a copy of the letter for their own records.
Applicable law
The National Credit Code, which is contained in Schedule One of the National Consumer Credit Protection Act 2009 (Commonwealth)applies to consumer credit in Australia. Sections 72-75 of the Code specifically deal with hardship variations.
In addition, general principles of contract law, as provided by the common law, may apply to any loan contract.
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How to modify the template
You fill out a form. The document is created before your eyes as you respond to the questions.
At the end, you receive it in Word and PDF formats. You can modify it and reuse it.
Financial Hardship Letter Examples
A hardship letter explains why a homeowner is defaulting on their mortgage and needs to sell their home for less than what’s owed on the mortgage.
The best letters read like an attorney’s pleading. They establish facts in a way that cause a mortgage lender to decide to either grant a short sale or loan modification. It's always important to be specific about your lack of funds.
What Constitutes Hardship
Hardship circumstances can include the loss of a job, the death of a spouse, a serious medical condition, a divorce, a reduction in pay, transfer, or some other serious change in financial circumstances. But if the lender detects that a homeowner has savings in a distant bank, it may be grounds to request a seller contribution.
That’s because lenders are less interested in protecting the homeowner’s credit score and most interested in recouping the loan, or as much of it as they can. It's important the hardship letter clearly state that granting the request for loan modification or short sale is the best way and only way the lender can do that.
Points to Address
Hardship letters are generally no longer than a page and address the following key points:
Lenders may require supporting documentation such as pay stubs, tax returns, or bank statements to show you lack the resources to repay the mortgage in full. It's also a good idea to provide comparables sales from a realtor to back up your claim you can't get enough for your home to cover the costs.
Banks May Be Unsympathetic
Although an underwater mortgage is one of the qualifications for a short sale, a bank is under no obligation to agree when a homeowner’s residence is worth less than the mortgage principal on it. Hardship is not a matter of numbers as in this example:
'My home was appraised at $400,000 when I got the mortgage, and now it's valued at $220,000 at best.'
In fact, lenders are famous for being unsympathetic to homeowners who want to walk away or modify loan terms just because the property is no longer worth the amount they paid for it. Because fraud is punishable, it’s important for a homeowner to assess whether they are truly in a hardship situation. Spell out in the hardship letter the exact circumstances or life changes that make it impossible to meet the payments to maintain the home given the current rate and mortgage terms.
For example:
How to Word the Hardship Letter
Being on the brink of bankruptcy or foreclosure is a terrible story, but it’s important information the lender should hear. Share it, as painful as doing so may be.
Write simply but evocatively. Be succinct when describing the unfortunate events and be specific in describing their impact. Use numbers and percentages to explain the loss of income or negative cash flow.
When listing the amount of money borrowed to pay off the debt in the past, disclose each dollar amount and the source of that debt whether it’s a loan, cash advance, or credit card —all while painting the worst possible but honest picture.For example:
'I've borrowed $10,000 against my VISA card to make payments over the past six months and I have charged my cards to the max. My car needs a total overhaul. Spiro, the cat, has cancer and vet bills are mounting. The kids are eating nothing but peanut butter sandwiches and my fingernails are worn from scrubbing other people's floors for pennies a day because my elderly mother has moved in with my family and needs round-the-clock medical care.”
Some lenders require an affidavit rather than a letter. An affidavit is a sworn statement and has greater legal consequences if you lie.
Whether it’s an affidavit or a letter, include the following details:
Hardship Letter Mistakes
In a nutshell, don’t use the letter as an outlet for anger, bargaining, or to make a political impression. Refrain from criticizing the bank, stating that relatives will loan the money needed, or that a secret account has other funds.
Doing so could cause the bank to follow up on these items and require the additional money to complete the sale. Don’t promise things will turn around soon because that statement could affect the bank’s decision to proceed.
Keep in mind if there’s a chance a homeowner will become financially whole again, the lender may jump on it. That’s why homeowners must delete anything optimistic.
Certainly, you can state that:
“I’ve tried other financial avenues and explored every option. Now, though, I’m at the end of the road. Circumstances won't improve. In fact, they will only get worse without assistance.”
It can be depressing to describe in black and white these financially dire circumstances that are personal or embarrassing. Yet doing so gives many homeowners clarity around the downturn that has impacted their lives and leads them to make positive changes for the future.
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