The Hardship Letter
Of all the unofficial documents, this turns out to be one of the most important pieces of the entire short sale package. The Hardship letter should be brief and as to the point as possible and should state the main reason why the borrower has fallen behind and the request should contain wording that you are asking the bank to work with the buyers. The hardship letter should not be any longer then 1 typed page and this needs to be dated and signed with the lender information and account number at the top of the page. I have provided a sample copy that I use that has been very successful in helping to get short sale packages accepted. It is not the only piece of the puzzle, but it turns out being a very big piece as we have found through our experience. I have tested numerous versions and this one works best. It was carefully crafted to provide the borrower with the most leverage and express to the bank that if the short sale is not approved, the borrower may seek the relief from the Bankruptcy courts.
Whether you have contemplated filing for bankruptcy or not, the implied threat of putting the property into a personal bankruptcy will get the attention of the bank. The absolute worst case scenario for any bank is to spend money going through a foreclosure action against a borrower in default and getting a couple of days away from the property being sold on the courthouse steps and then having the borrower file for bankruptcy and bring everything the bank has done up to that point to a screeching halt. A borrower filing a bankruptcy and including their property in that bankruptcy is the last thing that the bank wants to see.
Without getting into all the legal aspects, the bankruptcy action stalls the foreclosure but does not stop the expenses on the bank side. The attorney fees continue because the case is still open and the holding and carrying costs continue, especially if the property owner has let the insurance lapse or is not paying real estate taxes. If the property is located where there is a Home Owners Association (HOA) then you can bet there will be additional costs accruing for monthly or quarterly HOA fees. Can you see why the banks would hate for this to happen and how it would continue to cost them money to keep this property on their books? You really are doing them a tremendous service by helping them unload this property.
By mentioning the possibility of the bankruptcy in the hardship letter, you have given them a reason to perhaps work with you to minimize the potential additional real expenses a bank may continue to incur if the property was placed in a personal bankruptcy.